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Sector update: Logistics - Exim growth continues; leads stabilize

Container rail volumes grew 12.5% in Jun 2018: As per data published by Indian Railways, container rail volumes grew 12.5% yoy to 4.96m tons in Jun 2018 on the back of 12% yoy growth in exim to 3.93m tons and 14.4% yoy (+6.2% mom) growth in domestic to 1.03m tons. For 1QFY19, total container rail volumes grew 11.3% yoy to 14.53m tons, led by 13.2% yoy growth in exim to 11.65m tons with 4% yoy growth in domestic volumes to 2.88m tons. While rail data is in tonnage and growth could vary in TEU terms for both Container Corporation of India (Concor) and Gateway Distriparks Ltd (GDPL), Concor has provided provisional volume growth of 11% yoy for 1QFY19 (11.5% exim, 9% domestic).

Exim lead distance stabilizes mom: While lead distance for exim containers fell by 44km yoy to 788km in Jun 2018 (indicating increase in share of Gujarat-based ports vis-à-vis JNPT), mom, exim lead distance improved marginally by 8km. Domestic lead distance fell 126km yoy to 1,248km.  

Containers handled at major ports continue to grow: Containers handled at major ports grew 8.5% yoy to 807,000 TEUs in Jun 2018 (JNPT +5.5% yoy to 402,000 TEUs). For 1QFY19, containers handled at major ports grew 6.8% yoy to 2.4m TEUs, with JNPT seeing 3.2% yoy growth to 1.24m TEUs.

Share of Direct Port Delivery (DPD) at JNPT stable: JNPT recorded a share of 38.3% of DPD in Jun 2018 at 52,050 TEUs versus 38.2% in May 2018. The share of DPD of total container imports at JNPT stood at 32% in FY18.

Spurt in rail exim volumes and port volumes will likely translate into volume growth for Concor and GDL, in our view. The sustained drop in lead distances will likely result in subdued realisations. 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 22x FY20E earnings (26x FY20E excluding export incentives).