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Sector update: Logistics - Exim remains muted

Container rail volumes see 4.3% yoy growth in July 2019: to 5.37m tons as per the data published by Indian Railways. This was led by 14.9% yoy growth in domestic volumes at 1.08m tons after falling for 3 consecutive months. However, exim volumes remained muted with 2% yoy growth to 4.29m tons. 

For YTD-20, total container rail volumes grew 3.3% yoy to 20.7m tons led by 4.2% yoy growth in exim volumes to 16.8m tons, partially offset by 0.3% yoy decline in Domestic volumes to 3.9m tons. 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 see 6% yoy growth: Container volumes growth at major ports saw moderate growth of 6% yoy to 883,000 TEUs and 7% yoy to 3,461,000 TEUs for YTD-20. However, JNPT volumes registered quite muted volume growth of 0.5% yoy to 431,322 TEUs in Jul-19 (+4.1% yoy to 17,38,469 TEUs in YTD-20).

Exim lead improves sharply: to 814kms - up 43km yoy and 8km mom in July 2019(vs avg of &780-800kms in last few months). However, the trend in domestic lead distance deteriorated from 1200km+ over last few months to 1,050km (-199km yoy and -116km mom) in July 2019.

July 2019 container rail volumes saw marginal improvement on a mom basis fuelled by improvement in domestic volumes which have been weak for the last few months. More importantly, exim volumes remained subdued reflecting the macro trade volumes as seen in port volumes. Accordingly, we believe rail players are likely to continue to see pressure on volume growth as seen in 1QFY20. However, price hikes (Concor has taken 5% hike effective 1 April 2019 to pass on higher haulage rates) as also higher lead distances 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).