A strong infrastructure base, a multimodal business model and a dominant position will ensure steady revenues for Concor.
Container Corporation (Concor), the country’s largest container transport company, is expanding its area of operations from predominantly rail transport to an integrated door-to-door logistics and value added cargo operator.
With a dominant share of over 90 per cent of the containerised cargo rail transport market, the company now intends to capture a pie of shipping and air cargo traffic by entering into alliances over the next six months.
Multimodal transport
In the sea cargo business, Concor can either offer to handle a shipping company’s port operations or a rail interface of shipper’s cargo to hinterland locations.
The company, in addition to booking slots on vessels, is also contemplating picking up an equity stake for coastal (between Indian ports) as well as international shipments. For its air cargo operations, the company is planning to build two cargo complexes in Goa and the North East.
Air cargo business in the country is growing at the rate of 20 per cent. For hinterland locations it does not have direct access to, the company is working on a hub-and-spoke model to get the smaller shipments to its inland container depots (ICDs).
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Although the company has made a small beginning in the cold chain business through its subsidiary Fresh and Healthy Enterprises (FHEL), this subsidiary is also planning to tie-up with a strategic partner to further expand the business.
This joint venture will help the company offer services to procure, transport, store and distribute fresh fruits and vegetables across the country. While revenues from this business are small, it is expected to pick up once the company establishes a presence at key agricultural and retail centres.
While these new initiatives are likely to be operational by the end of this fiscal, growth will continue to come from its core container haulage business.
Container dominant
With over 58 terminals, nearly 8,000 wagons and 1,200 containers, Container Corporation is well positioned to take a large chunk of the growth in container traffic. From about 7 million TEUs (twenty foot equivalent units) now container traffic at the ports is expected to increase to 21 million by 2016 TEUs, an annual growth of 14.72 per cent.
With transport by rail considered 30 per cent cheaper than road, any improvement in infrastructure in terms of rail connectivity to the ports and ICDs, enhancement of port capacity as well as the setting up of rail freight corridors will boost its revenues.
Also, India’s export-import container cargo at 30 per cent is much less than global container cargo average of 70-75 per cent. The rising preference towards containerised cargo will also translate into a higher proportion of container cargo vis-à-vis bulk, and is likely to add to the revenues of larger players such as Concor.
Competition and margins
While the company faces competition from 14 private players who have been granted licences to operate their own trains, its infrastructure is difficult to replicate any time soon.
Setting up a rail-linked ICD situated near industrial belts, acquisition of rakes and linking them to the proposed freight corridor is being estimated at Rs 300 crore due to high land cost. Once private players get their own rakes, Concor’s margins might be impacted.
As of now, Concor is sitting pretty as it runs about 18 trains a day between NCR-JNPT route compared to about 2-3 trains of private operators. Concor has been facing margin pressures in the previous fiscal due to a rail surcharge, higher wage costs and discounts on 40 ft containers. A bigger headache for the company has been to balance higher import volumes vis-à-vis exports, which has forced it to run empty rakes.
The company is rationalising its tariffs by hiking its charges for imports and offering a discount on exports on the NCR-JNPT route. At bigger terminals, the company is employing its own new equipment and this has improved efficiencies (higher throughput) and delivery schedules, unlike in the past when some of these services were outsourced.
Concor is also planning to pass on the 15 per cent hike imposed by the Indian Railways on rail haulage charges (75 per cent of Concor’ costs) effective August 1, 2008 and thus maintain its EBIDTA margins at about 31.5 per cent going ahead.
| SMOOTH FLOW | ||||
| Rs crore | FY07 | FY08 | 5-yr CAGR | FY09E |
| TEUs (in lakh–nos) | 21.05 | 24.47 | 12.10 | 28.00 |
| Sales | 3046.00 | 3347.00 | 17.70 | 3883.00 |
| Realisation (Rs/TEU) | 14468.00 | 13675.00 | 5.00 | 14359.00 |
| EBIDTA | 979.40 | 1055.00 | 17.00 | 1224.00 |
| Net profit | 691.00 | 752.00 | 22.10 | 918.00 |
| EPS (Rs) | 54.1* | 57.90 | 6.30 | 61.30 |
| P/E (x) | – | |||
Valuations
The company’s performance in the June quarter was impacted by the Gujjar agitation in Rajasthan, which disrupted operations for about 30 days in May and June.
Despite this setback, Concor managed to show an 8 per cent y-o-y growth in export-import (Exim) volumes to 4.8 lakh TEUs and a 9 per cent growth in Exim revenues.
Due to a high base effect over the June to December quarters in FY08, where the company recorded growth rates between 25-38 per cent, domestic volumes were down 6.6 per cent y-o-y. Overall volumes increased by 5.2 per cent y-o-y to 5.89 lakh TEUs.
To expand its operations, the company plans to invest over Rs 2,500 crore over the next five years in increasing rolling stock and modernising/acquisition of ICDs.
This investment will double if it manages to win bids to develop terminals at various Indian ports. Its strong infrastructure, entry into air cargo and shipping businesses and robust Exim demand will ensure a 15 per cent growth in revenues for the next couple of years.
At Rs 835, the stock discounts its FY09 estimated earnings of Rs 61.34 by 13.6 times, which is close to the lower end of one year forward P/E band of 11-20 times. Investors can expect a return of about 20 per cent over the next one year.