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MOSL: LOGISTIC-Revival in rail container volumes likely-Pricing environment improving

​LOgistic: Revival in rail container volumes likely; Pricing environment improving

• ​We expect a pick-up in container rail volumes over next 12-18 months, led by: 1) a revival in EXIM trade and 2) the rail sector becoming more competitive and thus taking market share from road sector.
  
• Pricing in the rail sector has likely bottomed out, given easing competitive intensity. Against this backdrop, Container Corp (Concor) has initiated price hikes on the key routes of Kathuwas and Ludhiana with effect from 1 March 2017.
  
• Margins of the rail logistics players are likely to improve due to better volume aggregation and cost-efficient measures adopted by players like Concor and Gateway Rail Freight Limited (GRFL).
  
• We prefer Gateway Distriparks (GDPL) over (Concor) due to the former’s better RoCE profile, led by efficient capital allocation and a superior revenue mix.
  

Rail container volume revival on the cards

Container rail volumes in tonnage terms have been sluggish for past 24 months, as the haulage hike taken toward end-FY15 led to market share loss for container train operators (CTOs). Weak EXIM trade (particularly exports) further impacted rail volumes for CTOs. We, however, expect a revival in container rail volumes over next 12-18 months, led by 1) a recovery in EXIM trade growth (a low base and a pick-up in exports) and 2) market share gains by the rail sector due to its improved competitiveness (no haulage hike over past 24 months and the subsequent increase in diesel prices).