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Oct 1017 min read

The logistics sector: Backbone of India



India has been experiencing tremendous spending on the consumption side and from the government side. This year, the government aims to spend 11 lakh crores on infra development! Logistics are the backbone of all of this spending. Do you need an Amazon parcel? Delhivery or Bluedart can deliver. Do the real estate players need tons of cement? Mahindra Logistics can deliver. Does the country need excess imports of something? Adani Ports can deliver. 

Logistics plays a crucial role in the global economy and all of the trading that takes place. 

With technological advancements, government tailwinds, and the rise of e-commerce, the logistics sector has become an interesting story that must be studied.

This blog will explain the whole industry and discuss a few stocks in this sector that are expected to do well!

Let's begin.


Industry overview


Growth trends

The Indian logistics industry is undergoing a transformative phase, driven by multiple factors , including robust infrastructure development, the surge in e-commerce, and regulatory reforms. The logistics sector’s market size is expected to increase from an estimated ~INR9t in FY23 to ~INR 13.4t by FY28 at a CAGR of 8-9%. The logistics market comprises road

transport (FTL, LTL and express), rail transport, domestic express logistics, air cargo,

multimodal logistics (rail container logistics and road container logistics), coastal

transport, industrial warehousing, third-party logistics (3PL), and freight forwarding.

Too many subsections right? dont worry. I will explain all of them.


Market size break up



Road transport

Road transport is the largest segment of the Indian logistics industry, accounting for approximately 71% of the total freight volume. The road transportation segment is expected to grow at a 7% CAGR from FY23 to FY28.


Key Segments within Road Transport

  1. Full Truck Load (FTL): FTL dominates the road transport sector, representing about 90% of the total road freight volume as of FY23. FTL is typically used for larger shipments where a single client occupies an entire truck. This segment is favored by industries that require bulk transport, such as automotive, construction, and manufacturing. FTL is expected to grow at a 7% CAGR over FY23-28, maintaining its large share of the market​. The market is highly fragmented with 85% of trucks being controlled by small fleet operators (less than 20 trucks) which are often underutilised. This allows organised larger players to take their market share and grow at a faster pace as they are more cost effective and can spend more on technology to double down on their advantages.


  2. Less Than Truck Load (LTL): LTL (also known as Part Truck Load, PTL) involves multiple customers sharing truck space, making it more cost-effective for smaller shipments. LTL has gained traction in recent years, especially after the implementation of GST, which streamlined interstate transport. With the rise in e-commerce and the increasing need for flexible shipments, LTL is expected to grow at a 10% CAGR over FY23-28​.


  3. Express Logistics:

    • Road Express services, which cater to time-sensitive shipments, are one of the fastest-growing segments within road transportation. This growth is driven by the rise in B2C e-commerce and the need for quick deliveries. Road express is projected to grow at a 15% CAGR over FY23-28, significantly outpacing other segments​.

    • Cold Chain Logistics: Cold chain refers to the transportation of temperature-sensitive products like pharmaceuticals and food. While currently a smaller segment, it is gaining importance due to the growing need for reliable cold storage and transportation in the healthcare and FMCG sectors​. This sector requires vehicles called reefers and as mentioned above, companies catering in this segment are focused towards, healthcare, FMCG, QSR etc like companies. Cold chain segment commands a higher margin compared to the rest due to its critical value of being in time and additonal costs of having a reefer against a truck.



Railways

India boasts one of the most expansive rail networks and is ranked fourth around the world. Railways are the ideal method to transport heavy commodities due to their cost effectiveness.

Indian Railways has undertaken a mega infrastructure project of two DFCs, namely

Eastern DFC (EDFC) and Western DFC (WDFC), to facilitate faster evacuation of

freight traffic. The 1,506km-long WDFC runs from Dadri in Uttar Pradesh to

Jawaharlal Nehru Port Terminal (JNPT) in Maharashtra. The 1,337km-long EDFC runs

from Ludhiana in Punjab to Sonnagar in West Bengal. As of Apr’24, a route length of

2,734km has been commissioned out of a total of 2,843km.

After the commissioning of DFCs, we expect rail freight to grow at a faster pace than

road freight, particularly for bulk commodities and container traffic. This will

especially be seen from FY25 onward.





Water transport

Water transport has a market size of about 5% of the total logistics sector volume but has a 95% share in import volumes!. India has 13 major ports and around 200 non-major or minor ports, which play a significant role in facilitating international trade. Additionally, inland waterways are becoming a crucial focus for the government as a part of its broader strategy to reduce logistics costs and promote sustainable transportation (we will get in the depths of the initiatives)

Key Segments of Sea Transport


  • Coastal Shipping:

    Coastal shipping is particularly useful for bulk commodities like coal, steel, cement, and fertilizers. It is a cost-effective and environment-friendly alternative to road and rail transport, especially for long distances.

    The share of coastal shipping in the logistics sector is currently small but is expected to grow at a CAGR of 7-8% over FY23-28, as more industries shift their cargo to water-based transport due to cost savings and the government's push to develop multimodal logistics.


  • Inland Waterways:

    The National Waterways (NW) system, which includes NW-1 along the Ganga and NW-2 along the Brahmaputra, is gaining momentum as an alternative for long-haul bulk cargo transportation. The government has been investing heavily in the development of terminal facilities and dredging operations to improve navigability .

    The inland waterway segment is expected to grow, driven by projects like the World Bank-funded development of NW-1, which connects industrial hubs to ports.


Growth and Market Share

  • Port capacity has increased from 1,617 MTPA in FY23, and the total cargo handled by major ports reached 819 MMT in FY24 . With initiatives like Sagarmala and Maritime India Vision, India’s port capacity is expected to exceed 10,000 MTPA by 2047 .

  • Private players like Adani Ports have been instrumental in driving the growth of port infrastructure. Adani ports has seen a 24% growth in cargo volumes, handling 25% of all India cargo volume in FY24.

  • Port privatization has been a key factor in improving the efficiency of both major and minor ports, leading to increased capacity and better operational management.


As Water transport is inherently cheap and as the government spends money to build multiple ports, we can expect some market share to move towards waterway because of the fact that the last mile cost reduces significantly and reach increases. It is a snowball effect that can come into play for water transport.


Air Transport

Air transport has a minimal role in the logistics sector, as its market size is less than 2% due to it being relatively more expensive than the rest. It is expected to grow at a CAGR of 7-8% and will be aided by Governmeny schemes. The sectors it caters to are of critical value which require efficient delivery time such as pharmaceuticals.


3PL and Warehousing


3PL providers handle the comprehensive management of logistics operations for businesses, offering services like transportation, warehousing, inventory management, order processing, packaging, and distribution. The growing complexity of supply chains has driven companies to increasingly outsource these functions to specialized logistics players.

The 3PL market in India was valued at around INR 630-640 billion in FY23 and is expected to grow at a 13% CAGR to reach approximately INR 1,172 billion by FY28​.

Basically, you outsource all of your supply chain hassles to these companies and they will figure out everything. All you have to do is design/make the product and sell it. The industry has been been primarily aided by the automotive sector which requires on time deliveries of part and finished project. Automotive sector makes up for 60% of 3PL services.

A few other things aiding the growth is the boom e commerce and rise of value added services such as reverse logistics, reverse packaging, freight forwarding etc.


The warehousing segment in India is expanding rapidly, supported by increasing demand from sectors like e-commerce, pharmaceuticals, FMCG, and retail. The Indian warehousing market is expected to grow from INR 1,060 billion in FY23 to INR 1,786 billion by FY28, reflecting a 13% CAGR​.



What factors are driving the growth?


Before looking at some of my preferred company picks in the whole sector, lets get into the details of structural tailwinds that are driving the growth in the logistics sector.


  1. Aligned interests with government initiatives: The GOI has been extremely ambitious to grow India's economy and we have been fortunate enough to take advantage of that through the equity markets. Since most of the growth has to be backed by logistics sector, the whole sector has been showered with government schemes and initiativies that are set to benefit them. Let me help explain this in depth. The cost of transportation has to be minimised so that the economy can consume more and that money spent there can be utilised elsewhere. As per a NITI Aayog report, India’s logistics cost as a percentage of GDP is ~14%, compared with 10-11% for BRICS countries and 8-9% for developed countries. Going forward, India’s logistics cost as a percentage of GDP is expected to decline, driven by initiatives such as the implementation of GST, investments in road infrastructure, development of inland waterways and coastal shipping, the thrust on DFCs, etc.


Some other initiatives:

  • The PM Gati Shakti National Master Plan, launched by the Government of India in 2021, is a game-changer for India’s logistics and infrastructure sectors. The plan focuses on integrating multiple government initiatives across various sectors, including logistics, transportation, energy, and communication. It aims to address long-standing issues such as infrastructure bottlenecks, uncoordinated planning between agencies, and high logistics costs. The Gati Shakti initiative is designed to provide seamless multimodal connectivity and to boost economic growth by enhancing infrastructure and improving the efficiency of the logistics sector.

  • Sagarmala Project is a flagship initiative aimed at promoting port-led development and optimizing the use of India's 7,500 km-long coastline for coastal shipping. With a planned investment of INR 6 trillion over several phases, the project includes the development of new ports, modernization of existing ports, and improving port connectivity through road and rail.

  • Maritime Amrit Kaal Vision 2047: India aims to develop six mega ports with capacity of over 500 MTPA each by 2047 as part of its ambitious maritime expansion plans, significantly increasing its cargo handling capacity as outlined in the Amrit Kaal Vision 2047. Presently, the nation’s port handling capacity is over 2,500 MTPA, with 51% of cargo handled at PPP berths of major ports. The focus is on increasing the port handling capacity to over 10,000 MTPA by 2047 and ensuring 100% of cargo handled at PPP berths.

  • Dedicated Freight Corridors (DFC):The Dedicated Freight Corridor (DFC) project is a transformative railway initiative aimed at improving freight efficiency through dedicated rail networks for goods. The Western DFC and Eastern DFC, spanning over 2,800 km, are designed to Double the speed of freight trains, improving transit times and reducing bottlenecks, Increase the share of rail in freight transport, particularly for bulk goods like coal, steel, and cement and ultimately bring down the cost of transportation.




  1. Rising trend of e-commerce: India's increasing smartphone and internet accessibility has propelled the switch of users from traditional to online shoppers. This conversion is further fueled by various factors including rising per capita GDP, advancements in transportation infrastructure, expanded logistics networks, and emergence of online distribution channels. These factors together will play a pivotal role and allow B2C logistical companies like Delhivery to propel higher.



  1. Technological advancements: The introduction of GST and e-way bills has significantly simplified interstate transportation, reducing bottlenecks at border checkpoints and creating a unified market for logistics. Several digital platforms now provide freight matching services that connect shippers with truckers, reducing inefficiencies and improving fleet utilization. Companies like Rivigo and Delhivery have developed AI-driven platforms that optimize route planning and load management.

  2. Unorganised vs organised: This is becoming a theme in all the businesses I am covering and its not intentional. Share of top 10 organized players in India constitute ~1.5% of direct logistics spends vs ~7-10% in China and ~15% in US. As the cost ofoperations continue to reduce for organised players and the services offered improve, the organised players should win over the unorganised share. About 85% of trucks are controlled by small fleet owners where they do not utilse the trucks fully. Due to these reasons, we can expect organised players to continue gaining market share and move towards the trajectory of countries such as China and USA.


Business analysis

The logistics sector is a huge sector. There are easily about 20 listed businesses in this sector and it makes it difficult for me to cover them in detail. Due to my constraints as a university student working on these blog alone, I will be covering three businesses where all three have the potential to increase their PAT by 100%! Very interesting businesses so lets begin!



AVG logistics


Disc: not invested.

AVG logistics was established in 2010 and currently specializes on road logistics with 700 owned vehicles, 3000 partnered vehicles, 8 rail routes and offering services such as transportation, warehousing, distribution and supply chain management, and

3PL services. They recorded a sales of 480 crores in FY24 and their revenue distribution is railway is around 15%, cold chain is around 25% and 60% is road transportation.


Services offered:

Road transport:

Value added services:



Why do I like the business?


  • Cold chain logistics: The business is dominant in the cold chain logistics space and is investing continiusly in this segment. This is what alllows the business to have higher EBITDA margins against their peers in other segments. Their unit economics of this business segment are quite solid as they make about 6 lakh rupees per reefer per month and they travel about 8-10K kilometereseach month. This shows that the business is extremely efficient and that is exactly what is needed to win in the logistics space. Last year, Reefer business did about 75-80 crores in revenue and in FY25 they expect the revenue to grow about 100% and hence becomes 150-160 crores. This means that the share of reefer business( against total revenue) increases from 15% to 22%. This increase in the share of reefer business allows the company to meet their PAT margin guidance of 5%. There is a huge untapped demand that has not been met and that allows AVG to expand continuously without sacrificing profitability by competing against multiple companies.



  • Entry into cement and commodity industries: As AVG logistics keep securing rail routes, they develop the potential and capability to expand into this heavy commodity industry. You might think that the PAT margins of these segments will be low, and you will be right because they are. However, companies go for these tradeoffs of sacrificing margins because such industries spend heavily on logistics, allowing these logistics companies to grow their revenue and TAM exponentially. For example, AVG recently won a contract from Dalmia Bharat, which spends around 5000 crores in logistics, and hence, if AVG manages to win 10% of that, they get 500 crores of revenue from a single cement company. Another significant advantage is that the working capital cycle with FMCG companies is 90 days, whereas it is only two weeks with these companies. This allows the company to rotate its funds better, which basically means that the cash is not stuck in working capital. And you know what that means? Improved profitability and return ratios.

  • Asset light transition: AVG is transitioning their cold chain logistics from asset-heavy, where they own their vehicles, to their drivers owning the vehicle. This allows the business to have more cash and align the incentives with the drivers as they get a share of revenue. A thing that I like is that this program will be for drivers who have been with them for a minimum of five years, which ensures that there is a strong trust and relationship between both parties. It's a soft but powerful advantage for the organisation. This model is expected to decrease its margins in this segment by 500 basis points from 32% to 26-27%, but it makes the business far superior as the investment required is barely any.

  • Diverse set of sectors: By being present in heavy commodities, cold chain and railways allows the company to be diverse in terms of end users. they have a strong presence in FMCG, Pharma ,QSR (15 crores annually but aiming for 30 crores in FY25) , government and are expanding well into heavy commodities. Moreover, 5-7% of their revenue comes from Waehousing where they are expanding as well.


  • Warehousing in tailwinds: Although Warehouses are a miniscule part of AVG's revenue, the potential is quite big. This segment is quite sticky and is asset light as most of the sqft controlled are leased rather than owened. In the Q2 FY24 concall. the company has mentioned that they aim to double their warehouse area and that the warehousing margins are much higher than transport business.


  • Consistent growth : AVG Logistics was able to win a 12 crore annual order from the UP government, which is quite a big deal as this has been hard to crack for many companies. Moreover, they have been consistent with walking the talk and are on the path to achieving a 45% sales growth and a 100% PAT+ growth (translating to 700 crores revenue and 35 crores PAT). Do note one thing: they recently sold a warehouse, which boosted their other income from 1-3 crores to 25 crores! Adjusting the PnL statement by 22 crores (as it's a one-time exceptional) gives a PAT of 14 crores for FY24 and 35 crores guidance for FY25.


We will look at risks of all businesses covered at the end together.


Technicals

The business had under gone a correction and was consolidating for a while. However, we can see some momentum pick up in the last few candles as the company is up 17% from its

previous consolidation lows. It is at an interesting juncture and should be tracked closely.




S J logistics

Disc: invested and biased


SJ Logistics was founded in 2003 by Mr.Rajen Shah, who is the managing director of the company. SJ offers business services such as Project Cargo, Ocean freight forwarding, Air freight forwarding, warehousing, NVOCC, custom clearance and Door delivery. NVOCC stands for a non-vessel operating cargo carrier, where the company acts as an intermediary and provides logistical support without owning or operating any ships. The company specializes in high-value cargo, which gives it some pricing power. Moreover, these goods are essential for infra development and hence act as a strong pillar for their growth in the past and future.


The business recently got IATA or International Air Transport Association license which is a huge milestone as it allows the business to focus on Air freight and add it to their portfolio.



Why do I like the business


  • Shifting revenue mix: Currently, the bulk of revenue, or about 51%, comes from textiles. However, the company is strategically positioning itself to increase its revenue share from project cargo, especially heavy metal mining equipment, transmission towers, etc., aligning with the nation's interests. With this, they position themselves to grow exponentially and increase their PAT margins. The company is guided to improve their PAT margins to 10% from 8% in the next few years.

  • Potential with PSUs: The Company has also announced its pursuit of new business opportunities with Public Sector Undertakings (PSUs) for handling their logistics requirements. The company has already registered itself with few PSUs and is looking for further business opportunities with PSUs. This too allows them to bag massive orders and help them grow their revenue well.

  • Growth guidance: The company is very ambitious with its target and, so far, has been walking the talk. From its 270 crores in FY24, the company aims to grow to 500 crores in FY25, followed by 700 crores in FY26 and 1000 crores in FY27. This puts it at a very impressive CAGR of 50%+. Moreover, the Q1FY25 result of the company has been incredible as it managed to beat the Q4FY24 revenue numbers despite the fact that H2 is responsible for the bulk of the revenue and posted an impressive net profit of 11 crores and revenue of 101 crores (vs 89 crores YoY). The 1000 crore guidance is termed 'conservative' by the management, and hence, it will be interesting to see what they end up doing.

  • Skin in the game: The promoters recently raised 80 crores, 40 crores from a preferential and the promoters putting in 40 crores through warrants and that too at higher valuations than the current market price (warrants issued at 576 rupees).

  • Strong financials : their business model of not owning any transportation vehicle and instead establishing a network of contracts with others allows them to be asset light and hence not take on much debt. Currently, the company has a Debt to equity of 0.12 which is quite impressive. The company is also improving its PAT margins and have decent a ROCE at around 33%.


Company specific risks

  • Despite of the fact that the nature of industry ensures receivables, the receivables of S J logistics are quite high and hence should be carefully tracked. They are mainly the reason why the business has net to net CFO. This should be tracked carefully. Moreover, contracts with PSU giants will also cause the same issue as they have a higher bargaining power and hence will release cashes later (it must be noted that the current government has made some changes and the payment is much faster now)


Technicals

The business is in a constant uptrend and seems to be maintaining it. However, the recent correction could continue for longer and hence the price action for the next few weeks should be tracked closely.



Premier Roadlines

Disc: not invested


Premier Roadlines is a recently listed business that was established in 2008. It specialises in logistic logistics solutions, focusing on land transportation of goods ranging from 1 MT to 250 MT across India. The company provides general transportation services, project logistics, and oversized/overweight cargo transportation. It serves sectors such as infrastructure, energy, electricity, oil and gas, mechanical engineering, construction, metallurgy, and renewable energies. The company mainly operates in India but also covers countries like Bangladesh, Nepal and Bhutan. 


Premier Roadlines, too, is an asset-light business and does not own any of its fleets. However, they have recently acquired a few and plan on buying a couple more to ensure constant revenue from them. They are aiming for a 30-35% revenue growth for FY25 and 25-30% for the next fears in the next 2-3 years and are optimistic about EBITDA margins being around 11%. There is limited info available about the business (or I couldn't find substantial information), but the reason I found the business interesting is because of the fact that the business being asset-light allows margin expansion and revenue expansion to flow straight to their PAT. This is why a 30-35% revenue growth can still translate to a PAT CAGR of 75-100%+, and that is available at a PE of 21.

However, there are a few risks involved which should be known


Risks

  • Limited information: Despite of the company conducting a concall, the management had not prepared the optimal data that multiple analysts would require and hence there is some opaqueness that can cause some confusions. I hope that with time, we get more data available but it currently becomes a problem to invest as I would be left under a very high uncertanity that I might not be comfortable with.

  • Unlisted logistics business : The Premier group owns an unlisted business which is also in the road logistics space but caters to micro businesses. The management claims that their business vertical is superior and that they do not plan on entering the segment as the unlisted one. It might be 100% true but that still is a problem as it leaves conflict of interest open and limits the markets to expand to.


Technicals

After a sharp run post listing, the business has corrected and is consolidating at the moment. The business briefly fell out of the supply zone but is back up. However, it looks to be a weak price action and hence we could wait for some strength ( you decide: value or momentum).


Industry related risks

  • Reduction in government spending : Government initiatives are the main drivers of the sector and hence remain key to what trajectory this sector takes. We should not be too worried as the direction of the government remains the same but it is a risk worth noting as almost all of your thesis will rely on this.

  • Weakening exports: Companies like S J logistics are heavily reliant on exports and hence any disruption in exports can cause problems with logistics, especially ocean freight.

  • Very competitive: The logistics industry in India is highly competitive, with many players vying for market share. Price wars and the entry of new players can impact profitability. Additionally, changes in consumer behavior and demand patterns can affect the volume and nature of logistics services required.


That is the end of the blog. I hope it was worth your time and you understood the industry in detail and learned about a few interesting names worth studying. Subscribe if worth it!

Thank you


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