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Sector update: Logistics - A muted quarter

Container rail volumes see 3% yoy growth in June 2019: As per data published by Indian Railways, container rail volumes grew 3.4% yoy to 5.13m tons in June 2019, led by 5.1% yoy growth in exim volumes at 4.13m tons. Domestic volumes fell for the 3^rd consecutive month by 2.9% yoy to 1m tonnes (mt). 

In Q1FY20, total container rail volumes grew 3% yoy to 15.33mt, led by 5% yoy growth in exim at 12.5mt, partially offset by 5.1% yoy decline in domestic volumes to 2.82mt. Note that rail data is in tonnage and growth could vary in TEU terms for Container Corporation of India (Concor) & Gateway Distriparks (GDL).

Port volumes muted: Container volumes at major ports grew at a moderate pace of 5% yoy to 848,000 TEUs. JNPT volumes registered weak 2% yoy growth to 409,932 TEUs in June 2019, indicating slow macro trade.

Exim lead slipped marginally: Even though lead distance for exim containers stabilised at 780-800kms over last few months, the same slipped marginally to 771kms (down 17km yoy and 8km mom) in June 2019. Similarly, the trend in domestic lead distance deteriorated from 1200-1300km over last few months to 1,166km (-82km yoy and -109km mom) in June.

June 2019 container rail volumes saw muted growth trajectory, with the improvement in May 2019 seeming a blip. The weakness is reflected in container port volumes, with JNPT volumes being particularly weak. Accordingly, we believe Q1FY20 is likely to be a muted quarter as reflected in a 1% decline in Concor’s handling volumes. However, price hikes (Concor has taken 5% hike effective 1 April 2019 to pass on higher haulage rates) should help in improving realisations and earnings. We maintain our positive stance on the long-term growth prospects in the space, with the first phase of DFC to be commissioned in Mar 2020. Maintain Outperformer rating on both Concor (key beneficiary with 70%+ market share, 26x FY21E earnings) and GDL (attractive valuations with our SoTP-based target price of Rs185).