Management Speak: Container Corporation (Upgrade to Outperformer) - Improved operational performance to sustain
We met the management of Concor. Below are key takeaways:
Volume growth on track led by markets share gains: Concor is on track to deliver its guidance of 12% volume growth in FY18 led by: 1) Uptick in exim trade, reflected in robust port volumes, which is driving volumes in Concor’s exim segment, 2) Timely movement of containers and operating efficiencies aiding market share gains at JNPT (~85%) and Pipavav (~60%) and 3) rebound in domestic volumes with service tax abatement issue being resolved. We expect volumes to sustain at 11% CAGR over FY18-20E boosted by sustained momentum in port volumes & improved competitiveness vs roads (no rail haulage hikes).
Ramp up in double stack to drive margin expansion: We see Concor’s margins improving 280bps and thereby drive 18% EBITDA CAGR over FY17-20E on the back of: 1) Sustained ramp up of double stacking rakes (+100% in FY18 with commissioning of the Khatuwas terminal), 2) Concor has taken a terminal on lease in Ahmedabad on exclusive basis, which would aid part double stacking of JNPT volumes and 3) empty running has reduced by 6.6% in 9MFY18, led by higher double stacking and time-table trains in both exim and domestic routes.
Focus on logistics parks to drive long-term value: Concor expects to ramp up to 100 terminals over next few years (includes Multi Modal Logistics Parks - MMLPs) at an annual capex of ~Rs10bn (currently operates in 76 terminals - 69 owned and 7 on exclusive tie up basis). These terminals would generate additional revenues through value-added services. Concor is also planning to set up 20 Integrated Logistics & Manufacturing Zones (ILMZs), with the first zone planned in Andhra Pradesh. Concor expects to provide integrated inbound and outbound logistics solutions to manufacturing plants set up in these zones.
Upgrade to Outperformer: Concor’s superior infrastructure provides it a competitive edge over peers. An uptick in port volumes should boost volume growth. The company’s strategic alliances, containment of empty running charges and ramp up in double stacking should help Concor post 16% earnings CAGR over FY17-20E. While investments in logistics parks will impact near term return ratios (long gestation period), we believe these parks will enable Concor to maintain competitive edge and offer seamless logistics solutions to clients over the long term. We upgrade Concor to Outperformer on strong operating performance with a target price of Rs1,320. The stock currently trades at 20x FY20E (24x excluding time bound export incentives).
Container Corp. of India is engaged in the transportation of containers by rail, management of ports, air cargo complexes and establishing cold-chain. Though rail is the main stay of Co.'s transportation plan, road services are also provided to cater to the need of door-to-door services, whether in the International or Domestic business. Co. is organized on All-India basis into two major operating divisions which are EXIM and Domestic divisions.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.