Declining Exim traffic, lower trade growth highlight risks for Concor

Container rail traffic is also losing market share to road segment

The 40-month low print of Exim trade for August led by a fall in imports and lower railways container volume growth are negative for Container Corporation of India (Concor), India’s largest transporter of containerised cargo through the rail route. While container volume growth was robust in August, it was led by port container volumes and not rail container transport indicating that trucks gained market share. With pressure on profitability of fleet operators, pricing could remain competitive going ahead for container operators.

Further, analysts at Edelweiss Securities believe that with August container rail volumes falling by 3 per cent year-on-year it will be even more difficult for Concor to achieve volume growth guidance of 10-12 per cent for FY20. With overall container volumes rising just 3 per cent year-to-date, analysts believe it will be a risk to their estimates of the company’s net profit for FY20. While analysts have baked in a lower 7-8 per cent volume growth for the fiscal, if the same trends continue, achieving this lower volume growth too could be difficult.

There are, however, a couple of positive triggers for the company. Given the slowdown in rail container traffic, the railway ministry has announced steps to boost share of traffic from this mode of transport. This, according to analysts at Nomura, is expected to yield 35 per cent cost savings for container traffic on shorter distances. The other positive is the containerisation of trade traffic. Even in August when overall trade volumes were down, container volume growth was better year-on-year, which indicates higher containerisation.

The key trigger for the stock though continues to be the commissioning of the western railway dedicated freight corridor, the first 600 kilometres of which is expected to be commissioned by March of 2020. Given that the start of the end-to-end network will take at least three years, investors will have to wait for the full benefit of the same. In the near-term however the stock, which is trading at 25 times its FY20 net profit estimates, may languish as there are few triggers.