>LOGISTICS SECTOR: Q1FY11 Preview (CENTRUM)

Economic recovery to drive momentum

We remain Equalweight on the logistics sector with a Buy rating on Aegis Logistics and Allcargo Global Logistics, Sell on Container Corporation (Concor) and Hold on Gateway Distriparks (GDL) and Transport Corporation of India (TCI). We expect container volumes to revive in FY11E, once the overall economy recovers. We estimate 8.4% volume growth (TEU terms) for FY11E and 10.5% growth for FY12E, as trade picks up.

■ Container volumes buoyant…: Container traffic remained buoyant during Q1 and registered a healthy growth of 21.3% YoY to 1.28mn TEUS in April and May. Volumes at India’s largest container port JNPT grew 16.8% YoY to 0.75mn TEUs during the same period.

■ …on back of healthy EXIM trade: India’s exports and imports too improved during Q1, implying higher movement of goods and containers at the ports. While exports grew 35.7% YoY in value terms during April- May 2010, imports registered an impressive growth of 40.9% YoY during the same period.

■ Domestic industrial activity: India’s Index of Industrial Production (IIP) showed a robust growth of 17.6% in April 2010, primarily led by the manufacturing sector. We believe this robust growth would have led to increase in demand for domestic logistics services and higher movement of goods at the ports.

■ Maintain Buy on Aegis and Allcargo: Aegis is our top pick in the overall logistics space with a Buy rating and a target of Rs430. Allcargo remains our proffered pick in the container logistics space on back of attractive valuations of 13.3x CY10E and global presence. We believe Concor is currently trading at an expensive valuation of 20.8x FY11E earnings and maintain Sell with a target of Rs1,200. We remain neutral on TCI and GDL with a Hold rating.

To read the full report: LOGISTICS SECTOR