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Sector update: Logistics - Volume growth rebounds on mom basis

Container rail volumes revived in Dec 2018, growing at 8% yoy: As per data published by Indian Railways, container rail volumes posted strong 8% yoy growth to 5m tons in Dec 2018 on the back of 10.7% yoy growth in exim volumes to 4.04m tons offset by 2% yoy decline in domestic volumes at 0.96m tons. YTDFY19, total container rail volumes grew 11.5% yoy to 44.35m tons, led by growth in both exim at 12.4% yoy to 35.7m tons and domestic at 7.7% yoy to 8.65m 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 (GDL).

Exim lead stabilising: Lead distance for exim containers fell by 40kms yoy to 780kms, albeit at a marginal 8km decline mom in Dec 2018, indicating an arrest in decline of JNPT share. Similarly, domestic lead distance slipped 85kms yoy and was flat mom at 1,264km. 

Containers handled at major ports continue to grow: Containers handled at major ports grew 8% yoy to 849,000 TEUs in Dec 2018 (JNPT +7% yoy to 446,000 TEUs). YTDFY19, containers handled at major ports grew 7.9% yoy to 7.3m TEUs, with JNPT registering 6.1% yoy growth to 3.8m TEUs.

Container rail volumes recover mom in Dec 2018: Concor notified that overall volumes for the quarter were impacted, with exim seeing modest 6% yoy growth. We expect to monitor rail and port volumes over the next few months, to determine any slowdown or market share loss by rail, given the hike in haulage rate effective 1 Dec 2018. We note that Indian Railways has announced 25% discount on empty movement (5% of total costs), which would partially help offset the hike in haulage rate. Moreover, lead distances in exim are stabilising and price hikes are likely to drive improvement in realisation. Direct Port Delivery (DPD) 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 in its CFS profitability. We 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 24x FY20E earnings (29x FY20E, excluding export incentives).