Concor

Investors can consider Concor to avail of the long-term opportunities in the container rail freight segment

 

   THE 63.1% government owned Container Corporation of India (Concor) is the largest player in the domestic container rail freight segment, with a market share of 80-82%. Also, with the current upturn in the domestic economy over the past several quarters, coupled with a pickup in the country's external sector, Concor is well positioned to take advantage of the growth opportunities over the medium term.

   We had recommended this stock in our issue dated December 7, 2009 and since then the stock has gained barely 4.5%. And given the company's dominant position in the container rail freight segment, the stock is trading at a higher level versus the past few years -it currently trades at about 3.85 times its book value for the year ended March 2009, as compared to a range of 1.5 to 2.5 times between March 2005 and March 2009.

INFRASTRUCTURE NETWORK:

At the end of March 2009, the company's network included 8,117 wagons (on ownership basis), a rise of 36.9% from two years earlier. In addition, it also had a pan India network with 49 inland container depots (ICDs) and nine domestic container terminals spread across the country.

   These depots and terminals act as regional hubs for collecting and then dispatching export-import cargo either to ports (in case of exports) or to their final destination in case of imports.

   The company has strong cash flows - for instance, it had invested Rs 653.3 crore during the March '07 to March '09 period, while its operational cash flow during this period was a healthy Rs 2,253.8 crore. Private sector operators entered this segment of the logistics business in April '07 and as per various estimates, there are 15 private players that are in the ramp-up stage and as yet do not pose a serious challenge to Concor.

FINANCIALS:

Concor's operating profit margin declined 330 basis points y-o-y to 23.2 % in the March '10 quarter, at a time when its income from operations grew 13.1% y-o-y to Rs 950.5 crore. The company's operating margins were under pressure in the quarter under review due to its inability to fully pass on higher rail charges, which were raised in January '10, to its customers. In addition, Concor also offered rebates in both its Exim and domestic segment in the fourth quarter, for its key customers and that also hurt margins.

   Meanwhile, in Concor's key Exim segment, the volume of goods transported amounted to 4.9 lakh TEUs (twenty foot equivalent) in the fourth quarter, a rise of 19.6% y-o-y, given the 33.5% y-o-y jump in the country's exports in dollar terms during the quarter, while imports rose 55.3 %. The growth in volume of goods transported in the Exim segment by Concor in the fourth quarter was considerably better than that of the first three quarters of FY10, given signs of a pick-up in the country's external trade.

 
   In its domestic segment, too, Concor was also able to take advantage of the current upturn in the economy, with volume of goods transported amounting to 1.52 lakh TEUs in the fourth quarter, a rise of nearly 15.8% y-o-y. Concor's total volume of goods transported (Exim and domestic) grew nearly 4.9% y-o-y to 24.2 lakh TEUs in FY10.

   No doubt, Concor is the largest player in the domestic logistics segment, but private players have grown quicker even when the domestic and global economies were adversely affected by the sub-prime crisis. For instance, during the period March '08 to March '10, Concor's net sales grew at a CAGR of 5.2% to Rs 3702.3 crore, and net profit rose 1.7 % during this period. In contrast, a multi-modal logistics player, Allcargo Global Logistics, grew its consolidated net sales by 13% between December '07 and '09 on a CAGR basis, while net profit grew 30.3%.

VALUATIONS:

Container Corporation currently trades at 21.5 times on a trailing four-quarter basis, while other logistics players like Allcargo Global trade at 14.2 times on a consolidated basis.

   Gateway Distriparks also trades at 15.8 times. Investors could consider Concor in a bid to exploit long-term opportunities in the logistics segment.