Mumbai: After having enjoyed increasing sales thanks to a long festival season, logistics companies appear to be going through leaner times. Volume growth at ports and, to some extent, the railways have been sluggish. Subdued export-import (Exim) data as well as automobile sales have only added to the volume deceleration.

Broker channel checks are showing that a contraction continues in freight rates. “Though fuel costs have been flat, demand has been subdued, putting pressure on freight rates," said Edelweiss Securities Ltd in a note to clients.

That means the March quarter results are likely to have been potholed for road logistics and heavy-asset truckers such as VRL Logistics Ltd.

Additionally, goods movements at ports and with Indian Railways have shown sputtering growth, while other indicators such as Exim trade have been sluggish.

“Demand for logistics services was subdued during Q4FY19, as per our market interactions as well as key lead indicators: flat EXIM trade growth (down 0.4% YoY during Jan-Feb’19), muted container traffic for the Indian Railways (up 5.5% YoY in Q4 vs. 10% YoY for FY19), and subdued major port volumes (up 0.5% YoY vs. 2.9% YoY). Consequently, we expect Q4FY19 volume growth for logistics operators, especially those in the traditional road and rail sub-segments, to have been soft," BOB Capital Markets Ltd said in a note to clients.

Container rail volumes have seen modest growth. “For Q4FY19, Concor’s (Container Corporation of India Ltd’s) volume growth stands at only 3% YoY, which in turn, implies Concor’s annual FY19 volume growth is around 8%, lower than its guidance," said Edelweiss Securities in its note.

While the slowdown in the auto sub-segment is likely to have hit companies such as Mahindra Logistics Ltd and Transport Corporation of India Ltd, the warehousing business could, however, be a saving grace for the former.

The silver lining, though, for the sector is likely to have been consumer-focused third-party logistics. This sub-segment delivers goods and services to retail and end-use consumers. The widespread expectation is that volume growth is expected to have been better.

“Consumer-focused 3PL (third-party logistics) (Future Supply Chain Solutions—FSCSL) and express segments (TCI Express—TCIEXP) are likely to post healthy growth," noted BOB Capital Markets in its report.

While structural reforms offer opportunities in the long run, valuations are already high. Some companies in the logistics pack continue to trade at lofty valuations. Mahindra Logistics, Container Corporation and Transport Corporation are already quoting at high one-year forward price-earnings multiple of 67.95, 25.88, and 45.85 times, respectively.

How these firms push through the current sluggish phase should determine the future course of action for investors, especially given that valuations provide little room for error.

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