Favorable basis to support logistics company profits from Q1 FY24

Most listed logistics companies saw weak volume growth in the December quarter. A few factors were responsible for this. Slower business activity following the Diwali celebrations weighed on the domestic business-to-business segment and a slowdown in the global market impacted export-import volumes. According to analysts at Jefferies India Pvt. Ltd, the sector’s operating margins have been relatively resilient and have surprising leverage potential for volume recovery.

“Volume is the most important driver of share price development for the logistics sector in India. Margins have moved in tandem with volume as competitive intensity in ports, road and rail logistics has been broadly stable for all but a few quarters,” the Jefferies report of Feb. 27 said.

Global growth, battered after the Russia-Ukraine war, is expected to rebound to over 2.5% in 2024 after slowing to 1.8-2% (CY22 2.9%) in 2023, which should potentially cause volume to bottom out in the next couple of quarters, the report added.

That being said, Jefferies believes that 2023 will see follow-up to the National Logistics’ Policy (NLP), continued GST-driven stake gains by organized actors, and growth in traffic on the Dedicated Freight Corridor (DFC).

Meanwhile, Container Corporation of India (Concor), Delhivery and TCI Express are the research house’s top picks from the sector. Year-to-date, Concor stock has fallen 20%. “We believe 20% Volume CAGR and 25% Earnings CAGR for Concor driven by DFC in FY22-25E should lead up. The near-term divestment trigger is on hold and any progress here will come as an entirely positive surprise,” the report added.

In the case of Delhivery, Q3FY23 results surprised on the upside with smaller losses. “We believe current pricing levels reflect single-digit B2C growth and also higher risk perception, which we factored into our DCF-based target price. We believe that meeting the lowered expectations will be enough for the stock to move significantly higher in 2023,” the report added. I live mint

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