A year after Khatuwas started to dramatically increase double-stacking, rail activity has been contracting in spite of port volume growth gaining momentum, +8% in YTD FY2018 for major ports. For investors who may want to wait it out for a big reversal of fortunes, we note that benefits of double-stacking have already started to peak. The big jump in domestic volumes in recent quarters is enthusing and GST will help further scale up the quantum and scope of work. It remains the key upside risk as it is difficult to adequately value the effect. We marginally revise our TP to Rs1,010 on roll-forward to June 2019E.
Exim NTKM activity has declined 6% in FYTD2018 after declining 5 % each in FY2016 and FY2017. This suggests sustained share loss to roads a year after Khatuwas started showing increase in double stacking. The growth of major ports at high single digits (possibly double digits at the all-India level) in April and May is positive news. The Middle East stand-off would have some repercussions (especially for 13% share of that region in engineering goods exports). We build in growth in rail activity at double digits through the rest of FY2018; but would exercise caution against building any outperformance for rail operators with double-stacking related-cost savings starting to peak in recent months. With port volumes growing at close to double digits and 80% of rakes being utilised, discounts given to shipping lines should come down.
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Its extent will be driven by the importance that Concor, the price leader, ascribes to gaining market share (appears to be losing revenue share). The benefit of operating leverage is limited to the ICD offering as transportation is a 20% gross-margin business; it would be limited by high competitive intensity, low 50% utilisation levels in the key NCR region as per a competitor. Domestic volumes have started to normalise after contraction in FY2015-16. The pace of normalisation is steep and is likely driven by the resolution of the service tax issue and reduction in commodities tax in the notified list in FY2017. Most of the increases are in western, north-western and central India. However, on the domestic side, 12% GST rate stands a full 700 bps above the 5% rate for road logistics. This could pose challenges in gaining volumes. We implement a downward revision in EXIM volumes and upward revision in domestic volumes factoring in YTD trends. We roll forward to Jun-2019E and revise target price to Rs1,010, versus Rs1,020 previously. Retain SELL.