FREE

Sector update: Logistics - Strong volume growth sustains

Container rail volumes grew 11.5% in Sept 2018: As per data published by Indian Railways, container rail volumes grew 11.5% yoy to 5.03m tons in Sept-18 on the back of 12% yoy growth in exim to 4.09m tons and 9% yoy growth in domestic to 0.94m tons. For Q2FY19, total container rail volumes grew 15.8% yoy to 15.6m tons, led by growth in both exim at 16.1% yoy to 12.7m tons and domestic at 14.6% yoy growth to 2.91m 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 surprise positively: Lead distance for exim containers saw a marginal decline of 8kms on yoy basis to 792kms, albeit saw an increase of 11kms on mom basis in Sept-18 indicating arrest of decline in JNPT share. However, domestic lead distance continued to see a decline which fell 77km yoy to 1,240km (-37km mom). 

Containers handled at major ports continue to grow: Containers handled at major ports grew 13.1% yoy to 827,000 TEUs in Sept 2018 (JNPT +12.8% yoy to 432,000 TEUs). For Q2FY19, containers handled at major ports grew 9% yoy to 2.46m TEUs, with JNPT seeing 7% yoy growth to 1.28m TEUs.

Direct Port Delivery (DPD) at JNPT model being re-evaluated: JNPT recorded a share of 41.9% of DPD in Aug 2018 at 58,929 TEUs versus 40.6% in Jul 2018. However, we note that some media articles have stated that there is talk of scrapping or refining the scheme as many customers are using the DPD-CFS (moving to CFS under the scheme), challenges in transportation, etc. 

Spurt in rail exim volumes and port volumes will likely translate into volume growth for Concor (already reported 13.5% yoy in Q2FY19 volumes) and GDL, in our view. The sustained drop in lead distances will likely result in subdued realisations. On DPD, while the official outcome is awaited, we believe any step towards scrapping/refining the scheme would be positive for CFS players, particularly GDL, which has seen intense profitability pressure for its CFS business (falling ground rent, loss of volumes, etc). We continue to prefer Concor, as the company has a strong 70%+ market share in container rail movement. Concor trades at 23x FY20E earnings (26x FY20E excluding export incentives).