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Sector update: Logistics; Marginal uptick - Feb volumes likely to dip on China virus issue

Container rail volume saw pick up in Jan-20 at 6.3% yoy: to 5.38m tons led by +6.2% yoy growth in exim volumes to 4.3mt and +6.8% yoy growth in domestic volumes to 1.08mt.

YTD-FY20, container rail volumes grew by +3% yoy to 51.21mt led by +4.1% yoy growth in exim volumes to 41.6mt, while domestic volumes saw 1.8% yoy decline to 9.6mt. Note that rail data is in tonnage and growth could vary in TEU terms for Container Corporation of India (Concor) & Gateway Distriparks (GDL).

Major port container volumes grew by 1.9% yoy: to 860,000 TEUs for Jan-20 and by +2.6% yoy for YTD FY20 to 8.4mn TEUs. JNPT volumes fell by 2.3% yoy to 427,000 TEUs in Jan-20 (YTD FY20 -1% yoy to 4.21mn TEUs). While share of DPD volumes at JNPT was at 56.8% in Jan-20, share of DPD volumes delivered directly to consignees at JNPT was at 7.5% in Dec-19.

Exim lead distance improves mom: with Exim at 773kms (~750-760 kms last few months; +24km mom; -52km yoy) in Jan-20 while domestic lead distance were at 1,225kms (flat mom and -50kms yoy).

While container rail volumes have continued to grow in Jan-20 in exim segment, the port volume growth, particularly at JNPT remains muted, reflecting weak exim trade and likely variance in tons vs TEUs as also higher volumes from non-major ports such as Mundra/ Pipavav, etc. Going forward, apart from weak economic activity, the extension of holidays in China (Coronavirus impact) will likely drive further sluggishness in exim trade. We maintain our positive stance on the space on long term volume trajectory and likely mkt share gains by rail once DFC is operational in 2HFY21 (connectivity to Mundra ports). However, considering the near term weakness in earnings and rich valuations, we have a Neutral rating on Concor (29.5x FY21E earnings), while continue to have a preference towards GDL (attractive valuations at 13x FY21E earnings and 5.9x EV/EBITDA).