EXIM volumes of CONCOR grew at a Compounded Annual Growth Rate of 7 per cent amid Economic Slowdown

Economic revival for CONCOR anticipated; limited upside for stock seen in short term

Mumbai: Ministry of Railways owned PSU – Container Corporation of India (CONCOR) has a strong balance sheet, near monopoly position, ongoing capex, and high barriers of entry. However, its current stock valuation appears to reflect the positive impact of a much-anticipated economic revival on its growth potential. It means there could be a limited upside to the stock price in the short term. In addition, future growth from the capacity expansion is still a few years away.

Over the last two years, CONCOR’s stock has grown more than 2.5 times. Between FY10 and FY14, export-import (EXIM) volumes grew at a compounded annual growth rate of 7 per cent amid economic slowdown. The volumes grew sharply by 11 per cent in FY15. However, given the slower pace of overall economic recovery, the management has guided for a moderate 10 per cent growth in FY16. CONCOR’s key growth driver will be the investments along the dedicated freight corridor (DFC). The company will be spending about Rs 1,500 crore over the next couple of years to set up logistic parks along the DFC. However, the benefit of these investments is long-term in nature as DFC is expected to be commissioned by 2018.

In March 2015, Indian railways raised haulage charges by 25-41 per cent for containers across various slabs. However, due to slow economic recovery, the company may not be able to pass on the entire cost to its customers at once. Besides, it may face competition from road transporters for shorter distances in case of a drastic hike.As a result, CONCOR’s operating margins may remain weak for this fiscal.

At Monday close of Rs 1,717, the stock is trading at a price-to-earnings ratio of 32.Given its strong balance sheet and nearly 80 per cent market share in rail freight segment, the company has commanded a premium valuation. But, a moderate EXIM volume growth may limit upside in the short-term. In addition to this, the government’s intention of divesting stake in the company may affect the stock price.