5 promising ports and Logistics stocks
Strong government support, increased investments, a unified tax structure under GST and global trade imbalances will benefit these companies. The Logistics sector plays a significant role in India’s economy.
By managing the transfer of goods from their point of origin to their point of consumption, the Logistics sector plays a significant role in India’s economy. Similarly, ports assist in trade and commerce by providing the crucial link between sea and land transport. Both ports and Logistics companies are ripe for investments and brokerages including JM Financial and JP Morgan, and research firms such as Bloomberg Intelligence are bullish on the prospects of India’s port and logistics sector in 2019.
Logistics players may gain due to increased domestic consumption, rising exports, surging container volumes, loosening infrastructure bottlenecks and increased investments in the new facilities. On the other hand, private port operators are likely to benefit due to the increasing trans-shipment volumes, improving profitability and market share gains. Steps such as implementation of the GST, which created a unified indirect tax, and introduction of the e-way bill, which allows online monitoring of the movement of goods, will make logistics players more efficient. It is expected that the size of India’s logistics sector will be around $215 billion by 2020, aided by the implementation of the GST. The government has also provided strong support to the sector by including it in the harmonised master list of infrastructure sub-sector. This will aid credit flow into the sector with longer tenures and reasonable interest rates and attract investments from the debt and pension funds. Ambitious infrastructure projects such as the Bharatmala Pariyojana, aimed at improving the efficiency of freight movement across the country, will further boost the logistics sector.
JP Morgan believes that the US-China trade war provides an opportunity to India to act as an intermediary. It expects port volumes to grow at 10% in 2019. The brokerage expects that margins will continue to rise in the container rail segment due to its stable tariff policy. Express delivery companies will command better margins due to strong demand growth, operating leverage and premium pricing. Traditional road freight companies are likely to command stable margins due to industry-wide consolidation. According to ACE Equity, there are 47 companies in the ports and logistics sector. Of these, 16 are covered by Bloomberg analysts with a total 167 recommendations: 74% are buy, 16% are hold and 10% are sell. Let us look at five of these companies that have decent analyst recommendations and promise substantial one-year stock price growth.
VRL Logistics: It is engaged in goods and passenger transportation. In the logistics segment, it offers courier, full truck load and liquid transportation services. Analysts believe that improved business sentiment and pricing power will help the company. It may also benefit from the regulatory changes in the axle load norms. However, there are some concerns due to the lack of high growth in tonnage per km, which is affecting the company’s performance.