Volume worries to keep Container Corporation stock under pressure

Purchase of land from railways and delay in divestment add to uncertainty

The Container Corporation (Concor) stock gained 4.6 per cent on Wednesday, after the firm indicated it is surrendering some terminals to the Railways, keeping commercial and business viability considerations in mind.

The 15 terminals operated by the firm on land leased from the Railways contributed Rs 278 crore to its FY19 turnover. Besides this, concessional rates on transport of empty containers, market share gains, and lower impact on import traffic are other positives.

An analyst at a foreign brokerage believes the company, given its balance sheet and debt-free status, could gain market share from other rail operators as well as in the road segment.

Services the company can offer to customers — including free storage at multiple inland container depots and container freight stations, as well as the credit period — are all unlikely to be matched by peers, he added.

 

 

Further, given the slowdown and weak balance sheets of competitors, Concor is in a better position to take advantage of a recovery.

Analysts, however, say the rally could fizzle out. This is because its decision to curtail operations is unlikely to have a significant impact, given only 4 per cent of its overall revenues came from impacted terminals. Moreover, some terminals that the company shifted out have been moved to handling facilities nearby, which are owned by Concor.

The main worry for the company is the pressure on volumes. Concor’s container volumes have dropped 3 per cent in FY20. The situation has worsened in April, with total container volumes at JNPT port in Mumbai down 37 per cent year-on-year.

The steep fall is largely on account of exports, which have fallen 55 per cent. Analysts expect export volumes to fall by up to 80 per cent in May, while imports — down 20 per cent in April —could also fall if demand drops further.

The purchase of land from the Railways continues to be a major overhang, as the value pegged at Rs 8,000 crore could wipe out its cash and increase debt.

Lack of clarity on this, as well as any delay by the government in divestment stake in the firm, will keep the stock range bound.