Concor ups the ante for volume share gains
Given its extensive network and reach, the firm should be able to wield this freebie to gain volume market share
Container Corp. of India Ltd’s (Concor) decision to offer 45 days of free storage to its customers at its export-import (Exim) container handling facilities—first reported by The Hindu BusinessLine—has come as a surprise. The stock dropped initially but has recovered ground subsequently. The flip-flop points to a degree of wariness among investors. Concor derived about ₹253 crore from storage and warehousing, constituting 4% of FY18’s revenue. The latest move will erode a significant part of these revenues.
Still, the development did not lead to earnings estimates cuts, as the firm is seen offsetting the impact through higher freight charges.
“While the free storage period extension prima facie appear negative for Concor, we point out a) no change in policies by container shipping lines pertaining to detention (a container is typically given for 14-15 days) and hence, customer may still have to pay detention charges to shipping lines, thus reducing effective usage of such extension, and b) Concor’s recent tariff increase of upto ₹1,500/TEU on exim will more than offset this decline in ground rent,” JM Financial Institutional Securities Ltd said in a note. TEU is twenty-foot equivalent unit.
Even so, the move cannot be a zero-sum game. Faced with excess capacities, Exim rail logistics solution providers are dispensing freebies to gain business, said analysts at JM Financial. Concor upped the ante with a 45-day freebie.
Given its extensive network and reach, the firm should be able to wield this freebie to gain volume market share. If customers opt for stuffing and de-stuffing of containers at Concor’s facilities, then the company can benefit from related charges. “Over the longer term, we think this could be a game changer for the container train operator industry, as given Concor’s vast network and large unutilized facilities, 45 free days’ warehousing could be a significant value-add for customers and thus the market share gain could be considerable,” analysts at Nomura Research said in a note.
The success will determine earnings upgrades and consequent stock gains. At around 16 times FY20 enterprise value to Ebitda (earnings before interest tax depreciation and amortization), the Concor stock is not cheap.
With commissioning of the dedicated freight corridor—expected to give a leg-up to rail transporters—still some time away, many are not seeing a major increase in Concor earnings in the near term. If the recent measures such as the 45-day free storage period accelerate market share gains and quicken earnings growth, then the company could see earnings upgrades, crucial for stock returns.