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Sector update: Logistics - Exim growth continues; leads decline

Container rail volumes grew 12.2% in May 2018: As per data published by Indian Railways, container rail volumes (mn tons) grew 12.2% yoy to 4.96m tons in May 2018 on the back of 14.7% yoy growth in exim to 3.99mn tons as also 3.2% yoy (+10.2% mom) growth in domestic to 0.97mn tons. For Apr-May 2018, total container rail volumes grew 10.6% yoy to 9.57m tons, led by 13.9% yoy growth in exim to 7.72m tons while domestic volumes declined 1.1% yoy to 1.85m tons. We note rail data is in tonnage and growth could vary in TEU terms for both Container Corporation of India (Concor) and Gateway Distriparks Ltd (GDPL).

Exim lead distance declines: Lead distance for exim containers fell by 31km yoy to 780km in May 2018, due to continued rise in share of Gujarat-based ports. On a mom basis too, exim lead distance declined by 20km. Domestic lead distance too saw a sharp 167km fall yoy to 1,225km (high base, mom increase of 15kms).

Containers handled at major ports continue to grow: Containers handled at major ports grew at 4.6% yoy to 790,000 TEUs in May 2018. JNPT registered marginal 0.5% yoy growth to 407,000 TEUs. For Apr-May 2018, containers handled at major ports grew 6% yoy to 1.6mn TEUs, with JNPT registering 2.2% yoy growth to 839,000m TEUs.

Spurt in rail exim volumes and port volumes will likely translate into volume growth for Concor and GDL, in our view. Muted domestic volumes will have limited impact on Concor’s earnings, as domestic accounts for less than 10% of the company’s EBIT. On the other hand, sustained drop in lead distances will result in muted realisations. Direct Port Delivery (DPD) volumes at JNPT have been steady for last 3-4 months, however, any increase in the same could have a bearing on Container Freight Station (CFS) operations and profitability. We thus prefer Concor, as the company has a strong 70%+ market share in container rail movement. Concor trades at 23x FY20E earnings (27x FY20E excluding export incentives).