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.

Allcargo Global

Allcargo Global is expected to gain from a revival in the global logistics sector over the next few years

ALLCARGO Global Logistics, partly owned by the world’s biggest buyout fund Blackstone Group, may be a good investment option given the slowly reviving world trade, coupled with the company’s diversified businesses. Allcargo is now the world’s second-largest player in the less than container load (LCL) segment following its acquisition of Belgium based ECU Line in 2006. LCL implies goods which don’t require a full container, but only a portion of it. So, there are logistics operators such as Allcargo who receive goods from various customers at its offices across the globe and in turn, books space on shipping lines, to transport goods to its final destination.

In addition, in the domestic market, the company is present across several segments, including container freight station (CFS) and inland container depots (ICDs), equipment hiring and project cargo, and is aggressively expanding.

Allcargo trades at 18.9 times on a trailing four-quarter basis, which is lower than the largest domestic logistics player, the PSU- Container Corporation of India. Investors could consider Allcargo Global in a bid to gain from the growth opportunities in the logistics sector over the next few years, both within the country and globally.

NETWORK INFRASTRUCTURE

Allcargo acquired Belgium-based ECU Line in 2006 and revenues from its overseas operation contributed almost 76.9 % to its consolidated net sales of Rs 2314.1 crore in the financial year CY08. In the domestic logistics industry, Allcargo’s CFS are located at key container ports at Jawaharlal Lal Nehru Port Trust, near Navi Mumbai, Chennai in Tamil Nadu and Mundra in Gujarat. Its CFS have a total capacity of 2.78 lakh twenty foot equivalent units (TEUs) in November 09, helped by facilities set up at Chennai and Mundra in CY 07. However, the dominant player in the domestic containerised rail freight segment is Concor. Meanwhile, Allcargo’s equipment division currently operates 64 cranes, 72 forklifts and 363 trailers. The operations of this division have been scaled-up considerably with the acquisition of 50 cranes in January 08.

During its financial year ended December 06 and December 09, the company has invested nearly Rs 574 crore, on a consolidated basis, to expand its nfrastructure, while its cash flow during the period was just Rs 238.9 crore. As a result, the company had to borrow, pushing its total debt four and half times to Rs 344 crore at the end of December 08. Its leverage ratio was also 0.3 at the end of the previous financial year.

FINANCIALS & EXPANSION PLANS

Allcargo’s consolidated net sales declined 21.2 % yo-y to Rs 497.85 crore in the September ‘09 quarter, compared to a 3.6 % growth in the trailing four quarters. This was largely due to a 15.5 % y-o-y fall in the volume of cargo handled at its overseas operations given the falling trade. However, its operating profit margins improved 40 basis points y-o-y to 11.7 % in the second quarter of FY 10, helped by a tight check on its operational costs. Allcargo plans to set-up ICDs at Bangalore, Hyderabad, Nagpur and in addition, it has entered into a joint venture with Concor to establish an ICD at Dadri in Uttar Pradesh. The company recently got shareholder approval to raise upto $150 million (nearly Rs 700 crore) through share sales to expand existing facilities, acquisitions and working capital needs. This is in addition to nearly Rs 242.3 crore investment by Blackstone in Allcargo from recent warrant conversion.

VALUATIONS

Allcargo Global trades at 18.9 times on a trailing fourquarter basis. Industry peer Gateway Distriparks trades at 18.4 times and Concor at around 20.7 times. Investors could consider Allcargo Global to leverage the growth opportunities in logistics.