Container Corporation

Investors with a long-term perspective can consider accumulating the stock of Container Corporation of India (Concor). An established player in multi-modal logistics, Concor appears best placed to benefit from the uptick in domestic trade and the likely revival in export-import volumes by the second half of the current year. While the government’s focus on implementing the dedicated freight corridors is a positive for Concor, any Budget proposal to step up infrastructure spending would also aid the company’s prospects. Public spending programmes will require substantial logistics support for transporting materials and goods and given its huge wagon inventory Concor will be a direct beneficiary from such a boost to improving infrastructure. With its extensive rail network, Concor also provides the best hinterland connectivity.

At the current market price of Rs 1,010, the Concor stock trades about 14 times its likely FY10 per share earnings. While this is not cheap, Concor’s dominance of the container rail business and its strong balance-sheet with no debt and significant cash (over Rs 1,763 crore) justify its premium valuation. For the year-ended March 2009, Concor reported only a 2 per cent growth in sales. However, helped by improved realisations, reflecting its ability to pass on tariff hikes to customers, the company managed to register a 9 per cent growth in profits. This capacity to build on revenues and earnings through a difficult 2008 lends confidence to its ability to sustain growth in the coming year as well. Concor’s diversified customer base and its strategic tie-ups with potential competitors in the container rail logistics space also do away with the fear of competition nibbling away a chunk of its market.

That said, much of the growth in the coming year is expected only from the domestic market and not from the high-margin Exim segment. Recessionary trends globally, as reflected by the poor trade volumes, are expected to take a toll on the company’s Exim business. In the just ended June quarter, Concor saw a 14 per cent growth in domestic traffic, whereas the international movement dipped by about 9 per cent. But even as the management expects the Exim volumes to pick up from the second half of year, Concor has increased it focus on improving its share in the domestic market. This may help it offset some of the fall in contributions from the Exim segment

via BL