Should retail investors subscribe to the Container Corp. of India Ltd’s (Concor’s) offer for sale? The floor price for the offer is Rs.1,195 apiece, translating into a discount of 2.6% to the firm’s closing share price on Tuesday.
Retail investors will be allocated shares at a 5% discount to the cut-off price. If one assumes that the cut-off price equals the floor price, then retail investors who bid at the cut-off may get shares at about Rs.1,135 apiece.
According to Bloomberg estimates, that works out to a price--earnings ratio of 21.8 times estimated earnings for fiscal year 2017. In comparison, for Tuesday’s closing price, the measure stands at 23.5 times. That’s a shade cheaper relatively.
However, not too long ago, Concor shares were available at slightly cheaper prices. Last month, the stock had touched an annual low of Rs.1,082.70. Further, near-term prospects aren’t outstanding considering that an earnings recovery is not anticipated soon. Performance for the year so far has been unimpressive.
Data from Motilal Oswal Securities Ltd shows Concor’s export-import (exim) volume for the nine months ended December declined 5.7% from a year earlier. Domestic volume fared worse, declining 13%. The exim business, which contributes a major share to the company’s revenue, continues to suffer from a slowdown in global trade. On the other hand, higher competition from road transport has been a problem for the domestic segment.
In a note to clients on 27 January, Jefferies Equity Research said that the management does not expect the March quarter to see much year-on-year growth and volume to pick up only in the second half of FY17. Margins may continue to be under pressure for some time due to a drop in Concor’s exim market share to 74% in the third quarter versus 77% last year and overall market share to 73% versus 74%, added Jefferies.
Sure, Concor is expected to be one of the biggest beneficiaries of the forthcoming dedicated freight corridor, which is expected to boost volumes. But that is a long-term story. In the interim, volumes in its existing business lines need to recover. That is not visible yet, either in domestic or overseas markets. Retail investors must keep this in mind as the business climate may keep meaningful upsides at bay in the near term. The longer run may, of course, have a different story to tell.
The writer does not own shares in the above-mentioned companies.