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Analysts bullish on logistics but with a caveat

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NEW DELHI : Stocks from the logistics segment may well have seen a slowdown of sorts in the last couple of years, but a large section of market participants believe that the time has come for the sector to rebound.

Stocks like Container Corporation of India, Delhivery, TCI Express, and Mahindra Logistics, among others, are on analysts’ radars, and while many feel that valuations may appear cheap in certain cases, investors need to be careful and look at stocks from a long-term growth potential.

Interestingly, a report released in April by domestic brokerage major Prabhudas Lilladher stated that the logistics sector in India “is a dynamic yet complex ecosystem and key enabler for economic growth, that caters to a variety of industries and their unique needs,” while highlighting the fact that about 71 percent of the volume and around 65-70 percent of the transportation revenue currently comes from road logistics.

In a similar context, Harshal Mehta, Research Analyst at Prabhudas Lilladher, notes that they expect that the next two years (FY25 and FY26) could be better for logistics firms after a slowdown over the last few years.

“Listed logistics companies are mostly asset-light, relying on vendors for trucks and assets like warehouses, but they are undertaking capex for warehouse automation, and building IT assets. The industry has slowed down since H2FY23, but we see green shoots in FY25 due to a growing manufacturing index, improvement in consumption on the back of (expected) good rainfall, and a normal festive season,” explains Mehta.

Incidentally, even asset management companies (AMCs) appear bullish on the segment with five fund houses — Aditya Birla Sun Life MF, UTI MF, HDFC MF, Bandhan MF and ICICI Prudential MF — focussing on the logistics space. Indeed, this has not deterred Kotak Mutual Fund from filing the  documents for an NFO (new fund offer) with SEBI, to launch a transportation and logistics fund.

Container Corporation of India (Concor) seems to be the favourite of many analysts. The stock has gained 68 percent over the last one year and currently around 12 analysts have a buy call on the stock, along with 11 hold calls and five  sell recommendations.

Rajarshri Maitra, Associate Director at InCred Research Services, is of the view that the company is a top pick in the segment as it could be a direct beneficiary of the dedicated freight corridor (DFC), and volumes can rise 50 percent over the next three years. The DFC is a dedicated network solely for freight trains.

Apart from Concor, Delhivery  (the stock has gained a mere 2 percent in the past year) is also seeing a lot of traction in the analyst community, with 18 buy calls, four hold calls, and three sell recommendations.

In a recent report, analysts at Prabhudas Lilladher noted that B2C logistics companies like Delhivery stand to gain significantly from the recalibration of online and retail supply chains in India, while adding that despite increasing competition, Delhivery is expected to grow at 18 percent CAGR over FY24-26E.

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