The monthly cargo volumes over the last six-nine months have witnessed an upward trend (year-on-year, or y-o-y, growth) driven by growth in the global economy and a low base impact. However, continuity of such buoyancy is uncertain primarily due to the high base effect that would play out in the near term. Also, with limited incremental capacity available at the Jawaharlal Nehru port, export-import (exim) volumes have already started shifting to other ports such as Pipavav Shipyard Ltd and Mundra Port and Special Economic Zone Ltd (resulting in lower lead distance and thus relatively lower realizations/margins). Moreover, a steep hike in freight rates by Indian Railways has also affected domestic volumes.
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Among the listed rail haulage firms, Container Corp. of India Ltd (Concor) remains relatively more sensitive to the expected drop in rail volumes (around 4% impact on FY12 earnings per share on a 5% change in exim volumes, against a 1.7% impact for Gateway Distriparks Ltd, or GDL). On account of the relatively lower volume growth, we expect Concor’s stock to remain under pressure in the near to medium term and therefore prefer GDL instead.
While our channel checks suggest continued buoyancy in exim container volumes (sequential monthly growth) over the near to medium term, a high base impact will result in much lower year-on-year growth for container volumes over the near to medium term. Container volumes across bigger ports saw 2% y-o-y growth (up 8.8% sequentially) in March against around 10% y-o-y growth clocked in earlier months.
Freight and volumes
On account of a steep hike in rail freight for domestic container volumes (on specified commodities such as iron ore and marble) and minor hitches due to agitation from Gujjars and Jats, rail haulage firms (both listed and unlisted) have witnessed a drop in domestic volumes.
Some firms such as Gateway Rail Freight Ltd have already shifted their focus from the domestic space to the higher margin exim segment.
Jawaharlal Nehru port handled 4.26 million 20-foot equivalent units (teus) in FY11 (4.06 million teus in FY10) against an aggregate capacity of around 4.8 million teus. While port authorities are in talks to increase the port’s capacity further (addition of fourth terminal with around 2 million teus capacity), the industry does not expect this terminal to be operational before 2015. Thus, there are concerns on limited availability of incremental capacity at the Jawaharlal Nehru port over the medium term.
Graphic by Ahmed Raza Khan/Mint
Edited excerpts from a report by Religare Capital Markets. Your comments are welcome at email@example.com