Container Corporation of India Limited
On The Right Track
Even though its operations currently see a reduced demand on account of the outbreak of COVID-19, certain new initiatives planned by Container Corporation of India Limited for its import-export and domestic operations will add fuel to its growth plans.
Container Corporation of India Limited (CONCOR) is a holding company engaged in the transportation of containers (rail and road) as well as handling of containers. The company also undertakes operation of logistics facilities, including dry ports, container freight stations and private freight terminals. Its primary business divisions include EXIM and domestic. Both EXIM and domestic divisions of the company are involved in handling, transportation and warehousing activities. CONCOR’s international services include train services, road services, air cargo movements, reefer services and block booking on round trip basis.
Its domestic services consist of train services, volume discount scheme, door delivery or pick-ups and terminal handling charges. The company’s e-filing software is a web-based application for EXIM locations being operational at terminal/inland container depot of CONCOR. Through this software, any importer/exporter/shipping agent can file his documents including billing and take printouts. CONCOR is India’s largest container train operator with a market share of around 67 per cent.
Industry Overview
Indian Railways witnessed a growth of 5.31 per cent in originating cargo from 1,161.66 million tonnes in FY18 to 1,223.29 million tonnes in FY19 along with an increase of 11.10 per cent in originating containerized cargo by rail to 60.34 million tonnes in FY19 from 54.31 million tonnes in FY18. The largest container handling port in the country, JNPT recorded a growth of 6.21 per cent from 4.83 million TEU in FY18 to 5.13 million TEU in FY19.
After a consecutive decline for three months, the major port cargo saw an increase in 6 per cent YoY for Q3FY20 but simultaneously, container traffic fell by 2 per cent YoY with a fall in container traffic at JNPT and Chennai ports. Container rail grew by 3.8 per cent YoY but NTKM (net tonne kilometres) i.e. transportation of 1 tonne goods for 1 km remained flat YoY owing to lower leads.
Quarterly Performance
On a consolidated basis, for Q3FY20 the company reported net sales of Rs 1,544.74 crore, a decrease of 7.67 per cent as against net sales of Rs 1,673.07 crore for the same quarter of the previous fiscal. PBDT decreased by 10.85 per cent for Q3FY20 and was Rs 433.32 crore as compared to Rs 486.08 crore for Q3FY19. For the third quarter of FY20 the company gained a net profit of Rs 171.94 crore, contracting by 34.29 per cent from the net profit of Rs 261.68 crore gained in Q3FY19.
The company reported lower than expected numbers for Q3FY20. During the quarter, the EXIM volumes de-grew by 2 per cent while domestic volumes registered a growth of 2 per cent. Subsequently, revenues from EXIM division reduced by 4 per cent to Rs 1,171 crore while revenues from the domestic division amounted to Rs 356 crore. De-growth in the EXIM business was led by higher empty container running.
Annual Performance
On an annual basis, CONCOR’s net sales for FY19 increased by 5.2 per cent to Rs 6,956.06 crore for FY19 from Rs 6,612.49 crore for FY18. Between the EXIM and domestic divisions, EXIM business contributed with a majority share of freight revenues. For FY19, PBDT stood at Rs 2,101.23 crore and FY18 PBDT stood at Rs 1,778.43 crore, thus increasing by 18.52 per cent. The company gained a net profit of Rs 1,174.57 crore in FY19, clocking a growth of 16.95 per cent as compared to Rs 1,004.31 crore in FY18.
For FY19, CONCOR saw a rise in export of commodities such as stainless steel, soybean meal, paper, furniture, coir products, fabrics, etc. While the import of commodities such as auto parts, aluminium scrap, wastepaper solar module, etc. increased, the import of teak logs, float glass, printing paper, heavy metal scrap, etc. reduced. Hence, CONCOR carried 43.50 million tonnes of containerized cargo by rail during FY19 which is an increase by 8.83 per cent compared to that of 39.97 million tonnes carried during FY18. The EXIM handling reported a growth of 8 per cent to 3.24 million TEU in FY19 as against 3 million TEU in FY18.
In terms of tonnage, EXIM originating loading increased by 8.87 per cent to 35.60 million tonnes in FY19 from 32.70 million tonnes in FY18. As for domestic originating loading, in terms of tonnage, it rose by 8.68 per cent from 7.26 million tonnes in FY18 to 7.89 million tonnes in FY19. The domestic containerized loading of Indian Railways grew by 8.39 per cent to 11.89 million tonnes in FY19 as compared to 10.97 million tonnes in FY18.
Conclusion
As of now, CONCOR has around 41 terminals out of its total 83 terminals built on railway land with an arrangement to pay the rent to Indian Railways (IR) on the basis of containers handled (per TEU basis). Other private players pay IR on the basis of applicable circle rates. Hence, as a part of the Government of India’s divestment strategy it has intended to sell 30 per cent of its stake in the company, which is a minority stake along with management control. The government’s shareholding in CONCOR is 54.8 per cent.
As such, many investors such as Blackstone, Warburg Pincus, India’s sovereign fund National Investment and Infrastructure Fund (NIIF) and other strategic investors such as Adani Ports & SEZ and PSA International, which is wholly-owned by Temasek Holdings, have joined the race to buy a stake in CONCOR. But due to business operations and projects being halted as a result of the ongoing COVID-19 pandemic, the bidding process for the above is expected to be postponed to the second quarter of the current fiscal year.
An obstacle that stands in the way is that CONCOR operates on the leased land of Indian Railways, valued at around Rs 16,500 crore. While the government wishes to sell the railway land to CONCOR at a subsidised rate, the other private container companies are objecting to the move as it is a risk to their balance-sheets. CONCOR is currently preparing for the expected start of its first phase of dedicated freight corridor (DCF) by June 2020. Though the commercial operations on its Rewari-Palanpur stretch are expected to begin post Q2FY21, the DFC connectivity to ports is expected to be completed till H2FY21.
The DFC connectivity and time-bound transit on the route will improve the turnaround times of train and lead to higher market-share gain for rail against road players. The company has already received DFC-compliant wagons. Thus, it is hoped that DFC will boost the company’s business and revenues. Additionally, CONCOR has been planning on several new initiatives such as movement of bulk commodities in containers and starting carriage of cement in containers for which the company has already begun with trial runs.
For the future, the company’s domestic business will benefit from the launch of new such initiatives as it will aid in volume growth for the business. Since global demand and freight movement has taken a hit due to COVID-19, it is assumed to be a temporary risk because once business operations resume to normalcy, the demand will pick up for container companies. Additionally, CONCOR has been able to maintain its consistency and in the future is expected to benefit from its strong capex plans as well. Hence, we recommend a BUY.