Why hike in rail haulage charges is no major problem for Concor

      11/03/2018

The 5% hike in haulage charges for containers came as a relief for investors of Container Corporation of India Ltd (Concor). As the haulage hike is not steep, the stock saw a favourable response.

“Last haulage hike happened in March 2015. There were fears that the hike could be much more meaningful (as in past), which we believe should be rested now,” says Prateek Kumar, an analyst at Antique Stock Broking Ltd.

Given that rail freight expenses are a major part of the company’s expenses, the hike in haulage charges does raise costs. But the price hike comes at a favourable time.

One, the steep hike in diesel prices means road transporters are in no better situation on the cost and pricing fronts.

Next, successful tariff hikes by Concor in the recent past mean the company is comfortably placed to absorb the hike in haulage charges.

In fact, Concor’s earnings are on an upswing, thanks to healthy volume growth and price hikes. According to SBICAP Securities Ltd, the company’s blended profitability per twenty-foot equivalent unit of container reached its highest levels in 10 quarters or over two years as the price hike raised realizations.

In short, if the positive momentum in the volume growth continues, absorption of the haulage charge hike should not be a major challenge for Concor. This should hold the stock in good stead.

Nevertheless, successive quarters of healthy financial performances did not yield major gains for investors. Compared to a 7% decline in the BSE 500 index, Concor lost only 4% over the last six months, doing only relatively better.

Valuations at around 24 times current fiscal year earnings estimates does capture the gains. But investors eyeing earnings acceleration may well be awaiting growth kickers, notably the dedicated freight corridor.

“The management expects the Palanpur section of western dedicated freight corridor and connectivity to Mundra/Pipavav ports by March 2019, which is likely to boost Concor’s volume prospects,” SBICAP Securities said in a note.

“New revenue streams such as coastal shipping, distribution logistics, etc and higher monetization of multi-modal logistics parks can contribute more meaningfully from FY20,” added the brokerage firm.