Q3 Results Preview: Logistics cos show signs of growth, volume growth to set pace, says Nuvama; picks Blue Dart Express

Q3 Results Preview: Brokerage Nuvama Institutional Equities stated in its Q3FY24 preview report on the logistics sector that although the first half of FY23 appeared to be modest, H2 appears to be showing signs of growth. Rather than pricing, volume growth will set the pace. Blue Dart Express remains the brokerage's top choice.

The two new Blue Dart aircraft are seeing an increase in volume, according to the brokerage. Improved utilisation also means that the brokerage anticipates the market-tightened sequential margin improvement to continue.

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"We anticipate Blue Dart Express to reach stable state margin profile of 12–13% over the next three–four quarters and, in the process, to continue to re-rate. With strong turnaround prospects, Blue Dart Express is our top pick," the brokerage said in its report.

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Furthermore, the brokerage reported that for Q3FY24E, it observed strong metrics across key parameters, including E-Way bill generation, which is continuously rising to new highs—up about 19% YoY; freight rates across all routes are still strong, meaning that truckers' profitability is almost at its highest level since 2015; and sequentially stable fuel costs, which are currently at around ₹89/litre.

E-Way bill reaches new heights; freight rates strong across routes

The brokerage states that E-Way bill generation increased 19% YoY in Q3FY24, which it considered to be a significant uptick. The total E-way generation hit an all-time high of 100 million on October 23. For the last two quarters, freight rates have mostly stayed within a range (near all-time highs). Conversely, stable fuel prices will maintain surface players' profit margins.

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In terms of express, the brokerage saw better volumes in Q2FY24 and anticipates even better volumes in Q3FY24, following a seasonally weak Q1. Additionally, its checks show that double-digit volume growth is expected, particularly for express players.

Delhivery will see a reduction in PAT loss and positive EBITDA as a result of sequential volume improvement. In a similar vein, Blue Dart Express might also experience a QoQ volume improvement, but realisation might stay unchanged. Blue Dart Express will see further improvements in margins.

In comparison to other sectors, Q3 should be better for surface players (strong growth in EWay bill generation). For VRL, double-digit volume growth is guaranteed by recent capacity additions and penetration in the north. In addition, stable margins in Q3 will be guaranteed by lowering truck hire costs and buying diesel in bulk.

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Freight rail data flat QoQ; container volumes dip slightly

The brokerage states that there was an increase in container rail data as well, particularly on the EXIM side, which had been weak for the previous few months.

"This is a positive for Concor, which has been struggling on the EXIM side (high-margin business). We expect some recovery in margins with efforts to drive EXIM volumes providing a cushion," the brokerage said in its report.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.