Wednesday, April 23, 2014

CONTAINER CORPRATION OF INDIA LTD : A VALUED PSU !!!

Scrip Code: 531344 CONCOR
CMP:  Rs. 939.45; Buy at current levels and buy at every dips.

Short Term Target: Rs. 985.00; Medium to Long term Target: Rs. 1050; STOP LOSS – Rs. 864.30; Market Cap: Rs. 18,316.85 Cr; 52 Week High/Low: Rs. 989.00 / Rs. 637.51

Total Shares: 19,49,74,191 shares; Promoters : 12,04,88,508 shares – 61.80 %; Total Public holding : 7,44,85,683 shares – 38.20 %; Book Value: Rs. 359.99; Face Value: Rs. 1.00; EPS: Rs. 49.47; Dividend: 175.00 %; P/E: 18.99 times; Ind. P/E: 19.48; EV/EBITDA: 10.51.
Total Debt: ZERO; Enterprise Value: Rs. 15,396.63 Cr.

CONTAINER CORPORATION OF INDIA LIMITED: 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. The company came with an IPO in 1994 as a part of Government of India’s disinvestments of 20% of its equity, offering 1,29,97,200 Shares of Rs. 10 each issued at average weighted price of Rs. 76.71 per share. In the year 2008 and 2013, the company issued Bonus Shares in the ratio of 1:1 and 1:2 respectively. CONCOR, 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, 2011, the company operated a fleet of approximately 15,579 containers, 55 reach stackers, 14 gantry cranes, and 61 container terminals of which 18 are export-import container deports and 13 domestic container depots, as well as 10,666 wagons. CONCOR is compared to Gati Ltd and Allcargo Logistics Limited nationally and Globally compared with AMERCO of USA, Arkansas Best Corp of USA, Con-Way Inc of Michigan, CSX Corporation of USA, Quality Distribution Inc of USA, Roadrunner Transportation Systems Inc of USA, Dazhong Transportation Group of China, East Japan Railway Company of Japan, Evergreen International Storage & Transport Corp of Taiwan, Hamakyorex Co Ltd of Japan, Fukuyama Transporting Co Ltd of Japan, Express Transindo Utama Tbk of Indonesia, BTS Group Holdings Public Company Ltd of Thailand Bangkok Metro Public Company Ltd of Thailand, CJ Korea Express Corporation of South Korea, Aurizon Holdings Ltd of Australia, VTG Aktiengesellschaft of Germany, Go-Ahead Group Plc of UK, National Express Group Plc of UK, Northgate Plc of UK, Stagecoach Group Plc of UK, Six Societas Europaea of Germany .

Investment Rationale:
Container Corporation of India is one of the largest multimodal logistics players in India. Currently, the company operates 63 Inland Container Depots (ICDs) across the country. CONCOR was established with the prime objective of developing containerised multimodal door-to-door transportation for India’s Exim and domestic trades. The core business is characterised by three different activities — carrier, operating terminals and warehousing operations. The carrier (rail transportation) is the major revenue driver as the company derives 75 % of total revenue from it. The Indian Multimodal scene has witnessed the advent of multiple container train operators since 2006. Presently, there are 15 container train operators along with CONCOR who have signed Concession Agreements with Indian Railways for running of Container Trains for a period of 20 years, extendable by another 10 years. Almost all the 15 players have commenced their train services. Some of these players have set up their own terminal facilities also. While the operations of the new entrants to the business started in a limited way by two operators in April 2007, the number has now grown to 15 excluding CONCOR and the volumes being transported by these operators have continuously grown with the induction of new rakes. These operators have been using Goods Sheds-terminals of Indian Railways as well, for their operations. The changes in the external business environment, placed emphasis on providing total logistics and transport solutions to its customers by exploring the possibilities of expanding the segments of the transport value chain in the EXIM as well as Domestic segments. CONCOR is hunting for the possibilities for strategic alliances, both for the optimal utilization of infrastructure as well as for expansion into other segments of the value chain. Logistics calls for an understanding, of the total supply chain, the elements of which include inventories, packing, forwarding, freight, storage and handling. Logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods. Typical logistics framework mainly consists of Physical Supply, Internal Operations and Physical Distribution of Goods and Services. To put it more simply, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price & cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel. Logistics is not confined to manufacturing operation alone. It is relevant to all enterprises, including Govt. institutions such as Hospitals and schools and service organization such as retailers, banks and financial service organizations. The study of logistics is especially important for bulk raw materials, where substantial outflow of freight is involved. Management of Logistics is an art which is extremely difficult to perfect in India, JIT- just in time ends up being SHIT - somehow in time. The study of logistics is important to establish a lean supply chain which would give an advantage of quick product change over, capability, excellent short and long term forecast visibility and JIT capability. Indian Railways has proposed the creation of a dedicated freight corridor, solely for carrying freight trains, including containers. The dedicated freight corridor is proposed to come up by December 2017, although it is believed that this target could be delayed by one to two years. According to the proposal, on the western side, JNPT- Jawaharlal Nehru Port Trust would be linked to the key Inland Container Deport (ICD) in the National Capital Region (NCR), such as Tuglaqabad and Dadri and further north in Ludhiana. Also, an eastern corridor would connect Ludhiana with Kolkata via the NCR. Currently, only 30 % of India’s EXIM container traffic takes place through rail, while the balance takes place via roadways. With the creation of the dedicated freight corridor, India could also inch closer to the global benchmark of rail/road market share, given that the rail movement of cargo is much cheaper compared with that of road. As such, players in the sector, such as CONCOR, would stand to benefit significantly upon the implementation of the dedicated freight corridor. CONCOR has the huge potential opportunity to ramp-up post creation of dedicated freight corridor. The vastness of India has resulted in manufacturing and consumption centres in the country being geographically apart, necessitating the transportation of cargo. Moreover, ports that are entry & exit points for EXIM cargo are located at distances ranging from 200 kilometres to 3,000 kilometres from manufacturing & consumption centres. However, because of their proximity to Western countries which nearly accounts for a large share of India’s foreign trade, ports on the western coast of India have managed to acquire a majority of the country’s overall EXIM container traffic (based on data from IPA), while major consumption and manufacturing centres are primarily located in north India. Hence, the majority of container traffic movement takes place between western ports and north India. According to industry estimates, these routes account for about 65-70% of overall container traffic.

Outlook and Valuation:

Container Corporation of India Ltd popularly known as CONCOR is engaged in the business of transportation through containerized cargo & trade. CONCOR has been awarded with ‘IT Innovation & Excellence Award 2012’ by Knowledge Resource Development & Welfare Group (KRDWG) for Excellence in Application of MIS in Industry. The company has commissioned two new Terminals at Khodiyar for EXIM & Nagulapally for Domestic traffic. Recently, the government of India has transferred 25,11,195 equity shares of CONCOR along with the shares of selected  9 listed entities to CPSE ETF, which is similar to disinvestment. This share has been transferred to the recently launched Goldman Sachs Mutual Funds Central Public Sector Enterprise ETF, which got listed on 4 April 2014. CONCOR has weightage of 6.40 % in this CPSE ETF consisting of 10 public sector enterprise. Company has shown better performance last quarter, Container Corp of India’s 3QFY14 standalone Net Sales grew by 15 % to Rs. 1,240 Cr, EBITDA grew 9 % to Rs. 286 Cr and PAT grew 6 % to Rs. 250 Cr YoY. Company’s 9 month FY14, Sales grew 16 %, its EBITDA grew 6 %, and its PAT grew 3 % YoY. EXIM volumes were down 1.5 % QoQ and its realization dipped 2 % QoQ driven by weak EXIM trade. However, decrease in EXIM imbalance moderated the segmental PBIT decline to 2 % QoQ. Better traction in the domestic trade was seen its Domestic volumes rose 6.4 % QoQ on company’s aggressive move to acquire customers. It has been running trains in the North East and North South routes. The East to North route has been less remunerative for CONCOR due to higher empty running costs in this leg. Earlier CONCOR denied cargo for this route which the management said that they have opened up for customers on marginal cost basis thereby driving its domestic volume growth. The management expects to maintain 8 % 9 % of segmental PBIT margin in the domestic segment going forward Capex update. During 9MFY14, CONCOR bought 6 new rakes. It would further add 4 rakes in 4QFY14. Company has also acquired land at two places – Nagpur and Raipur towards the PFTs/MMLPs. CONCOR targets its capex of Rs. 1,100 Cr in FY14E and Rs. 6,000 Cr during FY1417E which are on track. CONCOR can see 9.5 % & 11 % volume CAGR in the EXIM & Domestic segments during FY13-FY15E period. During the last 9 years, the CONCOR has traded at median P/E multiple of 14.2 x, P/B multiple of 2.9 x and EV/EBITDA multiple of 10.8 x. During these last 8 years, its return ratios have almost halved from 30 % to 15 % as private container operators gained market share thereby intensifying competition while EXIM trade slowed down. At the current market price of Rs. 939.45, the stock is trading at a PE of 14.25 x FY14E. The company can post Earnings per share (EPS) of Rs. 65.90 in FY14E and Rs. 70 in FY15E. One can buy CONCOR with a target price of Rs. 1050.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 985.00.

KEY FINANCIALSFY12FY13FY14EFY15E
SALES ( Crs)4,061.004,406.205,025.705,732.60
NET PROFIT (₹ Cr)930.00940.001,005.701,135.10
EPS ()47.7048.2151.5858.22
PE (x)20.3020.1018.8016.70
P/BV (x)3.403.002.702.40
EV/EBITDA (x)15.8015.3013.7011.70
ROE (%)16.6015.9015.1015.30
ROCE (%)24.0021.7020.8021.30

I would buy CONTAINER CORPRATION OF INDIA LTD for Medium to Long term for target of Rs. 1050 and for the shorter term the target would be Rs. 985.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 864.30 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

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