CONCOR: A virtual monopoly - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

CONCOR: A virtual monopoly

Sep 22, 2001

Concor is a 63% subsidiary of Indian Railways with virtual monopoly in moving containerized cargo traffic by rail. Besides providing transport facilities, the company also takes care of all import-export related clearances for its clients. The prime objective of incorporating CONCOR was to develop modern multimodal transport logistics and infrastructure to support the country’s growing international trade as well as to encourage containerized cargo movement within the country. Over the years the company has developed a vast network of container terminals at prime locations all over the country. At present, it has a total of 31 Exim Terminals (ICDs, Port Side Container Terminals (PSCTs) and nine Domestic Container Terminals (DCTs). Concor’s core business is characterized by three distinct activities viz,

  • Container transportation by rail and road: As the sole provider of containerized rail transport in India, CONCOR enjoys a competitive advantage over other transport providers. CONCOR offers a choice in the mode of transport to the ports, though rail is the mainstay of its transportation activities.

  • Handling of containers, including stacking and movements within terminals.

  • Other value added services: Concor also provides a number of value added services like transit warehousing for EXIM cargo, provision of air cargo complexes, bonded warehousing which helps importers to store import cargo and take partial deliveries as and when required, thereby deferring duty payments.

Container traffic can be broadly differentiated in two categories – EXIM (Export/Import) and Domestic traffic. Majority of the company’s revenue comes from international traffic (mainly in the Delhi-JNPT route), which is growing at about 20% per annum. Concor provides transport linkages between ports and the hinterland. With liberalization and opening up of the India economy, lowering of import tariffs and reduction in the number of commodities whose import was prohibited by the Government, there is an increasing trend of containerized imports into India. Along with the growth of container business at Indian Ports, the level of containerization itself is increasing. Concor’s focus area within the domestic market is traffic, which originates beyond 300 kms.

The company’s entry into the domestic business, which could be solely attributable to the shortage of wagons by 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. Since consumption centres are vast distances away from ports there always is a huge demand for transportation. Further, growth of non – bulk traffic is expected to be much faster than the growth of bulk traffic and 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 is improved. 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.

There is a distinct trend towards containerisation, as more and more corporates prefer movement through containers on account of the low risk of pilferage. And though nothing stops the road operators (once the roads infrastructure improves) from directly soliciting business, Concor’s advantage lies in the fact that it takes care of all custom related clearances as well as state duties and other paperwork. Concor for the first time ever plans to venture into transportation of express cargo and project cargo so far carried predominantly by road. It also plans to offer logistical support and transportation of heavy liquid bulk hitherto transported mainly by road. As road transportation becomes more expensive than rail due to rise in fuel prices (the rise in Railways freight rates has been lower), Concor, and Indian Railways, can only gain. The diesel price hike will be a big burden on road operators. Once Concor acquires its own wagons the haulage costs will come down, improving margins. No additional taxes like those associated with road transport make it more cost effective over longer distances as compared to roads. From being a bulk good transporter, the company is now refocusing on being a general cargo transporter catering to consumer goods companies like Nestle and Hindustan Lever. Concor is opening three major inland container depots (ICDs) to be located at Baroda, Ankleshwar & Rajkot. It has also started construction work for a new domestic container terminal at Khodiyar near Ahmedabad in order to provide facilities equivalent to international standards.

Till recently, Concor had a policy of sustaining fixed costs. However, primarily to reduce dependence on the railways and to increase market share in inland container movement, Concor has huge capex plans in the offing. The source of funds for Capex plans would be met through a combination of a World Bank loan, internal accruals and debt.

Major Expansion plans in the offing
Expansion plans (2002-06) Rs. in Mn.
Terminal Development plan 4,500
Rolling Stock of Wagons 7,000
Containers 800
Handling Equipments 500
I.T. 1,200
TOTAL 14,000

The fortunes of the company are directly linked to the economic activities and obviously a slowing global and domestic economy would have some impact on the company’s business. However, going by the past trend, the management has shown capabilities to identify trends ahead of time and ability to manage growth weathering different business/commodity cycles. The company’s sales and post tax earnings have grown at a CAGR of 31% & 50% respectively over last five years. It has also consistently maintained its operating profit margin in the 28-30% bracket over this period.

Another, major concern for the stock at this point of time is arbitrary price revisions in Indian Railways with respect to haulage of its goods, wagon rentals and the land leased out. Concor also pays to the Indian Railways land usage charges calculated on the number of TEUs (TEU’s: Twenty foot Equivalent units 1Container = 1 TEU). Usually, Concor passes on the escalation in charges to its patrons, whenever possible. However, in the past the Indian Railways has been arbitrary in its approach about escalation of charges, without there being any sync vis-a-vis the actual increase of cost. This is an annual ritual and has the potential to catch Concor on the wrong foot.

Again, competition from road transportation is expected to increase with the introduction of higher tonnage trucks (VOLVO) on certain highways. However, the fact remains that Concor continues to remain a virtual monopoly with huge entry barrier it has created in terms of hard to replicate infrastructure.


Equitymaster requests your view! Post a comment on "CONCOR: A virtual monopoly ". Click here!

  

More Views on News

CONTAINER CORPORATION Announces Quarterly Results (1QFY21); Net Profit Down 72.9% (Quarterly Result Update)

Aug 18, 2020 | Updated on Aug 18, 2020

For the quarter ended June 2020, CONTAINER CORPORATION has posted a net profit of Rs 617 m (down 72.9% YoY). Sales on the other hand came in at Rs 12 bn (down 27.4% YoY). Read on for a complete analysis of CONTAINER CORPORATION's quarterly results.

CONTAINER CORPORATION Announces Quarterly Results (3QFY20); Net Profit Down 36.1% (Quarterly Result Update)

Feb 10, 2020 | Updated on Feb 10, 2020

For the quarter ended December 2019, CONTAINER CORPORATION has posted a net profit of Rs 2 bn (down 36.1% YoY). Sales on the other hand came in at Rs 15 bn (down 7.8% YoY). Read on for a complete analysis of CONTAINER CORPORATION's quarterly results.

CONTAINER CORPORATION 2018-19 Annual Report Analysis (Annual Result Update)

Nov 14, 2019 | Updated on Nov 14, 2019

Here's an analysis of the annual report of CONTAINER CORPORATION for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of CONTAINER CORPORATION. Also includes updates on the valuation of CONTAINER CORPORATION.

CONTAINER CORP 2017-18 Annual Report Analysis (Annual Result Update)

Dec 18, 2018 | Updated on Dec 18, 2018

Here's an analysis of the annual report of CONTAINER CORP for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of CONTAINER CORP. Also includes updates on the valuation of CONTAINER CORP.

MSTC IPO: Should You Bet on This State-Run E-Commerce Player? (IPO)

Mar 13, 2019

Should you subscribe to the IPO of MSPC Limited?

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

CONTAINER CORPORATION SHARE PRICE


Sep 25, 2020 (Close)

TRACK CONTAINER CORPORATION

  • Track your investment in CONTAINER CORPORATION with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON CONTAINER CORPORATION

CONTAINER CORPORATION 5-YR ANALYSIS

COMPARE CONTAINER CORPORATION WITH

MARKET STATS