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Healthy volume uptick in road, rail, ports…

Q3 ended on a strong note for the logistics sector, with growth returning to its fold. Each month (October, November, and December) saw continued momentum due to normalisation of the economy and festivities generated demand. While the vaccine related movement is yet to be strategised by companies (the management expects further clarity from the Government of India via the tender process towards mid-January), other core segments such as auto, pharma, e-commerce, MSMEs saw a good pick-up in demand. The warehousing segment also saw innovative application (by Mahindra Logistics) during the quarter (on-demand flex-warehouse), which could cater to seasonal festive demand.

Improved trends seen in container segment

India’s major ports container traffic volumes for October-December 2020 has grown 10% while rail Exim container volumes have grown 11% for the same period, indicating no loss of market share for rail from road players. The strong performance has been in spite of the shortage of containers (for exports) seen during the quarter (although it may impact realisation for Concor, due to higher empty container relocation from hinterlands). Domestic containers saw a surge in volumes (up 23% YoY), thereby impacting the product mix for Concor positively. Overall cargo at Adani Mundra and GPPL saw growth of 28% and 4%, respectively.

Road freight also sees timely revival in volumes

E-Way bill generation for October, November and December saw growth of 17%, 4% and 17%, respectively, from the usual pre-Covid 5.5 crore run-rate, indicating higher utilisation of the existing trucking fleet. The strong pick-up in freight is also visible in the express market, mainly due to greater movement related to inventory stocking ahead of the festive season and revival seen in the MSME sector. The supply chain management segment also saw normalisation during the quarter primarily due to a revival in the auto sector for most of the quarter.

Financial performance expected to return to normalcy

TCI Express is expected to a report healthy set of numbers due to good festive demand while TCI and Mahindra Logistics are expected to report a recovery in the SCM segment (freight, shipping segment for TCI to do well). Concor is expected to report a mixed operational performance YoY due to continued pressure on its margins led by higher LLF expense. Overall, revenues of our logistics coverage universe are expected to grow 3% YoY to | 3435 crore. However, the operational performance is expected to decline 7%, mainly due to LLF issue in Concor. Subsequently, PAT is expected to grow 12% (due to higher tax rate of 42% for Concor in the base quarter).

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