The Indian logistics market which is pegged at nearly USD 250 bn is expected to grow at 10-12% CAGR, with a pick-up in demand, a domestic brokerage firm said in a note.

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Motilal Oswal initiated coverage on the logistic sector with a buy rating on TCI Express, Transport Corporation of India, VRL Logistics, and Container Corporation of India. It assigns a neutral rating to Blue Dart Express and Mahindra Logistics.  

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The domestic brokerage firm is of the view that 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 shift to organized from the unorganized sector (~90% currently) would be an additional kicker. The demand for value-added services is on the rise.

The logistics industry has seen a massive change in the last few years, with the introduction of reforms like GST and e-way bills. With the abolishment of state-level taxation through GST, the industry is heading towards consolidation and efficiency.

Transportation is now much faster, and smaller inefficient warehouses have made way for larger centralized warehouses.

e-way bill has improved transparency in the Road Freight industry, which has been traditionally dominated by the unorganized segment, added the note. These reforms are propelling higher growth and formalization.

The increasing need for integrated Logistics solutions and higher adoption of 3PL by end-use sectors would usher strong demand for 3PL (to benefit companies like TCI and MLL).

In Express, a pick-up in Manufacturing (B2B) and exponential growth in the e-commerce space (B2C) will benefit companies like TCIE and BDE. “We expect 3PL and Express to grow at 16-18% CAGR over the next five years,” highlighted the note.

What should investors do?

Motilal Oswal in the report highlighted 4 companies in which it has initiated coverage with a buy rating for a period of 1 year:

TCI Express (BUY): LTP: Rs 1605| Target: Rs 1900| Upside 18%

TCIE is one of the better placed Express players, with: a) a robust position in the Express industry, b) higher contribution from B2B clients, and c) focus on the growing SME sector.

It expects TCIE to clock a revenue/EBITDA/PAT CAGR of ~19%/26%/24% over FY21-24E. The stock is valued at 38x FY24E EPS to arrive at our TP of INR1,900.

Transport Corporation (BUY): LTP: Rs 564| Target: Rs 620| Upside 10%

TCI is a long-term play, backed by: a) a diversified clientele base (with no reliance on anchor customers), b) improving share of high margin Less than Truck Load (LTL) business in the Road Freight division, and c) strong presence in the high growth 3PL segment.

The brokerage firm expects the company to clock a revenue/EBITDA/PAT CAGR of ~17%/21%/26% over FY21-24E. TCI is valued at 15x FY24E EPS.

VRL Logistics (BUY): LTP: Rs 381| Target: Rs 460| Upside 20%

Asset ownership at play: We expect robust demand from the LTL segment over the next couple of years (driven by reforms like GST and e-way bill), which would result in 16% revenue CAGR over FY21-24E.

Motilal Oswal expects the healthy margin profile to continue, leading to a 15 per cent EBITDA CAGR. With low growth in depreciation due to the limited Capex requirement, it expects 37 per cent PAT CAGR over FY21-24E, with an RoE of ~17 per cent in FY24E.

Container Corporation of India (BUY): LTP: Rs 674| Target: Rs 800| Upside 18%

CCRI is the undisputed market leader in Rail freight Logistics, benefitting from the commissioning of DFCs, leading to higher margin and volume. Motilal Oswal expects CCRI to clock a revenue/EBITDA/PAT CAGR of ~22%/37%/44% over FY21-24E. The stock trades at 13x FY24E EV/EBITDA.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)