The logistics industry has seen a massive change in the last few years, with the introduction of reforms like GST and e-way bill. With the abolishment of state-level taxation through GST, the industry is heading towards consolidation and efficiency. Development of support infrastructure that improves connectivity and leads to a faster turnaround time. Besides this, there is a change in the perception of logistics being more than just transportation and warehousing, but as a specialized function. Even the evolving consumer demands, where the speed of delivery is of utmost importance; and the emergence of tech-driven operators in this space, who are fast capturing market share are transforming the logistics sector.
“The logistics market, pegged ~USD 250 billion, is expected to grow at 10-12% CAGR (Compounded Annual Growth Rate), with a pick-up in demand. The shift to organized from the unorganized sector (~90% currently) would be an additional kicker. The demand for value-added services is on the rise,” said Alok Deora of Motilal Oswal.
The brokerage firm expects the 3PL (third party logistics) segment to witness a strong pick-up as more companies outsource a large part of their Logistics to 3PL operators. Express cargo would benefit from a pickup in Manufacturing and exponential growth in e-commerce. We expect the Rail Container operators to gain traction with the commissioning of the Dedicated Freight Corridor (DFC).
Citing this the brokerage firm is bullish on the following stocks.
TCI Express is one of the better placed express players, with a robust position in the Express industry, higher contribution from B2B (business to business) clients and focus on the growing SME sector. Motilal Oswal expects the company to clock a revenue/EBITDA(Earnings Before Interest Tax Depreciation and Amortization) /PAT (Profit After Tax) CAGR (Compounded Annual Growth Rate) of ~19%/26%/24% over FY21-24E.
TCI is a long-term play, backed by a diversified clientele base (with no reliance on anchor customers), improving share of high margin Less than Truck Load (LTL) business in the Road Freight division, and strong presence in the high growth 3PL segment. The brokerage firm expects the company to clock a revenue/EBITDA/PAT CAGR of~17%/21%/26% over FY21-24E.
Robust demand from the LTL segment over the next couple of years (driven by reforms like GST and e-way bill), would result in 16% revenue CAGR over FY21-24E. This in turn will aid in continuing healthy margin profile, leading to 15% EBITDA CAGR. With a low growth in depreciation due to the limited capex requirement Motilal Oswal expects a PAT CAGR over FY21-24E, with a RoE of ~17% in FY24E.
Container Corporation of India is the undisputed market leader in Rail freight Logistics, benefitting from the commissioning of DFCs, leading to higher margin and volume. The brokerage house expects the company to clock a revenue/EBITDA/PAT CAGR of ~22%/37%/44% over FY21-24E. The stock trades at 13x FY24E EV/EBITDA.
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