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Logistics
For 4QFY2011, we expect Gateway Distripark (GDL) and
Allcargo (AGL) (1QCY2011) to report strong revenue growth
of 14.5% and 22.1% yoy, respectively, on the back of healthy
exim volume growth. AGL is likely to benefit mainly because of
a low base effect and consistently improving ECU Line numbers.
However, Concor is expected to report flat top-line growth,
as increased container haulage charges and competition are
likely to shift some volumes to road and private carriers.
Operating margins (OPMs) of these companies are expected
to be healthy for the current quarter on account of rebates,
which led to lower OPMs in 4QFY2010. AGL and Concor are
expected to report healthy PAT growth of 47.5% and 28.8%
yoy, respectively, due to improving ECU Line numbers for AGL
and on a low base, while GDL is expected to report a marginal
decline of 0.5% yoy as the company begins to pay higher tax
post ending of MAT credit entitlement. Overall, we expect a
11.7% and 12.4% yoy increase in revenue and PAT respectively,
for our coverage universe.
Impact of Union Budget FY2011-12
The Union Budget FY2011-12 has accorded infrastructure
status to cold storage projects, as a result of which capital
investment will be eligible for the viability gap funding scheme
of the Finance Ministry. Companies such as Concor and
GDL are expected to benefit, as they intend to expand their
cold chain business.
Container volumes stabilising at higher levels
The container traffic data released for April 2010-February 2011
by the Indian Port Association (IPA) reported robust growth of
10.6% yoy on a low base and revival in global trade. The JNPT
port, which handles around 60% of the country's container
volumes, registered 6.0% yoy growth in volumes.
It even achieved its best-ever volumes for a fiscal year, with
figures touching 4.2mn TEUs in FY2011 YTD vis-à-vis 4.1mn
TEUs for FY2010. The Chennai port, which handles around
Exports picking up
India's merchandise exports during April 2010-February 2011
grew by robust 31.4% to US $208bn, ahead of the FY2011
target of US $200bn. This is on account of diversification to
new markets in Asia, Africa and Latin America coupled with
revival in demand in the US. Imports also recorded robust growth
of 18% yoy to US $305bn, taking the trade deficit to US $97bn.
The revival in exim trade has been visible in the overall port
throughput as well as container volumes.
17% of the country's container volumes, has recorded a strong
increase of 26.4% yoy in volumes for the mentioned period.
Container data for FY2011 so far indicates that volumes have
stabilised at higher levels albeit on the low base of FY2010.
Going ahead, we expect the ports to sustain the monthly
run-rate and surpass the 7.0mn TEU mark set for FY2011.
Company wise, Concor is expected to post a 10.9% yoy increase
in exim volumes, while GDL is expected to report 11.8% yoy
growth in CFS volumes.
Logistics
Key developments
No rollback of freight hike
During 3QFY2011, the Indian Railways (IR) had proposed a
50-200% hike on transportation of nine commodities and an
additional increase of 4% in freight rates across the board.
The hike was under review post industry presentations for a
roll-back. However, with no downward revision in rate hikes,
Concor as well as private operators have revised their rail freight
tariffs with effect from mid-January 2011. Consequently,
a substantial share of domestic traffic has begun to shift to
road carriers. For 4QFY2011, we expect Concor to witness a
decline of ~1.8% in its domestic volumes. GDL has indicated
that it targets to reduce the share of domestic volumes from
35% currently to ~10% by FY2012E.
Sustaining margins a challenge for Concor
Concor's OPM has been declining over the years, though since
the last two-three years it has stabilised at 25-27%. The margin
decline can mainly be attributed to lower ground rent revenue,
inability to completely pass on the hike in haulage charges due
to intense competition and rebates to clients, all of which have
pulled down the company's exim performance. Moreover, the
Jat agitation, which began on March 5, 2011, led to cancellation
of hundreds of passenger and cargo trains, which is likely to
have an adverse impact on Concor's exim and domestic
container throughput to and from ports on the western coast.
Container traffic outperforming overall cargo traffic
Container traffic increased from 3.4mn TEUs in FY2003 to
6.9mn TEUs in FY2010, registering an 11% CAGR during the
period. Meanwhile, cargo at major ports posted a 9% CAGR
during the mentioned period. The share of container traffic in
the current decade increased from 11.5% in FY2003 to 18.0%
in FY2010, following increased private participation in handling
container terminals and customer preference in transporting
cargo in containerised form as it reduces handling costs.
While the slowdown in global trade in FY2009 impacted
containerisation more than the overall cargo traffic, the trend
reversed in 2HFY2010 and container traffic is expected to
outperform overall cargo going ahead.
Bullish on the container industry on low penetration
and customer preference
Non-bulk cargo, which constitutes ~35% of the total cargo at
major ports, has the potential to be transported in containerised
form. Earlier, only basic goods were suitable for shipment in
containers, but now most items can be shipped in a container.
It is estimated that 75-80% of the total non-bulk cargo can be
containerised. Currently, the level of containerisation in India is
at ~51%, compared to 80% globally, which indicates the scope
of growth on account of improved infrastructure. The share of
containerised traffic increased by around 700bp during
FY2007-09, despite the slowdown in trade in FY2009; however,
it tapered down in FY2010. We expect the share of
containerisation to sustain at current levels in the near term,
as it helps to reduce handling costs. However, it is expected to
increase to 62-65% over the next five years
Sensex vs. logistics stocks
During 4QFY2011, the Sensex declined by 5.2%. From our
coverage universe, Concor underperformed in line with the
Sensex. Concor's underperformance was on expected lines,
as investors had begun to discount the impact of freight hike
on OPMs and volumes.
GDL sharply outperformed the Sensex by 1,219bp during
4QFY2011. We expect GDL to be adversely affected by the
freight hike; however, management has guided that the
company intends to shift its focus towards the more lucrative
exim segment. Besides, the breakeven of the company's rail
business at the PAT level has also been encouraging. We expect
an increase in the pace of GDL's capex by utilising the cash
received from Blackstone.
AGL also sharply outperformed the Sensex by 2,339bp during
the quarter. Going ahead, AGL's performance shall largely be
driven by its ability to sustain volumes and realisations at its
European subsidiary, ECU Line (contributes ~70% to the top
line), which has been on an uptick since the past two quarters.
Outlook
We believe sustained growth in the Indian economy with GDP
growth expected at 8.5% over the next few years as well as
emergence of India as a global outsourcing hub will facilitate
the country's container trade. In the current decade, container
traffic registered a 12% CAGR compared to the 9% CAGR posted
by the total traffic at major ports. We expect this trend to continue
and container traffic to register an 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 are quoting at attractive valuations. We are
rolling over our target price on FY2013E EPS. Accordingly,
we maintain our Neutral view on Concor as we expect
competition to intensify in the domestic rail business. Post the
recent freight hikes, we await clarity on Concor's ability to sustain
domestic market share and pricing power in the high-margin
exim segment. We recommend an Accumulate rating on GDL
and expect the company to register a 15.1% CAGR in EPS over
FY2011-13, on account of being present at strategic locations,
its ongoing expansion plans and breakeven in the rail business
at the PAT level. We maintain our Buy recommendation on AGL,
owing to reasonable valuations and improved performance by
ECU Line over the last few quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Logistics
For 4QFY2011, we expect Gateway Distripark (GDL) and
Allcargo (AGL) (1QCY2011) to report strong revenue growth
of 14.5% and 22.1% yoy, respectively, on the back of healthy
exim volume growth. AGL is likely to benefit mainly because of
a low base effect and consistently improving ECU Line numbers.
However, Concor is expected to report flat top-line growth,
as increased container haulage charges and competition are
likely to shift some volumes to road and private carriers.
Operating margins (OPMs) of these companies are expected
to be healthy for the current quarter on account of rebates,
which led to lower OPMs in 4QFY2010. AGL and Concor are
expected to report healthy PAT growth of 47.5% and 28.8%
yoy, respectively, due to improving ECU Line numbers for AGL
and on a low base, while GDL is expected to report a marginal
decline of 0.5% yoy as the company begins to pay higher tax
post ending of MAT credit entitlement. Overall, we expect a
11.7% and 12.4% yoy increase in revenue and PAT respectively,
for our coverage universe.
Impact of Union Budget FY2011-12
The Union Budget FY2011-12 has accorded infrastructure
status to cold storage projects, as a result of which capital
investment will be eligible for the viability gap funding scheme
of the Finance Ministry. Companies such as Concor and
GDL are expected to benefit, as they intend to expand their
cold chain business.
Container volumes stabilising at higher levels
The container traffic data released for April 2010-February 2011
by the Indian Port Association (IPA) reported robust growth of
10.6% yoy on a low base and revival in global trade. The JNPT
port, which handles around 60% of the country's container
volumes, registered 6.0% yoy growth in volumes.
It even achieved its best-ever volumes for a fiscal year, with
figures touching 4.2mn TEUs in FY2011 YTD vis-à-vis 4.1mn
TEUs for FY2010. The Chennai port, which handles around
Exports picking up
India's merchandise exports during April 2010-February 2011
grew by robust 31.4% to US $208bn, ahead of the FY2011
target of US $200bn. This is on account of diversification to
new markets in Asia, Africa and Latin America coupled with
revival in demand in the US. Imports also recorded robust growth
of 18% yoy to US $305bn, taking the trade deficit to US $97bn.
The revival in exim trade has been visible in the overall port
throughput as well as container volumes.
17% of the country's container volumes, has recorded a strong
increase of 26.4% yoy in volumes for the mentioned period.
Container data for FY2011 so far indicates that volumes have
stabilised at higher levels albeit on the low base of FY2010.
Going ahead, we expect the ports to sustain the monthly
run-rate and surpass the 7.0mn TEU mark set for FY2011.
Company wise, Concor is expected to post a 10.9% yoy increase
in exim volumes, while GDL is expected to report 11.8% yoy
growth in CFS volumes.
Logistics
Key developments
No rollback of freight hike
During 3QFY2011, the Indian Railways (IR) had proposed a
50-200% hike on transportation of nine commodities and an
additional increase of 4% in freight rates across the board.
The hike was under review post industry presentations for a
roll-back. However, with no downward revision in rate hikes,
Concor as well as private operators have revised their rail freight
tariffs with effect from mid-January 2011. Consequently,
a substantial share of domestic traffic has begun to shift to
road carriers. For 4QFY2011, we expect Concor to witness a
decline of ~1.8% in its domestic volumes. GDL has indicated
that it targets to reduce the share of domestic volumes from
35% currently to ~10% by FY2012E.
Sustaining margins a challenge for Concor
Concor's OPM has been declining over the years, though since
the last two-three years it has stabilised at 25-27%. The margin
decline can mainly be attributed to lower ground rent revenue,
inability to completely pass on the hike in haulage charges due
to intense competition and rebates to clients, all of which have
pulled down the company's exim performance. Moreover, the
Jat agitation, which began on March 5, 2011, led to cancellation
of hundreds of passenger and cargo trains, which is likely to
have an adverse impact on Concor's exim and domestic
container throughput to and from ports on the western coast.
Container traffic outperforming overall cargo traffic
Container traffic increased from 3.4mn TEUs in FY2003 to
6.9mn TEUs in FY2010, registering an 11% CAGR during the
period. Meanwhile, cargo at major ports posted a 9% CAGR
during the mentioned period. The share of container traffic in
the current decade increased from 11.5% in FY2003 to 18.0%
in FY2010, following increased private participation in handling
container terminals and customer preference in transporting
cargo in containerised form as it reduces handling costs.
While the slowdown in global trade in FY2009 impacted
containerisation more than the overall cargo traffic, the trend
reversed in 2HFY2010 and container traffic is expected to
outperform overall cargo going ahead.
Bullish on the container industry on low penetration
and customer preference
Non-bulk cargo, which constitutes ~35% of the total cargo at
major ports, has the potential to be transported in containerised
form. Earlier, only basic goods were suitable for shipment in
containers, but now most items can be shipped in a container.
It is estimated that 75-80% of the total non-bulk cargo can be
containerised. Currently, the level of containerisation in India is
at ~51%, compared to 80% globally, which indicates the scope
of growth on account of improved infrastructure. The share of
containerised traffic increased by around 700bp during
FY2007-09, despite the slowdown in trade in FY2009; however,
it tapered down in FY2010. We expect the share of
containerisation to sustain at current levels in the near term,
as it helps to reduce handling costs. However, it is expected to
increase to 62-65% over the next five years
Sensex vs. logistics stocks
During 4QFY2011, the Sensex declined by 5.2%. From our
coverage universe, Concor underperformed in line with the
Sensex. Concor's underperformance was on expected lines,
as investors had begun to discount the impact of freight hike
on OPMs and volumes.
GDL sharply outperformed the Sensex by 1,219bp during
4QFY2011. We expect GDL to be adversely affected by the
freight hike; however, management has guided that the
company intends to shift its focus towards the more lucrative
exim segment. Besides, the breakeven of the company's rail
business at the PAT level has also been encouraging. We expect
an increase in the pace of GDL's capex by utilising the cash
received from Blackstone.
AGL also sharply outperformed the Sensex by 2,339bp during
the quarter. Going ahead, AGL's performance shall largely be
driven by its ability to sustain volumes and realisations at its
European subsidiary, ECU Line (contributes ~70% to the top
line), which has been on an uptick since the past two quarters.
Outlook
We believe sustained growth in the Indian economy with GDP
growth expected at 8.5% over the next few years as well as
emergence of India as a global outsourcing hub will facilitate
the country's container trade. In the current decade, container
traffic registered a 12% CAGR compared to the 9% CAGR posted
by the total traffic at major ports. We expect this trend to continue
and container traffic to register an 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 are quoting at attractive valuations. We are
rolling over our target price on FY2013E EPS. Accordingly,
we maintain our Neutral view on Concor as we expect
competition to intensify in the domestic rail business. Post the
recent freight hikes, we await clarity on Concor's ability to sustain
domestic market share and pricing power in the high-margin
exim segment. We recommend an Accumulate rating on GDL
and expect the company to register a 15.1% CAGR in EPS over
FY2011-13, on account of being present at strategic locations,
its ongoing expansion plans and breakeven in the rail business
at the PAT level. We maintain our Buy recommendation on AGL,
owing to reasonable valuations and improved performance by
ECU Line over the last few quarters.
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