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This article is more than 9 month old.

Robust demand, organised warehousing, e-commerce growth to lead India's logistics sector

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For the logistics sector, the future seems to shape up well, and as the disruption caused by new rules - the e-challan, building of dedicated freight corridors, organised warehousing system, and the pent-up demand, the near term outlook looks to offer more promising opportunities.

Robust demand, organised warehousing, e-commerce growth to lead India's logistics sector
For the logistics sector, the future seems to shape up well, and the disruption caused by new rules - the e-challan, building of dedicated freight corridors, organised warehousing system, and the pent-up demand, the near term outlook to offer more promising opportunities.
As per the ICICI Securities report, the logistic sector is all set to unveil a strong performance and could offer very good returns to investors. Their top pick remains Mahindra Logistic and the brokerage expects the M&M arm to be a strong performer among the peers given its healthy double-digit YoY growth rate in the warehousing segment.
Here are some recent trends that are expected to lead a robust growth in the logistics sector.
Increase in adoption of organised warehousing
After the implementation of Goods and Services Tax (GST), a gradual move towards organised large-format grade A+/grade A++ warehousing is leading to significant business opportunities for sector participants, ICICI Securities noted. The underlying demand trend is also visible in the transactions which happen on the development of such grade A+/grade A++ properties.
Increasing share of rail in Indian freight
The pressure of railways on road transport is relentless, with the advent of dedicated freight corridor the pressure is only going to increase. FY21 clearly witnessed significant market share gains for Indian railways in the transportation segment. While the road is yet to get back to pre-Covid volumes, rail has shown healthy double-digit volume growth in FY21.
There is also a significant increase in market share in autos apart from commodities, food grains and parcels. This paves the way for a more intricate involvement of railways going forward in 3PL and eCommerce supply chain, the brokerage said.
Increasing e-commerce volumes for India
E-commerce growth in tier 2 and tier 3 cities in India is outpacing that of tier 1 cities. More specifically, the volume share of these smaller cities in India's e-commerce market increased to 46 percent in Q4CY20 from 32 percent YoY. Also, online spending per customer in tier 2 and tier 3 cities have also improved as these cities held a 43 percent share of the e-commerce sales value last quarter, up from 26 percent YoY.
This has raised hopes of sustainable last-mile delivery economics emerging for the industry — yet hyperlocal last-mile small parcel deliveries remain economically as challenging as ever.
Increased incidence of end-to-end logistics contract
The brokerage continues to see the emergence of end-to-end logistics contracts with Bajaj Electricals and Flipkart with Mahindra Logistics. The trend, while accreting value to the service provider, also gains currency as the emergence of multiple channels is increasing supply chain challenges and risks. This, in a way, is also augmenting demand for organised warehousing, it said.
Going ahead, certain challenges also lie in front of the logistics sector. Many transportation models are at the risk of not reinventing, especially as the SME business environment recovers and the new start-up ecosystem starts to aggressively target the same.
ICICI Securities expects the key beneficiaries in the sector to be Mahindra Logistics, CONCOR and Gateway Distriparks.
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