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Event update: Logistics - Volume growth moderates

Container rail volumes muted in Feb 2019 at 3.5% yoy: As per data published by Indian Railways, container rail volumes were weak at 4.67m tons, up 3.5% yoy in Feb 2019, led by muted volume growth in both exim at 3.6% yoy to 3.74m tons and 3.3% yoy in domestic to 0.93m tons. YTDFY19, total container rail volumes grew 10.4% yoy to 54m tons, led by growth in volumes of both exim at 11% yoy to 43.5m tons and domestic at 7.2% yoy to 10.6m tons. Moreover, railways disclosed empty flat wagon movement of 0.05m tons for Feb 2019 and 0.58m tons for YTDFY19, comprising 1% of total volumes. Note that rail data is in tonnage and growth could vary in TEU terms for both Container Corporation of India (Concor) and Gateway Distriparks (GDL).

Exim lead remains stable: Lead distance for exim containers was stable yoy at 791kms, albeit a decline of 19km mom was seen in Feb 2019. We note exim lead distances hovered around 780-800kms in YTD FY19. Domestic lead distance fell 18kms yoy and 68km mom to 1,267km. 

Container growth at major ports moderates: Containers handled at major ports grew 5.5% yoy to 833,000 TEUs in Feb 2019 (JNPT +6.2% yoy to 414,000 TEUs). YTDFY19, containers handled at major ports grew 8.1% yoy to 9m TEUs, with JNPT registering 5.9% yoy growth to 4.66m TEUs.

After seeing a bounce back over Dec 2018-Jan 2019, volume growth moderated for both container rail and port volumes in Feb 2019, indicating slower exim trade and rail congestsion. We note Indian Railways had announced 25% discount on empty movement (5% of total costs), which would lower empty running costs for container rail operators. Concurrently, lead distances are stabilising and price hikes are likely to drive improvement in realisations. On the other hand, share of Direct Port Delivery (DPD) volumes continue to increase (now at ~48%) and exert pressure on CFS operators. Any step towards scrapping/refining the scheme would be a positive for CFS players, particularly GDL, which has seen intense pressure in its CFS profitability. We maintain our positive stance on the space, with Outperformer rating on both Concor (key beneficiary with 70% market share, 23x FY20E earnings; 28x FY20E, excluding export incentives) and GDPL (attractive valuations with our SoTP-based target price of Rs186 and a trigger in the form of completion of Blackstone’s stake buyout in rail business).