After closing at an annual low recently, the share price of Container Corp. of India Ltd (Concor) has recovered a bit. However, the stock continues to languish about 30% lower than its year’s high in July. That’s after considerably outperforming the benchmark Sensex at the beginning of 2015-16.
Firstly, the outlook on volumes is far from rosy. Jignesh Makwana, an analyst at Dolat Capital Market Pvt. Ltd, says the company had guided for 10% total volume growth initially for this year but had to tone it down to 7-8% later keeping the weak operating environment in mind.
“However, exim (export-import) volumes are likely to register 5% volume growth while domestic volumes are expected to decline by 12% leading to an overall growth of 2.5-3% for the full year,” says Makwana. Concor derives a major share of its revenues from its exim segment. For perspective, in the half year ended September, exim revenues accounted for 82% of total revenues while the remaining came from the domestic segment.
The slowdown in trade has been a problem for the exim business. A pickup in exports would offer some respite, say analysts. Meanwhile, competition from roadways is an issue for the domestic segment.
In the half year ended September, Concor’s operating profit margin stood at 20.6%. Revenues had increased 11% year-on-year while higher operating expenses, particularly, rail freight expenses, meant that operating profit declined 1%. For the June and September quarters, Concor’s volume performance was adversely affected due to the increase in haulage charges, one-off infrastructure-related issues and certain changes in the service tax mechanism.
Nevertheless, a robust balance sheet with little debt on the consolidated books works in favour of the company.
Moreover, from a long-term perspective, Concor is likely to be one of the biggest beneficiaries of the upcoming dedicated freight corridor, given its leadership position.
The corridor is expected to boost volumes. That hope is probably why the stock trades at about 26 times and 21 times its estimated earnings for this fiscal year and the next, which isn’t cheap.