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Sector update: Logistics - Momentum in exim volume continues; leads stabilize

Container rail volumes grew 9% in Apr 2018: As per data published by Indian Railways, container rail volumes (mn tons) grew 9% yoy to 4.61m tons in Apr 2018 on the back of 13% yoy growth in the export-import (exim) segment to 3.73mn tons. However, domestic volumes fell 5.4% yoy to 0.88mn tons (-18.5% mom). In FY18, total container rail volumes grew 14.1% yoy to 54.2m tons, led by 14.1% yoy growth in exim volumes to 43.3m tons and 13.7% yoy growth in the domestic segment to 10.9m 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 steady: Lead distance for exim containers fell marginally by 4km yoy to 800km in Apr 2018, likely due to pick up at JNPT’s new terminal, which offset the rise in share of Gujarat-based ports. On a mom basis too, exim lead distance declined marginally by 4km. Domestic lead distance saw a sharp 146km fall yoy to 1,210km (mom decline by 84kms).

Containers handled at major ports continue to grow: Containers handled at major ports grew 6.7% yoy to 802,000 TEUs in Apr 2018, with JNPT registering 3.6% yoy growth to 431,477 TEUs. In FY18, containers handled at major ports had grown 8.1% yoy to 9.1mn TEUs, with JNPT registering 7.4% yoy growth to 4.8m TEUs.

Share of Direct Port Delivery (DPD) at JNPT stabilizes: Share of DPD was more or less stable at 38.8% in Apr 2018 to 54,382 TEUs versus 39.1% in Mar 2018. In FY18, share of DPD in total container imports at JNPT stood at 32%.

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.  Sustained drop in lead distances could mute realisations, in our view. We note higher share of DPD volumes at JNPT could have a bearing on Container Freight Station (CFS) operations at the port. 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).