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Event update: Logistics - Volume traction sustains

Growth momentum in container rail volumes continues in Jan 2019 at 8.1% yoy: As per data published by Indian Railways, container rail volumes posted strong 8.1% yoy growth to 5.1m tons in Jan 2019 on the back of 8.3% yoy growth in exim volumes to 4.05m tons and 7.4% yoy growth in domestic volumes at 1.01m tons. YTDFY19, total container rail volumes grew 11% yoy to 49.4m tons, led by growth in both exim at 12% yoy to 39.8m tons and domestic at 7.6% yoy to 9.7m tons. 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 stabilising: Lead distance for exim containers fell by 13kms yoy to 810kms, albeit saw a rise of 30km mom in Jan 2019, indicating an arrest in decline of JNPT share. Domestic lead distance increased yoy by 32kms and 71km mom to 1,335km. 

Containers handled at major ports continue to rise: Containers handled at major ports grew 8.4% yoy to 844,000 TEUs in Jan 2019 (JNPT +4.3% yoy to 437,000 TEUs). YTDFY19, containers handled at major ports grew 8.3% yoy to 8.1m TEUs, with JNPT registering 5.9% yoy growth to 4.25m TEUs.

After a weak Nov 2018, container rail volumes bounced back over last 2 months, indicating no slowdown or market share loss to roads. We note that Indian Railways has announced 25% discount on empty movement (5% of total costs), which we believe will help gain volume traction and reduce empty running costs for container rail operators. Concurrently, lead distances are stabilising and price hikes are likely to drive improvement in realisation. Direct Port Delivery (DPD) volumes continue to exert pressure on CFS players (42%-43% share). 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 of Rs186 and trigger in the form of likely buyout of Blackstone’s stake in rail business).