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Trending on et - budget 2019 full coverage.

Date: 04-02-2019
Subject: Trending on et - budget 2019 full coverage
By managing the transfer of goods from their point of origin to their point of consumption, the logistics sector plays a significant role in India’s economy. Similarly, ports assist in trade and commerce by providing the crucial link between sea and land transport. Both ports and logistics companies are ripe for investments and brokerages including JM Financial and JP Morgan, and research firms such as Bloomberg Intelligence are bullish on the prospects of India’s port and logistics sector in 2019.

Logistics players may gain due to increased domestic consumption, rising exports, surging container volumes, loosening infrastructure bottlenecks and increased investments in the new facilities. On the other hand, private port operators are likely to benefit due to the increasing trans-shipment volumes, improving profitability and market share gains. Steps such as implementation of the GST, which created a unified indirect tax, and introduction of the e-way bill, which allows online monitoring of the movement of goods, will make logistics players more efficient. It is expected that the size of India’s logistics sector will be around $215 billion by 2020, aided by the implementation of the GST. The government has also provided strong support to the sector by including it in the harmonised master list of infrastructure sub-sector. This will aid credit flow into the sector with longer tenures and reasonable interest rates and attract investments from the debt and pension funds. Ambitious infrastructure projects such as the Bharatmala Pariyojana, aimed at improving the efficiency of freight movement across the country, will further boost the logistics sector. 

JP Morgan believes that the US-China trade war provides an opportunity to India to act as an intermediary. It expects port volumes to grow at 10% in 2019. The brokerage expects that margins will continue to rise in the container rail segment due to its stable tariff policy. Express delivery companies will command better margins due to strong demand growth, operating leverage and premium pricing. Traditional road freight companies are likely to command stable margins due to industry-wide consolidation. According to ACE Equity, there are 47 companies in the ports and logistics sector. Of these, 16 are covered by Bloomberg analysts with a total 167 recommendations: 74% are buy, 16% are hold and 10% are sell. Let us look at five of these companies that have decent analyst recommendations and promise substantial one-year stock price growth. 

Allcargo Logistics: It provides integrated logistics solutions for multimodal transport operations (MTO), container freight stations (CFS), and project and engineering (P&E) segment. According to a report by Maybank Kim Eng, the company’s MTO and CFS businesses will report strong volumes. Uptick in capex in oil and gas, cement, and steel sectors will benefit Allcargo’s P&E segment. The brokerage expects 79% growth in earnings per share in the second half of 2018-19. 

Transport Corporation of India: This logistics and supply chain solutions provider has an extensive network of over 1,400 offices and access to 12 million sq. ft of warehousing space. Dolat Capital is bullish on the stock due to the demand pick up in commercial vehicles, brown goods and the SME segments. 

Supply chain management and coastal services segments will act as significant growth drivers for the company. The brokerage expects an earnings CAGR of around 10% between 2017-18 and 2019-20. 

VRL Logistics: It is engaged in goods and passenger transportation. In the logistics segment, it offers courier, full truck load and liquid transportation services. Analysts believe that improved business sentiment and pricing power will help the company. It may also benefit from the regulatory changes in the axle load norms. However, there are some concerns due to the lack of high growth in tonnage per km, which is affecting the company’s performance. 

Adani Ports and SEZ: It’s businesses include ports, logistics and SEZ. Bloomberg Intelligence believes that volumes of its port business will continue to rise, driven by long-term contracts and export growth. The company’s profitability in December 2018 quarter is likely to go up as the rupee has reversed its losses against the dollar. In addition, utilisation growth, efficiency gains, and a shift in the cargo mix are likely to support its EBIT (earnings before income and tax) margins.

Container Corporation of India: It is engaged in the transport and handling of rail and road containers. According to by Dolat Capital, Dedicated Freight Corridor (DFC), expected to be functional in 2020, will be the a key long-term trigger and will boost the company’s volumes and margins. The management is also confident of managing any increase in haulage charges, post elections. 

Source: economictimes.indiatimes.com

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