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Thursday, August 13, 2015

CONTAINER CORPORATION OF INDIA LTD: RATNA OF YOUR PORTFOLIO !!!

Scrip Code: 531344 CONCOR
CMP:  Rs. 1610.90; Market Cap: Rs. 31,408.39 Cr; 52 Week High/Low: Rs. 1947.70 / Rs. 1200.10
Total Shares: 19,49,74,191 shares; Promoters : 12,04,82,495 shares –61.79 %; Total Public holding : 7,44,91,696 shares – 38.21 %; Book Value: Rs. 391.63; Face Value: Rs. 10.00; EPS: Rs. 50.91; Dividend: 134 % ; P/E: 31.37 times; Ind. P/E: 26.47; EV/EBITDA: 17.42x
Total Debt: ZERO; Enterprise Value: Rs. 28,816.34 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 multimodal 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, 2015, the company operated a fleet of approximately 20,247 owned and leased containers, 52 reach stackers, 17 gantry cranes, and 63 container terminals of which 13 are EXIM terminals, 35 combined container terminals and 15 domestic terminals and 13,111 wagons. CONTAINER CORPORATION OF INDIA LTD is compared to Arshiya Ltd, Kesar Terminals, Transport Corporation of India Ltd, Shreyas Shipping, Gati Ltd, Gateway Distripacks Ltd, Allcargo Logistics Limited, VRL Logistics, Snowman Logistics nationally and globally with AMERCO Inc of USA, CSX Corp of USA, SixtSE of Germany, VTG Aktiengesellschaft of Germany, Stagecoach Group Plc of United Kingdom, Northgate Plc of United Kingdom, National Express Group Plc of United Kingdom, DSV A/S of Denmark, Dazhong Transportation of China, ComfortDelGro Corporation Ltd of Singapore, CJ Korea Express Corporation of South Korea, Central Japan Railway Co of Japan, CAR Inc of China, Bangkok Metro Public Co of Thailand, Asciano Ltd of Australia, Canadian Pacific Railway Ltd of Canada, Con-way Inc of USA, Kansas City Southern of USA. 

Investment Rationale:
Container Corporation of India Ltd. (CONCOR) was incorporated in March 1988 as a Public Sector Enterprise under the Ministry of Railways with the prime objective of developing modern multimodal transport logistics and infrastructure to support the country's growing international trade. The company commenced operations on November 1, 1989, by taking over seven Inland Container Depots from the Indian Railways located at Delhi, Ludhiana, Bangalore, Coimbatore, Guwahati, Guntur and Anaparti. Since then, CONCOR has developed a vast network of container terminals at prime locations all over the country. CONCOR enjoys a near monopolistic situation in the transportation of Containerised cargo through the Indian railways. Container Corporation of India (Concor) is a mini-Ratna Central PSU. The logistics solutions provider is keen on setting up multi-modal logistics parks in nine key industrial hubs of Odisha state. At present, the company is the undisputed market leader having the largest network of 62 ICDs/CFSs in India. In addition to providing inland transport by rail for containers, it has also expanded to cover management of Ports, air cargo complexes and establishing cold-chains. The company has developed multimodal logistics support for India’s International and Domestic containerization and trade. Though rail is the main stay of the company’s transportation plan, road services are also provided to cater to the need of door-to-door services, whether in international or domestic business. The core business of the company comprises of three distinct activities, that of a carrier, a terminal operator, and a warehouse operator. The company has two wholly owned subsidiaries, M/s. Fresh and Healthy Enterprises Ltd which was set up in 2006 and CONCOR AIR set up in 2012. During the year 2012-13, company entered into a Joint Venture with State Infrastructure and Industrial Development Corporation of Uttarakhand Limited (SIIDCUL) for development of Logistics facilities in the state of Uttarakhand. The Joint Venture Company (JVC) with shareholding of 74 % and 26 % of CONCOR and SIIDCUL respectively named M/s. SIDCUL CONCOR INFRA Company Limited was incorporated on 21 March, 2013. Another Joint Venture Agreement has been signed by company with Punjab State Container and Warehousing Corporation (CONWARE) on 13 March 2013. This 51:49 Joint venture with majority shareholding of CONCOR will be creating Logistics facilities in the state of Punjab Despite the prevalent economic volatility, logistics sector is expected to record a positive growth pace. According to Ministry of Road Transport, the logistics sector is expected to cross US$200 billion by 2020. At present, the sector is worth US$125 billion. In India the cost of logistics is at 13 % to 14 % of GDP where as in developed nations, the cost falls in the range of 7 % to 8 % of GDP. Cost of logistics is a key component in the cost of any product or service. Thus cost of logistics play a very important role in determining the cost of the product offered by the manufacturer or service provider. The major drivers for logistics industry are high economic growth, growth in retail sector, high demand for consumer durables, expansion of auto and auto components sector and of course high growth of international trade. In India, Logistics sector has not been give the requisite attention by the government. Lack of infrastructure is the key drawback for the development of the logistics industry. In addition to that lack of skilled manpower and warehouse facilities are the major roadblocks for the growth of the logistics in India. Thus a large part of the industry still operates in the unorganized sector. For INDIA the Exports for the first quarter (April-June) declined 16.8 % YoY to $66.69 billion compared to the corresponding quarter value of $80.1 billion. Container volumes at major ports for the same quarter grew a mere 3 % YoY to 2 million TEUs. Consequently, Exim volumes for Concor de-grew 3 % YoY to 614353 TEUs, which is the lowest in the past five quarters. It is believed that since Concor enjoys 80 % of market share, it would be the biggest beneficiary of the expected recovery in trade scenario. With the increased capacity in terms of rakes to 256, Concor is well geared to manage higher volumes with expected recovery in trade activities. There has been a need to decongest the existing trunk routes of Howrah- Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor. Due to higher freight rates, coupled with pilferage at various levels, the freight share for railways declined to 30 % compared to that of roadways at 65 %. The surging need for transportation of food grains, coupled with power needs requiring heavy coal movement and booming infrastructure construction and growing international trade have led to the conception of the dedicated freight corridors along the eastern and western routes, which will also benefit CONCOR.

Outlook and Valuation:
Container Corp of India Ltd (CONCOR) is a leading rail freight transporter that is graduating to be a multimodal logistic player. CONCOR is an undisputed leader in the sector.  It is set to benefit from GDP/EXIM revival and DFCs completion that will accelerate containerization. Despite private player’s entering in 2006, it has maintained to retain its leadership in market share that can be attributed to its scale and vantage locations. Long term growth acceleration could come from its pre-emptive capex on multimodal parks. Company enjoys monopolistic situation so has a huge moat. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) expanding moats which is a very strong sign of a future Multi-bagger stock. On financial side Exim revenues contribute around 84 % of Concor’s total revenues. Exim volumes posted a CAGR of 7 % in FY10-15 with FY15 posting robust growth of 11 % YoY, thereby, hinting towards a revival. Further, container volumes at major ports grew 7 % YoY. Consequently, going ahead, driven by buoyant container volume growth at major ports, it can be expected that Exim volumes for Concor to post a CAGR of 9 % over FY15-17E. Further, as JNPT port is one of the largest volume contributors to Concor, its volumes posted growth of nearly 7 % YoY in FY15. For Q1FY16, port wise volume share from JNPT declined to 42 % as compared to 45 % in FY14. However, the decline in volume share at JNPT was compensated by an increase in share from Mundra and Pipavav port where Concor’s share stood at 25 % and 21 %, respectively. As volumes pick-up at ports, Concor focuses on Exim to improve its earnings. Concor’s revenues grew at a CAGR of 8.5 % in FY11-FY15 as container volumes remained sluggish; except 2014. However, going ahead, with an improved market share in private ports such as Mundra and Gujarat Pipavav, it can be expected that volumes to improve. Further, the government’s “Make in India” campaign will perk up trade volumes for exports. In turn, this will drive higher volumes for Concor. On the EBITDA front also, Concor can post a 21 % CAGR over FY15-17E visà- vis CAGR of 7 % over FY11-15. As EBITDA margins have remained under pressure over the years due to a steep increase in freight rates by railways, going forward, hikes will pause, thereby allowing the company to stabilise its margins. Also, introduction of double stacking and hub and spoke model for its operations is expected to provide further scope to improve margins which can be in the range of 23 % to 25 % in future. Further, introduction of PFTs is expected to improve earnings of the company in future. Consequently, PAT is also expected to post a CAGR of 18 % over FY15-17E against 7 % in FY11-15. Going ahead, with FDI in rail and projects such as dedicated freight corridor and goods and services tax (GST) on the priority list of the government, Concor’s growth and margins will recover at a faster pace. 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. Another comforting factor is the Healthy balance sheet of CONCOR. Concor today has a cash balance of around Rs. 2,600 Cr on its balance sheet which would yield the company around 7.5 % to 9 % per annum. Concor is of a zero debt company, with substantial cash balance and no funding issues. As GST and DFC are expected to roll out in FY17 and CY18, the near term volume growth for Concor is expected to grow at a CAGR of 9 % over FY15-17E, thereby leading to revenue & earnings CAGR of 20 % each in the same period. Also, PFTs becoming operational in due course of time are expected to add another revenue line for Concor. Further, any near term risk of adverse freight rate movement is expected to be mitigated by higher Exim volume generation. At the current market price of Rs. 1,610.90, the stock is trading at 28.61 x FY16E and about 23.90 x FY17E. Company can post Earnings per share (EPS) of Rs. 56.30for FY16E and of Rs. 67.40 for FY17E. Finally, with a strong balance sheet and superior cash flow company can be assigned P/E multiple of 25x FY17E EPS. 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. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. 

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)5,109.005,574.006,556.007,100.30
NET PROFIT (₹ Cr)950.001,048.001,097.001,310.00
EPS ()50.0053.7056.3067.40
PE (x)35.1032.4029.0024.40
P/BV (x)4.804.403.303.50
EV/EBITDA (x)28.5024.2020.5017.20
ROE (%)13.8013.7013.0014.90
ROCE (%)12.8012.0012.7018.70

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*As the author of this blog I disclose that I do not hold CONCOR Ltd in my any of the portfolios.

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