Transcript
8/8/2019 Concor - Initiating Coverage
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ContainerCorporationofIndia
Price-Rs.785
Target-Rs.952OUTPERFORM
FinancialSummary
Year
Revenues
(Rs.mn)
EBITDA
(Rs.mn)
PAT
(Rs.mn)
EPS
(Rs.)
P/E
(x)EV/EBITDA
(x)
FY08* 33,530 9,023 7,553 58.1 13.5 9.9
FY09E 41,858 11,023 8,309 63.9 12.3 7.9
FY10E 50,748 12,993 9,783 75.3 10.4 6.5
*ConsolidatedestimatesforFY08
Playonincreasingcontainerization
We initiate coverage on Concor, Indias largest container rail haulage operator,withanOUTPERFORMrating.Inourview,containerizationinIndiaispoisedfora fillip with a cumulative government spend of Rs. 558bn on port and relatedinfrastructure.Thisshouldprovidea significantboosttocontainerization,whichiscurrently at18% in Indiacomparedwithlevels of70% globally.Coupledwithahealthy EXIM (export import) growth of 15-20%, we think Concor will be theprincipalbeneficiaryofport-relatedinfrabuildout.
WealsobelievethatsomeoftheconcernssurroundingtheopeningupoftherailhaulagesectortoprivateplayersandtheattendantimpactonConcorsdominanceareoverstated.GiventhebreadthofConcorterminalnetworkandthehighstart-upcostsinvolvedinsettingupcontainerterminals,webelievethatnewplayerswillperforcehavetoadoptacollaborativestancevis--vis`Concor.
Investmentrationale Increase in EXIM cargo traffic and containerization Considerable
investmentsinportandrelatedinfrastructurewilldrivehighercontainerizationandplaceConcorinademandsweetspot
Railwayssettogainmarketshare-Asportandassociatedinfrastructurebuildhappens,webelievethatthetrendofrailwaysgainingsharefromroads(26%shareinFY98toalmost35%attheendofFY07)willaccelerate,playingtoConcorsstrengths
Market dominance to sustain In our opinion, new private operators willcontinue to face challenges in terms of both start-up costs (terminals andwagonprocurement)andoperationstoposeasignificantcompetitivethreattoConcormarketdominance
StrongrelationshipwithkeycustomersLong-standingrelationshipswithcorporate and ventures with shipping lines such as Maersk will ensurepredictableflowofbusiness,inourview
ExtensiveterminalnetworkisbiggestentrybarrierConcorsnetworkof57terminalsis,inourview,itsbiggestcompetitiveadvantage,whichprivateplayerswillfindtoughtoreplicate;atbest,weexpectthelattertoenterintocollaborativearrangementswithConcor
Valuationandview
We are positive on Concors prospects and believe that it is best positioned tocapitaliseonfavourableinfrastructure-relatedtailwinds.Overourforecastperiod(FY08-10E),weexpectConcortopostearningsCAGRof14%.WeexpectRoEs
tosustainathealthylevelsofabove20%overourforecastperiodandexpectcashper share of Rs. 141 at end FY10E. We note that apart from its strong returnmetrics,Concorgeneratessignificantfreecashon accountofanegativeworkingcapital cycle and has almost zero leverage. Against this backdrop, wethink thecurrent correction in the stock provides an attractive entry point, with currentmultiplesat12.3xFY09Eand10.4xFY10EEPS.
WeuseacombinationofP/EandDCFtovalueConcorscorebusiness(Rs.929);wethenascribeavalueforitsinvestmentsinvariousJVs(Rs.23)toarriveatacompositeSOTP-based target price of Rs. 952. We initiate coveragewith aOUTPERFORMratinganda21%upsidefromcurrentlevels.
InitiatingCoverage
Dated 5th
June2008
BSESENSEX 15770
NI FTY 4677
O/SShares 130mn
MarketCap Rs.102,037mn
52weekHi-Lo Rs.1,235Rs.723
AverageDailyVolume(nos)
36,095
FreeFloat(%) 37.0
BSECode 531344
NSECode CONCOR
Bloombergcode CCRIIN
Reuterscode CCRI.BO
ShareholdingPattern(%)asonMarch2008
Promoters 63.0
Institutions 33.5
Public 3.5
NathBalakrishnan
nath@sparkcapital.in
+91.44.43440035
SriramSekhar
sriram@sparkcapital.in
+91.44.43440040
SparkCapitalAdvisors(I)PrivateLimited
Reflections,New#2,LeithCastleCenterSt.
SanthomeHighRoad
Santhome,Chennai600028
Perform ance(%) 1m 3m 12m
Concor (12.7) (10.6) (28.2)
Sensex (11.4) (6.3) 6.6
-0.80
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Concor Sensex
ConcorvsSensex- Relativeperformance
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Contents
PageNo.
BusinessBackground.. 3
InvestmentRationale 5
KeyRisks. 14
ValuationDiscussion.... 15
IndustryOverview....... 18
FinancialSummary.. 23
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BUSINESSBACKGROUND
Corebusinessofoperatingcontainer
wagons
EnteredcoldchainlogisticsinFebruary2006
Container Corporation of India (Concor), a mini-ratna enterprise, was established in1988bytheIndianRailwaystoexclusivelycatertocontainertraffic.Thecompanyhasgrown from a network of seven Inland Container Depots (ICD)/ Container FreightStations(CFS)to57,givingitthelargestnetworkinthecountry.Thecompanyisrunbyateamofprofessionals,headedbyMr.RakeshMehrotra,themanagingdirector.
Concors core business is operating containerwagons across the country, with EXIMtrade accounting for over 79% of its revenues. It currently has ~7,200 wagons andproposestopurchase~3,300wagonsoverthenexttwoyears.Until2007Concorwasamonopolyinthisfield,withgovernmentrestrictingprivateparticipation.However,in2007the Railway Ministryopened this sector to private players and till date 15companieshave entered this space. Despite competition, Concor continues to retain its marketleadership position in FY08, with a 94% share on the Delhi-JNPT route. In order tofurther strengthen its leadershipposition, Concor has tied-up with eightof the privateoperatorstoshareitsinfrastructureinreturnforaleaserental/shareofrevenues.
In the EXIM segment, railways are the preferred mode of transport, with roadwayscompetingformarketshareonlyinthedomesticsegment.Althoughrailhaulageismorecost efficient and faster than transportation byroad,the latter is preferred forshorterdistances,asrailwaysdoesnotprovidedoor-to-doordelivery.Toovercomethishurdle,ConcorhastiedupwithTransportCorporationofIndia(TCI)andRelianceLogisticstoprovideend-to-endsolutions.
Concor enjoys higher realizations in the EXIM segment due to lower lead times andlesser number of empties running. In addition to the CFS/ ICD handling charges, itreceivesgroundrentinthe case ofimports,which isbasedon the dwelltime ofeachcontainer.Althoughthedomesticsegmentenjoyshigherrealizations,marginsarelower
duetolongerleadtimes,runningofmoreempties,andcompetitionfromroadways.
Source:Company
In an effort to diversify from a pure rail haulage company to a complete logisticsprovider,Concorisenteringotherareassuchascoldchainlogistics.ThissectorisstillataverynascentstageinIndia,andisexpectedtogrowsignificantlyonthebackoftheretail boom. Concor established a subsidiary, Fresh & Healthy, in February 2006 to
pursueopportunitiesinthisspace.Fresh&HealthypurchasesapplesfromwholesalersinHimachalPradesh,rebrandsthemandsellsthemtoretailers.ItcurrentlyhasonecoldchainstoreatRai,Sonepat,withacapacityof12,000MT.
Apart from the cold chain venture, Concor is actively looking at entering the coastalshippingsectoraswellasforayingintotheaircargobusiness.ThecompanyhasalsoformedjointventureswithcompaniessuchasMaerskIndia,TransworldGroupandAPL
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500,000
1,000,000
1,500,000
2,000,000
2,500,000
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
TEUs
HistoricalThroughput(TEUs)
EXIM Domes tic
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IndiatosetupandrunCFSs/ICDsacrossthecountry.Concorconstructedandrunsthe
thirdberthatJNPTthroughajointventurewithMaerskCopenhagen,andproposestoformfurtheralliancestobidforexpansioninkeyports.
Source:Company
ConcorsrevenueshavegrownbyaCAGR(03-08)of17.7%toRs.33,530mninFY08.The operating margins have consistently been over 25%, while net margins haveincreasedfrom18.4%inFY03to22.5%inFY08.Thegrowthinrevenueshasbeenonthebackofan11.3%CAGR(03-08)incontainerthroughput,whilethefavourablemixbetweenEXIManddomesticcontainertrafficcontributedtotheimprovementinmargins.
Source:Company
28.8 29.031.5
28.7 29.3 26.9
18.4
20.821.5 21.6 23.1 22.5
0
5
10
15
20
25
30
35
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY03 FY04 FY05 FY06 FY07 FY08
%
Rs.mn
Revenuesandmargins
Re ve nu es E BI TDA Ma rg in s(RHS ) P ATMa rg in s(RHS )
29.727.9 27.7
29.8
25.9
22.7 22.0 22.423.9
21.0
0
5
10
15
20
25
30
35
FY04 FY05 FY06 FY07 FY08
%
ReturnRatios
RoE RoA
Concorsrevenuesgrownby17.7%
CAGR(03-08)
ConcorrunsthethirdberthatJNPT
withMaersk
Establishedtooperatecontainertrains
JointVenturewithMaerskIndiaforICDatDadri
JointVenturewithMaerskCopenhagenforBOTproject-JNPTsthirdterminal
FormedFresh&Healthy,a100%subsidiary,toforayintocoldchainlogistics
JointVenturewithGatewayDistriparkstooperateanICDatGarhiandruncontainertrains
1988 2004 2005 2006 2008
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INVESTMENTRATIONALE
EXIMcargotrafficisincreasingat~15-20%p.a.
ContainerizationinIndiais
lowat~18%
#1IncreaseinEXIMcargotrafficandcontainerization
Cargotrafficatmajorportsisincreasingat~15-20%p.a.onthebackofimprovedglobaltrade and the consumption boom in India. According to the National MaritimeDevelopmentProgram(NMDP)thecargohandledatmajorportsisexpectedtoincreasefromthecurrent469mntonsto616mntonsbyFY12.Thecurrentportinfrastructureisnot capable of supporting these volumes, and capacities at major ports are nearing100%utilization.
The Ports Authority of India has established the National Maritime DevelopmentProgram(NMDP)toincreasecapacitiesatportsandimprovetheexistinginfrastructure.SomeoftheportprojectsareexpectedtobethroughthePPProute,whilesomewillbe
followaBOTmodel.Developmentprogramatmajorports
Port No.ofprojects
Spendonroadandrailconnectivity
(Rs.Mn)
CurrentCapacity
(mntons)
TargetedCapacityby
FY09(mntons)
TotalCapacityby
FY12(mntons)
Haldia 15 - 42.2 42.8 65.2
Paradip 28 10,200 51.4 60.1 88.9
Vizag 38 4,160 54.9 74.7 106.6
Ennore 14 3,760 13.0 35.0 45.2
Chennai 14 4,500 48.8 73.6 60.6
Tuticorin 24 1,250 20.6 35.6 39.5Cochin 14 4,750 19.4 33.5 42.9
NewMangalore 20 9,960 38.0 47.8 54.9
Mormugao 12 - 29.5 41.5 53.3
Mumbai 14 3,280 43.8 57.9 61.5
JNPT 32 15,810 36.1 59.5 81.9
Kandla 26 1,445 46.0 77.4 92.2
Total 251 59,115 443.7 651.0 792.7
Source:NMDP,SparkResearch
ContainerizationinIndiaisveryat~18%asagainst~70%inothercountriesduetothelackofadequateinfrastructureintermsofports,roads,andrailways.ThePortsAuthorityofIndiaisspendingoverRs.558bntodevelopinfrastructureandincreasecapacitiesatthemajorandintermediateportsto810.4mntonsbyFY12.ItisexpectedtospendRs.59bnondevelopingroadandrailconnectivitytotheports.
Inouropinion,thisinfrastructuredevelopmentbodeswellforaugmentingtheshareofcontainers as a percentage of total cargo handled. After theexpansionat major andintermediate ports, capacity for container traffic is expected to increase to ~15.2mnTEUsbyFY12from~4.2mnTEUsinFY05,representingaCAGRof20%.AsperNMDPestimates,containertrafficislikelytoincreasefrom83mntonsto140mntonsbyFY12E.
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Source:NMDP
IndiaislaggingintermsofcontainergrowthascomparedtopeerssuchasChina.Thelackofportinfrastructurewasthemainreasonforthistepidgrowth.Chinahadatotalcapacitytohandle~76mnTEUsin2005,ascomparedtoIndiascapacityof5mnTEUs.Although EXIM trade in the region in burgeoning, India will not benefit unless thecapacity of ports is increased. The government, recognizing the earlier pitfalls, hasactivelystartedtoincreasecapacityandimproveinfrastructure.Inourview,Indiaisonthecuspofasignificantopportunityintermsofcargothroughputandcontainerization.
ContainerizationopportunityforIndia
Source:UNESCAP
Inourview,theincreaseincontainerizationcombinedwiththerailwaysaugmentingitsmarketshareincontainerhaulage,willbenefitexistingplayersintherailhaulagespace.WeexpectConcortoretainitsmarketleadershippositiononthebackofitsextensiveterminalnetwork,largestfleetofwagonsandstrongrelationshipwithkeycustomers.
It is also likely to benefit from the enhancement in cargo throughput by way of itsinvestments into BOT projects at ports, such as the third berth at JNPT. Concorproposes toformconsortia tobid forBOT projectssuchas the expansionof Gujarat,EnnoreandChennaiPorts,andthefourthterminalatJNPT.
66
8394
107
123
140
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120
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160
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100
200
300
400
500
600
700
FY07 FY08 FY09E FY10E FY11E FY12E
mntons
mntons
TotalEXIM cargo vs.container cargo
TotalEXIMcargotraffic(LHS) Containertraffic
2005capacity(China)was76mnTEUs
2005capacity(India)was5mnTEUs
Indiahastremendousgrowthopportunitiesin
cargothroughput
Concorisexpectedtoretainitsmarket
leadershipposition
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#2Railwayssettogainmarketshare
Transportation by railwaysis much cheaper and faster than road transport. However,manufacturers prefer roadways for domestic transportation and shorter distance, asrailwayterminalsarenotpresentnearallindustrialzones.Moreover,therailwaysdonotprovideaserviceguaranteesimilartothatprovidedbythetruckingcompanies.
In the post independence era, the railways enjoyed a dominant market share incontainer haulage due to a lack of road infrastructure and trucks capable of carryingcontainers.However,backedbytheimprovementinhighwayqualityandentryofflatbedtrucks,themarketdynamicsshiftedinfavourofroadways.Therailwayscurrentlyhavea~33%marketshareintransportofcontainers.
Source:IPA,SparkResearch
Asportandassociatedinfrastructurebuildonhappens,webelievethattherailwaysiswellpositionedtogainincrementalsharefromroads.Thisisastructuralpositiveforrailhaulage operatorsas a whole and specifically to Concor, the dominant player in thisspace.
CostDifferentialRoadvs.Rail
Rs./TEUDelhi-JNPT Delhi-MundraPort
Railways Road Railways Road
Upto20tons 12,942 42,000 10,896 33,00020-26tons 16,255 48,500 13,728 38,000
Above26tons 18,096 58,000 15,252 44,000
Source:Concor,GatewayDistriparks
#3-Marketleadershiptosustain
Concor enjoyed a monopoly position till 2007, when the government permitted othercompanies to enter the rail container haulage sector. As a result of the competition,Concorsmarketsharehascomedownto94%inFY08.However,inourviewthethreatofprivateplayersgarneringachunkofthemarkethasbeenoverplayed.
WeexpectConcortobeabletoretainitsleadershippositiongoingforwarddespitetheadvent of competition, since most of the private operators are struggling with
considerablelandacquisitioncostsandthesignificantcapitalrequiredforpurchaseofwagons.Concorsnetworkhasbeendevelopedatasubstantiallylowerlandcostthanprevalent.
26.0
29.930.4 30.5
31.430.7
32.132.5
33.7 34.7
9.2 9.410.2
11.5
12.913.9
14.8 14.3
14.6
15.8
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FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
%%
Railwaymarket sharevs.containerization
Rai lway markets hare Co n tai neri zation(RHS)
Concorwagons:4,528
Marketdynamicsfavouringrailhaulage
Concorhasa94%marketsharein
EXIMtraffic
Concor
wagons:7,284
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AsitstillhasunutilisedlandatmanyofitsICDs,Concorcanexpandthesefacilitieswithmarginal overheads. The competitive advantage of owning land at historical costs isevident in Concors high return metrics, an area we believe private operators will behard-pressedtomatch.
Most of the private players are currently plying their wagons on the lower margindomesticroute,astheydonothavethenecessaryinfrastructuretoplytheEXIMroute.Asaresult,theirmarginssuffer,asdomesticroutesentailhigherrunningofemptiesandlongerleadtimes.EBITmarginsforthedomesticsegmentare~14%asagainst28%fortheEXIMsegment.
Source:IPA,Company,SparkResearch
Someoftheprivateoperatorsareusingtheirwagonsforcaptivepurposes,anddonotpose a threat to Concor. We have excluded these players, and estimated the totalnumber of wagons the private operators currently have operational and expectedadditions.
Source:SparkResearch
Inourview,thereare~2,490wagonscurrentlybeingoperatedbyprivateplayers,withapproximately 6,390 wagons to be operational by FY10. On the other hand, Concorcurrently owns over 8,282 wagons and is expected to have ~11,584 wagons byend-FY10. In addition, Concor also leases wagons from the railways based on therequirementandtypeofcontainertobetransported.WeexpectConcortoretainmarketleadershipintermsofwagonsoperatedaswellasthroughput.
100 100
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FY05 FY06 FY07 FY08
%
mnTEUs
ConcorEXIMMarketShare
TotalEXIMContainerTraffic Con tain ersTransp ortedthroug hRa ilConcorMarketShare(RHS)
PrivateplayersusingwagonsforcaptivepurposesAdaniLogistics
BoxTrans(JMBaxiShipping)
DineshETA
HindTerminalsInnovativeB2BLogistics(BothraShipping)
Indialinx(APL)MSC
Someprivateoperatorsareusingwagonsfor
captivepurposes
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Source:Company,SparkResearch
Inourview,endcustomerswouldpreferusingConcorsservicesduetothevastterminalnetwork, sizeable wagon fleet, and door-to-door services provided through its tie-upswithRelianceLogisticsandTCI.
WagonsConcorvs.privateplayers
Wagons FY08 FY09 FY10
Concor(nos) 8,284 10,084 11,584
PrivatePlayers(nos) 2,490 4,440 6,390
Totalnumberofwagons 10,774 14,524 17,974
Source:SparkResearch
#5Strongrelationshipwithkeycustomers
Concorhasawellestablishedrelationshipwithseveralshippinglines,andhasformedjoint ventures with key customers such as Maersk. These joint ventures are forconstructionandrunningofCFSs/ICDs,ensuringcaptivebusinessfromshippinglines.Apartfromthejointventures,Concorhasservicedtheseclientsfornearlytwodecades,andinourviewitisunlikelythattheprivateplayerswillbeabletogarnerameaningfulshare of the EXIM container traffic, as shipping lines are likely to continue transportthroughConcor.
AfewofConcorsJointVentures(JVs)
Source:Company,SparkResearch
1.61.7
1.92.1
2.3
2.6
3.1
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0.5
1.0
1.5
2.0
2.5
3.0
3.5
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2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY04 FY05 FY06 FY07 FY08 FY09E FY10E
mnTEUs
Nos.
Concorwagonaddition
W ag o ns(L HS ) Th ro ug hp ut
NameofJV JVPartner NatureofJV
Star Track Terminal Maersk India ICDatDadri
Trident Terminal APL India ICDatDadri
Albatross CFS Transworld Group ICDatDadri
Gateway Terminals India* Maersk Copenhagen ThirdberthatJNPT
JWG-Air Cargo Complex Hindustan Aeronautics & Mysore Sales Air Cargo Business in Bangalore
CMA-CGM Logistics Park (Dadri) CMA-CGM Global India ICDatDadri
HALCON Hindustan Aeronautics Air Cargo Complex & ICD at Ozar Airport, Nasik
Ind ia Ga teway Te rminal Duba i P ort Interna tiona l Setting Up and Managing Container Terminals at Cochin
EndcustomerswouldpreferusingConcors
services
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#4Extensiveterminalnetworkisthebiggestentrybarrier
Concorhastheadvantageofavastterminalnetworkacrossthecountry,ascomparedtoa handful owned and operated by the private players. Concor currently has ~57terminalsandisaddingafewmoreeachyear,theseincludeCFSs/ICDs.Inourview,thenewplayerswillfacehurdlesinlandacquisitionintheformofhighlandpricesandregulatoryissues,whileConcorsexistingterminalsarepricedathistoricalcosts,anditcan procure railway land for ICDs/ CFSs ona preferential basis due to its mini-ratnastatus.
Since setting up a similar terminal/ ICD/ CFS network is not feasible for any singleprivatecompany,mostofthemareenteringintofeebasedagreementswithConcortoshare its infrastructure. In our opinion, given the capacity constraint faced by private
playersintermsofterminalnetwork,theydonotposeasignificantthreattoConcorsmarket dominance, especially with Concor benefiting from private players lack ofinfrastructure. Unless the private players collaborate with Concor, we do not foreseethemincreasingtheircontainerthroughputastheylackthenecessaryinfrastructure.
Concorsterminalnetwork
Source:Company
Concorcurrentlyhas~57terminals
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#6FocusonthefastgrowingnorthernhinterlandThemajorityofConcorsrevenuesarederivedfromthenorthernregionsofthecountry,whichcontribute~51%ofEXIMtraffictoJNPT,backedbytheincreasedindustrializationintheseregions.Withthegovernmentthrustondevelopingthenorthernhinterlandmostmajorindustrial houseshavesetup factoriesin this region, resultingin anincreaseinEXIMtrade.
Source:Company
Many companies are setting up ICDs in the northern and central hinterland sincecapacitiesofexistingICDsinregionssuchasTughlakabadarealreadyrunningatcloseto100%.ICDsarebeingconstructedinplaceslikeDadriandGarhitocatertotheriseinEXIMtrade.
The railway route between JNPT and Delhi and its surrounding regions carries themaximum throughput. The current capacity on this route is ~34 rakes/ day, and isrunningat76%utilization.Concorruns~20rakes/dayonthisroute,whiletheprivateoperators run ~5 rakes/ day. In our view, the track utilization on this route will go to~100% in the next few years, with increasing cargo volumes being handled by thewesternports.Thegovernmentproposestostartconstructionofthenorth-westfreightcorridor,whichwhenoperationalwillde-bottleneckthecurrentcongestionontheroute.Weexpectanincreaseinrailwaycontainerfreighttrainsrunningonthisrouteoncethecorridorison-stream,withConcorgarneringamajorityofthecargothroughput.
Region-wisecontributiontoJNPTscargotraffic
Source:JNPT,SparkResearch
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TEUs
Break-upofTEUshandledbyConcor
Northern Central E astern Western S outhern
Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports ImportsChandigarh 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%Haryana 5.1% 5.6% 5.1% 5.6% 5.1% 5.7% 5.1% 5.7% 5.2% 5.8% 5.2% 5.8%HimachalPradesh 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.9% 0.7%Punjab 3.9% 2.2% 3.9% 2.2% 3.8% 2.1% 3.7% 2.1% 3.7% 2.1% 3.6% 2.0%Rajasthan 3.0% 2.3% 3.0% 2.3% 3.1% 2.3% 3.1% 2.3% 3.2% 2.3% 3.2% 2.3%UttarPradesh 10.2% 11.7% 10.3% 11.7% 10.3% 11.7% 10.3% 11.8% 10.4% 11.8% 10.4% 11.8%Uttaranchal 1.5% 1.4% 1.5% 1.4% 1.4% 1.3% 1.4% 1.3% 1.4% 1.3% 1.3% 1.3%Delhi 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0%AndhraPradesh 7.4% 7.1% 7.3% 7.0% 7.2% 6.9% 7.1% 6.9% 7.0% 6.8% 6.9% 6.7%Gujarat 11.1% 16.2% 11.1% 16.2% 11.2% 16.3% 11.2% 16.4% 11.2% 16.5% 11.2% 16.6%Karnataka 6.6% 5.0% 6.6% 5.0% 6.6% 4.9% 6.6% 4.9% 6.6% 4.9% 6.6% 4.8%Kerala 2.5% 1.8% 2.5% 1.8% 2.5% 1.8% 2.5% 1.8% 2.5% 1.7% 2.5% 1.7%MadhyaPradesh 3.2% 3.4% 3.2% 3.4% 3.2% 3.4% 3.2% 3.4% 3.3% 3.4% 3.3% 3.4%Maharashtra 18.3% 19.7% 18.4% 19.8% 18.5% 19.9% 18.6% 20.0% 18.7% 20.1% 18.8% 20.1%Others 25.0% 22.0% 24.9% 21.9% 24.9% 21.9% 24.8% 21.8% 24.7% 21.7% 24.6% 21.7%
2004-05 2005-06 2006-07 2007-08 2008-09E 2009-10E
Source:JNPT
Portscateringtothe
north
26%ofexporttrafficand25%ofimporttraffictoJNPToriginatefromthenorth
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#7RevenuemixfavouringhighlyprofitableEXIMsectorThemajority(79%)ofConcorsrevenuescomefromthehighmarginEXIMsector.Thisisincontrasttomanyoftheprivateplayers,whoderivemostoftheirrevenuesfromthelowermargindomesticcontainerhaulagesector.ThereasonforConcorsdominanceinthe EXIMsector is its established relationships with major shipping lines, andtie-upswithsomeoftheseshippinglinestoconstructICDs.Forinstance,Concorformedajointventure with Maersk India to construct an ICD at Dadri resulting in Maersk having avestedinterestintransportingcargothroughConcor.
Source:Company,SparkResearch
TheEXIMsectorishighlyprofitable,withEBITmargins~28%,ascomparedtothe~14%marginsinthedomesticsector.Althoughthedomesticsectorislessprofitable,itenjoyshigherrealizationsof~Rs.15,200comparedto~Rs.14,000fortheEXIMsector.Thisdisparitybetweentherealizationsandmarginsisduetothelongerdistancesandmorenumberofemptiesrunningonthedomesticsector.
Unlike the EXIM sector, where Concor receives revenues on empty containerstransported,inthedomesticsectoritbearsthecostofemptiesrun.Apartfromtheemptycontainers transported, Concor has a higher proportion of trains running without anycontainersonthedomesticsector.
DuetoConcorsdominanceintheEXIMsector,andanincreasingdemandfordomesticrailway container haulage, private operators are plying most of their trains on thedomesticroute.
#8 Entryintodoor-to-doorserviceswillpositionConcor asend-to-endsolutionsprovider
Concorhastied-upwithTransportCorporationofIndia(TCI)andRelianceLogisticstoprovide door-to-door services to its clients. Since the main reason for customerspreferringroadtransportisduetotheunavailabilityofrailwayinfrastructureneartheirfactories, in an attempt to garner market share from road transport, railway containerhaulageplayersarenowprovidingcompleteend-to-endsolutions.
31.6
33.029.2 29.7 27.8 28.5 28.2
15.118.5 18.9 17.2
13.7
15.014.0
-
5
10
15
20
25
30
35
-
10,000
20,000
30,000
40,000
50,000
60,000
FY04 FY05 FY06 FY07 FY08 FY09E FY10E
%
Rs.mn
Revenuebreak-up vs.margins
EXIMRevenues(LHS) DomesticRevenues(LHS)
EXIMEBITMargins DomesticEBITMargins
EXIMsectorEBITmarginsare~28%
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Concor outsources the last mile delivery to one of its two trucking partners (TCI andRelianceLogistics)dependingontheregion.Thisenablesittoprovidecompletelogisticssolutions without requiring purchasing of trucks and operating them. In our view, thisvalueaddedservicewillfurtherstrengthenConcorsmarketleadershipposition,andaidinimprovingtherailwaysmarketshare.
Source:SparkResearch
Shippingline Railwayterminal Transportbyrailways
DeliveredtoICDTransportbytruckDeliveryto
customer'sfactory
Lastmiledelivery:valueaddedserviceprovided
Concoroutsourceslastmiledelivery
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KEYRISKS
#1SlowdowninEXIMtrade
Concor'srevenuegrowthisleveragedtogrowthtrendsinEXIMtrade;aslowdownonthisfrontwouldhaveasubstantialnegativeimpact.EXIMtradetypicallygrowsat~2xgrowth in GDP, and any significant drop in Indias GDP could lead to a sharpdecelerationinEXIMtradegrowth,impedingConcorsgrowthprospects.
#2Higher-than-anticipatedmargincontraction
Concorsmarginsareexpectedtocontractgoingforwardduetoincreasedcompetition.Although wedo not foresee a significant drop inConcors market share, margins arelikely to drop with prices becoming more competitive. Apart from this, due to theincreasedsensitivitytoprice,Concormightnotbeabletofullypassonanyhikesinthe
haulagechargesleviedbytherailways.#3Increasingcontributionofthelowmargindomesticsector
ThedomesticcontainerrailhaulagesectorisgrowingfasterthantheEXIMsector,whichcould resultin revenues tilting in favour of the former. This would result in a drop inprofitabilitysinceConcorwillfacecompetitionnotonlyfromtheprivaterailoperatorsbutalsofromcompaniesoperatingintheroadhaulagespace.Apartfromthecompetitioninthis sector, Concor also faces the problem of running more empties (containers andwagons).
#4Delaysinwagonprocurement
Concorproposestoacquire1,800wagonsinFY09and1,500wagonsinFY10,andanydelay in the procurement of wagons will negatively the earnings potential, and might
erodemarketshare.Sinceaxlesforwagonsarefacingasupplycrunch,Concorintendsto import axles from railway approved vendors to ensure its requirements are met.However, in the event of wagon procurement being delayed despite import of axles,Concorsrevenuepotentialandmarketsharewilldrop.
Delaysinwagonprocurementwill
negativelyimpactearnings
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VALUATIONDISCUSSION
Concorenjoysanegative
workingcapitalcycle
Atthe current priceof Rs. 785, Concor tradesat 12.3xFY09E and 10.4xFY10EEPS.Overourforecastperiod(FY08-10E),weexpectConcortopostanearningsCAGRof14%.Returnmetricsarerobust,withROEof23.7%and23.3%inFY09EandFY10Erespectively.Withanegativeworkingcapitalcycle,weforecastfreecashflowsofRs.4,613mninFY10E.WeexpectConcortogeneratecashpershareofRs.141inFY10E.
WehavenotascribedanyvalueforthecoldchainsubsidiaryFreshandHealthy,asitisstill ina nascent stage and we do not expect it to scale up significantly till FY11.Concor is compared domestically to only Gateway Distriparks, as there are no otherlistedcompetitorsoperatinginthesameindustrysub-sectors.
Intheglobalarena,wecompareConcorwithCSXCorp(USA)andCanadianNationalRailwayCo.(Canada).Wenotethatglobalpeerstradeatanaverageone-yearforward
P/E of 14x, in spite of an earnings growth of only 11%. In contrast, Concor enjoyssignificantlybetterreturnmetrics,higherearningsgrowthandmoreattractivevaluations.
WeuseacombinationofP/EandDCFtovaluethecorebusinessandoverlaythatwithanSOTPtocaptureConcorsinvestmentsinJVstoarriveatacompositetargetprice.Applyingatargetmultipleof12xonourFY10EEPS,wearriveatatargetpriceofRs.903. Our DCF model yields a fair value of Rs. 954. We use an average of the twovaluationmethodstoarriveatourtargetpriceofRs.929forthecorebusiness.WevalueConcorsinvestmentsinJVsatRs.23pershare.Combiningthevalueofcorebusinessandtheinvestments,wearriveatourSOTP-basedtargetpriceofRs.952.Atourtargetprice,Concorwouldtradeat14.9xFY09Eand12.6xFY10EEPSwithEV/EBITDAof9.9xFY09Eand8.2xFY10E.
Inouropinion,Concorsearningswillhaveafairdegreeofpredictabilityandgiventhecurrent volatility in the markets, will think itwillcommanda multiplethatclosely trailsearningsgrowth.Inthiscontext,webelievethatourtargetmultipleof12xFY10EEPSinthe context of a 14% EPS CAGR is not unjustif ied. Initiate coverage with aOUTPERFORMratingfora21%upsidefromcurrentlevels.
Valuationmethodology
DomesticPeerComparison
Source:Bloomberg,SparkResearch
InternationalPeerComparison
Source:Bloomberg,SparkResearch
Valuation
methodMultiple
Value/Share
(Rs.)Corebusiness P/E 12x 903Corebusiness DCF 954
(A)Averagevalue 929(B)JWG-AirCargoComplex P/E 10x 8(C)Otherjointventures P/B 2x 15(A+B+C)TargetPrice 952
FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E
Concor 41,858 50,748 23.7 23.3 8,309 9,783 12.3 10.4 7.9 6.5GatewayDistriparks 4,151 5,844 14.2 16.5 990 1,235 11.5 9.2 6.6 5.1
P/E
(x)
EV/EBITDA
(x)
Revenues
(Rsmn)
RoE
(%)
PAT
(Rsmn)
CY08E CY09E CY08E CY09E CY08E CY09E CY08E CY09E CY08E CY09E
CSXCorp 11,150 11,840 15.9 17.6 1,458.0 1,620.0 18.0 15.2 9.0 8.1CanadianNationalRailwayCo. 8,331 8,840 7.2 7.5 1,713.0 1,906.0 15.1 13.1 8.9 8.1
RoE
(%)
PAT
(USDmn)
P/E
(x)
EV/EBITDA
(x)
Revenues
(USDmn)
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Basecase
DCFvaluation
Source:SparkResearch
(Rs.mn) FY08 FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E
Revenues 33,530 41,858 50,748 60,898 72,468 85,513 100,050 116,058 133,466 152,152 171,931 190,844
RevenueGrowth(%) 10.2 24.8 21.2 20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 11.0
EBIT 7,949 9,688 11,383 12,789 14,494 16,247 18,009 19,730 21,355 22,823 22,351 22,901
EBIT*(1-taxrate) 6,200 7,557 8,879 9,975 11,305 12,510 13,867 15,093 16,229 17,117 16,540 16,489
Depreciation 1,074 1,335 1,610 1,979 2,226 2,474 2,699 2,924 3,126 3,329 3,509 3,689
ChangeinWC 155 416 445 507 579 652 727 800 870 934 989 946
OperatingCashFlow 7,430 9,308 10,933 12,461 14,110 15,637 17,293 18,818 20,226 21,380 21,038 21,123
Capex 5,069 6,173 6,010 6,000 5,500 5,500 5,000 5,000 4,500 4,500 4,000 4,000
FreeCashFlow 2,361 3,135 4,923 6,461 8,610 10,137 12,293 13,818 15,726 16,880 17,038 17,123
No.ofYears - 1 2 3 4 5 6 7 8 9 10
DiscountFactor 1.00 1.14 1.29 1.47 1.68 1.91 2.17 2.47 2.81 3.20 3.64
DiscountedFCF - 3,135 4,327 4,990 5,844 6,046 6,444 6,366 6,367 6,006 5,327 4,705
90 85 80 75
40 85.9 81.8 77.6 73.5
36 79.1 75.3 71.6 67.8
33 72.9 69.4 66.0 62.6
30 67.3 64.2 61.1 57.9
Railway
share
(%)
Concormarketshare(%)
FY10EPSsensitivitytochangeinmarketshare(Rs.)
Equity(Rs.mn) 38,241.12
Debt(Rs.mn) 450.00
TotalCapital(Rs.mn) 38,691.12
Debt:Capital 0.01
Equity:Capital 0.99
RiskFreeRate(%) 8%
Riskpremium(%) 7%
Beta 0.9Costofdebt(%) 11%
Taxrate(%) 22%
Tax-adjustedDebtCost 9%WACC 14%
WACCCalculation
Terminalgrowth 4%
TerminalValue(TV) 181,928
DiscountedTV 49,993
CumulativeDiscountedFCF 109,550
Debt 450
Cash 14,905
DCF 124,006
No.ofShares(mn) 130FairValue/Share(FY09) 954
Targetpricecalculation
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KeyAssumptions FY09E FY10E
TotalNo.ofRakes 10,084 11,584
Capex(Rs.mn) 6,173 6,010
WagonAdditionperYear(Nos) 1,800 1,500
Trips/Month/Rake 12 12
EmptyContainersasaPercentageofTotalTEUs(%) 55 54
RailHaulageCharges(Rs./TEU) 10,834 11,364
EXIMThroughput(TEUs) 2,081,749 2,394,011
DomesticThroughput(TEUs)550,168 671,205
TotalThroughput(TEUs) 2,631,917 3,065,217
EXIMRealizations(Rs./TEU)* 14,000 14,500
DomesticRealizations(Rs./TEU)* 15,000 15,500
TotalContainerTrafficinIndia(mnTEUs)# 8 10
AssumedShareofRailways(%) 35 36
WagonAdditions/YearbyCompetitors(excludingcaptiveusage 4,440 6,390
ConcorEXIMMarketShare(%) 90 85
*RealizationsexcludeTerminalHandlingFees#
Source:KPMG
Rakes&Capex
Throughput&Realizations
MarketScenario
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IN
The comp ends
Com
Sou
Desp hom parti
C I
Frei
Frei
Fragmentationisrampantinthelogistics
industry
USTRYOVERVIEW
logistics industry is highly fragmented in terms anyofferingaspecializedservice.Thelargercongl
olutions,backedbyjointventures,subsidiariesora
ponentsoflogisticschain
ce:SparkResearch
ite the multiple functions and companies inv genous network, with the logistics provider typica sinvolved.
Theexporterselects qualityofservice,effic Exporter
Undertakestheshipm withthevariousinter deliverthegoodstoth
LogsiticsProvider
Thestuffedcontainer customsclearenceta afeebasedonthese
ntainerFreightStation(CFS)/landContainerDepots(ICD)
Theseagentscomple andareinchargeoff shippinglines
ightForwarder/CustomsHouseAgent
Sincemanufacturedp containers,thesecom differentlogsiticsplay
LCLConsolidators
Thesecompaniesow tothedestinationcou betweenportsandch
ShippingLine
Shippinglinesdeliver thedestinationcountr Thelatterchargeagr chargesleviedonser
CFS/ICD
Theyworkinconjunct thecustomsformalitie
ightForwarder/CustomsHouseAgent
Thesecompaniesspli componentsbasedon LCLConsolidators
Thelogisticsprovider internationalnetworkt ICDtotheimporter
LogisticsProvider
Thesearetheendcu dependingontheagr companiessometime
Importer
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of service offerings, with each omeratesoffercompleteend-to-
cquisitions.
lved, the supply chain is a lly coordinating with the various
helogisticsproviderbasedon iency,andpresenceintheregion
entfromtheexporter,andliases ediariesinthesupplychain,to
eimporter
issenttotheCFSs/ICDswherethe esplace.Thesecompaniescharge
rvicesprovided
ethecustomsclearenceprocedures rwardingthecontainerstothe
roductsaretypicallyshippedin paniesconsolidatecargofrom
rsintoasinglecontainerload
shipsandtransportthecontainers try.Theyrunonafixedschedule
rgeratespercontainer
thecontainerstotheCFSs/ICDsat tocompletecustomsformalities. undrentapartfromtheother
ices
ionwiththeCFS/ICDtocomplete sinthedestinationcountry
tacontainerloadintodifferent theimporterandfinaldestinat ion
hiredbytheexporterusesits otransportthegoodsfromtheCFS/
tomersofthesupplychain,and ementwiththeexporter,these bearthecostofthesupplychain
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ThebiggestentrybarriertotheCFS/ICDsectorisland
availability
Logisticsmatrix
We have mapped the l isted integrated logistics providers into their areas ofspecialization, to better understand the business models, competition, and marketdynamics.Inourview,theCFS/ICDbusiness,althoughhighlyprofitable,isevolvingintoarealestateplay.ThebiggestentrybarriertotheCFS/ICDsectorisland,andinouropinionthecompanywiththebestplacedlandwillgetachunkofthecontainertraffic.
Therearesignificantentrybarriersintheotherareasofspecializationaswell,suchasanetwork of terminalsfor the railway container haulage space,tie-ups and relationshipwith the shipping lines for the LCL consolidation sector, and ships with adequatecapacityandpermissionsincoastalshipping.Inourview,newplayerswillfinditdifficultto break into these markets, while existing players will start consolidating to providecompleteservicestotheendcustomer.
Source:SparkResearch
Raillogistics
Railhaulageisoneoftheleastexpensiveformsoftransportation,andtherailwayshavea~33%shareincontainerhaulage.RailwaysareusedextensivelyforEXIMtrafficsincecustomsclearanceispossibleattheICDsandexportersarenotrequiredtogototheport to complete these formalities. Since railway haulage is cheaper and faster thantransportationbyroadways,exportersareenticedtosendtheirshipmentsviarail.
However, on the domestic container traffic, manufacturers prefer road transportation
Allcargo
GatewayDistriparks
Concor
Gati
ource:Company,SparkResearch
North-Westrailconnectivityandmajor
goods
ColdChain
ExpressCargo
CoastalShipping
Warehousing
3PL
TruckingMultimodal
Transportation
AirCargo
LCLConsolidation
CFS/ICD
RailwayContainerHaulage
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despite being more expensive, since railway terminals are not located close to everyindustrial zone. In order to overcome this challenge, rail haulage companiesare now
providingdoor-to-doorservicesthroughtie-upswithtruckingcompanies.
We expect the market share of railways in container haulage to increase to ~36% inFY10onthebackofitscostadvantageandimprovedserviceslikelastmiledelivery.Thecostadvantageofrailhaulageissignificantlyhigherthanroadhaulage,asitcosts~Rs.1.6/kmtotransport1-tonofgoodsthroughroad,whiletherailwayscostonly~Rs.0.8/kmforasimilarcargoload.
Break-upofEXIMcargohandledinIndiain2008
Source:IPA,SparkResearchTheEXIM cargointhe countrycanbe classified onthebasis oftypeofcargo,andin2008 containers accounted for ~18% of the total cargo handled. JNPT handled themajority of the container cargo with a 60% market share. Once the containers areunloadedintotheport,~40%of themaretransportedtoCFSs,therestaretransportedtoICDsordirectlytofactoriesifcustomsclearancehasbeencompleted.
Containerizationinothercountriesisaround70%,whileitismuchlowerinIndiaduetopoorinfrastructureandbottlenecksintransportation.Inourview,containerizationinIndiaissettoincreasebackedbyinfrastructuredevelopmentandmoreprivateparticipationindevelopingberthsatports.
Privateparticipationincontainerrailhaulage
Thegovernmenthasrecentlypermittedprivateparticipationincontainerrailhaulagefora license fee ofRs. 500mn tooperate onall tracks, and Rs. 100mn forpoint-to-pointoperations. There has been significant interest to receive railway licenses, and 15companies have received approval till date. The economics of rail haulage is highlyattractive,withaROCEof~25%.Themainentrybarrierislackofaterminalnetwork,and all the new entrants have to construct terminals and ICDs across the country toeffectively provide rail haulage services. Until the terminal network is established, amajorityoftheprivateplayersareusingConcorsterminalsforafee/lease.
ListofPrivatePlayers
AdaniLogistics GatewayRailFreight
ArshiyaInternational HindTerminals
BoxtransLogisticsIndia IndiaInfrastructure&Leasing
CentralWarehousingCorporation InnovativeB2BLogisticsSolutions
Concor PipavavRailwayCorporation
ContainerRailRoadServices RelianceInfrastructureEngineering
DelhiAssamRoadways SicalLogistics
EmiratesTradingAgency
Source:SparkResearch
TotalEXIMCargo
519mntons
General&OtherCargo
427mntons
ContainerCargo
92mntons
JNPT
52mntons
OtherPorts
40mntons
TransportbyRoad
62mntons
TransportbyRailways
30mntons
Weexpectrailwaysmarketshareto
increaseto~36%
Containersaccountedfor~18%ofthetotalEXIMcargoinFY08
RailhaulageenjoysROCEof~25%
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Source:SparkResearch
Dedicatedfreightcorridor
The government proposes to setup a dedicated freight corridor to facilitate fastermovementoftrainsanddoublestackingofcontainers.Theestimatedcostfortheprojectis $ 4.7bn, and the tracks will run between JNPT and Dadri and from Ludhiana toHowrah.Thiscorridorwillsolvevariousproblems,suchas:
SpeedFreightandContainertrainswhichcurrently runat speedsof25-30km/hrcanreachspeedsof~100km/hronthefreightcorridorastherearenopassengertrainsontheseroutes
LoadingDuetoelectricallinesonthenormalrailwaytracks,containertrainsareunabletodoublestackloads.Thefreightcorridorwillallowdoublestackingasitisadieselline
Asaresultofindustrializationinthenorthernregion,thereisaburgeoningdemandforrail container haulage. There are a considerable number of ICDs being setup in thisregion to cater to this demand, as most of the private players with a railway licenseproposetooperateinthenorth-westandnorth-eastsectors.
Source:DFCC&SparkResearch
The government proposes to start work on the corridor shortly, and the north-westcorridorisexpectedtobeon-streaminapproximatelyfiveyears.Sincetheroutesare
No.ofRakes 1
No.ofWagons/Rake 45
Containers/Wagon(Nos.) 2
TotalTrips/Year/Wagon@10Trips/month 120
TotalTraffic(TEUs) 10,800
AverageRealization(Rs/TEU) 15,000
HaulageChargestoRailways(Rs/TEU) 10,200
TotalRevenues(Rs.mn) 162
Less: Operatingexpenses(Rs.mn) 110
Less:OtherExpenses(Rs.mn) 8
Less: Depreciation(Rs.mn) 7
EBIT(Rs.mn) 37
CapitalEmployed(Rs.mn) 113ROCE(%) 25
EconomicsofRailHaulage
Estimatedcostfortheprojectis
$4.7bn
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dieselbasedandhavenopassengertraffic,railoperatorswillbeabletoincreasetheaxle load and speed of the rakes, as well as double stack containers, making rail
haulagemoreefficient.
Thecontainertrafficinthenorth-westsectorisexpectedtoincreaseto6.2mnTEUsby2022fromthecurrent0.7mnTEUs,whilethetotalcargotrafficinthenorth-eastsectoristoincreaseto143mntonsby2022from52mntonsaspertheRailwayMinistry.
Coldchainlogistics
Withtheadventofaretailboominthecountry,therehasisaburgeoningdemandforcoldchainlogistics.Apartfromtheretailboom,otherindustriessuchaspharmaceuticalcompaniesrequirerefrigeratedtransportationduetothetemperaturesensitivenatureofthe drugs. Tocaterto this demand, several cold chain logistics companies are beingsetup,withthelargelogisticsconglomeratesalsoenteringthisspace.
Theclientbasevariesdependingonthespecialtyofthecoldchainprovider.Certaincold
chain operators cater solely to FMCG and diary companies while others cater topharmaceuticalcompanies.Goodsaretypicallystoredina controlledatmosphere,withsegregatedtemperaturesettingsforeachproduct.Thistranslatesintoanadditionalshelflifeofover6-months.
Dependingon the nature ofthe product, storage iseither in cold stores orcontrolledatmosphere stores. In a cold storage the goods are frozen using refrigerators, whilecontrolledatmospherestorageregulatesthe atmosphereinthe warehouse,thisresultsinbetter preservation. Coldstorage isusedfor dairyproductssuchas ice cream andseafood; controlled atmosphere storage is typically used for fruits & vegetables, anddrugs.
ShelfLifeofColdStoragevs.ControlledAtmosphereStorage
Fruit/VegetableStorageTemp.
(Centigrade)
ShelfLife
ColdStore
ShelfLife
CAStore
Apples 1 3months 10months
Mango 12-13 2weeks 8weeks
Grapes 1 2weeks 4weeks
DryFruits/Nuts 0-10 3-4months 10months
Litchi 2 2weeks 8weeks
Tomato 10-12 2weeks 10weeks
Carrots 0 2-3weeks 12-16weeks
Source:Company,SparkResearch
InIndia,thecoldchainstorageacapacitytohandleonly10%ofthetotalfoodproduceand as a result of the lack of storage facilities over 25% of the food gets spoiled.AccordingtoareportbyFICCI,thecoldchainindustryinIndiaisexpectedtogrowat~20-25%p.a.backedbytheentryofforeignretailplayersandthesettingupoffoodparks.Inourview,thisindustryisinaverynascentstageanditwillbeafewyearsbeforethenewerplayersareabletobreak-even.
Coldchaingivesanadditionalshelflifeof~6-months
InIndia,coldchaincapacityisonly10%ofthetotalproduce
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FINANCIALSUMMARY
Note:FY08Enumbersareconsolidatedestimates
Profit&Loss(Rs.mn) Growthratios(%)
FY07 FY08E FY09E FY10E FY07 FY08E FY09E FY10E
Revenues 30,421 33,530 41,858 50,748 Sales 25.0% 10.2% 24.8% 21.2%
OperatingCosts 21,511 24,507 30,835 37,755 EBITDA 27.7% 1.3% 22.2% 17.9%
EBITDA 8,909 9,023 11,023 12,993 EBIT 29.8% -0.3% 21.9% 17.5%
Depreciation 936 1,074 1,335 1,610 PBT 31.6% 8.1% 11.8% 17.7%
EBIT 7,973 7,949 9,688 11,383 NetProfit 33.8% 7.3% 10.0% 17.7%
OtherIncome 848 1,587 969 1,164 CAGR(08-10E)
Interest - - - - Sales 23.0%
PBT 8,821 9,536 10,657 12,547 EBITDA 20.0%
NetProfit 7,036 7,553 8,309 9,783 NetProfit 13.8%
Marginratios(%)
FY07 FY08E FY09E FY10E
BalanceSheet(Rs.mn) EBITDA 29.3% 26.9% 26.3% 25.6%
FY07 FY08E FY09E FY10E EBIT 26.2% 23.7% 23.1% 22.4%
PaidupCapital 650 650 1,300 1,300 PBT 29.0% 28.4% 25.5% 24.7%
Reserves&Surplus 25,647 31,342 36,941 44,285 NetProfit 23.1% 22.5% 19.9% 19.3%
Totaldebt 305 400 450 500
DeferredTax 1,613 1,632 1,670 1,728 Performanceratios
TotalNetworth&Liabilities 28,214 34,024 40,361 47,813 FY07 FY08E FY09E FY10E
GrossFixedassets 20,254 25,583 31,916 37,976 RoA(%) 24.0% 21.0% 19.5% 19.5%
AccumulatedDepreciation 4,738 5,812 7,147 8,757 RoE(%) 29.8% 25.9% 23.7% 23.3%
Netfixedassets 15,516 19,771 24,769 29,219 RoCE(%) 30.0% 26.7% 24.0% 23.7%
CWIP 2,570 2,310 2,150 2,100 Sales/TotalAssets(x) 1.0 0.9 1.0 1.0
Investments 967 967 967 967 FixedAssetsTurnover(x) 1.6 1.5 1.5 1.5
Tot alLongtermasset s 19, 053 23,048 27,886 32,286
Currentassets Financialstabilityratios
Inventory 47 75 95 117 FY07 FY08E FY09E FY10E
Debtors 99 110 138 167 TotalDebttoEquity(x) 0.0 0.0 0.0 0.0
Cash 10,776 12,778 14,905 18,348 NetDebttoEquity(x) (0.4) (0.4) (0.4) (0.4)
Loans&Advances 2,710 2,790 2,870 2,950 Currentratio(x) 3.0 3.2 3.2 3.5
OtherCurrentAssets 212 213 214 215 WorkingcapitaltoSales(%) (4.6) (4.2) (5.0) (5.1)
Currentliabilities 4,685 4,993 5,749 6,273 Inventory&Debtordays 2.0 2.0 2.0 2.0
Netcurrentassets 9,159 10,974 12,474 15,524 Creditordays 27.5 30.0 30.0 30.0
Misc.Expenditure 2 2 2 2 DebttoEBITDA(x) 0.0 0.0 0.0 0.0
DeferredTax - - - -
TotalAssets 28,214 34,024 40,361 47,813 Valuationmetrics
FY07 FY08E FY09E FY10E
CurrentSharePrice(Rs.)
MarketCap(Rs.mn) 102,036.5 102,036.5 102,036.5 102,036.5CashFlows(Rs.mn) FullyDilutedShares(mn) 130.0 130.0 130.0 130.0
FY07 FY08E FY09E FY10E FullyDilutedEPS(Rs.) 54.1 58.1 63.9 75.3
CashflowsfromOperations 7,527 7,230 9,305 10,623 P/E(x) 14.5 13.5 12.3 10.4CashflowsfromInvesting (2,556) (3,482) (5,204) (4,846) PricetoSales(x) 3.4 3.0 2.4 2.0CashflowsfromFinancing (1,109) (1,745) (1,975) (2,334) EV(Rs.mn) 91,565.5 89,658.0 87,581.1 84,188.2CashGenerated 3,862 2,003 2,126 3,443 EVtoSales(x) 3.0 2.7 2.1 1.7OpeningCash 6,913 10,776 12,778 14,905 EV/EBITDA(x) 10.3 9.9 7.9 6.5ClosingCash 10,776 12,778 14,905 18,348 DividendYield(%) 1.4 1.6 1.7 2.0
785.0
8/8/2019 Concor - Initiating Coverage
24/24
ConcorInitiation
Ratinginterpretation
OUTPERFORM Greaterthan15%upsidefromcurrentpriceNEUTRAL Upsideordownsidefromthecurrentpriceiswithin15%UNDERPERFORM Greaterthan15%downsidefromthecurrentprice
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