After covid-19 derails volumes, investors bank on freight corridor to drive Concor's growth2 min read . Updated: 13 Sep 2020, 08:53 PM IST
Freight volume growth in FY21 will be slower, but trial runs have begun along some parts of the freight corridor
Container Corp. Ltd (Concor) may just be able to start growing with the long-awaited freight corridor likely to improve volumes in the coming years. The Concor stock, which had drifted down in 2020 by 33%, picked up steam as investors began to factor in volume gains from the dedicated freight corridor. The stock moved up about 4.4% on Friday.
Freight volumes in FY21 will be slow, but trial runs have already begun along some parts of the dedicated freight corridor. Freight volumes will increase as the corridor will make railways more efficient for shorter distances under 430km and western port traffic to central India could increase, analysts said.
“Rail cargo movement should rise from Mundra’s and JNPT’s 35% and 30% to 70% and 50%, post-western dedicated freight corridor commissioning. We believe Concor’s volumes will clock a 31% compound annual growth rate (CAGR) over FY21-23, driven by Mundra and Pipavav ports and a 21% CAGR over FY23-25 with the JNPT contribution," said Jefferies India analysts in a note to clients.
Concor has lost about eight percentage points year-on-year in market share over FY20 in export-import cargo trade. Overall volumes dropped 2% year-on-year, which is another worry. The company also said that volumes could contract about 20% in FY21.
A recent change in the method of charging land licence fees (LLF) also does not bode well for Concor. The railways ministry has increased LLF demand for FY21 to about ₹900 crore. Concor estimated this to be in the region of ₹450 crore earlier. As a result of the increase in fees, Concor surrendered about 15 terminals that generated about 4% revenue. This could lead to some cost savings as volumes will change lines to nearby terminals.
Even so, Concor will have to pass on the increase in LLF to its customers through tariff hikes. “The last 12 months have been impacted by covid-19 and LLF. We believe current price levels reflect low confidence in DFC-linked volume accretion and the ability to pass on some of the LLF rise in prices," said the Jefferies India report.
Capital expenditure of about ₹500 crore is slated for FY21, which is good enough evidence that the corporation is gearing up for the corridor. Nevertheless, given that covid-19 continues to roil the economy, it may be a long haul before freight volumes truly pick up. Further, the freight corridor has already been long delayed.
Another concern is that volume expectations could be belied if some of the roads-to-rail shift does not happen. This risks derailing the stock’s rise.