Concor's growth route detours as demand dips due to weak exim volumes

Competitive pressures add to logistics firm's demand woes

The stock of state-run logistics firm Container Corporation (Concor) of India has declined by 15 per cent since the beginning of August. Weak demand, lower handling and storage charges, and increased competition have been key headwinds, likely to weigh on the stock going forward. Some brokerages have also cut their estimates for 2024-25 (FY25) due to the ongoing demand slowdown.

The primary near-term concern is muted volumes, which will negatively impact the company’s performance in FY25. Volume in the first quarter of FY25 was up 6 per cent year-on-year, with 3.3 per cent growth in export-import (exim) and 15 per cent growth in the domestic segment. The company has maintained guidance of 18 per cent volume growth for FY25, with 15 per cent growth in exim and a 25 per cent rise in domestic traffic.

Volume growth is expected from bulk cement movement in tank containers, an increase in double-stack trains, improvement in bulk cargo due to softening shipping freight rates, and contributions from new multimodal logistics park terminals.

Although exim volume growth in the April-June quarter was muted at 3 per cent, the company gained a 50-basis point market share. While the company has been reiterating its exim growth guidance of 15 per cent for FY25, which implies 20 per cent growth in the remaining nine months of FY25, analysts at Nuvama Research, led by Achal Lohade, believe this target appears difficult to achieve.

The brokerage is trimming its exim growth estimates by 1–3 per cent for FY25 and 2025-26 (FY26), now assuming growth rates of 7 per cent and 12 per cent, respectively, for FY25 and FY26. It has also cut its revenue, operating, and net profit estimates by 1–8 per cent over the next two years to account for the weakness. Given the unfavourable risk/reward profile, Nuvama Research has assigned a ‘hold’ rating and is awaiting a better price point to enter the stock.

A factor that could pressure rail operators is weakness in crude oil prices. Analysts at Kotak Institutional Equities (KIE), led by Aditya Mongia, indicate that the recent decline in oil prices is an added negative for rail operators, as road operators benefit more due to their higher fuel costs. Concor and its peers are already struggling with the impact of the busy season surcharge on the loss of lightweight volumes to road operators over the past year.

Government directives regarding empty containers and handling charges present another challenge for Concor. The government has requested that the company allow empty containers to be stored for 90 days in the yard at the Jawaharlal Nehru Port Authority and reduce loading and handling charges. KIE points out that these charges account for a low double-digit percentage of overall revenues.

The recent announcement of a sharp cut in such charges potentially affects 5–7 per cent of overall volumes (empties at Jawaharlal Nehru Port Trust); thus, it may shave off net profit margins by a low-to-mid single-digit percentage. This situation may be temporary and could reverse if ocean freight rates decline, according to the brokerage, which maintains a ‘sell’ rating on the stock.