Continued growth in export-import volumes for India and improving profits of shipping lines bode well for the Indian logistics ecosystem, according to Kotak Institutional Equities. The brokerage believes private port operators are better placed to capture the upside than container train operators.
Private port operators are going to benefit from increasing trans-shipment volumes and share gains from major ports, whereas container train operators face margin pressures because of the recent increase in rail haulage charge, 5 percent reduction in road freight rates in November and flattening of double-stacking benefits, Kotak said.
Based on this assessment, it prefers Adani Ports and Gujarat Pipavav Port over Container Corporation of India.
Kotak said a recent report by Maersk suggests that the broad-based growth in India's containerised trade will continue in Q3CY18. Exports grew 10 percent on year in the quarter gone by, while imports grew 9 percent.
The deferral of stiff trade tariffs on Chinese goods by the US and efforts to resolve disputes reduce the risk to growth and thus profitability of shipping lines. This bodes well for the business prospects of port operators and container rail operators who have been taking price increases to leverage good growth in EXIM volumes, Kotak believes.
Beyond good growth in EXIM, port operators are also benefitting from an uptick in trans-shipment volumes which now account for more than 5 percent volume share for all Indian ports based on October 2018 data versus a negligible share earlier.
The brokerage said a dominant portion of such volumes is going to Mundra and Hazira ports. "In addition to such trans-shipment volumes, Adani Ports' container portfolio is also benefitting from share gains in gateway volumes, a common feature for non-major ports on the west coast during times of good growth (overall container volumes up 12 percent YoY over the first half of FY19)."
Hence, Kotak advised buying Adani Ports with a target price at Rs 390 as it believes that the company is better placed to benefit from the uptick in gateway and trans-shipment volumes.
"The recent normalisation in currency rate (reversal of forex loss) and Gujarat cabinet approval for revision in power purchase agreement (PPA) terms will mitigate other non-business overhangs," it said.
The research house also maintained positive stance on Gujarat Pipavav Ports on uptick in volumes (up 20 percent YoY over seven months of FY19) and a potential uptick in pricing. It has advised buying the stock with a target price at Rs 140.
According to Kotak, EXIM growth is likely to continue, however, container train operators (CTOs) are likely to see margin pressure on various counts.
"Firstly, CTOs will find it difficult to fully pass on the recent 5 percent increase in haulage charge due to the decline in competing road freight rates and secondly, margin benefit from higher double stacking seems to have flattened for CTOs as the data from Indian Railways suggests that a decline in its Rs/NTKM earnings has halted," it reasoned.
Hence, Kotak remains cautious on the scope of market share gains/margin improvement for Container Corporation hereon. Hence, it advised selling the stock with a price target at Rs 630.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.