New Delhi: High base effect and capacity constraints at Jawaharlal Nehru Port Trust (JNPT) in Mumbai might significantly impact volumes of the companies focused on rail freight. Capacity constraints at JNPT are driving export-import volumes to other ports such as Pipavav and Mundra. The shift, even though partial, is lowering the average lead distance. The reduction in lead distance can weigh on margins and realizations of logistics firms as containers run for shorter distances.
The other issue that might haunt rail freight companies is the impact of high base effect. Logistics firms, till now, had registered benign volume growth of 7-8% on the pick-up in business activity and low base effect. But this advantage of high single digit growth rates might peter out from March this year.
Ankur Periwal of Religare Capital Markets notes:
Although our channel check suggests that a sequential (MoM) up-trend in overall container volumes would continue, a higher base effect (due to greater volume growth from Mar ’10 onwards) could result in relatively lower YoY growth in container volumes across major ports (Mar ’11 volume growth at around 2% across major ports).
According to Religare Capital Markets, container volumes growth across major ports, on average, slowed marginally to around 7% in fourth quarter of 2010-11. In third quarter the growth stood at 8%. Volumes in JNPT have already started to weaken. Container volumes at JNPT fell to 1.063 million TEU (Twenty foot Equivalent Unit) from 1.098 million in the earlier quarter.
According to analysts at Religare Capital Markets, Concor is more sensitive to a drop in rail volumes. A 5% change in volumes is expected to impact the company’s 2011-12 EPS by around 4%. For the same percentage of change in volumes, Gateway Distriparks is expected to see its EPS impacted by around 1.7%.
Even though the stocks have been outperforming the Sensex since the beginning of this year, volumes growth in the coming quarter can have significant bearing on the performance of the stocks.