Container Corporation of India (Concor) is a subsidiary of Indian Railways. The company provides logistic solutions through various terminals connected through railways (28), roadways (6) and ports (5). With more than 8,000 owned and leased containers, the company is one of the efficient logistic companies in India.
The need for containerized transportation arises from goods imported/exported and domestic movement of goods. In the former segment, the company generates bulk of its revenues from the Mumbai port, where it had a near 36% market share of port traffic to hinterland in FY03. Movement of goods to and fro ports and hinterland arising from higher import and exports is a reality in the long term. This bodes well for Concor.
Let us have a brief look at the company's financial performance in recent times:
The company performance in FY03 was affected due to inadequate capacity and operational bottlenecks. Despite a strong demand, the company was not able to cater to the market needs on account of insufficient wagons. However, it was able to tide over the problem to a certain extent by commencing coastal shipping movements (particularly on the west coast) as an alternative to rail during the year. Thus, on account of all these efforts, the company was able to register an increase of 12% in goods handled. In value terms, the revenues of the company registered a growth of 15% and the net profits of the company improved by 9% as compared to the previous year.
Although the company has reported a 15% rise in its topline for the half year ended September 2003, a 20% rise in the freight expenses and 33% increase in the depreciation outgo have resulted in the bottomline registering a modest growth of 2%. Higher depreciation charges are on account of development of terminals (the Delhi project) and acquisition of wagons.
On the domestic front, since consumption centres are away from production points; domestic movement of goods is expected to increase. In the long term, like in the global market, goods movement is moving towards the hub and spoke model wherein metros will act as a hub with further movement to hinterland through a cost effective transportation medium. In the last decade, total traffic handled has grown at a CAGR of 28% with domestic traffic handled growing at a faster pace of 39% in the same period. We expect the growth momentum to continue in the future considering the rise in import and export activities.
Historically, railways have had an upper hand over road transportation due to inefficient road infrastructure in the country. However, upon the completion of the two big road projects, key cities would be well connected by roads. The company has plans to increase the number of road and port connected terminals by 9 and 5 respectively. With large capital expenditure budgets in terminals, handling equipments, containers and wagons, Concor is positioning itself to benefit from future growth in goods traffic.
However, there are a couple of concerns being faced by the company. The company's growth is being strangled owing to the inadequate number of wagons. The depletion of the number of wagons has been rapid and has reduced the holdings to 1,500 over the year. The company has also not been able to pass on the hike in freight rates and this would have an effect on margins. It is also facing competition from logistics service providers whose numbers have been on the rise in recent times.
The stock is trading at Rs 625, implying a P/E of 14x of its annualised 1HFY04 earnings. The valuation seems attractive from a medium to long-term perspective. But much will depend on the company's ability to add capacity in order to capitalize on the growing demand. Concor also needs to be wary of the shift that is expected to take place in terms of movement of goods post the improvement in road infrastructure.