Covid-19 disrupted the functioning of the world and exposed the vulnerabilities and pain points in the global supply chains.
Shortage of workforce, lack of warehousing space, and long and complex supply chains, are few of the many problems the logistics sector faced.
All major global companies are already working towards addressing these problems. They are using technology to automate the processes, reconfiguring complex supply chains, and finding an alternative to China in their supply chain.
In India, the government is investing heavily to expand its road, rail, and port connectivity.
With initiatives such as goods and service tax (GST) and National Logistics Policy (NLP), it further aims to strengthen supply chains across the country.
The National Logistics Policy aims at improving India's trade competitiveness, create more jobs, and build a cost-efficient logistics ecosystem in India.
This bodes well for the organised logistics companies in India. Furthermore, India is one of the top alternatives to China, and the demand for logistics is set to grow dramatically.
Top logistics companies in India are already expanding their capacities to cater to the growing demand. Here's a list of five companies that can benefit the most from this situation.
#1 TCI Express
First on the list is TCI Express, India's leading time-definite express distributor.
The company offers distribution services through various modes of transport and is a market leader with a 7% market share as of December 2022 in India's express distribution.
TCI Express caters to a diversified customer base which includes companies from several industries, such as automotive, pharmaceutical, textiles, engineering, and telecom.
It has built a hub and spoke infrastructure with 900+ owned centres across India, encompassing more than 40,000 pick-up and 50,000 delivery points. This help the company cover over 95% of the pin codes in India.
Through this model, it offers surface, domestic and international air, and e-commerce express services to its customers.
Recently, it launched value-added services such as pharma cold chain, C2C (customer to customer), and express rail services to cater to a larger customer base.
The company currently has around 26 sorting centres, over 500+ express routes, and close to 2,500 feeder routes. This count is set to go up after the operationalising of Pune and Gurgaon sorting centres.
In financial year 2022, the company spent Rs 1 billion (bn) towards capex for the construction and automation of sorting centres. In the next five years, it plans to spend an aggregate of Rs 5 bn on building and automating new sorting centres.
To give its clients more payment options, the company included dynamic QR codes in receivables documentation. As a result, the cash payments were reduced to a great extent and helped the company improve its collection ability.
Increasing offerings and a growing customer base have helped the company improve its revenue despite the pandemic. In the last five years, the company's revenue has grown at a CAGR (compound annual growth rate) of 4.2%.
The net profit meanwhile, has grown at a healthy CAGR of 17.1%. Its return on equity (RoE) and return on capital employed (RoCE) as of the financial year 2022 stood at 24.2% and 32.4%.
Despite incurring a heavy capex, the company has zero debt on its books, indicating strong cash flows.
On top of all this, the company pays regular dividends to its shareholders. In the last five years, its dividend payout ratio has averaged 17.7%.
Recently, the company completed its share buyback worth Rs 750 million (m).
Going forward, the company's efforts to improve operational efficiency and increasing the number of sorting facilities will help in improving customer base and, in turn, the revenue and profitability.
#2 Transport Corporation of India
Second on the list is the Transport Corporation of India.
The company is engaged in the business of providing supply chain, transport, and logistics solutions.
It is a pioneer of multimodal logistics and provides end-to-end logistics and supply chain solutions through multiple modes, including road, rail, and sea, to India, Nepal, Bangladesh, Bhutan, and SAARC countries.
The company follows a hub-and-spoke model with 25 hubs and 900 branches, through which it handles the freight of over 18,000 locations in India and abroad.
At present, it has over 12,000 trucks, 8,000 general-purpose containers, 650 liquid tankers, and six coastal cargo ships in operation. Through this, it serves customers across various industries, including healthcare, chemical, hi-tech, auto, and retail.
With growing online shopping, and the government's logistic policy and infrastructure push, the need for logistics in the country is growing rapidly.
To meet the growing demand, the company plans to increase the fleet of containers, ships, and trucks by spending Rs 1.7 bn. Moreover, it plans to spend Rs 750 m on building warehouses.
The company is also actively working towards automating its operations across the supply chain to increase efficiency.
Coming to its financials, in the last five years, the revenue has grown at a CAGR of 6.7%, driven by a diversified customer base and an increasing proportion of contracted business.
The net profit also grew at a CAGR of 21.2%, driven by high margins from the seaways business and the company's cost-efficiency measures.
Transport Corporation of India pre-paid most of its long-term loans in the financial year 2022, making it a zero-debt company.
Despite having a high budget capex planned, the company's strong cashflows will help it maintain the zero debt status.
The company's return ratios have improved in the past five years. The company currently boasts of a RoE and RoCE of 18.6% and 21.8%, respectively.
It has also paid consistent dividends to shareholders, and the five-year average dividend payout ratio stands at 13.8%.
Going forward, the government's boose to strengthen the domestic supply chain and the company's efforts to capture growing demand will drive revenue and profitability in the medium term.
#3 Aegis Logistics
Next on the list is Aegis Logistics, India's leading oil, gas, and chemical logistics company.
The company is engaged in the business of import, storage, and distribution of liquified petroleum gas (LPG), chemical products, and vegetable oils.
It also launched marine products to provide bunker fuels to ships at Indian ports.
Aegis has a large network of LPG terminals, bulk liquid handling terminals, filling plants, pipelines, and LPG gas stations to deliver products and services.
The company serves a diversified client base which includes big names such as Shell, Reliance, HPCL, BPCL, ONGC, and Bombay Dyeing.
It currently operates its liquid logistics segment through six ports with a total operational capacity of 729 thousand kilo litres (KL).
The LPG segment has a total static capacity of 112 thousand metric tons (MT) with an annual throughput of 9.6 MT.
Aegis has invested heavily in capex and plans to invest more to cater to the increasing demand for LPG products.
The company added 54 thousand KL to its Haldia Port during the financial year 2022 and is adding 20 thousand KL of bulk liquid capacity at its Kochi Port by the end of the financial year 2023.
It also acquired liquid tank terminals with a capacity of 500 thousand KL from Friends Group at Kandla Port for Rs 2.6 bn in 2022.
Apart from this, the board approved a capex of Rs 12.5 bn to add 175 thousand KL bulk liquid capacity and 100 thousand MT of gas capacity.
Aegis also formed a joint venture with Itochu Corporation from Japan to source LPG at a cheaper rate in 2018.
As a result, Aegis had a 15.5% market share in LPG imports in the financial year 2022, which it plans to take to 25% in the next four years.
To add new products to its basket and explore growth opportunities in renewable energy, the company formed a joint venture with the world's leading tank storage company, (Vopak), in 2022,
All these efforts show that the company is geared up for its next leg of growth.
As far as financials are concerned, in the first nine months of the financial year 2023, the company's revenue grew by 158% year-on-year (YoY) on the back of high volumes and price realisation.
The net profit grew by 24.3% YoY due to growth in the high-margin business during the same time.
Despite a heavy capex, the company remains debt-free.
The company also pays consistent dividends and has a five-year average dividend payout of 26.4%.
Going forward, the company's partnership with Vopak and its investment to expand capacity will drive its growth in the medium term.
#4 Allcargo Logistics
Fourth on the list is one of the global leaders in logistics, Allcargo Logistics.
The company operates mainly into three segments that are multimodal transport operations, container freight stations/ inland container depots, and project and engineering solutions.
It is carrying out contract logistics business through Avvashya CCI Logistics, its joint venture.
With a strong network across 180+ countries and 300+ offices covering over 4,000 port pairs across the world, it is one of the leading players in the global less-than-load (LCL) consolidation market.
The company also operates India's widest and strongest network of Container Freight Stations (CFS) and Inland Container Depots (ICD).
In the last five years, the company's revenue has grown at a CAGR of 27%, driven by volume growth across all segments. The net profit also grew at a CAGR of 39.2%.
The RoE and RoCE for the financial year 2022 stood at 27.9% and 31.1%, respectively.
Since 2005 the company has grown through a series of acquisitions. It has acquired seven logistics companies across multiple logistics verticals. It plans to continue to use the same technique to grow its business in the future.
In November 2022, the company announced it would acquire a 30% stake in Gati Kintetsu Express for Rs 4 bn.
In the same month, it announced another acquisition of a German company (Fair Trade GmbH Schiffahrt, Handel und Logistik) for Rs 1 bn.
The company's current debt-to-equity ratio is 0.3x. It plans to maintain it at the same level despite all the acquisitions due to its strong cash flows.
Despite having such high growth plans, the company never failed to pay a dividend to its shareholders. Its five-year average dividend payout stands at 33.6%.
Given its history of successful acquisitions and growing need for logistics across the world, the company is poised for its next leg of growth.
In February 2023, the National Company Law Tribunal (NCLT) approved a demerger of Allcargo, where the company will operate in LCL consolidation, express logistics, and contract logistics segments.
The CFS and ICD segments will be managed by the new company Allcargo Terminals Limited (ATL), and the equipment rental and logistics parks business will be managed by another new company TransIndia Realty & Logistics Parks (TRL).
This reconstruction is being done to de-clutter the organisation and make the company more structured.
#5 Lancer Container Lines
Last on the list is Lancer Container Lines.
The company is in the business of shipping and logistics services in India and overseas.
It offers transport services through a fleet of over 11,000 owned and leased TEU (Twenty Equipment Unit) container ships in over thirty countries, including UAE, Oman, Egypt, LATAM, Europe, and Africa Hinterland.
Apart from this, it also offers shipping and freight forwarding and container trading services.
In financial year 2022, the company added around 1,362 TEU containers and expects to add another 3,000 TEU containers by the end of the financial year 2023 through ownership or a long-term lease basis.
It entered into new geographies, such as the UK and the Mediterranean region, in 2022 and plans to penetrate new geographies and expand its customer base further.
Apart from this, the company is also planning to deepen its relationship with existing customers by providing them with value-added services.
All this shows that this small-cap company has high growth plans for the medium term.
As far as the financials are concerned, it has delivered a stellar performance in the past with revenue and profit growth of 42.2% and 33.3% on a CAGR basis in the last five years. The revenue growth was primarily driven by container, shipping and freight forwarding segments.
Its RoE and RoCE are also high at 39.5% and 47.7%, respectively.
Going forward, the growing demand for cargo transportation via ports and specialised shipping containers, new deal wins, and automation in container shipping will help the company improve its market share in the medium term.
Why should you include logistics stocks in your portfolio?
India has the world's second-largest road and rail network connectivity. Despite this, it ranks only 39th in the world for total logistics capacity.
This presents a host of opportunities for the Indian logistics sector. Moreover, according to a report, the logistics sector is set to grow at a CAGR of 8% to reach US$ 330 bn by 2025.
The primary drivers of this growth would be technological advancements and fast-developing e-commerce and retail markets.
To add to this, the government is working towards reducing the logistics cost in India from 14% of the gross domestic product (GDP) to 10% in the next five years.
All these show that the sector is poised for growth and presents an excellent investment opportunity.
However, one should treat logistics stocks with the same caution as other stocks as they are exposed to stock market volatility.
So do your due diligence before you consider investing in these stocks.
Happy Investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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