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Sector update: Logistics - Muted volume growth; port volumes remain strong

Container rail volumes saw muted 3.2% growth in Nov 2018: As per data published by Indian Railways, container rail volumes posted subdued 3.2% yoy growth to 4.47m tons in Nov 2018 on the back of 3.8% yoy growth in exim to 3.56m tons  and muted 1.1% yoy growth in domestic at 0.91m tons. YTD-FY19, total container rail volumes grew 11.1% yoy to 39.35m tons, led by growth in both exim at 12.6% yoy to 31.6m tons and domestic at 8.9% yoy to 7.69m tons. Note that 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 stabilising: Lead distance for exim containers fell by 21kms yoy to 788kms, albeit at a marginal 6km decline mom in Nov 2018, indicating an arrest in decline of JNPT share. Similarly, domestic lead distance slipped 44kms yoy and 23km mom, to 1,264km. 

Containers handled at major ports continue to grow: Containers handled at major ports grew 7.9% yoy to 801,000 TEUs in Nov 2018 (JNPT +8.7% yoy to 423,000 TEUs). YTD-FY19, containers handled at major ports grew 8.3% yoy to 6.4m TEUs, with JNPT registering 6% yoy growth to 3.36m TEUs.

Monthly container rail volumes for Nov 2018 remained soft despite sustained traction in exim and port volumes. We would monitor over the next few months to determine any loss of share by rail, given the expected haulage rate hikes effective 1 Dec 2018. However, lead distances in exim are stabilising and price hikes are likely to drive improvement in realisation. On DPD (Direct Port Delivery), volumes continue to exert pressure on CFS players (42-43% share). Any step towards scrapping/refining the scheme would be a positive for CFS players, particularly GDL, which has seen intense pressure on its CFS profitability (falling ground rent, loss of volumes, etc). Maintain our positive stance on the space, with Concor, being our preferred play as the company has 70%+ market share in container rail movement. Concor trades at 23x FY20E earnings (28x FY20E, excluding export incentives).