4 Stocks to Ride the Booming Indian Supply Chain Industry

It exposed the vulnerability in modern global supply chains.

Broken supply chains have figured as the foremost pain-points for India and other countries as it struggles to match-up with the demand faced globally.

According to research by Accenture, 94% of Fortune 1000 companies witnessed supply chain disruptions from Covid-19, 75% of companies had a negative or strongly negative impact on business, and 55% plan to downgrade their growth outlook.

As the world heals from the Covid-19 shocks, China’s dominating status as the ‘world’s factory’ has shown itself as the weakest link in global supply networks.

This has made many businesses to rethink their supply chain strategy or else they will carry the risk of being caught unaware again.

However, the supply chain crisis has fared well for India as global players are shifting their focus from China.

Indian has robust macroeconomic fundamentals, a favourable demographic dividend, an improved ease of doing business, and an economy that is anticipated to grow, albeit at a slower rate.

India can present itself as an appealing investment destination for investors worldwide.

This requires the government, local bodies, and industry to leverage this opportunity.

In this fast-evolving context, as global companies are adapting their manufacturing and supply chain strategies to build resilience.

Indian Investors should gear up to take advantage of this unique opportunity as the country plans to become a global manufacturing hub.

With the help of Equitymaster’s powerful stock screener, we have shortlisted the best supply chain stocks to look out for in the future.

These are the stocks which came up when we ran the screener for best supply chain stocks in India.

Blue Dart Express

Blue Dart Express is an Indian logistics company that provides courier delivery services. It also has a subsidiary cargo airline, Blue Dart Aviation that operates in many countries.

It has a formidable express and logistics network covering more than 35,000 locations and more than 220 countries and territories serviced internationally through DHL. Blue Dart is part of Deutsche Post DHL Group’s Post e-commerce-Parcel (PeP) division.

The courier service firm is a pioneer in the express logistics industry. Also, it’s India’s most innovative and awarded express delivery company.

The company is the largest and most preferred third-party logistics service provider for banking, financial services, insurance, e-commerce, automotive, life sciences, healthcare, consumer durables, electronics, and other industries.

Since the statewide lockdown began in 2020, Blue Dart has delivered tonnes of cargo carrying important supplies, keeping the mission-critical supply chain working and assisting the nation in combatting the coronavirus epidemic.

The company posted ₹895 m profit after tax (PAT) for the September 2022 quarter compared to ₹414 m on the back of strong operational performance.

That apart, during the September quarter, the company successfully launched the Blue Dart Med-Express Consortium, which leverages the use of drone technology to provide a robust healthcare infrastructure to the interiors of the nation.

Going forward the company will strengthen its focus on product innovation, reach expansion, transit time improvements, small town (Tier II and III) activation and strengthening channels for the e-commerce industry in India, says a report.

In the past one year, the stock has delivered a return of 66%.

TCI Express

Based in Gurugram, Haryana, TCI Express is an express delivery provider with its 800 offices covering more than 40,000 locations in India.

The firm has a significant customer base from sectors like auto, pharma, textile, engineering, fast-moving consumer goods (FMCG) etc.

During the pandemic, the company emerged as a key player for distribution of Covid-19 vaccine doses to various vaccination centres across the country under its cold chain arrangement system.

Besides, TCI Express reported strong set of numbers in the second quarter of 2022, with the asset light model aiding its margins.

The company reported a standalone profit of ₹340 m for the quarter ended September 2021 compared to a profit of ₹230 m in the year-ago period.

Also, the company is eyeing 20-25% revenue increase in the financial year 2023 and around 20-21% margin growth.

The new services business, cold chain express, rail express and C2C express put together contributed around 15% of the total business and margin accretive in September quarter.

In the next five years, the company expects that the new services would contribute around 20-25% of the overall business.

Last month, express logistics company TCI Express said it’s looking to begin deliveries using drones by the end of the ongoing fiscal year. Recently, the company concluded its initial trials.

TCI Express has been continually adopting and investing in cutting-edge technologies to bring long-term value for customers. The firm looks forward to initiating the express drone delivery concept by the end of this fiscal year.

This multibagger stock has gained 140% since the beginning of this year and has risen 150% in the last one year.

Mahindra Logistics

Mahindra Logistics is a logistic service provider that offers solutions in two business segments: supply chain management and enterprise mobility.

The company provides supply chain solutions to vast industry verticals like engineering, consumer goods, telecom, pharmacies, commodities, and e-commerce.

Mahindra Logistics experienced a significant impact on its business due to lockdowns imposed on various states.

But now, it’s on the way to a stronger recovery path after expecting its momentum to consolidate in the next half of this fiscal year.

According to media reports, the company is carrying positivity in its business outlook and expects to deliver good quarter results on the back of demand recovery.

Earlier this month, Mahindra Logistics and LOGOS announced a long-term lease agreement for 1.4 m square feet of warehouse facilities at LOGOS Luhari Logistics Estate in Delhi-NCR.

LOGOS is a logistics specialist with operations across Australia, China, Singapore, Indonesia, Malaysia, Vietnam, India, and New Zealand. The transaction represents India’s largest warehousing facility in a single park.

Besides, the company has also announced the strategic acquisition of Meru to consolidate and expand its business in the enterprise mobility space. The addition of Meru under the company’s brand will further strengthen M&M’s logistic arm’s mobility business.

Share of Mahindra Logistics has delivered 75% return to its shareholders in the last 12 months.

VRL Logistics

VRL Logistics is engaged in logistics services. It deals mainly in the domestic transportation of goods.

Other businesses include bus operations, transport of passengers by air, sale of power and sale of certified emission reductions (CER) units generated from operation of wind mills.

The operations of the company are spread all over the country through various branches and transshipment hubs.

Presently, VRL is focusing on the high-margin less-than-load (LTL) business (driven by the B2B segment) and expanding its network into newer markets.

VRL Logistics, which owns the largest fleet of commercial vehicles in India, operates more than 5,000 vehicles, including tankers, cranes and buses.

According to reports, VRL looks to add 100 vehicles per quarter in second half of the financial year 2022. The company is also adding new branches to capture higher volumes. It looks to add 100 branches over the remaining months of the fiscal 2022.

The logistics company reported a profit of ₹494.8 m for the quarter ended September 2021 against a profit of ₹308.8 m in the year-ago quarter. The company’s net sales rose 45% during the quarter.

The company said that despite the difficulties faced, the impact on business was lesser than during the first wave witnessed last year, as supply chains were evolved enough to cope with localised and staggered lockdowns.

As per market analysts, the strong tailwinds for VRL would drive consistent growth in volumes and earnings over the next few years.

The company would benefit from the uptick in economic activity, the general price hikes taken post quarter one of 2022, and easing fuel prices (on account of tax cuts).

VRL Logistics shares have delivered around 125% return in the last one year.

Snapshot of best supply chain stocks from Equitymaster’s stock screener

Here’s a quick view at the above mentioned companies based on some crucial financials.

Please note these parameters can be changed according to your selection criteria.

This will help you in identifying and eliminating stocks that are not meeting your requirements and give emphasis on those stocks that are well inside the metrics.

To Wrap Up

In the middle of continuous global supply chain problems and shortages, transportation and logistics stocks have emerged as an intriguing investment opportunity.

The pandemic has crippled the international supply chain and companies of all sizes are scrambling to find solutions.

If the supply chain crisis persists for a long time, it can affect many sectors. As a result of these shortages, inflation may rise in near-term.

While the uncertainty still prevails in the global economy, investors should weigh in all the factors before investing in any company.

One should always try to put their money into a solid company with a track record of successful operations. If there isn’t enough confidence in the stock, it can make the initial investment weak and deplete it before it has a chance to grow.

Happy Investing!

This article is syndicated from Equitymaster.com