A positive move by the government and its inherent strengths in the logistics business will provide strong growth prospects.
The results announced by Container Corporation of India – the multi-modal logistics provider that saw net profit decline 3.67 per cent to Rs 193.5 crore in the quarter ended June – did not pull down the stock price too much. In fact, it gained marginally on Monday. This, said analysts, was mostly because much of the bad news was already factored in the share price.
According to data released by the Indian Ports Association earlier this month, container traffic at the country’s 12 major ports in June was up eight per cent year-on-year, but down 6.3 per cent sequentially. There was a lot of pessimism over the numbers, even when overall traffic was up 16.7 per cent year-on-year and four per cent sequentially. The action in the economy continued to be robust.
Analysts at Nomura Securities reckon this trend will continue till November, as the low-base effect of the prior period continues to influence growth numbers.
However, the excitement is not about this base effect, but the positive impact of the new policy that allows for bulk cargo entry at ConCor. “The railway ministry has allowed private operators to move bulk cargo, excluding certain items, on the Indian Railway network. Thus, the opportunity size for ConCor has increased around 10 times,” the report mentions.
With this, demand is now more than sufficient, leading to lower competition in the existing business, too. With a network of around 60 terminals across the country, ConCor should benefit greatly from the policy change, analysts added. Free cash flow could grow by 500 basis points from financial year 2011 to 2020, and this could be a big trigger for re-rating the stock. Therefore, the marginal drop in earnings is expected to be overseen in the light of existing opportunities.
However, the company would at best be trading at a 5-10 per cent premium to the broad market valuations. The bigger triggers would be the ability of the management to pass on a price hike in July and a pick-up in export trade.
