Company Update: Concor

The company’s EXIM Revenues grew 9% y-o-y to Rs724 crore, well ahead of our expectation on the realisation and volume fronts.

EXIM volumes fell a mere only 5.4%, which came as a positive surprise given that volumes at JNPT and other major ports declined by around 8% and historically Concor has underperformed both since the last three years.

EXIM realisation/TEU grew by 15.2% y-o-y albeit on a lower base as increase in haulage charges were passed on from August 2008.

However, q-o-q increase by 2.7% came as a surprise as industry sources and management had indicated dwell time returning to lower double teens from higher double teens.

Domestic revenues grew 15.5% y-o-y to Rs183 crore in line with our expectation. The company’s domestic revenues continued to register robust performance on account of the domestic economy showing signs of revival as well as management’s concentrated focus on the segment.

Outlook

We are positively surprised by Concor’s performance on the EXIM front during the quarter on account of which we have revised our volume estimate to 5% for FY2010E.

However, 5% growth in EXIM container traffic will much depend on revival in Exports, which we believe should take place post 2QFY2010.

Coupled with the increase in tariffs by 3% for Import container traffic and removal of 10% rebate in the domestic container traffic effective from July 2009 should boost realisations in FY2010 as the company has indicated to pass on the entire hike.

Consequently, we have upgraded our Earnings estimate by 7.2% and 7.3% for FY2010E and FY2011E respectively, on the back of improved performance in the EXIM Segment.

Management has given guidance of 5-10% and 15-20% volume growth in the EXIM and Domestic Segments in FY2010E, respectively.

We remain bullish on the long-term prospects of the Container Sector, which is the core driver of growth for Concor’s business.

However, higher IR tariffs and opening up of the Container industry to the Private players, we believe, will impact Concor’s marketshare over a period of time.

In line with this, over the next five years, we estimate Concor’s marketshare to decline to around 75% from current 90% levels.

Valuation

At the current market price, Concor is trading at 13.4x FY2011E Earnings and 8.8x FY2011E EV/EBITDA.

We believe that current valuations appear to be expensive given that the company is estimated to post Earnings CAGR of 10.5% over FY2009-11E as against 17.6% CAGR registered during FY2005-09.

Hence, we maintain a REDUCE rating on the stock with a revised target price of Rs892 (Rs832), with a Target multiple of 12x FY2011E EPS, implying a potential downside of 10.4% from current levels.

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