Ports & Logistics Sector Update : Port operators ahead of surface transporters By Elara Capital

Port operators ahead of surface transporters
Within Elara Logistics universe, we expect port operators to outperform surface transporters, led by healthy YoY growth in EXIM cargo and consolidation of past acquisitions. For B2B and B2C surface transportation, demand is expected to be slow due to seasonality in the business and high competitive intensity. We believe volume growth is likely to improve, led by good monsoons and rate cut-led boost to consumption. Amid slow demand, expect network/capacity expansion to be delayed as the focus moves to improvement in utilization. Our top picks in the sector are Adani Ports & SEZ (ADSEZ IN) and Delhivery (DELHIVER IN).
Despite global trade disruptions, volumes at Indian ports stable: Despite tariffs levied by the US and Israel-Iran conflict, volumes at major Indian ports grew 5.7% YoY, led containers (due to trade moving through the Cape of Good Hope) and iron ore (on pick-up in Chinese steel market). ADSEZ reported a cargo volume growth of 10.6% in Q1 to 120mt, with operations continuing at the Haifa port in Israel. We expect consolidated revenue to grow 22% YoY to INR 85bn, driven by all the three segments – i.e., ports, marine and logistics. EBITDA margin is expected to decline 130bps YoY to 59.7% due to a change in mix. Expect volume growth for JSW Infrastructure (JSWI IN) to slow down to 7.5% due to optimal utilization at JSW Steel’s plants and maintenance shutdown at one of the blast furnaces at Dolvi in May. The Logistics acquisition may be scaled up, likely leading to 22% YoY rise in consolidated revenue, with EBITDA margin likely dropping 130bps YoY to 49.7%, led by a change in mix.
B2C industry – Consolidation to aid pick-up in volume: A slowdown in volume growth in e-commerce (across platforms) and increased insourcing by Meesho through Valmo (of up to 50-70%) should keep B2C volumes for Delhivery muted. We expect volume growth of 3% YoY, with yields stable. The approval for Ecom Express acquisition received in Q1, the integration process and associated one-time cost of INR 3bn may likely be booked in the next two quarters. With the industry consolidating, volume growth is likely to gain traction, for large players
B2B demand, mixed bag; network expansion could be delayed: B2B volume demand across sectors and SME customers may be a mixed bag (GST collections also marginally eased in May and June post strong show in April). As regards volume, VRL Logistics (VRL IN) may be down 13% YoY (due to tariff hikes, leading to cargo loss), Allcargo may post a flat trend YoY (due to ongoing migration towards better service quality), Blue Dart may see a rise of 8% YoY (on better utilization) and Delhivery may see a surge of 11% YoY, led by competitive pricing and market share gains. In the 3PL space, revenue for Mahindra Logistics (MAHLOG IN) may grow 12%, led by the SCM segment, while its B2B Rivigo business may continue to be a drag. In Q1, Blue Dart Express’ (BDE IN) CFO resigned and MAHLOG appointed a new MD and CEO to revive profitability. Diesel prices largely remain stable YoY, leading to stability in profits.
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