Even after shares of logistics companies in the past year registered massive uptick that witnessed stock prices of frontline players grow manifold as much as 270 per cent, analysts, however, have advised caution for investment in logistics stocks, with lesser return expectation.
While they remain optimistic on the sector as they see it reap substantially from the reopening of the economy with pent-up demand expected to drive growth, they have advised investors to be selective and purchase stocks of companies that have revenue visibility and balance-sheet strength.
In addition to traditional avenues for growth, cold chain supply solutions for the pharma and fast moving consumer goods (FMCG) sector can lead to big opportunities for the space, analysts believe.
Sharp uptick in economic activity: Real growth driver
For the sector, Vaccine partnerships will be a near-term booster but the real driver of growth will be the sharp uptick in the economic activity, which will structurally drive the logistics sector.
Unlocking has begun in many states with the second wave of the pandemic being mitigated to a considerable extent in India (with daily cases at a two-month low).
The focus has now shifted to vaccinating citizens at an aggressive pace. As the economy opens, analysts are of the opinion that pent-up demand for goods and services will play out.
“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.
Cold chain: Big winner
Growing demand for cold chain logistics has also been a boost for the sector, with companies exploring new services that analysts believe can result in bolstering their business model.
According to reports, the Indian cold supply chain sector is set to grow at a CAGR of 17-18 per cent till 2022. While growth will be driven by the government-led Covid vaccination programme, the growing e-commerce market for FMCG, dairy, meat and fish, will also help in lifting the sector significantly, amid the present situation; reports suggest.
Companies have already started making progress in this regard. TCI Express launched a ‘Cold Chain Express Service’ in the March quarter. Also, Snowman Logistics is working with DRL to provide temperature-controlled end-to-end logistics solutions for the delivery of the Sputnik Covid-19 vaccine.
Even Blue Star recently rolled out a new range of refrigeration products and solutions which it said are ideal for storing vaccines.
Although the market is small, yet the business is expected to increase going ahead, said Ronald Siyoni, AVP- Sharekhan. Logistics has been a key focus area of the government, with 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, he opined.
Word of caution:
While the valuations for the stocks look stretched after a 67-270 per cent growth in shares of key players in the last one year, experts believe that in this backdrop, some players can still bet big as the industry is expected to grow at a CAGR of 10.5 per cent between 2019-2025.
Among the names that investors can look to buy, TCI Express, Transport Corporation of India and Blue Dart, given their reach and brand name. The stocks have gone up in the recent months, and the price may tone down somewhat, but experts believe that it has a positive outlook.
Some, however suggest that investors wait for a healthy correction to foray into logistics stocks. GATI, TCI, and VRL are a few good stocks to invest in on correction. Concor, Gateway Distriparks and Mahindra Logistics can be top bets from the space.