Logistics sector – Results review and Prospects

Even as the economy is battling with the second wave of Covid-19, supply chain appears to be smoother than when the pandemic began. After 2 quarters of hiccups, logistics sector players bounced back in the 2^nd half of FY-21. Let’s analyse their March quarter numbers and that of the half year and also look at what may be driving the sector.

Performance summary

Results: We looked at the performance of 6 logistics sector players whose results were out at the time of analysing this space. The key players in this business have seen robust performance in Q4 FY2021 and a strong revival through H2 FY2021. Blue Dart swung into profit of Rs. 90 crore in Q4 FY2021 from loss of Rs. 31 Crore in Q4 FY2020 while GDL’s profit grew 300%. While cost savings and the decision to revise prices led to turnaround for Blue Dart, GDL benefited from significant margin expansion in its rail freight and CFS (container freight station) businesses. 

TCI and TCI Express, both reported robust PAT growth on operational efficiencies while cold chain player Snowman reduced its losses.  For TCI, which is mainly into road transportation, this outperformance came as a surprise despite high fuel prices. Supply chain, rail (JV with Concor) and coastal shipping divisions of the company fired both on revenues and margins fronts for the company. The strong recovery in movement of goods post lock-down continued in Q3 and through Q4 as well.  One interesting aspect to note is that non-road modes of transportation showed significant pick-up. This was visible in the 71% Y-o-Y growth in TCI-Concor JV, 41% Y-0-Y growth in TCI’s coastal shipping business and strong margin performance of GDL’s rail freight business.  

Sharp stock price moves: The stock market gave a big thumbs up to the performance of these logistics sector players. The stock of TCI and TCI Express gained over 50% post their quarterly results.  Expansion in the valuation multiple for TCI came on back of strong profit growth guidance of 20% for FY22. Blue Dart and GDL saw a significant revival in their business fortunes after a slump, resulting in a whopping 300% stock-gain in the last 1 Year.  For players like GDL, the opening of more stretches of the Western Dedicated Freight Corridor has meant a turnaround in fortunes.

Company-specific details

The performance of many of these companies is not just a simple story of bounce back from the pandemic-hit first 2 quarters of FY-21. The latest ended fiscal happened to be the turnaround year for many of the companies for reasons you will find below:

• TCI has delivered performance across verticals and has reported growth for the full (pandemic-hit) year FY21, despite disruption in Q1. It is undertaking a capex of Rs. 225 Crore in FY22 to augment its seaways division (ship & containers)  and boost its multi-modal transportation capabilities. TCI is also divesting a 20% stake to Mitsui & Co in its cold chain business TCI Cold Chain Solutions, through which it handles vaccine distribution as well.
• MNC firm Blue Dart, a pioneer in express delivery, is banking on innovation on the delivery side after registering a strong business turnaround.  It has formed a consortium to deliver vaccines using drones under the ‘Medicine from the Sky’ project of Telangana government, World Economic Forum, NITI Aayog and Healthnet Global. The trials are expected to start in early June’22. Despite a 9.6% hike in price from January 2021, strong growth from e-commerce (20-25% of revenue) and electronics segments added to the growth.
• TCI Express, the express logistics business of TCI group, was among the players with triple digit earnings growth.  This asset-light company, which was spun-off from TCI in 2015, focuses on capex in technology to drive growth.  The company’s 1.5 lakh sq.ft. automated sorting center in Pune is ready and is awaiting approval, while its 2 lakh  sq. ft. sorting center at Gurugram is under construction. 
• GDL seems to be coming out of years of struggle after major investor exits, becoming family owned and buying back the entire stake in the rail division from PE investor Blackstone(in 2019).  The rail division, which operates a fleet of 31 container trains in India’s key EXIM (export-import) routes in North, will now operate double stack trains on the Western dedicated freight corridor, which is well connected to its ICDs (inland container depot). With 6 CFS (container freight station) at key port locations, 4 ICDs and a fleet of 400 road trailers it is trying to position itself as an integrated logistics sector player.
• Mahindra Logistics saw significantly improved performance in the fourth quarter of FY-21 but is still not out of the woods. One key highlight during the quarter was the Rs.1,000 crore deal it inked with Bajaj Electricals for a period of 5 years to offer total supply chain solutions. The deal could well pave the way for similar deals across segments like auto, FMCG, consumer goods, etc.
• Snowman Logistics, a GDL-held company (40% stake), with focus on cold chain, is in talks with vaccine manufacturers for domestic as well as imported vaccine distribution. It has 35 temperature-controlled warehousing facilities across 15 locations in the country with a combined capacity of 1,07,350 pallets and a fleet of about 265 refrigerated trucks. It is planning for a Rs. 250 crore QIP in FY22 and is in the process of acquiring land at more locations at an investment of Rs. 50 crore.

Key industry drivers and prospects

#1 Expect a Q1 dip

While the movement of goods was fully back on track at the end of March’21, the 2^nd wave of pandemic and the lock-down in major cities has affected the movement of goods yet again, although the restrictions are limited now compared with past year. Reports suggest that April’21 saw e-way bill generation decline to 58.7 million from 71.2 million in March, while only 19.4 million e-way bills have been generated on its portal till May 16.  But, with States looking to slowly open-up from June 2021, goods movement may once again get back on track.

#2 Advantage multi-modal logistics

If TCI’s story is any indicator, logistics users are now open to adopting multi-modal logistics if it offers cost efficiency and lesser delivery time. With fuel prices at highest levels, rail and coastal shipping offer better economics and TCI, for instance, is augmenting its capabilities in both the areas. The much-awaited National Logistics Policy too, will accelerate adoption of multi-modal transportation and facilitate seamless movement of goods. TCI already has a JV with Concor that grew 71% in FY’21. It has further diversified into Coastal shipping where it runs 6 ships between major ports in the West and East coasts connecting cities like Cochin, Turicorin and Vishakhapatnam.   

GDL, a major private player in rail freight with ICDs (Garhi Harsaru, Faridabad, and Ludhiana) across the Western Dedicated Freight corridor is looking to gain from significant volumes and operational efficiencies by running double stack trains in this route. With more stretches opening in coming years, this will significantly improve the economics of rail transportation and move more business to rail freight companies on such routes. 

Allcargo, another player in multimodal logistics, acquired 47% in express logistics and supply chain company GATI Ltd to widen its service offerings.

So, for those in the asset-heavy businesses, building capabilities in multi-modal transportation will be critical to providing cost-effective solutions for their customers.

#3 Pharmaceutical supply chain – another focus area

Pharmaceuticals is one of the focus areas for most of the companies involved in express logistics and supply chain management. While there are challenges when it comes to temperature-controlled logistics requirements, companies have this time around been quick to respond to the situation by upgrading, forging tie-ups and trying new methods of delivery. While Blue Dart has formed a consortium to deliver vaccines using drones under the ‘Medicine from the Sky’ project of Telangana government, World Economic Forum, NITI Aayog other players such as TCI and Snowman are focusing on augmenting their capabilities to handle vaccine distribution. TCI, being a smaller player in cold chain has decided to divest 20% stake to Mitsui & Co in its Cold chain business.

#4 Logistics Sector disruption and possible consolidation

The last time the logistics sector received attention was in 2017 after implementation of GST. 

While markets may have ignored it since, the sector has quietly attracted a lot of start-ups in the form of online freight platforms and aggregators driving technology adoption. In fact, low pace of technology adoption has been one of the major deterrents for growth and consolidation in this space and technology-driven approach appears to be a way to grow and consolidate.

The sector is also likely to see more action in the near future led by IPOs.  The first hint of IPO is coming from Delhivery where there is news of the company going for a Pre-IPO round of funding. Other unlisted players from the sector include Rivigo and BlackBuck logistics while ECom Express and Alibaba-backed Xpressbees have also joined the club.  E Comm Express started by Ex Blue dart employees have made a mark in e-commerce while DELHIVERY, a full-service logistics provider has already reached significant size in revenue terms, comparable with top 3 players, and growing at a faster pace than the established players.  It has just raised $277 million in pre-IPO funding at a valuation of $3 billion. This will put new players on top of older players in market valuation and re-define the order.  

But it is noteworthy that the listed space, dominated by few express logistics and supply chain players, also appears to be well placed to face the competition and grow while pure transportation players will have to re-invent. Overall, these can be interesting times for companies in the logistics sector. Those that adopt technology faster and provide cost effective transportation and logistics solutions may have an edge over the others.

P.S. : We have not discussed companies such as Allcargo Logistics, GATI and VRL Logistics, for want of latest reported numbers at the time of analysing this. Others such as PSU Container Corporation was also left out considering several one-off items in its results and being a candidate for privatisation.