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Sector update: Logistics - Volume growth moderates

Container rail volumes see moderate 5.3% yoy growth in Mar 2019: As per data published by Indian Railways, container rail volumes were up 5.3% yoy at 5.52m tons in Mar 2019, led by growth in both exim at 5.3% yoy to 4.38m tons and 5.6% yoy in domestic to 1.14m tons. Concor too reported muted 2.5% growth in exim handling volumes for Q4FY19 (8% in FY19). Total container rail volumes grew 9.9% yoy to 59.6m tons in FY19, led by exim at 10.6% yoy to 47.87m tons and domestic at 7% yoy to 11.73m tons. Note that rail data is in tonnage and growth could vary in TEU terms for both Concor and Gateway Distriparks (GDL).

Exim lead has stabilised: Lead distance for exim containers stabilised at 780-800kms over last few monthsto 796kms in Mar 2019 (up 5km mom; 10km decline yoy). Domestic lead distance fell 17kms yoy, but was up 10km mom to 1,277km. 

Container growth at major ports strong: Container growth at major ports was up 8.4% yoy to 903,000 TEUs in Mar 2019 (JNPT +9% yoy to 471,000 TEUs). Container volumes at major ports were up 10% yoy to 9.88m TEUs in FY19 (JNPT +6% yoy to 5.13m TEUs).

Earnings change: We have cut our earnings estimate for Concor by 1.6% for FY19E and FY20E each, in lieu of weak Q4FY19 volumes. For GDL, we have raised FY19E earnings by 15% on realisation of ~Rs300m export incentives income (FY20E/FY21E - no change).    

We believe growth has moderated over last two months on the back of weak exim trade, with imports having slowed. We believe the imbalance in trade, apart from route congestion, would have likely led to the loss in Q4FY19 share, as seen from Concor’s muted growth in the quarter. We note Indian Railways had announced 25% discount on empty movement (5% of total costs), which we believe will help keep a check on empty running costs for container rail operators. Concurrently, lead distances are stabilising and price hikes are likely to drive improvement in realisations. We maintain our positive stance on the space, with Outperformer rating on both Concor (key beneficiary with 70%+ market share, 27x FY20E earnings) and GDPL (attractive valuations with our SoTP-based target price of Rs190).