Concor rally to lose steam over volume concerns, intensifying competition

Freight corridor delay, licence fee hike among headwinds for the stock

A muted volume guidance for FY21, the near-term impact of the deteriorating trade relations with China, and an enhanced licence fee worries going ahead led to a 4 per cent fall in the Container Corporation (Concor) stock over the last couple of trading sessions. 

While its March quarter performance was in line with Street estimates, the sharp fall in container volumes in recent months, intensifying competition and lack of valuation comfort could lead to further downside for the stock. 

Container volumes across Indian ports have declined over 36 per cent YoY in the first two months of the financial year. This is expected to deteriorate further given the ongoing trade disruption due to the India-China dispute along the Line of Actual Control (LAC) and economic slowdown. China is the single-largest trading partner for container cargo, both for imports and exports. 

 

 

The management estimates that volumes will decline 20 per cent in FY21 given the impact on the export-import trade. Analysts at Kotak Institutional Equities say the lower volumes guidance is because of the higher dependence on manufacturing and infrastructure spending, which accounts for 42 per cent of container volume mix.  

Concor’s volumes will also be hurt because of intense competition from road freight operators.

Higher competitive pressure led to a 600-basis point loss in the market share for Concor in FY20. Given its focus on profitability, the company did not participate in the shorter segments and also some long-distance segments, which saw deep discounting trends. 

The change in land licence fee from a variable to fixed basis would mean that outgo to the Railways for the use of land would treble, from Rs 140 crore in FY20 to Rs 450 crore in FY21. While the company has asked for a deferment of the policy, if the same goes through the impact will be significant as it is over 18 per cent of FY20 operating profit. 

A likely delay in the start of the dedicated freight corridor, which is the biggest trigger for the stock, a higher licence fee and the sharp 40 per cent gains from March lows make risk-reward unfavourable for investors.