Concor, the company with a virtual monopoly in moving containerised cargo traffic, reported good performance for 1QFY03 with a rise of 11% in topline. Operating margins however, dropped by around 260 basis points. The drop in operating margins is explainable considering the backdrop of a slowing economy.
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Container traffic can be broadly differentiated in two categories – EXIM (Export/Import) and Domestic traffic. Majority of the company’s revenue is derived from international traffic (mainly in the Delhi-JNPT route). The Exim business contributes around 70% of revenues and 83% of the company's profitability. With liberalization and opening up of the Indian economy, lowering of import tariffs and reduction in the number of commodities whose import were prohibited by the Government earlier, there is an increasing trend of containerised imports into India.
Since 1994-95, the total container traffic handled in Indian ports has grown by more than 50%. The country currently has 1 m TEU’s each (Twenty foot equivalent units/1 standard size container) of export and import container traffic. The growth of container port traffic is expected to have a relatively better growth rate in the coming years, especially in ports of JNPT (Jawaharlal Nehru Port Trust), Mumbai and Chennai. Other important container handling ports are Haldia and Tuticorin.
The company’s entry into the domestic business, which could be solely attributable to the shortage of wagons with Indian Railways in 1996, has large growth potential today. Around one third of port traffic originates from and terminates at places within 300 kms from the port and the balance is carried to the hinterland (either through roadways or railways). Since consumption centers are vast distances away from ports, there is always a huge demand for inland transportation. Further, growth of non–bulk traffic is expected to be much faster than the growth of bulk traffic. The share of non–bulk traffic in total traffic is expected to go up from 35% to 50% by the year 2010. Significantly, much of this traffic is containerisable.
Globally, the average level of containerisation is more than 70%, while in India it is in the range of 30-35%. The level of containerisation in India can improve, only if the road infrastructure improves. The proposed golden quadrangle project connecting the four metros by expressways is expected to help Concor in its ultimate objective of being a terrestrial logistics service provider facilitating door-to-door delivery. With the gradual reduction in import tariffs, including removal of quantity and quota restrictions as committed to the WTO, trade growth will add to Concor’s business. Also, the e-commerce eventuality will provide significant opportunities in the field of distribution and Concor has the potential to be a fully integrated third party logistics company.
Till recently, investment by Concor has not been significant. However, to reduce dependence on railways and increase market share in inland container movement, Concor has huge capex plans in the future. The source of funds for Capex plans would be met through a combination of a World Bank loan, internal accruals and debt. Consequent to this expansion, the company's revenues are expected to grow at a faster clip.
At the current market price of Rs 263, the stock trades at 6.6x its annualised earnings for 1QFY03. The stock has almost doubled in the last six months on the back of rally in PSU stocks. Given the expansion plans of the company in the near-term, one can expect Concor to report a significant growth in profits. Keeping in mind the company' monopoly status and immense growth potential, valuations are still on the attractive side.
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