Container Corporation: Count on growth despite higher freight rates

Moderate growth in export-import, or EXIM, container volumes and de-growth in domestic volumes led to Container Corporation of India (Concor) posting muted growth in net profit for the year ended March 2012. Although near-term concerns on volume growth are likely to persist, its dominant position and foray into logistics and warehousing business are likely to benefit the company in the long run.

In the near term, EXIM volume growth is likely to be subdued due to the gloomy macro-economic conditions in Europe and the US. The management has projected an 8% growth in EXIM volumes for FY13, which looks difficult. As for domestic volumes, a lot would depend on the revival of Indian economy.

To reduce its dependence on container rail transport, the company is now expanding into logistic parks and warehousing services. It has planned a capex of Rs 1,600 crore for FY13, of which Rs 700 crore will be used for land acquisition and setting up logistic parks. Concor has a cash balance of over Rs 2,700 crore.

In FY12, Concor's EXIM container volumes grew just 5.8%, lower than the average 7% for the past seven years. Domestic volumes were affected by the Railways increasing freight rates on certain commodities, which led to a shift in volumes from rail to road. As a result, domestic volumes fell 14% in FY12. Since EXIM volumes account for nearly 80% of Concor's total volumes, overall volumes grew 1.6% in FY12.

At Rs 871, the stock is trading at a P/E of 12.9 now. The price also factors in the negative sentiment over stagnant growth in volumes next year. However, being a dominant player, the company is likely to see reasonable growth in the long run. Investors can accumulate the stock at this level.