Use rally to exit logistics stocks, say analysts

Though the GST Council meet has brought them back into the limelight, analysts do not see gains sustaining for long

Even as the GST Council meets to deliberate on the key rates, shares of companies engaged in the logistics business gained ground on Wednesday with most counters including Gati, Snowman Logostics, Tiger Logistcics, Patel Integrated, VRL Logistics, Allcargo Logistics and Gateway Distriparks rallying 1% - 4.5% in intra-day deals. By comparison, the benchmark indices, the S&P BSE Sensex and the Nifty50, were trading around 0.3% lower respectively.

Most of these stocks had rallied sharply since March 2016 when the overall market sentiment turned bullish, till the passage of the GST Bill by the Rajya Sabha on August 3. Snowman Logistics, for instance, zoomed around 79% during this period as compared to around 22% rise in the Nifty50 index.

 

Gati, Transport Corporation, Patel Integrated, Allcargo Logistics, Container Corporation, Sical Logistics, Gateway Distriparks and Blue Dart Express, too, rallied 5% - 77% during this period. However, most of these stocks could not hold on to higher levels and saw 7% - 31% correction since then.

Given the recent run-up, analysts remain sceptical and suggest investors be cautious regarding these stocks. Though the GST Council meet has brought them back into the limelight, they do not see gains sustaining for long.

"I think there will be some more upside in case the GST becomes a reality in 2017. There is talk of multiple rates instead of a single rate as envisaged earlier. However, the current rally in logistics stocks will fizzle out. We are just seeing a bounce back given the rate finalisation talks are underway. One can play these stocks for a short-term pop and exit over the next one week," explains A K Prabhakar, head of research at IDBI Capital.

Given that the actual implementation, as per plans, is still six months away (in April 2017), analysts say that the actual benefit to the companies from the GST implementation will start to accrue only after 10 - 12 months from now.

"If all goes well, the actual implementation of the GST will happen only in the next financial year, and the benefits to companies will accrue a few quarters post the implementation. The markets have need to factor that in. Another factor is the rise in oil prices. It remains to be seen whether these logistics companies will be able to enjoy higher margins or not," Prabhakar says.

"It is too early for benefits to accrue, which will only be visible in FY18. These stocks may see a short-term bounce. I do not recommend buying these stocks at the current levels," advises Prakash Diwan, director, Altamount Capital Management.

For G. Chokkalingam, founder & managing director of Equinomics Research & Advisory, the uptick in these stocks is speculative in nature and he, too, expects the rally to fizzle out soon. Moreover, he does not find comfort in the valuations of some of these stocks and is also midful if the pressure on margins going ahead.

"There is a long road that needs to be travelled before GST becomes a reality. The actual impact will be felt almost after a year from now. We are already seeing margin pressure for companies in the ecommerce segment, and they may not be in a position to offer huge margins to logistics firms. Though the implementation is an overall positive, it is not as big as the market is expecting," he says.