Sector update: Logistics - Strong volume growth, lead decline sustains
Container rail volumes grew 21.7% in Jul 2018: As per data published by Indian Railways, container rail volumes grew 21.7% yoy to 5.15m tons in Jul-18 on the back of 23% yoy (+7% mom) growth in exim to 4.21m tons and 16% yoy (-8.7% mom) growth in domestic to 0.94m tons. For the Apr-Jul period, total container rail volumes grew 13.8% yoy to 19.68m tons, led by 15.7% yoy growth in exim to 15.86m tons with 6.7% yoy growth in domestic volumes to 3.82m 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 continues to decline: Lead distance for exim containers fell by 55km yoy to 765km in Jul-18 (indicating increase in share of Gujarat-based ports vis-à-vis JNPT). On a mom basis, exim lead distance declined by 23km. Domestic lead distance fell 95km yoy to 1,249km.
Containers handled at major ports continue to grow: Containers handled at major ports grew 11.5% yoy to 836,000 TEUs in Jul 2018 (JNPT +6.7% yoy to 429,000 TEUs). For Apr-Jul period, containers handled at major ports grew 7.7% yoy to 3.2m TEUs, with JNPT seeing 3.7% yoy growth to 1.67m TEUs.
Share of Direct Port Delivery (DPD) at JNPT rises: JNPT recorded a share of 40.6% of DPD in Jul 2018 at 58,376 TEUs versus 38.6% in Jun 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 24x FY20E earnings (28x FY20E excluding export incentives).
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