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Sector update: Logistics - Volume trajectory remains weak

Container rail volumes continue to decline in Sep-19 yoy by 1.8% yoy: to 4.95m tons as per the data published by Indian Railways. This was led by decline in both domestic volumes by 4.2% yoy to 0.91m tons and EXIM volumes by 1.2% yoy to 4.04m tons. 

For Q2FY20, total container rail volumes declined marginally by 0.2% yoy to 15.58m tons led by weakness across both domestic (1.4% yoy decline to 2.88m tons) and exim volumes (0.1% yoy increase in exim volumes to 12.7m 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 decline of 3.6% yoy growth: Container volumes growth at major ports saw decline of 3.6% yoy to 797,000 TEUs for Sep-19 largely led by weak exim trade. Port volumes grew by 4.2% yoy to 2,567,000 TEUs for Q2FY20.  Volume growth at JNPT declined by 7.4% yoy to 4,00,000 TEUs in Sep-19 (Q2FY20 volumes down 1% yoy to 1.27mn TEUs).

Lead distance stable: with exim at 774kms - down 8km mom and 18km yoy in Sep 2019 (vs average of 780-800kms in last few months). Moreover, domestic lead distance declined by 118kms mom and 59kms yoy to 1169km Sep 2019.

Container rail volumes remain muted in YTD-20/Q2FY20 in both exim and domestic segments led by sustained weakness in macro trade. We believe the weakness is largely led by slower exim trade and economic slowdown across industries as reflected in muted GDP growth as also rail congestion impacting rail share. Overall, we maintain our positive stance on the space on long term volume trajectory and likely mkt share gains by rail once DFC is operational in FY21. However, considering the near term weakness in earnings and rich valuations, we have a Neutral rating on Concor (28x FY21E earnings), while continue to have a preference towards. GDL (attractive valuations with our SoTP of Rs180).