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S.Vaidya Nathan

FRESH investments can be contemplated in the Container Corporation of India (Concor) stock from a one/two-year perspective. Revenue and earnings growth rates could move to a higher level than the sub-15 per cent trend over the past three years.

Enhanced share in export revenues and usage of own high-speed wagons, which lead to lower haulage charges, and expansion of geographical footprint with more terminals and handling depot, are likely to improve the company's scale of operations. Concor is comfortably placed on the resources front to pursue its business growth plans.

The stock value doubled in 2003 on the back of renewed interest from foreign institutional investors (FIIs), which hold about 18 per cent of its equity. The sharp spurt in price limits the scope of upside over the near term. But as a steady revenue and earnings growth play, an investment with a longer time horizon could pay off. Investors can use any price weakness, linked to broad market trends, to take exposures. The stock trades at eight times its likely earnings for 2003-04.

Volume growth beckons

Concor may be in for a period of revenue expansion at about 20 per cent per annum. The company's wagon expansion plans are likely to be pegged at higher levels compared to the preceding three years. By diversifying its wagon procurement, Concor has improved its prospects for scaling up its base of operations.

The company's reliance on one supplier has, in the past, hampered wagon procurement plants. For instance, Concor was able to utilise a World Bank credit line to procure 3,225 wagons only to the extent of 60 per cent by 2001-02. The company may not be beset by such problems. It is also well-placed financially to bankroll its wagon expansion plans.

Expansion in ports

Concor's growth has also been capped by the lack of adequate port space that could handle container traffic. Barring the Nava Sheva International port in Mumbai and the Chennai port, the facilities at other Indian ports do not provide scope for large-scale movement of containerised traffic.

Generating growth by ferrying export-import cargo.

This is set to change with the commissioning of two new ports in Gujarat in a phased manner over the next year. Once the rail-connectivity infrastructure is well established, these ports could provide an outlet for over 1.5 million twenty-foot equivalent units (TEU) of traffic. One of these ports, the Adani Container Terminal, has been acquired by P&O Ports India, an affiliate of global ports/logistics major, P&O of Australia. With this acquisition, P&O now controls containerised terminals at Chennai, Nava Sheva of Mumbai and the Adani port in Gujarat. Concor is likely to benefit from the hold that P&O has over key container ports, as the latter's track record in Nava Sheva and Chennai has been good.

In this backdrop, the agreement between P&O and Concor to improve the quality of railway infrastructure between the three ports and the Delhi Inland Container Terminal, assumes importance. Concor's traffic flow could get a boost.

P&O has ceded, at least for some years, its plans to play an active role in rail-based container movement. This ensures that Concor does not face any competitive pressures. With its monopoly over movement of containerised traffic within the country, the company is likely be a major beneficiary of these facilities.

Stress on margin

The major risk continues to be the lack of control over the haulage and terminal lease charges. These are fixed by the Indian Railways. The increase effected by the Railways in February 2003 has not been passed on by Concor to its consumers completely. As a result, operating profit margins declined by two percentage points in the April-June quarter. Even the partial tariff-hike was made only in May by Concor. As this takes effect, profitability levels may improve in the quarters ahead.

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