The Hindu Business Line : Container Corporation: Buy

We resume coverage on the Container Corporation (Concor) stock with a buy recommendation. Though the stock has gained 80 per cent since our previous `buy' in May last, we note that returns have come on the back of strong growth in earnings. We continue to position Concor as one of the superior logistics players in the country, with improving prospects as investments find their way into bolstering India's port infrastructure. At the current price of about Rs 1,600, the stock trades at about 15 times its expected per-share earnings for FY07, which, in our view, is not demanding.

In spite of a rather steep increase in rail haulage charges, Concor's margins have remained steady and have even shown a marginal upward bias in the latest quarter ended June 2006. This clearly underscores its ability to pass on price increases to end customers and is also indicative of the robustness of the demand environment. Export-import trends, which can be reckoned as a proxy for Concor's prospects, are exhibiting strength; for July India's non-oil imports and exports have recorded high double-digit growth. This should rub-off positively on Concor's exim division, which contributes about 80 per cent to revenues.

In the near term, we do not perceive a threat from the entry of other private players into this business. What works in Concor's advantage is its wagon strength (at about 8,000 with aggressive additions planned this fiscal) and its network of depots and freight stations that dot the country's landscape. Replicating such infrastructure would be an enormous challenge, with spiralling real estate prices likely to impede land acquisitions for setting up depots. Concor's strong balance sheet also permits it to embark on expansion plans without having to raise debt or augment equity.

Downside risks to our recommendation would include a slowdown in the growth rate of trade and if tax incentives associated with infrastructure-related investments are interpreted in a manner that is adverse to Concor.

Nath Balakrishnan

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