Prospects for the long-term are healthy; needs tie-ups with field experts for new initiatives; ‘Hold’ retained
Container Corp’s (Concor’s) FY18 annual report highlights its strategic initiatives – setting up MMLPs (connected through rail/road) and developing Rail Transshipment Hubs (RTHs) which will help increase double-stacking proportion and offer one-stop-logistics solution. Plans to venture into coastal shipping and 3PL/4PL solutions – will diversify revenue and help achieve revenue target of Rs 120 bn in FY20 (80% market share vs. 74% now) and Rs 250 bn by FY24 (with PAT of Rs 50 billion).
While long-term growth prospects are healthy due to Concor’s pan-India presence and strong connectivity to western DFC, execution holds the key to sustainable growth. Given the company’s limited experience in coastal shipping and 3PL/4PL, the best course will be to join hands with domain experts, ensuring efficient asset utilisation. Near-term earnings (11% Ebitda CAGR over FY18-21e) to be led by Exim volumes and expected margin accretion.
*Indian Railways’ FY18 originating container volume grew 14% to 54.3 mn ton, as Exim/domestic volume grew 15/12%. Concor gained market share (at 73.6% vs. 72.9% in FY17) as volumes grew 15% to 40 mn ton. Container volumes across ports grew 12% to 14.7 mn tons – JNPT volume grew 7%, while ex-JNPT major ports volume grew 9%; among minor ports, Mundra port led with 19% rise, while Pipavav grew 6%.
*Expansion thrust: (a) Capex guidance maintained at Rs 8-10 bn each in next 2-3 years (Rs 8.6 bn in FY18) – 70% for MMLP development (plans to open 11 more; 6 launched in FY18), (b) Distribution logistics (3PL) – in talks with private companies; focus to increase utilisation across MMLPs (4.5 mn sq ft of warehousing space currently) and (c) Coastal shipping – floated tenders to run dedicated coastal ships on West-East coast – not factored in our estimates.
*Operating cash flows jumped to
Rs 10.4 bn vs. Rs 7 bn in FY17 on the back of (a) 20% rise in FY18 Ebitda (ex-SEIS revenues) and (b) lower working capital requirement in FY18. Correspondingly, free cash flows stood at Rs 1.7 bn (vs. negative FCF at Rs 2.8 bn in FY17) given capex of Rs 8.6 bn in FY18.