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MOSL: LOGISTICS – THEMATIC: On the cusp of a transformation; Initiating coverage with a positive outlook

LOGISTICS – THEMATIC: On the cusp of a transformation; Initiating coverage with a positive outlook

 

• The Indian Logistics sector is set to witness a transformation, led by: 1) reforms like GST and e-way bill ushering in a sea change in transparency and consolidation; 2) development of support Infrastructure that improves connectivity and leads to a faster turnaround time; 3) change in the perception of Logistics being more than just Transportation and Warehousing, but as a specialized function; 4) evolving consumer demands, where the speed of delivery is of utmost importance; and 5) emergence of tech driven operators in this space, who are fast capturing market share.
• The Logistics market, pegged ~USD250b, is expected to grow at 10-12% CAGR, with a pick-up in demand. The shift to organized from the unorganized sector (~90% currently) would be an additional kicker. The demand for value added services is on the rise.
• We expect the 3PL segment to witness a strong pick-up as more companies outsource a large part of their Logistics to 3PL operators. Express cargo would benefit from a pickup in Manufacturing and exponential growth in e-commerce. We expect the Rail Container operators to gain traction with the commissioning of the Dedicated Freight Corridor (DFC).
• In this sector initiation report, we set forth our views on six companies in India's Logistics space: TCI Express (TCIE), Transport Corporation of India (TCI), VRL Logistics (VRL), Blue Dart Express (BDE), Mahindra Logistics (MLL), and Container Corporation of India (CCRI). We assign a Buy rating to TCIE, TCI, VRL, and CCRI, and a Neutral rating to BDE and MLL. TCI is our top pick in this space.