Since the beginning of this fiscal year, the Container Corp. of India Ltd (Concor) stock has dropped 25% compared with the 17% fall in the BSE-200 index. While that decline does make valuations appear attractive, analysts are still worried about the company’s growth prospects.
“We expect Concor’s rail volumes and margins to remain weak in the near term given the sharp increase in haulage charges for (a) few items in the domestic segment, and higher competition from road and other rail operators in Exim (export-import) traffic,” writes Avi Mehta of IIFL Institutional Equities Research in a note to clients on 22 August.
Analysts have not been too excited about Concor’s performance in the last two quarters. That’s in spite of the June quarter net performance being comparatively better, although largely on account of a lower tax outgo and strong growth in other income.
In the last three quarters, Concor’s domestic business revenue has declined on a year-on-year (y-o-y) basis. In the June quarter, domestic business revenue fell by 9% y-o-y, the biggest drop in the last three quarters. This business continues to suffer from the adverse impact of changes in the rail haulage policy that happened in the December quarter.
However, the Exim business has offset the dip in domestic revenue to some extent in the last three quarters. Going ahead, analysts expect volumes to be driven by the Exim business. Of course, the proportion of the Exim revenue in the total is far higher at 75-80%. Still, overall revenue growth in the June and March quarters was just 3.6% and 4.7% y-o-y, respectively.
But the Exim business also faces some concerns—higher competition being a key one. In the June quarter, the share of containers handled by Concor at the Jawaharlal Nehru port fell to 60% from 74% in the same period a year ago. At the same time, the share of Mundra and Pipavav ports increased, which resulted in lower average lead distance for Concor in the June quarter. Simply put, earlier Concor used to ferry a higher proportion of its cargo for longer distances compared with the current scenario.
Meanwhile, competition has also increased, which makes the road ahead challenging. So, while valuations may look attractive at the current levels, the above mentioned concerns may keep investor sentiment muted in the near term. One silver lining though could be if there’s some relief on the haulage charges.
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