Stock Review: Container Corporation of India (Concor)

 

THE government-controlled Container Corporation of India (Concor) is the largest player in the domestic container rail freight segment and has benefited from a strong pick-up in the country's trade over the last few quarters. This, in turn, has helped boost volume of goods transported in its key EXIM segment. The growth in the company's net sales in the fourth quarter of FY11 was higher than the first half of that financial year.

   The company has also enjoyed strong operational cash flows over the past few years and is debt-free. Private sector operators entered this segment of logistics business in April 2006 and as per various estimates, there are 15 private players that are in the ramp-up stage.

   Concor's market share in this logistics segment was estimated at 75% at the end of March 2011 quarter, lower than a year earlier, but it still enjoys a commanding position in its segment of the logistics industry. We had recommended this stock in our issue dated May 24, 2010, and since then, the performance of the stock has been lacklustre. It has declined 6% during this period compared to a 19% rise in the Sensex.

INFRASTRUCTURE:

The company's container fleet —owned as well on lease — stood at 15,754 at the end of March 2010, a rise of 16.5% from two years earlier. That apart, the company also has 49 container depots across the country, coupled with 10 domestic container terminals at the end of FY10. However, there has been a visible shift in the container rail traffic from JNPT, Navi Mumbai, toward ports in Gujarat. And that, in turn, has curtailed the distance in kms of cargo transported by Concor on its network.

   Concor has strong cash flows and financed its expansion of logistics network from internal accruals. For instance, it had invested 660 crore during March 2008 to March 2010 while its operational cash flow during this period was 2,172.4 crore.

FINANCIALS:

Concor benefited from strong demand conditions due to an upturn in the country's external trade in the March 2011 quarter. However, in its smaller domestic operations, the performance was lacklustre in the fourth quarter, as an earlier hike in freight charges by the railways resulted in several commodities being transported by alternative means. As a result, the company's operating profit margin was broadly flat at 23.4% in the fourth quarter on a year-on-year basis while net sales rose 4.7% to 995.4 crore. In the company's key EXIM segment, the volume of goods transported improved 5.6% y-o-y to 5.18 lakh twenty foot equivalent (TEU) while realisations also rose nearly 1.9% per TEU. A tight check on costs and reduced taxes meant Concor's net profit improved 16.3% y-o-y to 201.4 crore in the fourth quarter.

VALUATIONS:

Container Corp at 1,199 per share trades at a P/E of 18.8 times on a trailing 4-quarter basis. Other players like Allcargo Global Logistics trades at a consolidated P/E of 13.6 times on a trailing basis, Gateway Distriparks trades at 15.9 times on a stand-alone basis.