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Sector update: Logistics - Volumes sustains, leads expand on mom basis

Container rail volumes grew 10% in Oct 2018: As per data published by Indian Railways, container rail volumes grew 10.2% yoy to 4.75m tons in Sept-18 on the back of 16.5% yoy growth in domestic to 0.99m tons, while exim saw 8.7% yoy growth to 3.76m tons. YTD-FY19, total container rail volumes grew 13.1% yoy to 34.9m tons, led by growth in both exim at 13.9% yoy to 28.1m tons and domestic at 10.1% yoy growth to 6.78m 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 Ltd (GDPL).

Exim lead increase mom basis: Lead distance for exim containers saw a decline of 19kms on yoy basis to 794kms, albeit saw an increase of 2kms on mom basis in Oct-18 indicating arrest of decline in JNPT share. Similarly, domestic lead distance saw a decline of 91kms yoy to 1,287km, albeit +37km on mom basis. 

Containers handled at major ports continue to grow: Containers handled at major ports grew 12.8% yoy to 820,000 TEUs in Oct 2018 (JNPT +10.6% yoy to 424,000 TEUs). YTD-FY19, containers handled at major ports grew 8.4% yoy to 5.7m TEUs, with JNPT seeing 6% yoy growth to 2.9m TEUs.

Indian Railways hikes haulage charges by 5%: across routes effective 15^th Nov-18. The increase is after a gap of ~3.5 years (last hike in Mar-15). Considering the long gap in hike and improved competitiveness vs road, we believe container operators, such as GDL are likely to pass on the same. However, considering that Concor had taken tariff hikes in May-19 (Rs1000/TEU), Concor is likely to defer its hike.

Sustained traction in exim rail volumes and port volumes will likely translate into volume growth for Concor and GDL, in our view. On the other side, lead distances are stabilising and price hikes are likely to drive realisation improvement. On DPD, the volumes continue to grow exerting pressure on CFS players. However, any step towards scrapping/refining the scheme would be positive for CFS players, particularly GDL, which has seen intense profitability pressure for its CFS business (falling ground rent, loss of volumes, etc). We continue to prefer Concor, as the company has a strong 70%+ market share in container rail movement. Concor trades at 23x FY20E earnings (28x FY20E excluding export incentives).