Logistics Activity Picks Up in August, Providing Relief to Industry

After months of sluggish growth, India’s logistics industry finally saw some brighter signs in August with key indicators pointing to an uptick in activity.

According to a report by Nuvama Institutional Equities, generation of e-way bills, an important gauge of domestic trade, rose 19% year-on-year in August to cross its previous all-time high. Breaking it down further, intra-state e-way bill generation jumped 23% while inter-state generation climbed 14% compared to August 2022. On a sequential basis as well, e-way bills were up 6% in August over July.

The increase in e-way bills indicates improved movement of goods across states, providing some relief to logistics companies that have struggled with weak demand in recent months.

Apart from e-way bills, freight rates and diesel prices also provided some positive cues for the logistics sector. Freight rates remained largely stable in August compared to July, hovering near all-time highs. This was despite diesel prices remaining frozen by the government.

Leading logistics players have started procuring diesel directly from refineries to take advantage of the arbitrage between bulk and retail procurement. This should help expand their margins over the coming quarters.

The railways segment, which has been sluggish, also saw an improvement in August. Container rail volumes were up 16% year-on-year to 7.7 million tonnes, as per the report. The growth was led by the EXIM segment, which has been struggling in the past few months. This will come as a boost for Container Corporation of India (Concor), the market leader in container rail transport.

Commenting on the uptick in logistics activity, an industry official, said, “The increase in e-way bill generation and improvement in rail freight volumes indicate that domestic trade is gradually recovering. This is a much-needed respite for the logistics sector post the pandemic shock.”

However, some challenges remain as high fuel prices and availability of trucks continue to pose issues for transporters. But the August numbers provide hope of a steady recovery as we approach the festival season, Agarwal added.

The Nuvama report has picked Blue Dart Express as its top pick in the sector, followed by TCI Express. Blue Dart focuses on the air express segment where margins remain healthy despite near-term headwinds. The recent correction in the stock provides a good entry opportunity for investors, as per the report.

TCI Express is benefitting from an improved business mix and attractive valuations. The company has gradually increased share of high-margin segments like express cargo, pharma and e-commerce. Its stock trades at reasonable P/E multiple of 21 times FY24 earnings estimates.

To sum up, August saw early signs of revival in logistics activity after a sluggish H1 2023. Increased movement of goods, stable freight rates and recovery in rail freight volumes are positive indicators for the sector. However, sustainability of this growth momentum needs to be seen in the coming months.

With the festive season around the corner, logistics firms are hopeful of even better performance in September and October. This could provide much-needed respite to the roads and rails sector that has grappled with high costs and weak demand for most part of this year.