So far this fiscal year, the export-import business of Container Corp. of India Ltd (Concor) has offset the underperformance of its domestic business to an extent. For the nine months ended December, Concor’s domestic business revenue accounted for one-fifth of the company’s total revenue and declined by 8% over the same period a year ago.
Of course, a key reason for the underperformance of the domestic business is weak sales volumes, mainly on account of a hike in haulage charges effected in the December 2010 quarter. Unfortunately for investors, there has been an increase in haulage charges, yet again, of 20% for four commodity categories. This increase in haulage charges will be effective from 1 April.
So, what does this mean for Concor? Of course, volumes are likely to be under further pressure. But the impact need not be as severe as last time. As mentioned earlier, so far this year, domestic revenue has declined by 8%. Analysts say domestic business revenue growth could remain more or less flat in the next year because of a lower base.
Also, the market for these commodities has shrunk, says an analyst, which means that the exposure of container companies to these firms is now relatively less.
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The more pressing problem for Concor though is the increasing competition from roadways or other private operators. These concerns have weighed on the stock. Since the beginning of this fiscal, Concor’s stock has underperformed the BSE-200 index. At the current market price, the stock trades at 11 times its estimated earnings for fiscal 2013. While that appears cheap, there are hardly any triggers for outperformance from the current levels. The underperformance in the domestic business is expected to be compensated to some extent by the export-import business in the days to come. Effectively, this means that overall growth is likely to be muted. The silver lining for investors is the cash position of the company.
“With about Rs2,600 crore net cash on its stand-alone books (about Rs200 per share), Concor has balance sheet strength to fund growth initiatives,” points out the December quarter results update from IIFL Research. While that’s heartening, near-term headwinds mean that upsides in the stock could be limited.
Graphic by Sandeep Bhatnagar/Mint
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