Even after a stupendous rally in the shares of logistics companies in the past year that saw stock prices of frontline players jump as much as 270 per cent, analysts have toned down their return expectation. While they remain bullish on the sector as they see it as a big beneficiary of the 're-opening of the economy' theme, with pent-up demand expected to drive growth, they suggest investors be choosy and buy stocks of companies that have revenue visibility and balance-sheet strength.
Besides traditional avenues for growth, cold chain supply solutions for the pharma and fast moving consumer goods (FMCG) sector can result in big opportunities for the space, they said.
"Vaccine partnerships will be a near-term booster for the sector and are sentimentally positive, but the real kicker is the sharp uptick in the economic activity, which will structurally drive the logistics sector," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
The second wave of the pandemic is largely behind India with daily cases at two-month low. Given this, some of the states have started to unlock and the focus has now shifted to vaccinating citizens at an aggressive pace. As the economy opens, analysts believe pent-up demand for goods and services will play out.
"Whenever one talks about the boom in the logistic sector, it directly indicates an upshift in business growth and ultimately expectations of higher GDP. The pent-up demand in many sectors, especially manufacturing, agri, pharmaceuticals, chemicals and metals will require higher transportation of raw material, semi-finished and finished goods. This will become a major driving force for the sector," said Vishal Wagh, research head at Bonanza Portfolio.
Growing demand for cold chain logistics has also become a boon for the sector, with companies foraying into new services that analysts say can result in a big boost to their business model.
The Indian cold supply chain sector, according to reports, is set to grow at a CAGR of 17-18 per cent till 2022. While growth will be driven by the government-led Covid immunisation programme, the growing e-commerce market for FMCG, dairy, meat and fish, will also help propel the sector significantly, given the ongoing virus threat, reports suggest.
To tap into this opportunity, TCI Express in the March quarter launched a ‘Cold Chain Express Service’. Meanwhile, Snowman Logistics
has already bagged a deal from DRL to provide temperature-controlled end-to-end logistics solutions for the delivery of the Sputnik Covid-19 vaccine. AC manufacturer Blue Star recently launched a new range of refrigeration products and solutions which it said are ideal for storing vaccines.
"Vaccination is a recurring theme and more players are seeking manufacturing opportunities. Currently, the market is small but the business is expected to increase going ahead. Logistics has been a key focus area of the government. GST, National Logistics Policy and other structural steps will lead to increase in market share of organised players and result in the long-term growth of the sector," said Ronald Siyoni, AVP- Sharekhan.
In this backdrop, many experts say while the valuations for the stocks look stretched after a 67-270 per cent surge in shares of key players in the last one year, some of the names can still make for good bets as the industry is expected to grow at a CAGR of 10.5 per cent between 2019-2025.
According to Alok Deora, a research analyst at YES Securities, TCI Express, Transport Corporation of India
and Blue Dart are some of the top names investors can look to buy. "Their brand name and reach in remote parts of the country make them good bets. The stocks have run-up in the recent months, and the price may come off a bit but we are positive on them structurally," Deora said.
Wagh, meanwhile, recommends investors wait for a healthy correction to enter logistics stocks.
GATI, TCI, and VRL are a few good stocks to invest in on correction, he said.
That said, Siyoni believes Snowman Logistic, TCI Express, Concor, Gateway Distriparks
and Mahindra Logistics can be top bets from the space.