24 Nov 2017

Logistics sector gets infrastructure status; time to spot multibaggers?

NEW DELHI: With a view to boost logistics in India, the government on Monday granted infrastructure status to the sector. According to market experts, the move would help the companies in this sector to attract huge investment and give a shot in the arm to the country’s trade. 

Logistics cost of exports are very high in India. Nearly 14 per cent of the total value of goods goes into logistics cost, while in other major economies it is just 6-8 per cent of total value of goods, rendering Indian goods less competitive in the global market.
Ace stock picker Porinju Veliyath in a tweet said, “Market cap of India's logistics sector is too small, long way to go!”
Infrastructure status will also help the sector access loans on easier terms and improve economic growth.
Cheering the development, most logistics players were trading in the green in morning trade on Tuesday. Aegis LogisticsBSE 0.69 % was up 0.54 per cent at Rs 234.55 around 9.50 am (IST), while Sical LogisticsBSE 0.07 % was up 2.94 per cent at Rs 227.95. Recently listed Mahindra Logistics was trading 2.13 per cent up at Rs 427 at around the same time. Tiger Logistics was up 2.58 per cent up at Rs 191.
“Infrastructure status will help the companies in these sectors to raise funds at competitive rates on long-term basis, which will in turn help in reducing logistics cost and boost external trade,” said Choice Broking.
Market experts are positive on a couple of logistics players at present. believes GatiBSE 1.57 % can touch Rs 155 in the coming months, whereas Kotak Secruties is positive on VRL Logistics with a target price of Rs 450. Gati was trading 2 per cent up at Rs 143.65 in morning trade. VRL was up 1.91 per cent at Rs 400.
Anshuman Magazine, chairman, India and South East Asia, CBRE said, “The granting of infrastructure status to the logistics sector will result in higher investments, which will drive the revolution of the segment in India. With India's growing economy and boost to the sector, increased movement is expected in the industrial and warehousing segment. Both cold chain and warehousing facilities are covered in the announcement and will go a long way in strengthening infrastructure development across India. Coupled with the implementation of the GST, this will provide an impetus to the segment as a whole and will enhance our competitiveness in the global market.”
While commenting on Gati, in a research report said, “Resolution of foreign currency convertible bonds (FCCB) issue led to dilution of promoter’s stake to the extent of 7.3 per cent. Post this, the revised promoter holding is now at 29.8 per cent. The resultant impact of the same could now lead Gati to bring in a strategic investor or partner, raise funds for future expansion or demerge its business into separate entities (like TCI). The strategy may lead to a multiple re-rating due to which the brokerage house maintains ‘Buy’ rating on the stock with a revised target price of Rs 155.”
“Combination of GST and now giving it an infrastructure status is going to be good for the industry. With GST coming in, we are going to see large format houses coming and these warehouses require a lot of capital and long term borrowing. Infrastructure status will provide that facility which will give a boost to large warehouses. Once large format warehouses come into the country, you will see the cost of logistics go down,” said Pirojshaw Sarkari, CEO, Mahindra Logistics in a chat with ETNow.