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Logistics Sector Update - December 2010
Iron ore volumes continue to slide
Traffic at India’s 12 major ports witnessed a healthy growth of 3.1% yoy for the
month of December 2010 on the back of the strong 14.8% yoy growth in fertiliser
volumes and 10.5% yoy growth in Petroleum, Oil and Lubricants (POL) volumes.
While the container throughput (TEUs) was flat for December 2010, the tonnage
handled has grown 10.4% yoy. However iron ore and coal volumes declined 5.9%
yoy and 7.8% yoy respectively. Iron ore exports have been falling since July 2010
since the ban of exports by the Karnataka government from ten of its ports. As a
result, volumes at Mangalore Port have been severely impacted witnessing a
decline of 12.1% yoy for December 2010 and 50.3% yoy for the period
April-December 2010.
Container volumes stabilising at current levels
As per the Indian Port Association (IPA) data for December 2010, container
volumes at the 12 major ports saw a marginal decline of 0.7% yoy, while slipping
3.8% mom. The JNPT port, which handles around 61% of the country’s container
volumes, witnessed an increase of 3.9% yoy and 2.5% mom in volumes. The
Chennai port, which handles around 16% of the country’s container volumes,
registered flat growth of 0.9% yoy, though volumes fell by 2.6% mom. The
container data YTD FY2011 indicates that volumes have begun stabilising at
current levels. During April-December 2010, the major ports handled 5.6mn TEUs
v/s 5.1mn TEUs during the corresponding period of last year, registering a yoy
growth of 10.8%. Going ahead, we expect the ports to sustain the monthly
run-rate and surpass the 7.0mn TEU mark set for FY2011. Company-wise, we
estimate Concor to post 10.0% yoy growth in Exim volumes in FY2011 as against
management’s guidance of 12%.
Exports surge the highest in 33 months
Merchandise exports in December touched US $22.5bn, up 36.4% yoy and the
highest in the last 33 months, while imports fell by 11.1% yoy to US $25.1bn
thereby narrowing the trade deficit to US $2.6bn for the month. During
April-December 2010, exports grew 29.5% yoy to US $164.7bn, while imports
increased 19% yoy to US $247.1bn, indicating that the government’s target of
achieving US $200bn exports in FY2011 is quite possible. Trade deficit stood at
US $82.4bn during the mentioned period and is expected to be around
US $118-120bn for FY2011, lower than the earlier estimate of
US $135bn. A revival in Exim trades has been seen in overall port throughput as
well as container volumes.
Outlook
We believe that sustained growth of the Indian economy with GDP growth
expected at 8.5% over the next few years, and emergence of India as a global
outsourcing hub will facilitate the country’s container trade. In the current decade,
container traffic registered 12% CAGR compared to the 9% CAGR posted by the
total traffic at the major ports. We expect this trend to continue and container
traffic to register 11% CAGR over the next five years, driven by the addition of new
container terminals and increased containerisation.
We prefer companies that provide a decent blend of growth opportunities and
available at attractive valuations. Accordingly, we maintain a Reduce on Concor as
it is losing its pricing power in the high-margin Exim segment and is trading at
expensive valuations. We maintain a Buy on GDL and expect it to register 14.1%
CAGR in EPS over FY2010–12 on account of being present at strategic locations,
its ongoing expansion plans and break-even in the rail business at the PAT level.
We maintain a Buy on AGL owing to reasonable valuations and improved
performance by ECU Line over the last few quarters.
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