Container Corporation of India Ltd
BSE Code: 531344
NSE Code: CONCOR
Container Corporation of India Limited (CONCOR), a 'mini-ratna' enterprise was established in 1998 by Indian Railways to provide rail based containerized transport services. CONCOR today is India's largest railway container freight operator having more than 90% market share.
Business:
CONCOR's business can be characterized into three activities, namely, carrying containerized cargo, operating terminals, and providing warehouse services.CONCOR which had monopoly till the year 1997 when railways opened up rail traffic sector to private players; has wide network of 49 Inland Container Depots (ICD) and 9 domestic container terminals with more than 8500 wagons i.e. over 150 rakes.
The export import (EXIM) segment which contributes to 80% of annual sales revenues has been the growth driver for the company on the back of strong growth in India's foreign trade. The rest of the revenues come from domestic segment where a roadway is still the preferred mode of transportation. The EXIM sector is highly profitable, with operating margins of around 28%, as compared to around 14% margins in the domestic sector. Although the domestic sector enjoys higher realizations, it is less profitable due to the longer lead times, running of more empties and competition from roadways.
In order to overcome competition in domestic segment, CONCOR has tied-up with Transport Corporation of India (TCI) and Reliance Logistics to provide door-to-door services to its clients who would prefer using CONCOR's services due to its vast terminal network and sizeable wagon fleet.
In an effort to diversify from a pure rail haulage company to a complete logistics
provider, CONCOR has ventured into other areas such as cold chain logistics by establishing a subsidiary 'Fresh & Healthy' in 2006. This sector though at a very nascent stage right now, is expected to grow significantly on the back of the retail boom. CONCOR had also formulated a strategic alliance for air cargo and planned to start 5 air freight stations in next 3-4 months. The firm also expects to finalise strategic alliance for shipping by the end of FY09.
To secure volumes, CONCOR is investing in port terminals and related infrastructure. CONCOR has formed joint ventures with companies such as Maersk India, Transworld Group and APL India to setup and run Container freight stations (CFSs) / ICDs across the country. CONCOR has constructed and runs the third berth at JNPT through a joint venture with Maersk Copenhagen, and proposes to form further alliances to bid for expansion in key ports.
Expansion plans:
"The company being debt free and having cash of Rs1740 crore on its books is going ahead with its plans to invest Rs. 500 crore in FY09 in its core business including wagon additions, terminal construction etc. Including investments on joint ventures, CONCOR plans to invest Rs. 650-700 crore in the current financial year" said company sources.
CONCOR would spend Rs300 crore for wagon acquisition. It has already ordered 1300 high-speed wagons and is in process of ordering another 1,500 wagons for FY10. CONCOR has also approved purchase of equipments like reach stackers for around Rs50 crore and is also building three new terminals at JNPT, Ennore and Chennai at cost of Rs100 crore.
Investment rationale:
India's growing external trade, particularly textile, automotive, auto ancillary, engineering, and capital goods, and increasing trend in containerization of cargo is expected to boost container traffic at a CAGR of 14-16% by 2012. Further with development of dedicated rail freight corridor and associated infrastructure, share of railways (34% currently) in container transportation would increase as transportation by railways is much cheaper and faster than by road.
Due to its historical presence in the container rail segment, CONCOR has developed formidable infrastructure with widespread geographic reach across India. This serves as the biggest entry barrier for new operators who face hurdles in form of high land prices, inappropriate terminal location, regulatory issues and huge cost of wagon procurement. Since setting up a similar terminal network is not feasible for any single private company, most of them are entering into fee based agreements with CONCOR to share its infrastructure.
CONCOR also has a well established relationship with several shipping lines, and has formed joint ventures with key customers such as Maersk for construction and running of CFSs/ ICDs, ensuring captive business from shipping lines.
CONCOR being a dominant player in container logistics business it is expected to capitalize on these factors to maintain its leadership position and derive maximum benefit from growing trade.
Concerns:
The current uncertain macro environment has led to slowdown in the EXIM trade as well as domestic traffic volumes. Any long term economic slowdown, delay in procurement of wagons or delay in commissioning of expansion projects would affect the revenues. Also margins would be subjected to pressure on account of increasing competition in railway container haulage sector and increasing contribution of low margin domestic sector going forward.
Valuations:
CONCOR with its strong infrastructure, strategic tie-ups with key players in logistics domain, its cold chain initiatives and aggressive expansion plans; is expected to drive its growth story strongly as it is well positioned to benefit from sustained growth in India's foreign trade. With CONCOR making all efforts to become complete logistics provider, its revenues are expected to grow at 16.5% over FY08A-FY10E. CONCOR's cost control measures and higher realizations will help it maintain its margins and earnings are expected to grow at CAGR of 17% between FY08A-FY10E. At CMP of Rs 739.20 it trades at P/E of 10.76x & 9.41x its FY09E & FY10E earnings respectively.
Consolidated Annual in Rs. Crore Q2 FY09 FY08 FY09(E) FY10(E) Net sales 903.36 3347.30 3925.00 4540.00 OP 268.79 890.73 1049.94 1203.10 PAT 223.86 750.52 892.94 1021.50 Capital 129.98 64.99 129.98 129.98 EPS (Rs.) 17.22 57.87 68.70 78.59 Price 739.20 Date 17/10/2008 PE 12.77 PB 2.96 Book value per share 249.95 EV 7868.33 EV/EBIDTA 7.46 Mcap 9608.33
Share holding
Sep 2008
Promoter owned
63.09
Public owned
1.74
FIIs owned
26.52
Others owned
8.65
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