Concor: Upside potential

Krishnan Thiagarajan

Recommendation: In a bearish market in which old economy stocks have been consistently shunned at the bourses, Container Corporation of India (Concor) may be an exception from an investment perspective. As an established provider of rail-based container transportation in the country, Concor is trading at an attractive PEM of four times its annualised 2000-01 per share earnings of Rs 30.50. At the current market price of Rs 126, the stock has reasonable upside potential for investors with a medium-to-long term perspective.

Suitability: In a highly volatile market, stocks such as Concor offer a good portfolio diversification opportunity, especially for investors with a long-term horizon. Given the effective monopoly in the rail-based container transportation, high entry barriers in this industry, huge advantages in the container-based rail transportation vis-a-vis road and a market-oriented operating structure.

Concor appears to be a good investment candidate at current price levels. As a few institutional investors have cornered a reasonable chunk of the stock, the prices may be influenced to some extent by market weakness induced by fund behaviour. Besides, relatively low trading volumes make this investment appropriate for a patient and risk averse investor.

Prospects: : The fundamentals of Concor rest on a fairly strong footing. Between 1994-95 and 1999-00, the sales and post-tax earnings have grown at a compounded annual growth rate of 31 per cent and 50 per cent respectively. In addition, it has consistently maintained its operating profit margins in the 28-30 per cent bracket over this period. This clearly reinforces the strong growth potential of the containerisation business and the ability of Concor to manage growth over the past decade.

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After a relatively poor post-tax earnings growth in the first quarter of 2000-01, Concor bounced back in the second quarter with a strong performance. This sharp improvement in performance appears to have driven by the robust overall growth in exports of 22.2 per cent in the period between April - September 2000 as against 7.6 per cent in the corresponding period of the previous year.

A significant proportion of this export growth was in the second quarter. In the second quarter ended September 30, 2000, Concor has recorded a 41.80 per cent growth in sales to Rs 270.31 crore and 33.74 per cent growth in post-tax earnings. However, the operating profit margins have marginally dipped by 1.33 per cent to 30.47 per cent.

Concor has also chalked out a prudent strategy for growth. It currently has 40 inland container depots (ICDs), container freight stations (CFS), port side container terminals (PSCTs) and domestic container terminals across the country.

To increase its container handling capacity, it plans to add around 15-20 terminals in future. In order to enhance the EXIM and domestic container traffic flow, it proposes to increase the international container handling from 6.64 lakh TEU (which is a container port throughput) in 1999-00 to 7.2 TEU in 2000-01. Similarly, the domestic container handling is also slated to go up from 2.38 lakh TEUs to 2.8 lakhs this year. This is expected to provide the required impetus to future financial growth.