Timing of capex’s impact on earnings is uncertain; FY21e EPS up 1.7%; ‘Hold’ maintained with TP raised to Rs 538 from Rs 469.
Container Corporation of India (Concor) is primarily focused on: (i) expanding the distribution logistics business, (ii) developing coastal shipping and playing the role of a freight forwarder, and (iii) endeavouring to introduce flexi container solutions for transportation of cement. Management is excited about the distribution logistics opportunity and is trying to work on an asset-light model. Management is also hopeful that, even on a conservative basis, 1mn-teu of volumes will get added to the main network as these networked nodes of 20 PFTs aid containerisation.
Management also alluded to achieving breakeven in the coastal business with further plans for attracting bulk and breakbulk cargoes into the coastal route. Though these plans are prospective and timing of capex (`60 bn) is a certainty, timing of volumes and profitability remain uncertain. Maintain Hold with a revised target of `538/share.
Plan to expand distribution logistics
Private sector efforts to create a networked infrastructure of PFT marketplaces witnessed expected headwinds of: (i) capital costs and (ii) slower than expected ramp-up of volumes leading to long gestation and unfavourable economics. Aware of the economic pitfalls, Concor has settled for the asset-light model wherein land adjacent to rail terminals owned by third parties will be used to improve domestic rail coefficient. Concor expects 50mn-sqft of thus aggregated warehousing space across 20 PFTs to aid rail networked distribution of 120mnte by FY23. Concor’s revenues will come through: (i) 4-6% commission on revenues generated through the terminals, and (ii) boost of about 1mn-teu of containerised transport that these hubs will originate and which will be handled by Concor.
Planned capex of `60 bn over five years
This largely covers cost of new rakes and wagons, procurement of an additional 24,000 containers (as 15,000 leased containers are being gradually retired). Rakes, wagons, containers and other equipment constitute `40 bn of the capex plan. `18 bn has been earmarked for infrastructure, which would largely take the owned terminal count to 100 from 83 currently. Capex of `2 bn is earmarked for technology upgrade projects.
Coastal shipping and Concor’s role as freight forwarder has `40-50 bn revenue potential
While the numbers may take time to be realised, Concor has started two voyages from Kandla to Tuticorin and eventually plans to extend it to Bangladesh via Kolkata/Odisha. Concor intends to attract bulk/breakbulk cargo and hopes to play the multimodal freight forwarder’s role while adding to the tonnage of Indian Railways.
Flexi solution to cement transport
Concor is trying to import global best practices (Europe in this case) to expand containerised transportation of cement (also increasing rail share of cement transportation in the process). The opportunity size, as per management, is 300mnte of cement that is currently transported via roads.
We maintain Hold on the stock with a revised TP of `538 (earlier: `469).