Initiating coverage on Indian port logistics

We initiate coverage on India’s port logistics sector. It is a play on India’s economic growth and demand for key commodities, without the inherent price risk. We deep dive into the sector, including benchmarking with regional peers, detailed forecasts of cargo volumes and sustainability initiatives. We also analyse the upcoming WDFC with a detailed container volume estimation by ports.

Port sector offers strong growth potential; we initiate on ADSEZ, JSWINFRA and GPPV:

Our analysis suggests a marked improvement in India’s port infrastructure vs peers in terms of connectivity and operational efficiency. Our detailed estimation of port volumes by cargo types yields a 5% CAGR over FY23-30, driven by strong growth in container traffic, coastal coal movement and LPG volumes. We initiate on ADSEZ with an O/P, led by organic growth and turnaround in operations of recently acquired assets. JSWINFRA (O/P) is a play on India’s rising steel demand without commodity price risks, in our view. We initiate on GPPV with a Neutral rating as strong growth in container and LPG volumes is offset by uncertainty about royalty rates and concession extension.

WDFC to improve inland logistics efficiency; initiate on CCRI with Neutral:

Inefficient inland logistics, due to a low modal share of railways, is a key bottleneck in logistics efficiency. We think the WDFC can turnaround rail operations. Our unique WDFC model suggests 14% container volume CAGR over FY23-30. We expect ADSEZ, GPPV and CCRI to benefit from the WDFC. We find the consensus expectation of JNPT’s rail modal share rising above 40% in a steady state (from 16% in FY23), to be too optimistic. Our analysis of JNPT hinterland shows that this will not exceed 24%. Even though it is a key beneficiary of the WDFC, we initiate on CCRI with a Neutral as we see risks of market-share loss to other CTOs.

Our top pick is AGIS (O/P), a play on India’s rising LPG imports:

We see AGIS as a play on rising LPG imports in India without the commodity price risk. It offers high earnings growth, low leverage, and strong return ratios at reasonable valuations.