Invest in logistics stocks, but selectively

With the Covid-19 pandemic crippling the supply-chain management across borders, investors and venture capital firms started to place their bets on logistics, seeing manifold growth in e-commerce.

Lovvisha Darad reports.

Logistic players have seen a sharp correction at the bourses over the past six months as intense competition from new-age-tech startups, higher freight rates, and weak macros dented listed players’ growth outlook.

Analysts warn that the emergence of tech-based startups could weigh on organised players’ profit-pool, and can potentially erode their market share.

Thus, a stock-specific strategy would be prudent at this juncture with focus on companies that are rapidly innovating and investing in technology.

“The domestic logistics space is changing rapidly due to the introduction of multi-modal logistics, which improves rail or road infrastructure, raising demand for efficient or seamless transportation of goods.

“Thereby, it is the time for traditional logistic companies to evolve from their old methods, and invest in tech platforms.

“It is the only way to secure their market share in the coming years, or they will continue to grow at a single-digit growth and lose market share to new-age tech-based logistic companies,” said Vinit Bolinjkar, head of research at Ventura Securities.

Among the listed players, new-age-tech based startup Delhivery reported revenue growth at a CAGR of 51.6 per cent to Rs 5,911 crore in fiscal year 2017-22, which was significantly higher than the revenue growth of traditional logistic firms like VRL Logistics (5.8 per cent CAGR to Rs 2,394 crore), and TCI Express (10.9 per cent CAGR to Rs 3,257 crore), during the same period, said analysts.

On the bourses, shares of Allcargo Logistics, Concor, Gateway Distriparks, Mahindra Logistics, Snowman Logistics, TCI Express, Transport Corporation of India, and VRL Logistics tumbled up to 27 per cent over the past six months, as against 1.3 per cent rise in the S&P BSE Sensex, ACE Equity data shows.

Fund infusion in new-age-tech logistic startups

With the Covid-19 pandemic crippling the supply-chain management across borders, investors and venture capital firms started to place their bets on logistics, seeing manifold growth in e-commerce.

According to a Mckinsey report, funding for logistic startups almost doubled in 2021 vs 2020 to over $80 million in global markets.

However, it fell 53 per cent year-on-year (YoY) by the third quarter of 2022 as liquidity dried up.

Despite deteriorating liquidity, data suggested that, back home, logistic tech startups like Pidge, Locad, Freightify, Raaho, among others managed to raise over Rs 2 crore funds this calendar year.

As these logistic startups spring up, experts at McKinsey believe that the usage of advanced technologies, block-chain, artificial intelligence (AI), machine learning (ML), and data analytics could streamline the overall ecosystem, and bring down India’s logistics cost by as much as 25 per cent.

Investment rationale

Against this backdrop, Ronald Siyoni, associate vice president at Sharekhan by BNP Paribas believe that the government’s focus on initiatives like indigenous production, supported by production-linked incentives, and national logistics policy will benefit the logistics players by bringing the organised and unorganised silos under one umbrella.

“From an investment standpoint, we foresee fresh buying opportunities in the segment, as stocks trade below their 5-year average 1-year forward price-to-earnings (P/E) multiples post six-month correction. Our preferred picks in the sector are TCI Express and Transport Corporation of India,” he added.

Global brokerages — Jefferies, Morgan Stanley, and CLSA — meanwhile remain bullish on Delhivery, and have a ‘buy’ stance on the counter given its long-term play on multi-modal themes.

They have a one-year target price of up to Rs 570 per share, implying an upside potential of over 70 per cent from the current market price (CMP).

That said, AK Prabhakar, head of research, IDBI Capital asserted that the shift to listed from unorganised players will remain intact due to greater transparency and margin safety.

Prabhakar is bullish on Bluedart, Mahindra Logistics, VRL Logistics, and TCI Express from a long-term perspective.

However, cooling of freight prices continues to remain a short-term headwind, he added.

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