Container Corporation of India (Concor)

Concor is a debt-free company and a dominant player in the containerised rail freight segment

CONTAINER Corporation of India (Concor), which has the near monopoly in the domestic container rail freight segment, may be considered for investment given its dominant position in this segment of the logistics industry.

Concor, has also been a debt free company for the past several years and in addition, it offers a dividend yield of 1.14 % currently. This PSU currently trades at 20.7 times its trailing 12-month earnings, broadly in tune with multi-modal logistics services provider Allcargo Global, partly-owned by buyout firm Blackstone Group, which trades at 19.3 times.

Although private sector operators started operations in a limited way in this segment from April 07 with about 15 companies currently competing for business, they are not a threat, at least immediately, to Concor, which is 63% owned by the government. Network infrastructure & expansion plans: At the end of March 09, the company owned fleet consisted of 8,117 wagons, a rise of nearly 37% from the levels two years earlier. In addition, at the end of FY09, Concor had 49 inland container depots (ICDs) and nine domestic container terminals on a pan-India basis, which store goods and provide allied infrastructure facilities for cargo transported from across the country to key container ports at the Jawaharlal Nehru Port, near Navi Mumbai, Chennai and Mundra.

The PSU had invested Rs 653 crore in the fiscal years from March 07 up to March ‘09, to expand its wagon capacity, improve infrastructure facilities, like handling equipment, new terminals and information technology services. Concor funded the expansion through cash generated from its operations, which was Rs 2253.8 crore during the same time period. The expansion happened at a time when the global economy was grappling with a credit crunch and the resulting shrinkage in external trade volumes, especially in the second half of the last financial year. Neverthess, its total volume of container freight traffic handled (export, import and domestic segment) amounted to 23.08 lakh twenty foot equivalent (TEUs) at the end of March 09, a compounded annual growth rate (CAGR) of 7.5% in fouryear time period. The company plans to invest nearly Rs 600 crore this fiscal, to further expand its network infrastructure and funding this capex should not be a problem, given its strong operating cash flows.

FINANCIALS:

Concor’s net sales was Rs 3417.2 crore at the end of March 09, a CAGR of 12% in a threeyear time period; Its net profit, however, grew at a CAGR of 14.6% during this time period. Growth in its net profit during this period was helped by other income, which nearly quadrupled to Rs 211 crore at the end of March 09. However, its operating profit margin was 27.2% for the previous financial year, as compared to 28.7% at the end of March 06, given higher operational costs. Meanwhile, during the quarter ended September 09, the company’s operating profit margin also contracted by 350 basis points to 26.4%, despite 6.2% improvement in net sales. Pressure on its operating margins was due to the cost of running empty trains amounted to nearly Rs 70 crore in the first half of FY 10, which more than doubled from a year earlier. This took place due to the sluggish trend in India’s external trade, where exports have been falling month-after-month, and the corresponding weak demand for container rail freight services. In the first half of FY 10, Indian exports declined 28.5% y-o-y in dollar terms, while imports also fell 32.7%.

VALUATIONS:

Concor trades with a P/E of 20.7 times its trailing 12-month earnings, while other multi-modal players in the logistics segment, like Allcargo Global Logistics trade at 19.3 times, and for Gateway Distriparks it is at 18.7 times. Investors could consider Concor in a bid to exploit the potential long-term opportunities from the logistics segment, and in particular containerised rail freight traffic.