JP Morgan assigns 'overweight' rating on Concor

Container Corp of india
Research: JP Morgan
Rating: Overweight
CMP: Rs 877

JP Morgan has assigned an ���overweight��� rating on Container Corporation of India (Concor) with a March ���09 price target of Rs 1,010. The price target implies a 16% potential share price upside from current levels. Concor is India���s largest railway container freight operator with an over 90% market share.

By that estimate, Concor will have an earnings CAGR of 16% over FY08-10 driven by growth in containerised cargo traffic. Given sustained growth in India���s foreign trade, JP Morgan expects container traffic to grow at 14% over FY08-10E. It expects Concor to be a key beneficiary of this growth, given its unparalleled infrastructure network with 58 inland container depots (ICDs) and over 150 rakes and established customer relationship.

The company���s revenue growth is likely to accelerate to 18% CAGR over FY08-10E (versus 10% in FY08), given a sharp increase in customer tariffs. The March ���09 price target is based on discounted cash flows (DCF) and implies 13x one-year forward P/E on FY10E EPS (which is at a 10% discount to its average historical three-year multiple).

The multiple looks justified, given rising competition and moderation in earnings growth. Downside risks to the price target and view are a challenging macro environment, given high crude oil prices and rising inflation, which can slow down India���s foreign trade; and a sharper-than-expected increase in competitive intensity.