29 January 2009

BSE Sensex: 16307

INDIA RESEARCH

Rs188
Arshiya International OUTPERFORMER

RESULT NOTE Mkt Cap: 11bn; US$239m

Analyst : Bhoomika Nair (91-22-6638 3337; bhoomika@idfcsski.com)

Result : Q3FY10
Comment : In line with estimates; Rail operations highly profitable at EBITDA level
Last report : 21 December 2009 (Price Rs188; Recommendation: Outperformer)

Key valuation metrics

Year to Mar 31 Revenues (Rs m) % growth, yoy Adj. PAT (Rs m) EPS (Rs) % growth, yoy PE (x)
2007 1,863 119.1 160 3.7 - 51.4
2008 4,012 115.3 457 7.8 112.8 24.2
2009P 5,005 24.8 646 11.0 41.3 17.1
2010E 4,918 (1.7) 539 9.2 (16.6) 20.5
2011E 7,941 61.5 900 15.3 66.9 12.3
2012E 12,299 54.9 1,370 23.3 52.3 8.3

KEY HIGHLIGHTS
™ Arshiya’s adjusted PAT for 3QFY10 grew by 5.1% yoy to Rs137mn (marginally higher than our estimates of Rs133mn)
primarily due to lower depreciation during the quarter.

™ Revenues witnessed a growth of 17% yoy to Rs1.34bn led by ramp up in the rail business (Rs126mn in 3Q10, 1.3x over
2Q10). Arshiya currently has 7 rakes under operations and plans to ramp up the same to around 10-12 rakes by March
2010.

™ Operating margins expanded by 100bps yoy to 16.2% during the quarter as the revenue mix changed towards higher
value added services such as SCM and project logistics, wherein Arshiya provides end to end logistics solutions.
Further, the rail business has reported an EBITDA of Rs32.5mn, which implies margins of 25.8%.

™ Arshiya has started drawing debt for its rail project, which resulted in interest costs of Rs38mn in 3QFY10. Arshiya
has drawn down debt of Rs1.43bn debt till date for the rail business.

™ Similarly, the depreciation charges have increased by 16% yoy to Rs24mn in the quarter. However, depreciation
charges are lower on qoq basis as Arshiya has sold the marketing rights of Cyberlog, which resulted in lower
amortization charges. Further, a part of the capex has been capitalized as FTWZ capex, thereby reducing the
depreciation charges for the quarter.

™ After accounting for profit on sale of marketing rights of Cyberlog (Rs389mn) and write back of depreciation charges
of prior period items (Rs13mn), the reported profit jumped sharply by 4.15x to Rs539mn.

IDFC - SSKI Securities Ltd.

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‰ Construction ramped up at the JNPT FTWZ

Arshiya had awarded the construction contract to L&T and Tata Blue Scope for construction of the warehouses.
Currently, civil construction of the first 3 warehouses is 50% complete with 60% of the PEB structures mobilized to the
site, while the leveling work for the container yard is complete. The equipments such as RTGCs, reach stackers and
racking systems are likely to be installed in February, 2010. Accordingly, we believe, the FTWZ is likely to begin
operations in 1QFY11E. Moreover, Arshiya has signed agreements with various clients across various industries for the
FTWZ at Rs70/sqft/month for the 3 warehouses.

Progress of construction work at site

‰ Other projects progressing as per schedule

The initial construction work has started at the Delhi FTWZ for which the warehouse construction and designs have been
awarded to L&T and Tata Blue Scope. We expect the operations of the Delhi FTWZ to begin operations in 2HFY11. On
the other hand, while the work is progressing on the Nagpur FTWZ in terms of the approval process, we have not
factored in any revenues from the same. Overall, Arshiya is likely to incur a capex of Rs16bn towards the JNPT FTWZ,
Delhi FTWZ and container rail business over the next 2-3 years.

Details of capex incurred till date:

(Rs mn) Debt Equity Total
JNPT FTWZ 848 1,445 2,293
Delhi FTWZ - 987 987
Rail 1,428 1,323 2,751
Distriparks - 613 613
Nagpur FTWZ - 692 692
Total 2,276 5,060 7,336

‰ Maintain Outperformer
Arshiya has a strong competitive advantage in providing integrated logistics solutions to its clients. Moreover, Arshiya
has completed its funding for the first phase of its projects (FTWZ and rail), thereby improving the visibility for the
implementation of the project. We believe that the new initiatives such as FTWZ’s, rail container transportation business,

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 IDFC - SSKI INDIA

etc., can add significant shareholder value as earnings grow by 67% in FY11E. Accordingly, we believe valuations at 12.3x
FY11E earnings are attractive. We reiterate our Outperformer rating on the stock.

Quarterly results
Rs mn 1QFY09 2QFY09 3QFY09 4QFY09 FY09 1QFY10 2QFY10 3QFY10 FY10E Remarks
Net Sales 1,402 1,465 1,142 940 5,005 1,003 1,184 1,336 4,918 Revenues include
Rs126mn from rail
Expenses 1,191 1,244 968 792 4,243 834 987 1,119 4,088
EBITDA 211 221 174 148 762 169 197 217 829
OPM (%) 15.1 15.1 15.2 15.8 15.2 16.9 16.6 16.2 16.9 Margin improvement led by
higher margin rail business
(26%)

Other Income 43 26 6 8 88 4 5 9 26
Interest 1 2 4 6 14 11 22 38 111 Interest jumped due to
capex on rail business
Depreciation 13 16 21 20 70 20 34 24 119
PBT 240 229 155 130 765 142 146 164 625

Tax 44 37 24 13 120 20 15 23 94 Middle east profits attract

lower tax rates
Tax Rate (%) 18 16 15 10 16 14 10 14 15
PAT 196 192 131 117 645 122 131 141 531
Minority interest 1 0 1 (3) (2) (0) (0) 5 (8)
PAT 195 192 130 120 646 122 131 137 539
Extraordinary items - - - 8 8 - - 402 370 Sale of Cyberlog and write
back of prior period items
Reported PAT 195 192 130 128 654 122 131 539 909

Growth (yoy, %)
Net Sales 79 63 9 (28) 25 (28) (19) 17 (2)
EBITDA 152 98 31 (14) 47 (20) (11) 25 9
Other Income 648 1,502 (5) (83) 40 (91) (81) 49 (70)
Interest (3) 12 19 207 48 747 1,006 802 703
Depreciation 50 43 130 141 69 53 113 16 69
PBT 202 127 22 (39) 45 (41) (36) 6 (18)
PAT 184 128 25 (36) 41 (37) (32) 5 (17)

No. of shares (m) 59 59 59 59 59 59 59 59 59

EPS (Rs) 3.3 3.3 2.2 2.0 11.0 2.1 2.2 2.3 9.2
PER (x) 14.2 14.4 21.2 23.0 17.1 22.6 21.0 20.2 20.5

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 IDFC - SSKI INDIA

Analyst Sector/Industry/Coverage E-mail Tel. +91-22-6622 2600

Pathik Gandotra Head of Research; Financials, Strategy pathik@idfcsski.com 91-22-662 22525
Shirish Rane Construction, Power, Cement shirish@idfcsski.com 91-22-662 22575
Nikhil Vora FMCG, Media, Mid Caps, Education, Exchanges nikhilvora@idfcsski.com 91-22-662 22567
Ramnath S Automobiles, Auto ancillaries, Real Estate, Oil & Gas ramnaths@idfcsski.com 91-22-662 22570
Nitin Agarwal Pharmaceuticals nitinagarwal@idfcsski.com 91-22-662 22568
Chirag Shah Metals & Mining,Telecom, Pipes, Textiles chirag@idfcsski.com 91-22-662 22564
Bhoomika Nair Logistics, Engineering bhoomika@idfcsski.com 91-22-662 22561
Hitesh Shah, CFA IT Services hitesh.shah@idfcsski.com 91-22-662 22565
Bhushan Gajaria Retailing, FMCG, Media, Mid Caps bhushangajaria@idfcsski.com 91-22-662 22562
Salil Desai Construction, Power, Cement salil@idfcsski.com 91-22-662 22573
Ashish Shah Construction, Power, Cement, Telecom ashishshah@idfcsski.com 91-22-662 22560
Probal Sen Oil & Gas probal@idfcsski.com 91-22-662 22569
Chinmaya Garg Financials chinmaya@idfcsski.com 91-22-662 22563
Aniket Mhatre Automobiles, Auto ancillaries aniket@idfcsski.com 91-22-662 22559
Abhishek Gupta Telecom abhishek.gupta@idfcsski.com 91-22-662 22661
Ritesh Shah Pharmaceuticals, IT Services riteshshah@idfcsski.com 91-22-662 22571
Saumil Mehta Metals, Pipes saumil.mehta@idfcsski.com 91-22-662 22578
Vineet Chandak Real Estate vineet.chandak@idfcsski.com 91-22-662 22579
Swati Nangalia Mid Caps, Media, Exchanges swati@idfcsski.com 91-22-662 22576
Sameer Bhise Strategy, Financials sameer@idfcsski.com 91-22-662 22574
Nikhil Salvi Construction, Power, Cement nikhil.salvi@idfcsski.com 91-22-662 22566
Shweta Dewan Mid Caps, Education, FMCG shweta.dewan@idfcsski.com 91-22-662 22577
Dharmendra Sahu Database Analyst dharmendra@idfcsski.com 91-22-662 22580
Rupesh Sonawale Database Analyst rupesh@idfcsski.com 91-22-662 22572
Dharmesh Bhatt Technical Analyst dharmesh@idfcsski.com 91-22-662 22534
Equity Sales/Dealing Designation E-mail Tel. +91-22-6622 2600
Naishadh Paleja MD, CEO naishadh@idfcsski.com 91-22-6622 2522
Paresh Shah MD, Dealing paresh@idfcsski.com 91-22-6622 2508
Vishal Purohit MD, Sales vishal@idfcsski.com 91-22-6622 2533
Nikhil Gholani MD, Sales nikhil@idfcsski.com 91-22-6622 2529
Sanjay Panicker Director, Sales sanjay@idfcsski.com 91-22-6622 2530
V Navin Roy Director, Sales navin@idfcsski.com 91-22-6622 2528
Suchit Sehgal AVP, Sales suchit@idfcsski.com 91-22-6622 2532
Pawan Sharma MD, Derivatives pawan.sharma@idfcsski.com 91-22-6622 2539
Jignesh Shah AVP, Derivatives jignesh@idfcsski.com 91-22-6622 2536
Sunil Pandit Director, Sales trading suniil@idfcsski.com 91-22-6622 2524
Mukesh Chaturvedi SVP, Sales trading mukesh@idfcsski.com 91-22-6622 2512
Viren Sompura VP, Sales trading viren@idfcsski.com 91-22-6622 2527
Rajashekhar Hiremath VP, Sales trading rajashekhar@idfcsski.com 91-22-6622 2516

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Explanation of Ratings:
1. Outperformer: More than 10% to Index
2. Neutral: Within 0-10% to Index
3. Underperformer: Less than 10% to Index
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