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Container Corporation
Infrastructure
Upgrade on attractive valuations as headwinds seem priced-in. Upgrade on (1)
recent underperformance, (2) attractive valuation (2.1 P/B with 18% RoE and 29%
adjusted for cash) and 12.6 P/E on reasonable estimates, (3) strong B/S and cash flows,
(4) exim growth on buoyant trade data so far, resolution of one-off 1Q issues and (5)
potential upside from lower tax and domestic tariff review. Global trade weakness and
sharper-than-expected market share loss to competition are key risks. TP Rs1,150
(Rs1,275 earlier).
Upgrade on recent correction as stock seems reasonable on P/E and P/B relative to cash and RoE
Concor has underperformed 8% over the last month and now trades at 2.1 FY12E P/B, reasonable
in context of 18% RoE (29% adjusted for cash). Concor has bottomed at 2.0 P/B in earlier instance
as well. P/E of 12X FY2013E is reasonable in context of (1) strong operational cash flows before
capex and (2) average historical P/E of 16.3 and 14% premium over Sensex versus parity currently.
Exim growth remains buoyant though opportunity set, competition and exim imbalance limit gains
Exim traffic has shown traction in the past few quarters (exports grew 45.7%, imports 36.2% in
1QFY12). Concor stands to benefit though gains get constrained due to (1) its limited opportunity
set (containerized goods through rail), (2) competition within rail and (3) loss of business to road
operators (exim imbalance led de-stuffing). Concor continues to lose market share over the past 5
years (22% in FY2011 versus 31% in FY2006) as its exim volumes grow (17%) slower than market
(49%) over FY2007-11. We build in 7% exim volume growth for Concor (with about 10-12%
sectoral growth) versus 2.5% in 1Q as equipment issues at JNPT resolve. Concor may gain market
share at ports like Mundra (FY2011 - gained market in Mundra assuming constant rail:road mix)
and benefit from volumes growth at Pipavav etc. (seemingly almost 100% market share).
Policy change-led drop in domestic volumes to last two more quarters; partial resolution possible
Concor has taken the brunt of change in domestic freight policy nullifying incentive to transport
some bulk goods in containerized form. For Jan-June 2011 (post policy change in Dec 2010), its
domestic volumes have fallen by 11% and per TEU margin has declined 18% yoy. The company is
pursuing to get partial relief from this policy change for genuine bulk traffic that can be carried in
containers. We build 5% yoy drop in domestic volumes for FY2012E and 7% growth thereafter.
Revise estimates to factor in lower business growth; upgrade to ADD on attractive valuations
We revise our estimates to Rs70, Rs78 from Rs72.3, Rs82.4 for FY2012E, 2013E, respectively to
factor in lower growth in domestic and exim volumes. We upgrade stock to ADD (TP of Rs1,150 at
14X FY2013E plus Rs50 investments from Rs1,275 at 15X earlier) on (1) favorable risk reward
tradeoff, (2) rub-off from exim growth and (3) possible domestic regulatory review.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Container Corporation
Infrastructure
Upgrade on attractive valuations as headwinds seem priced-in. Upgrade on (1)
recent underperformance, (2) attractive valuation (2.1 P/B with 18% RoE and 29%
adjusted for cash) and 12.6 P/E on reasonable estimates, (3) strong B/S and cash flows,
(4) exim growth on buoyant trade data so far, resolution of one-off 1Q issues and (5)
potential upside from lower tax and domestic tariff review. Global trade weakness and
sharper-than-expected market share loss to competition are key risks. TP Rs1,150
(Rs1,275 earlier).
Upgrade on recent correction as stock seems reasonable on P/E and P/B relative to cash and RoE
Concor has underperformed 8% over the last month and now trades at 2.1 FY12E P/B, reasonable
in context of 18% RoE (29% adjusted for cash). Concor has bottomed at 2.0 P/B in earlier instance
as well. P/E of 12X FY2013E is reasonable in context of (1) strong operational cash flows before
capex and (2) average historical P/E of 16.3 and 14% premium over Sensex versus parity currently.
Exim growth remains buoyant though opportunity set, competition and exim imbalance limit gains
Exim traffic has shown traction in the past few quarters (exports grew 45.7%, imports 36.2% in
1QFY12). Concor stands to benefit though gains get constrained due to (1) its limited opportunity
set (containerized goods through rail), (2) competition within rail and (3) loss of business to road
operators (exim imbalance led de-stuffing). Concor continues to lose market share over the past 5
years (22% in FY2011 versus 31% in FY2006) as its exim volumes grow (17%) slower than market
(49%) over FY2007-11. We build in 7% exim volume growth for Concor (with about 10-12%
sectoral growth) versus 2.5% in 1Q as equipment issues at JNPT resolve. Concor may gain market
share at ports like Mundra (FY2011 - gained market in Mundra assuming constant rail:road mix)
and benefit from volumes growth at Pipavav etc. (seemingly almost 100% market share).
Policy change-led drop in domestic volumes to last two more quarters; partial resolution possible
Concor has taken the brunt of change in domestic freight policy nullifying incentive to transport
some bulk goods in containerized form. For Jan-June 2011 (post policy change in Dec 2010), its
domestic volumes have fallen by 11% and per TEU margin has declined 18% yoy. The company is
pursuing to get partial relief from this policy change for genuine bulk traffic that can be carried in
containers. We build 5% yoy drop in domestic volumes for FY2012E and 7% growth thereafter.
Revise estimates to factor in lower business growth; upgrade to ADD on attractive valuations
We revise our estimates to Rs70, Rs78 from Rs72.3, Rs82.4 for FY2012E, 2013E, respectively to
factor in lower growth in domestic and exim volumes. We upgrade stock to ADD (TP of Rs1,150 at
14X FY2013E plus Rs50 investments from Rs1,275 at 15X earlier) on (1) favorable risk reward
tradeoff, (2) rub-off from exim growth and (3) possible domestic regulatory review.
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