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.

Stock views on Opto Circuits, Gateway Distriparks, Welspun Gujarat Stahl Roh

IIFL on Opto Circuits - Target Rs 216

IIFL has maintained its buy rating on Opto Circuits with a price target of Rs 216 in its report.

"Opto Circuits continued its growth momentum in 4QFY09, with topline and EBITDA up 77% and 105% YoY, respectively. On a QoQ basis, topline growth of 1% was marginally below our projection, but a 425bps jump in margin led to EBITDA significantly surpassing our estimates at Rs 705 million (up 16% QoQ). We estimate FY09 organic topline and bottomline growth of about 40% and believe the company will maintain the momentum in FY10 as well. The added growth opportunities from Criticare will likely bolster organic growth. We continue to believe in the large global opportunity in medical devices. We raise our FY10 and FY11 earnings estimates by 1-3%, our target price to Rs 216, and maintain 'BUY' rating," says IIFL's report

SKP Securities on Gateway Distriparks - Target Rs 135

SKP Securities has recommended a buy rating on Gateway Distriparks with a target price of Rs 135 in its report.


"Gateway Distriparks Ltd (GDL), a leading provider of port related logistics support services in India, promoted by three business groups based in Singapore and a business group in India. GDL operates container freight station on a pan India basis with strategic locations at JNPT, Chennai, Vizag and Kochi and ICDs located at Garhi Harsaru and Ludhiana. This presence enables it to cater to the West coast traffic, demand from the Northern hinterlands as well as the east coast traffic. We believe that GDL Ltd is the strongest player in CFS business, led by its strong presence and continuing growth momentum. We expect GDL to post revenue at CAGR of 18% aided largely by higher growth coming from its rail business and new ICDs capacity addition. At current market price of Rs. 92.5/-, the stock is trading at a P/E of 10.2x of FY 11E earnings and EV/EBITDA of 5.5x of FY11E. We hereby initiate coverage on GDL Ltd. and recommend buy rating with a target price of Rs 135/- (46% upside) in 12 months," says SKP Securities' report.

ULJK Securities on Welspun Guj - Target Rs 295

ULJK Securities has maintained its buy rating on Welspun Gujarat Stahl Roh with a target of Rs 295 in its report.



“Welspun Gujarat Stahl Rohren Ltd (WGSRL) is one of the biggest SAW pipe companies in Asia and one of the top 3 companies in the world with regard to the completion of challenging and extremely critical projects. For the annual year ended FY2009A, WGSRL recorded 43.7% growth in Net Sales. Net Sales for the year stood at Rs 57,395.2 million. The net profit was down by 37.3% to Rs 2,135.1 million when compared with FY 2008A. The company plans to demerge Plate cum Coil mill into a 100% subsidiary. WGSRL will own 100% of this demerged entity. We retain Buy with a target price of Rs 295 per share. At this price, the stock will discount FY2010E earnings by 14 times," says ULJK Securities' research report.

Stock Views on Gateway Distriparks, Kirloskar Brothers, HEG, Gateway Distriparks

KRChoksey on Gateway Distriparks - Target Rs 97

KRChoksey Research has recommended a buy rating on Gateway Distriparks, with price target of Rs 97, in its report dated October 23, 2008. "The company remains cautious on the pricing outlook of its CFS business, amidst slowing container volumes. We expect the margins of its rail business to improve, as the impact of the price hikes would be seen in the subsequent quarters. The company is confident of maintaining healthy growth on the back of its robust expansion plan. At CMP of Rs 75, the stock is trading at 8.3x on FY09E EPS of Rs 9.0. We recommend a BUY on this stock with target price of Rs 97, which represents an upside potential of 29%," says KRChoksey's research report.

SKP Securities on HEG - Target of Rs 319

SKP Securities has maintained its buy rating on HEG, with price target of Rs 319, in its report dated October 31, 2008. "The demand for graphite electrodes has been increasing globally as well as domestically in the steel industry and HEGL being the leading graphite manufacturer in India will be able to take the advantage of the situation with its increased capacity. At the current level of Rs 135.25 and excluding the investment value, HEGL is trading at 2.74 x FY09E earnings and 1.74 x FY10E earnings of Rs 35.90 and Rs 56.58 respectively."

"We have valued the core business of the company at 5 x FY10E earnings, taking value of the stock to Rs 282.91 per share. The value of the company is further increased by Rs 37 per share by discounting HEGL's investment value in Bhilwara Energy Ltd. by 50%. We maintain our BUY recommendation on the stock with a target price of Rs 319 per share, upside potential of 137%," says SKP Securities' research report.

KRChoksey on Kirloskar Brothers - Target Rs 113

KRChoksey Research has recommended a buy rating on Kirloskar Brothers, with price target of Rs 113, in its report dated October 23, 2008. "At the CMP of Rs 80.5, the stock is trading at 7.7x FY08 EPS of Rs 10.4 and 7.6x FY09E EPS of Rs 10.6. We ‘Re-rate’ the stock and recommend a BUY with a target price of Rs 113, implying an upside potential of 40%. At the target price, the stock would be valued at 10.7x FY09E EPS of Rs 10.6," says KRChoksey's research report.

Stock views on HEG, Nava Bharat Ventures, Dishman Pharma, Gateway Distriparks

PINC Research on HEG - Target of Rs 205

PINC Research has maintained its buy rating on HEG with a target of Rs 205 in its November 5, 2008 research report. "HEG reported a decent 15% YoY growth in its revenues for Q2FY09 which stood at Rs 3 billion. A Rs 300 million provision for losses on account of mark-to-market on forex loans, dampened the profits, which fell by 25% on YoY basis. We believe that HEG would continue to maintain its margin and incremental volumes would drive its profit growth going forward."

"At the CMP of Rs 149, it is trading at P/E of 3.4x and EV/EBDIT of 2.3x discounting its FY10 estimates. We believe this is at substantial discount to its fair value, which also includes 36% stake in BEL. Hence we maintain ‘BUY’ recommendation on the stock with a revised price target of Rs 205 on a 12 month investment horizon," says PINC' research report.

PINC Research on Nava Bharat Ventures - Target of Rs 190

PINC Research has maintained its buy rating on Nava Bharat Ventures with 12-month price target to Rs 190 in its November 7, 2008 research report. "Nava Bharat Ventures Ltd. (NBVL) once again reported an excellent set of results in Q2FY09 as it posted a 157% increase in revenues, at Rs 4 billion, with 70% contribution from the ferro alloy division alone. Net profits grew by 127% to Rs 1.2 billion."

"At the CMP of Rs110, the stock is trading at a P/E of 2.3x and EV/EBIDT of 1.2x its FY10E earnings We believe these are very attractive valuations for a company with a very robust business model where the company can switch between power and ferro alloys production depending on the market conditions. Hence, we maintain our ‘BUY’ recommendation on the stock but revise our 12-month price target to Rs 190," says PINC's research report.

Reliance Money on Dishman Pharma - Target Rs 185

Reliance Money has recommended a buy rating on Dishman Pharmaceuticals and Chemicals, with a 12-month price target of Rs 185, in its report dated October 31, 2008. "Dishman Pharmaceuticals & Chemicals reported 35% growth in its consolidated revenues to Rs 2520 million during Q2FY09, which was in line with our expectations. To capture the market wide correction in the valuations, we are revising down our target price to Rs 185 (i.e 8x FY10EPS) from our earlier DCF based target price of Rs 320. Thus, we maintain our rating on Dishman Buy with revised target price of Rs 185," says Reliance Money's report.

India Capital Markets on Gateway Distriparks

India Capital Markets has maintained its buy rating on Gateway Distriparks, in its report dated October 31, 2008. "Gateway Distriparks Ltd (GDL) has reported impressive Q2FY09 numbers in revenues on back of increase in volume growth by 13% on qoq basis. On standalone basis GDL’s revenues grew by 32% on yoy to Rs 554 million in Q2FY09 on the back of rationalization of cost structure at Mumbai CFS. GDL overall handled 110,175 TEUs (up by 22% on yoy & 13% on qoq). GDL has deployed 12 rakes which are running on domestic and EXIM routes which will enhance to total of 40 rakes in next 18 months. Snowman’s performance has improved on operational level. We remain positive on the stock, but recent global worsening financial conditions may slow down the export – import (EXIM) trade. We continue to remain BUY on the stock," says India Capital Markets' research report.