Analysts expect re-rating of the logistics sector

It seems ace investor Radhakishan Damani is bullish on the logistics sector. He has picked up sizeable stakes in logistics companies Gati and Transport Corp of India.

Shares of Gati has been on the rise after a fund run by independent investor Damani, who is known for his picks in the stock market circle, bought 40.17 lakh shares, or 4.6 per cent of the total equity of the company, on Monday through block deals on the exchanges in the logistics provider.

Two days later, Transport Corp was on his radar. On Wednesday, Damani’s Derive Investments picked up a 3.5 per cent stake in the company.

FDI in e-commerce

According to analysts, the sector will be re-rated once FDI in e-commerce is cleared by the Government. With Prime Minister Manmohan Singh acknowledging that supply-chain constraints and logistics management were the main reasons for inflation, one could expect a speedy action from the Government on this front, said an analyst with an Indian broking house.

Already, the Department of Industrial Policy and Promotion had started consultations with various stakeholders on allowing foreign direct investment in retail e-commerce, to open the sector for foreign investors before the end of this financial year.

At present, 100 per cent FDI is allowed in business-to-business (B2B) e-commerce, while it’s prohibited in the business-to-consumer (B2C) segment.

Investor preference

Investors prefer companies with higher exposure to domestic demand and increasing vertical integration such as Gati and Transport Corp, said Harish Vasudevan, Strategist at SVC Securities.

Growth in the logistics sector is closely linked to India’s overall GDP and trade growth.

The logistics sector looks promising at this point in time on various fundamental factors. These companies’ valuation looks cheaper compared with global and domestic peers and is in a better position to capitalise on any rising demand,” he added. Also, the cold-storage segment, which is yet to contribute in a big way, may start yielding results soon.

Organised companies such as Gati and TCIL have been gaining market share, as unorganised players are finding it difficult to operate due to higher wage cost and other procedural bottlenecks.

Besides, these companies have performed reasonably well financially in the last few quarters, said Vasudevan.

(This article was published on January 3, 2014)
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