Logistics biz seeing a favorable run

The logistics sector reported strong growth in April and May, in spite of higher crude oil prices, led by the economic revival and higher pent-up demand for manufactured goods and services. Although the quarter began with higher congestion at Chinese ports due to China's lockdown and relocation of assets from the Baltic area (due to geopolitical issues); the global supply chain has started normalizing as Chinese companies resumed production output from June 1. On the rail front, Dedicated Freight Corridor commercialization has led to improved turnaround times and more double stacking for our coverage container train operators.

Bulk commodities have gathered pace on the Exim front, outpacing container growth. Petroleum oil products have grown 15-16% YoY, led by higher economic activity. Thermal coal has grown more than 40% from March onwards due to domestic coal shortage amid higher power demand. However, coking coal demand remained range-bound. 

Trial train operations have started at the Mehsana-Palanpur section of the DFC in Gujarat, with a speed of 55-65 kmph (double the speed of freight trains running on the Indian Railways network). DFCCIL expects to commercialize operations up to Sanand in a few months. Combined Transport Operators (CTOs) such as Concor, Gateway Distriparks, and also Adani Ports (logistics segment) and newer entrants like Gujarat Pipavav Logistics expect to run higher double-stack trains on the network, with an improved turnaround time and thereby improving market share over road players in the medium to long term. Higher crude oil prices also help rail players as rail becomes more economical than the road to transport freight over longer distances.

E-Way bills for April, and May arrived at 7.5, 7.4 crore levels (YoY up 28%, 85%, respectively, mainly due to low base), and substantially above pre-Covid levels of 5.5 crore bills. Overall, freight players saw higher fleet utilization, due to higher stocking of inventory and increased trucking movement. Retail petrol/diesel prices also remained largely range-bound (in spite of rising crude oil prices), which will likely result in stable margins for logistics companies (pass-through of petrol/diesel prices). Warehousing volumes (higher value-added activities such as sorting, bill generation, etc) are also expected to show positive traction, led by favorable volumes from segments such as e-commerce. Increased digitization of customers is also leading to greater D2C volumes for logistics firms.

Stocks in the Logistics universe :

Adani Ports:

Adani Ports and Special Economic Zone (APSEZ) is the largest commercial port operator with a 25% share of India’s port cargo movement. The company has evolved from a single port dealing in a single commodity to an integrated logistics platform  Total of 70% of APSEZ revenues is contributed by its port operations. Rest is led by the harbor (11%), logistics (7%), and others.  Of the total 247 MT cargo volume in FY21, container volumes were at 105 MT (43%), bulk at 110 MT (44%) and the rest by liquid at 32 MT (13%) Diversified cargo mix (38%, 50%, 12% for the container, bulk, liquid, respectively in FY22), overall leadership in Indian ports (extended MS among Western Ports, while Eastern side remains competitive) and development of strength in verticals like logistics and warehousing would enable APSEZ to capture loyalty and higher wallet share of its customers. Further, APSEZ is embarking on a Capex of Rs.23000 crore, which will also address infrastructure requirements post reaching the 500 MMT target (on the back of strong double-digit volume growth in containers, liquid, and bulk cargo.

Concor:

Concor is the dominant player in the business (65% market share) with 60 terminals.  Revenue from rail transportation comprised 75% of total revenues (rest 4% by road, 13% via handling income, 2% warehousing, and 4% others). Total volumes handled in FY21 were 3.6 million TeU, of which Exim volumes were at 83% of the mix with the rest contributed by domestic containers Multiple triggers are in place for the stock such as higher double stacking (46% jump in FY22 to 3757 trains), running rakes with higher axle loads, targeting 1 million TeUs container run-rate at Khatuwas (MMLPs), DFC connectivity to Dadri, Jawaharlal Nehru Port and diversification into other logistics verticals. The management has guided for clocking 6.5-7 million TeUs volumes in the next three to four years (currently at 4 million TeUs) and subsequently doubling of revenues. Further, various newer initiatives (3PL, distribution logistics, cement, and food grain transport, higher terminal utilization, etc) are expected to diversify Concor offerings to customers and thereby capture higher wallet share.