• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Vaidya Nathan

AN INVESTMENT can be considered in the stock of Container Corporation of India (Concor) with a one/two-year perspective, as there appears room for steady gains. Any weakness linked to the broad market can be used to accumulate the stock.

The company's sound fundamentals, cash-rich and debt-free status, fleet and footprint expansion plans, and robust growth in exports point to a scaling up of revenues and earnings.

As container handling facilities are also set to expand at several ports, Concor is likely to be the prime beneficiary.

Though its monopoly has been terminated, it is likely to remain the dominant player, as there are formidable entry barriers.

This picture could change if MNCs decide to enter the fray; this appears unlikely in the near term and Concor also has ongoing business relationships with a couple of them.

Even if new entrants come into the business, the expansion in containerised traffic is likely to ensure that Concor maintains its impressive pace of growth.

In this backdrop, we retain our bullish view on the stock. We have multiple buy recommendations outstanding, with the last at Rs 700 in February 2004.

The stock now trades at a price-earnings multiple of about 10 times its likely earnings for FY-07 reckoned on a conservative basis.

The annual returns are likely to be moderate at about 15-20 per cent over a three-five year period; a surge of the kind seen in 2003 appears unlikely.

Concor's performance in FY-05 was if one considers the high degree of congestion that prevailed for most of the year at one of the two key container-handling terminals in Mumbai.

It has also managed to handle deftly the changes in the haulage tariff structure that were introduced by the Railways during the year.

An expansion in margins indicates that Concor is in the process of making a smooth transition to the altered haulage structure, and has passed on to end-users the higher costs payable to the Railways.

Concor has embarked on a fleet expansion plan, which is likely to raise cargo carrying capacity substantially over the next couple of years.

As it has diversified its supplier base in the domestic and overseas markets, the fleet expansion should get completed more swiftly than was the case a few years ago.

A wider geographic footprint, with the commissioning of more inland container depots and terminals, is also likely to be a revenue driver.

The benefits of two contemporary container-handling facilities at Mundra and Pipapav in Gujarat are likely to be fully reflected in Concor's operations, as they provide an alternative to the congestion and capacity constraints in the terminals at Mumbai.

These two ports provide Concor an opportunity to diversify the transportation of cargo to and from the northern region, in particular.

Container terminal facilities are likely to more than double, as plans for new terminals in Mumbai and Kochi, and expansion at Chennai and Kandla, are implemented.

The facilities at the Chennai and Mumbai terminals are likely to be off the blocks over the next 18 to 24 months.

In alliance with Maersk of Denmark, Concor is building the third container handling terminal in Mumbai. This could ensure Concor a wider base to route the containerised cargo.

Concor's financial strength would be a major positive as it braces for competition. Its zero-debt status ensures that expansion plans do not face any financial constraint.

With cash flows of about Rs 500 crore from operations in FY-05 and its operations likely to generate about Rs 2,000 crore over a three-year period, Concor may not even need to tap into debt funds to bankroll its growth plans.

It also has the flexibility to raise equity, though we believe that it would have no need to resort to this option.

If the government decides to make an offer for sale of a part of the 63 per cent stake that it owns in the company, it could improve the trading volumes in the stock and lead to greater interest from foreign institutional investors, who already own about 28 per cent of the equity.

We have not factored into our recommendation any improvement in valuation levels from such a development.

The lack of control over haulage and terminal lease charges, which are fixed by the Railways, remains the principal risk to profitability and, as such, to our recommendation.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Investment quiz

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line