FREE

Sector update: Logistics - Volume trajectory remains weak

Container rail volumes see 3% yoy decline in Aug 2019: to 5.26m tons as per the data published by Indian Railways. This was largely led by slowdown in domestic with decline of 13.6% yoy to 0.89m tons. Moreover, exim was muted as well with flattish growth (-0.5% yoy) to 4.37m tons. 

For YTD-20, total container rail volumes grew 2% yoy to 25.96m tons led by 3.2% yoy growth in exim volumes to 21.17m tons, partially offset by 3% yoy decline in domestic to 4.79m tons. Note that rail data is in tonnage and growth could vary in TEU terms for Container Corporation of India (Concor) & Gateway Distriparks (GDL).

Port volumes see 10.3% yoy growth: Container volumes growth at major ports saw growth of 10.3% yoy to 882,000 TEUs and 7.5% yoy to 4,343,000 TEUs for YTD-20. The growth was largely driven by low base and strong growth at ports such as Tuticorin, Cochin and Kandla (JM Baxi has taken over the container terminal). However, volume growth at JNPT was moderate at 4.1% yoy to 4,35,000 TEUs in Aug-19 (YTD-20 volumes up 4.1% yoy to 2.17mn TEUs).

Lead distance steady: with exim at 782kms - down 32km mom and up 1km yoy in Aug 2019 (vs average of 780-800kms in last few months). However, the downward trend in domestic lead distance from 1200km+ over last few months has reversed to 1287km (+237km mom and +10km yoy) in Aug 2019.

Container rail volumes continued to see downward trajectory in both exim and domestic segments. We believe the weakness is led by slower exim trade and economic slowdown across industries as also rail congestion impacting rail share. Accordingly, we believe rail players are likely to continue to see pressure on volume growth as seen in 1QFY20. However, price hikes (Concor has taken 5% hike effective 1 April 2019 to pass on higher haulage rates) as also steady lead distances should help in improving realisations and earnings. We maintain our positive stance on the long-term growth prospects in the space, with the first phase of DFC to be commissioned in FY21. Maintain Outperformer rating on both Concor (key beneficiary with 70%+ market share, 25x FY21E earnings) and GDL (attractive valuations with our SoTP-based target price of Rs183).