Logistics stocks moving ahead on GST hopes

Experts, though, sceptical on Bill's passage and on valuations

Logistics companies' stocks have rallied this month in an otherwise declining market, on hope that a consensus can be reached between the government and opposition parties for passage of the Goods and Services Tax (GST) legislation in the Rajya Sabha during the coming session of Parliament.

The assembly election results, with the Bharatiya Janata Party (BJP) winning Assam and the Congress receding has buoyed hope for the Bill. In the past three sessions, Gati, for instance, has jumped 9.2 per cent, similar to those of Allcargo Logistics. Container Corporation and VRL Logistics have gone up about one per cent. For the entire month, Gati, Allcargo and Transport Corporation have risen seven per cent, 3.4 per cent, and 2.9 per cent, respectively.

VRL Logistics and Blue Dart are the only two exceptions, down 1.7 per cent and 5.4 per cent for the month, in line with the BSE Sensex index, which dropped 1.4 per cent this month.

“The rally is more sentimental and perception-driven,“ says G Chokkalingam, head of Equinomics Research & Advisory. “It is based only on speculation (on GST passage).”

Brokerage houses have noted the arithmetic on enactment is as daunting. Says HSBC, “BJP will still have to reach out to smaller parties to ensure passage of upcoming Bills.”

“Investors have in the past lost money because of this perception-driven phenomenon. This rally will not sustain for the long term,” says Chokkalingam.

However, there is a positive view on logistics’ stocks. “If GST is passed, it will definitely impact the rally in these stocks,” says Amarjeet S Maurya, senior analyst who handles mid-caps at Angel Broking. “As an investor, I would take a chance as people are anticipating that GST would be passed.” To sustain, though, the Bill's passage is needed, he agrees.

Adding, “Currently, the valuation is comparatively cheap, since the earnings of these companies have not done well. But, if GST is passed and with revival in the economy, which we see happening, it will definitely impact the earnings of these companies. And, we see it as a good time to invest.”

Chokkalingam doesn’t think so. “The earnings have not been good for a couple of quarters. In that comparison, the valuation is high for these stocks. So, it is better to be cautious and buy on decline.”

GST aims to simplify the current indirect tax regime by bringing all central and state levies under a single head, with uniform rates across goods and services. It has cleared the Lok Sabha but the government is in a minority in the Rajya Sabha. While passage will be a big trigger, companies in the segment will over the long run tend to benefit from the increasing consumption (including e-commerce), as well as trade, led by the rise in India's economic growth. Investors, thus, could use corrections to accumulate logistics companies with less leverage, healthy financial performance, a track record, good growth prospects and entry barriers to their business. And, at reasonable valuations.