With India back on the move, should you bet on logistics stocks?
The demand environment for logistic sector is expected to remain strong over a much longer period due to structural growth drivers
While India has managed to contain the spread of second wave of Covid-19 infections, the situation on the economic front looks grim. However, with most states easing the lockdown restrictions, economic activities are expected to pick up pace across the country.
With the economic activities resuming, brokerage firm Sharekhan sees logistics industry at the cusp of a strong rebound. “The logistics industry is expected to witness strong pent-up demand from both domestic as well as global clients. The sector is expected to show strong resilience in Q1FY2022 as can be derived from leading macro indicators. The demand environment for the sector is expected to remain strong over a much longer period due to structural growth drivers in terms of GST, national logistics policy, Atmanirbhar Bharat, and global supply chain re-alignments,” the brokerage said in a report.
Further, growth in the sector is expected to be broad-based across rail, road, sea, supply chain management, and cold chain. Consequently, logistics players have announced aggressive capex plans across various verticals to capture the high demand, added the report.
The brokerage firm is of the view that the logistics sector is at the cusp of sustained high growth over the next three to four years and has a positive view on the sector.
Stocks views
Transport Corporation of India | Price target: Rs 541 | Upside: 26%
TCI is expected to benefit from the logistics sector’s growth tailwinds led by GST (business moving towards the organised sector), the impact of COVID-19 (increased outsourcing of logistics services to prevent supply chain disruptions in future), government thrust on Atmanirbhar Bharat (PLI incentives to increase domestic manufacturing in turn leading to increased logistics needs), and global supply chain re-alignments (India is expected to be one of the key beneficiaries of China +1 strategy for global manufacturers). TCI is poised to be on a long-term growth trajectory, driven by positive sectoral fundamentals and its inherent strengths and capabilities.
TCI Express | Price target: Rs 1,861 | Upside: 30%
TCI Express is expected to benefit from the strong recovery expected in SME industries, driven by pent-up demand from as early as June 2021. The company has been able to consistently improve upon gross margins and operating profit margin despite volumes being impacted during FY2021 and is confident of further increasing it going ahead. The company’s expansion plans of sorting centres remain largely on track, which along with two new business ventures would aid in strong revenue growth and operational profitability. It continues to deepen its presence with the target of doubling the number of branches in 3-4 years.
Gateway Distriparks | Price target: Rs 390 | Upside: 31%
Gateway Distriparks has been able to improve upon its rail division’s profitability, which is expected to sustain going ahead (with an extension of discount on haulage charges till April 30, 2022). It is also expected to gain from the commissioning of the dedicated freight corridor and fourth terminal at JNPT in terms of volumes. India’s speedy vaccination drive is expected to lead to strong domestic demand continuing. EXIM demand is expected to remain strong led by faster revival in developed economies and the government’s thrust on improving exports. The company is on a strong growth trajectory led by rail division, focus on deleveraging, and capacity expansion.
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