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Friday, August 3, 2012


Scrip Code: 531344 CONCOR
CMP:  Rs. 959.40; Buy at Rs. 940 - Rs.945.
Medium to Longer term Target: Rs. 1020; 
STOP LOSS – Rs. 875; Market Cap: Rs. 12,388.66 Cr; 52 Week High/Low: Rs. 1133.90 / Rs. 800.55
Total Shares: 12,99,82,794 shares; Promoters : 8,19,99,802 shares –63.09 %; Total Public holding : 4,79,82,992 shares – 36.91 %; Book Value: Rs. 450.50; Face Value: Rs. 10.00; EPS: Rs. 68.38; Div: 155 % ; P/E: 13.94 times; Ind. P/E: 13.33; EV/EBITDA: 10.15.
Total Debt: NIL; Enterprise Value: Rs. 12,212.92 Cr.

CONTAINER CORPORATION OF INDIA LTD: The Company was incorporated in 1988 and is based in New Delhi, India. Container Corporation of India Limited operates in the Railroads, line-haul operating sector. It provides Multi-modal logistics support services for export and import, and domestic trade and commerce in India. It primarily engages in carrier business, as well as provides freight transportation services by rail and road and providing inland transport by rail for containers, ports, air cargo complexes and cold chains. The company’s business includes three distinct activities, that of a Carrier, and container terminal operator and warehouse operator - which provides various facilities, including warehousing, container parking, repair facilities, and office complexes. In addition, it operates in two divisions – EXIM & Domestic, both the divisions provides services including transit warehousing for import and export cargo; bonded warehousing, enabling importers to store cargo and take partial deliveries; less than container load (LCL) consolidation, and reworking of LCL cargo at nominated hubs; and air cargo clearance using bonded trucking. All the activities of the company revolve around this business and all its operation are in India. As of March 31, 2011, the company operated a fleet of approximately 15,579 containers, 55 reach stackers, 14 gantry cranes, and 61 container terminals of which 18 are export-import container deports and 13 domestic container depots, as well as 10,666 wagons. CONTAINER CORPORATION OF INDIA LTD is compared to Gati Ltd and Allcargo Logistics Limited nationally and with CJ Korea Express Corporation globally.

Investment Rationale:
CONCOR enjoys a nearly monopolistic situation in the transportation of Containerised cargo through the Indian railways. Container Corporation of India (Concor) is a mini-Ratna Central PSU. The company has unveiled its big plans for Odisha. The logistics solutions provider is keen on setting up multi-modal logistics parks in nine key industrial hubs of the state. The new logistics parks are all set to come up at Jharsuguda, Angul, Paradeep, Dhamara, Kalinganagar, Gopalpur, Rayagada, Balasore and Rourkela. Each of these logistics parks would need 30 acres of land and the investment would be in the range of Rs. 50 – Rs. 100 crore. Each park would generate indirect employment for around 3,000 people. The logistics parks will include facilities like warehouse, distribution centers, storage areas, offices, truck services, parking lots, truck terminal, container rail terminal, container handling facilities, cold storages, air cargo points. The establishment of logistics parks would give a big boost to the state's industrial competitiveness. In addition to this such parks would be equipped with weighbridges, telecommunication facilities, banks, health awareness units and recreation centers. The logistics parks to be developed on the public private partnership (PPP) mode, would be served by roads, railways, inland water ways and air ways. Besides logistics parks, Concor is also planning to set up its cold chain infrastructure in the state. Initially, the company wants to set up three such cold chain facilities in the state for storage of green vegetables and other perishable food products. It is also keen on having a dedicated cold storage unit at Bolangir in western Odisha. Besides this the National Horticulture Board along with the Container Corporation of India has flagged off an ‘onion’ freighter from Nashik to Kolkata. About 1,400 tonnes were shipped in 90 special containers, which have been designed to keep the agriculture produce dry and well ventilated. Traders are increasingly attracted to this mode of transport as their produce incurs minimal damage and saves time. Using the railway network, the onions can reach the hinterland faster. Since August last year, the NHB, along with Container Corporation of India (Concor) had been carrying out similar test runs for farm produce such as bananas and potatoes.

Outlook and Valuation:
The company had taken a tariff hike of about 5 % on the key JNPTNVR route to cover increasing operating cost with effect from 15 Nov 2011. This hike in realisation was an offset to some extent by falling lead distance with some originating volumes shifting from JNPT to Pipavav and Mundra for the company. The realization have also increased in the domestic segment, as it has passed a significant portion (not entirely) of the rail haulage hike by Indian Railways (IR) to the customers. Concor today has a cash balance of over Rs. 2,700 Cr on its balance sheet which would yield the company around 9 % to 10 % per annum (versus 7.5 % yield YoY). Company's Q1 net profit was at Rs. 245 Cr v/s Rs. 234 Cr YoY and the income from operations was Rs. 1037 Cr v/s Rs. 949 Cr YoY. Concor faces intense competition from private operators like In logistics Solutions, Boxtrans Logistics, Gateway Distriparks and Arshiya International as private container rail business is growing gradually which forces these players to have tie-ups with Concor for shipping lines cargo to drive their Exim volumes. Most private players have also accelerated their expansions and rolling stock addition programme to get a share in the Exim business. For instance, GDL which currently operates 21 rakes would be adding further 6 rakes in the next two years. Also their Faridabad ICD has become partly operational in Q3FY12.While Concor is going slow with their capacity expansion programme. It is expected that the Operational performance & cash flow generation will continue to be healthy even though operational performance of Concor is not at historical high (ROE has fallen from 25 % in FY07 to around 16 % in FY12), still it has one of the highest operating margins of 25 % (Vs. 17 % of GDL). The key reason for fall in ROE for the company is the fall in asset turnover - the asset turnover for Concor has fallen from 0.97 in FY08 to 0.70 in FY12. Similarly asset turnover has impacted the ROCE of the company. This is primarily due to competition where the asset + additional capex are not translating into revenue and profitability as it did historically for Concor. Another comforting factor is the Healthy balance sheet of CONCOR. Concor is of a zero debt company, with substantial cash balance and no funding issues. It is expected that Concor will spend around Rs. 1,652 Cr in FY13E towards capex from which Rs. 760 Cr would be for land acquisition. The cash balance of Rs. 2800 Cr and operating cash flow of about Rs. 1130 Cr in FY13E would very comfortably supports its capex issues. The company doesn't have to take high cost debt in these uncertain times. Concor management has guided for a revenue growth of 7.5 % in FY13E with sustained margins. Company can deliver 4 % volume growth on both Domestic and Exim for FY13E with sustaining operating margins at 25 %. The company added 5 rakes in Q1FY13, taking the total count of new rakes to 218, the company plans to add 30 more rakes in FY13. EXIM volumes this quarter stood at 5,32,539 TEU's (Twenty feet equivalent unit which is the standard size of container) which was higher by 6.2% YoY and lower by 0.6% QoQ. Domestic volumes during this quarter stood at 96,346 TEU which was lowered by 13% YoY & higher by 22.9% QoQ. The Exim realisation per TEU grew by 4.90% YoY & 2.4% QoQ to Rs.16,118/TEU, domestic realisation per TEU grew by 15.4% YoY & 1.7% QoQ to Rs.18,450/TEU. At the current market price of Rs. 959.40, the stock is trading at 13.05 x FY13E and 12.25 x FY14E. Earnings per share (EPS) of the company for FY13E could be seen at Rs. 73.50 and Rs. 78.30 for FY14E . It is expected that the company will keep its growth story intact in the coming quarters also with rationalization of haulage charges by IR or Pickup in containerized trade both in EXIM and domestic segment. One could BUY CONTAINER CORPORATION OF INDIA LTD with a target price of Rs. 1020.00 

SALES (Rs. Crs) 3,828.10 4,060.90 4,588.60 5,211.10
NET PROFIT (Rs. Crs) 876.00877.90955.901,018.00
EPS (Rs.) 67.4067.50 73.50 78.30
PE (x) 13.70 13.70 12.60 11.80
P/BV (x) 2.40 2.20 1.90 1.70
EV/EBITDA (x) 9.70 9.00 8.70 7.60
ROE (%) 17.60 15.70 15.20 14.50
ROCE (%) 20.30 20.20 19.60 18.60

I would buy CONTAINER CORPORATION OF INDIA LTD with a price target of Rs. 985 for the short term and Rs. 1020 for the 6 month target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 875.00 on every purchase. 



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