Volume boost ahead for Concor

Container volumes, expansion initiatives will help the company post better earnings growth

With container volume growth surging and growth outlook likely to improve, Container Corporation of India (Concor) is well placed to reap the upsides. In July this year, container volumes were up nine per cent, year-on-year, marking a 32-month high. This is positive given that the first quarter of FY15 had below five per cent growth. Religare analysts believe growth trends have clearly improved from the slump seen in the past two or three years. A favourable base and improvement in domestic and global sentiment is expected to aid volume growth, they add.

The company, which has a 75 per cent market share in the container rail-transportation segment, plans to develop multi-modal logistics parks along the dedicated freight corridor with three of them to be commissioned in FY15. Analysts at Citi Research believe there is significant potential for Concor to improve its share of container traffic on the export-import (Exim) front, which contributes to 82 per cent of the company’s volumes. Concor’s Exim volumes are 25 per cent of container cargo handled in ports across India with significant scope to grab volumes both from road and smaller container rail operators.

The awarding of the Navaratna status should also provide it higher flexibility and autonomy, which includes making investment decisions up to Rs 1,000 crore as well as decisions on mergers & acquisitions, and forming joint ventures. While Concor is among the companies in which the government is expected to dilute stake in FY15, the improving outlook could provide some cushion when supply increases in the counter.

In the June quarter, the company recorded an Exim volume growth of 15 per cent and the management expects volume growth for the segment to be 12 per cent for FY15. With the company restoring its export-import volume balance on the back of marketing initiatives and reduction in empty running (of trains), its margins especially on the domestic front have improved.

Considering these developments, analysts have given a higher multiple of 18-20 times one-year forward earnings compared to 16 times earlier. Given the uptick in volumes and the plans to set up logistics parks and private freight terminals, Concor is expected to post annual revenue and earnings growth of 14-17 per cent over the next couple of years. Annual earnings growth was muted at five per cent during FY09-14.

Though majority of analysts have a buy on the stock, given the over 80% gains since February and the consensus target price of Rs 1,325, (CMP: Rs 1,330), use corrections to buy.