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Sector update: Logistics - Volume growth moderates

Container rail volumes saw moderate 4.8% yoy growth in Apr 2019: As per data published by Indian Railways, container rail volumes were up 4.8% yoy to 4.83m tons in Apr 2019, led by growth in both exim at 5.6% yoy to 3.94m tons and 1.1% yoy in domestic to 0.89m tons.

Container growth at JNPT moderates: Container growth tempered 3.9% yoy to 448,296 TEUs in Apr 2019.

Exim lead has stabilised: Lead distance for exim containers stabilised at 780-800kms over last few months to 793kms in Apr 2019 (down 3km mom and 7km yoy). Domestic lead distances fell to 1,204km (down 73km mom and 6kms yoy).

Advance rail freight scheme: Indian Railways (IR) has offered a fixed rate scheme, wherein container players can pre-pay their haulage charges. The pre-payment would protect the player from any escalation, if any, during the year (FY20). On the basis of this scheme, Concor has offered its clients a fixed charge for FY20 and has paid an advance Rs45bn freight charge to IR (Rs30bn already paid; Rs15bn in Sep 2019). We believe, benefits would accrue to Concor, if IR were to take a hike (~5-6%+), driving market share gains for Concor and offsetting the financial impact of the advance freight. Also, we note Concor has taken a price hike of 5% effective 1 Apr 2019 across services, passing on the haulage hike effective 1^st December 2018.

We believe growth has moderated over last two months on the back of weak exim trade and slow imports. The imbalance in trade, apart from route congestion, would have likely led to the share loss in Q4FY19, as seen from Concor’s muted growth during the quarter. We note Indian Railways had announced 25% discount on empty movement (5% of total costs), which we believe will help in keeping 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, 23x FY21E earnings) and GDPL (attractive valuations with our SoTP-based target price of Rs190).