Container Corp: Hard to contain

Before the long textual analysis bores you to sleep, read the numbers carefully. Here follows 10 year record of financial performance of an excellent business, Container Corporation of India(CONCOR).

Description (in Crores)1998-992006-072007-089 year CAGR
Paid Up Capital64.9964.9964.990.0%
Reserves & Surplus407.362564.843118.9325.4%
Net Worth472.352629.833183.9223.6%
Fixed Assets352.782025.332244.2422.8%
Income from operations684.773057.343347.319.3%
Other Income31.5984.6164.4720.1%
Total Income716.363141.943511.7719.3%
Gross Profit220.26975.831054.8419.0%
Net Profit Before Tax207.99882.25948.518.4%
Provison for Taxation66.51186.17197.9812.9%
Net Profit140.66703.82752.2120.5%
Earning Per Share:(in Rs.)21.6454.1557.8711.5%
Physical (TEUs)*
Domestic Handling2251563896054703708.5%

It has not only grown its revenues at a rate of 19.3%, it has achieved this superb feat without diluting any equity, without taking debt, while maintaining the profit margins and distributing 20% of its profits as dividends.

What are the factors that explain this achievement? To understand this we’ll have to go deep down and analyze the business of CONCOR: transportation and handling of containerized cargo.

India’s merchandize exports in dollar terms grew at a rate of 11.11% compounded between 1992 to 2004. The growth rate accelerated further and exports rose from $ 63 billion in 2004 to $ 155 billion in 2007-08. Buoyed by this impressive show India has set an ambition of achieving $ 660 billion merchandise exports by 2015, maintaining an annual growth rate of at least 23 percent. Given that India accounted for mere 1.5 per cent of the global trade in 2007-08 (down from 25% in 17th century!), which is very low for a economy of India’s size, such optimism is not completely unwarranted.
While the increased level of economic activity, especially merchandize trade, helps CONCOR, there is another factor fueling the fire. In India, the level of containerization has been increasing since past decade. Movement of cargo in containers has many advantages in terms to reduced time in handling, safety of the goods and cost. A container bound to a different country gets loaded and sealed, dispatched to container terminal on trucks, gets moved on freight trains to the ports and loaded on ships and gets transported to its destination. The standard sized containers allow setting up for specialized container handling machines, container depots which handle the cargo in most efficient manner. The container traffic in India has grown at a CAGR of 15% since 1991, roughly keeping pace with the growth in merchandize exports. The expansion of current ports as well as creation of new ports in Mundra, Pipavav, Vizag, Tuticorin, Vallarpadam , Ennore is boosting container traffic. Even in domestic sector there has been growth, although in single digits.

Such a business environment throws up an opportunity waiting to be capitalized. If you have a monopoly in such a sunshine sector then you are bound to make good returns. This explains the numbers you saw in the beginning of the article.

CONCOR is a subsidiary of Indian Railways, owned 63% by Govt Of India. It has an outstanding infrastructure for handling containerized cargo with a terminal network linking manufacturing hubs and industrial towns of India(map), 6722 High Speed Wagons, 1357 Container flats and a container fleet (owned and leased) 13,517 Containers. In recent years it has expanded its business in allied areas. It has become a port terminal operator in JNPT, Mumbai and it is building and managing container terminal in Cochin Port. It has also taken new initiatives in warehousing, refrigerated cargo storage and movement and logistical consultancy services.

Because CONCOR moves its containers on freight trains, it faces competition from cargo movement by road sector. The movement by road, although less competitive on long hauls, has advantages in door step to door step delivery and flexibility in timing for the consumer. Improvement in road network due to golden quadrilateral and NS-EW corridor and increased usage of larger multi axle trucks by truck operators have made the competition tougher. However, it would be foolish to assume that only one of these modes of transport will become predominant. You are more likely to see a win-win situation where alliances between train-based operators with truck operators will be formed and the customers will get holistic solutions for the cargo movement.

The business environment has seen one more significant change. In 2006, fourteen new operators (besides CONCOR) signed the Concession Agreement with Indian Railway Administration for running container trains with Indian Railways for a period of 20 years, extendable by another 10 years. Out of the 14 players, as many as seven have commenced their train services. This development effectively ends the monopoly of CONCOR in this sector.

But does this mean that the past performance can’t be used to gauze profitability of the company in future? Well, I think it will be a mistake to underestimate CONCOR. The physical terminal network is not easy to replicate. Also, this is a volume driven game where the incumbent operator has advantages in providing wider coverage and total logistics solutions. Moreover, CONCOR is not ignoring this threat. It is fine-tuning its strategies to accommodate the new realities. It is emphasizing on a hub and spoke strategy for container movement which will result in better utilization of its assets.

Given the rate of growth of Indian exports, it is hard to imagine a scenario where CONCOR is not earning significantly higher profits 5 years later. It provides a good vehicle to participate in India’s export growth.

I bought CONCOR 7 years ago at Rs 65(adjusted for bonus) but even today at a rate of Rs 732, it looks quite attractive to me and I’ve bought more. For sure it is an expensive stock, quoting 12.6 times profits and 4.4 times the book value. However, I feel more comfortable owning stake in a strong business rather than buying commodity stocks at low P/E. If you survive long enough in markets, you will see how ephemeral the earnings can be and how foolish the fascination with P/E turns out. And when you do get this wisdom, you tend to emphasize a lot more on stability, competitive advantages and track record.

As per my calculations the stock should give decent returns in next 5 years with an above average dividend yield. If it falls, I’ll be quiet happy to buy more because I find one striking similarity between attractive stocks and attractive women. “You can never have enough of them”

Reference :
CONCOR Presentation :
Annual Report:


ne0lateral said...

Hi Kamlesh,

A suggestion about references.

I have noticed that most of your articles have inline links to references or quotes. (except this article - which has a footnote)

You could look at a standard citation method for references, for e.g. the IEEE one .(Although this might be too formal for online articles.)

References to further reading material, or citations to existing sources of information would improve readability and also help as a tool for follow-up on a topic/term one doesn't understand well.

Rohit Chauhan said...

Hi kamlesh
good analysis. i have owned and followed concor since 2002 when it selling at 150.
concor is one of the few businesses with a huge competitive advantage. ofcourse with competition it is no longer a monopoly, but still a great business.
however that said, i think going forward the Return on capital is bound to reduce for the company. We could see more competition on the high traffic routes and the lucrative export business.
the company should remain a good business, but i think the Return on capital would be lower to higher investments and lower margins

Anonymous said...


Though CONCOR is obvious choice on many fronts, but what makes me skeptical is that we have not seen it performing under competition. So far it was pure monopoly. A real test should be once competition is operational and we see how they manage. I will prefer to be on fence till then.


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