Container Corporation of India - ICICI Securities Fundamental Top Picks for 2015

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Container Corporation of India (CONCOR) Target Price: | 1670 (26% upside)
• Concor is well poised to benefit from an improving economic scenario
owing to its pan-India presence and strong competitive intensity by virtue
of infrastructure and scalability. It is planning to garner higher volumes
and provide value added services and is, thus, investing in setting up
private freight terminals (PFT) and multi modal logistic parks (MMLP)
across 15 locations in India. Currently, the PFTs at Khatuwas and
Nagulpally are operational and are expected to scale up in the near term.
Further, Concor plans to acquire land in the central and eastern regions of
the country, in close proximity to the dedicated freight corridor (DFC), to
scale up its PFT business
• Over FY10-13, Concor’s volume growth remained sluggish and grew at a
CAGR of 2.2%. However, FY14 has seen a revival in cargo volumes with
10.9% YoY growth. Going ahead, we expect total cargo volumes to grow
at a CAGR of ~11% over FY14-17E on account of the improving
economic scenario and Concor’s strategy of providing better rates for
volume commitments by clients
• Concor is the market leader with a dominant market share (79%) among
container train operators while other CTOs are still miniscule in size.
Concor has an unmatched infrastructure and existing pan-India presence
that would enable it to capture higher volume growth in a improved
economic scenario. It has made strategic investments in building
infrastructure close to the proposed DFC with the intention of capturing
higher volume share over the longer term. Further, with implementation
of GST imminent we expect both Exim and domestic cargo to grow
considerably. Consequently, we envisage earnings per share will register
a CAGR of 16% over FY14-17E to | 76 with return on equity improving
from 13.8% in FY14 to 15.8% in FY17E. Considering the expected
acceleration in earning growth, improvement in return ratios and debt
free status we assign a P/E multiple of 22x FY17E EPS to arrive a target
price of | 1670