At our recent meeting, CMD of Concor explained how, post DFC, its network of terminals could aggregate volumes sufficient to run double-stacked long rakes, a significant competitive advantage. Warehousing is the other strong business enabler, where several deals are being negotiated at present (GST to aid growth).
The current business is a reflection of a shallow market, inefficient system and constrained rail capacities. These will gradually improve and cover up the potential hiccups on the costing front (uncertain pricing of DFC, expiry/renewal of land leases). We maintain add.
DFC is likely to change the face of logistics in India, as it makes rolling stock more productive and rail transportation superior. While these benefits should accrue to all rail operators, Concor has key ingredients to make the most of DFC: (1) ability to fill double-stacked long rakes; (2) making investments to capture incremental traffic; (3) favourably placed once ports grow in size and start preferring certain ICDs over others and (4) transparency and operational flexibility adding to its service offerings.
We revise our estimates to Rs 49.3 and Rs 60.8 from Rs 51 and Rs 64 for FY16E and FY17E, respectively led by (1) lower EXIM volumes (3% y-o-y increase in FY16E from 5% earlier), (2) higher tax rate (23% vs. 20% earlier), (3) other annual report led changes. We revise target price to R1,520 (R1,550 earlier).