After a slight moderation in sales in February, demand was buoyant across the board in March for logistics companies, which are expected to report higher sales in the fourth quarter of FY 2023. Even so, their profitability could be strained because of margin pressure, analysts said.
A pause in interest rate hikes aided the recovery in the automobile sector, likely a key growth tailwind for logistics firms in the January-March 2023 quarter. The sector is expected to benefit from a pick-up in rural demand, some analysts said.
The logistics space is expected to see demand improve (revenue up 16.2 percent YoY) although pressure on operating margins (down 73 basis points YoY) is expected to result in a flat net profit YoY, according to Sharekhan by BNP Paribas.
One basis point is one-hundredth of a percentage point.
Demand was relatively sturdy compared to the slight tapering observed in February 2023, said Nuvama Institutional Equities.
The securities firm highlighted noted that e-way bill registrations continued to climb higher in March, up 16 percent YoY, marking an all-time high.
Stable freight rates and demand is keeping truckers’ profitability near all-time highs, as evident in VRL Logistics’ recent fleet additions. Rail container volumes also grew around 8 percent Month-on-Month.
Ports, airports
According to Kotak Institutional Equities, comparable volume growth for Adani Ports and Special Economic Zone is expected to be in the low-to-mid-single digits because of a weakness in demand across the country.
Consolidation of the Gangavaram port in Andhra Pradesh yielded a higher 15 percent YoY volume growth. For Gujarat Pipavav Port, the securities firm expects a 21 percent /11 percent YoY improvement in container and overall volumes.
It has factored in airport volumes at 95 percent of pre-Covid levels, implying a 2 percent QoQ increase in revenue of GMR Airports.
After clocking 5 percent YoY growth in Q3 of FY23, port volumes stayed on the uptrend with a 12 percent YoY increase in January-February to 135.7 MT.
That came on the back of a decline in commodity prices, the reopening of the Chinese market and lower freight rates, said Motilal Oswal Financial Services.
Volume growth across sectors such as Fast Moving Consumer Goods (FMCG) and e-commerce showed limited traction although the automotive industry continues to be relatively better, ICICI Securities said.
It expects a higher volume uptick across surface express companies but sees profitability languishing sequentially owing to continued cost pressure and insufficient absorption of recent price hikes. Lower oil prices may not provide material tailwinds, it said.
Indian Railways’ monthly freight data suggests a volume improvement of 8 percent QoQ and 6.1 percent YoY in the quarter ended March. ICICI Securities expects Container Corporation of India to report similar growth.
Gateway Distriparks, Blue Dart
Volumes are also expected to improve at Gateway Distriparks, based on monthly railway data and the commissioning of Kashipur Inland Container Depot. For surface express players, ICICI Securities envisages volume growth of 3-4 percent QoQ and expects margins to remain broadly stable for GATI, TCI Express and VRL Logistics.
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For Blue Dart Express, it has estimated parcel volumes to increase to around 90 million. That said, it sees good growth on a YoY basis for all the companies, especially GATI, whose focus on market share expansion is likely to be visible in the results.
ICICI Securities is of the view that margins will be largely stable across players. For both Container Corporation and Gateway Distriparks, the firm expects Earnings Before Interest, Tax, Depreciation and Amortisation / and throughput measured by Twenty Foot-Equivalent Units (TEUs) to stay stable compared to the previous quarter, while in Blue Dart Express.
The market will closely follow management commentary on price hikes and their absorption in the market, the extent of cost efficiencies realised from digitisation and automation and the business outlook.
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