Vol.

004/06-07

March 29, 2007

Container Corporation of India Limited

Container Corporation of India Ltd. (Concor) is a Government Analyst:
Abhishek Gupta abhishekg@bajajcapital.com

company having a monopoly in handling the movement of goods in containers through the rail route.

Industry - Multi-modal Logistics: rail container freight

The Indian container traffic is expected to grow at a faster pace driven

BUY
CMP (26.03.07) : Rs. 1888.15 Target : Rs. 2403 Horizon : 12 mths

by rising participation in global trade, faster port development and increasing investment in road and rail sector. Globally, the world containerization level has doubled to 70% of total global cargo movement in the last decade. However, in India, the level, though gradually rising, is lower at less than 50%. Strong upside is seen in

Brief Profile
Industry House CMP 26.03.07 (Rs) Mkt. Cap (Rs cr) Face Value (Rs.) 52 week (Rs) Book value (Rs) P/BV (ttm) P/E Ratio (ttm) Last Dividend (%) Avg. daily volume High Low TransportRoad Government of India 1888.15 12271 10 2288.5 1285.6 321.0 5.9 18.7 180 23640

the Indian containerization level. International container traffic is expected to grow at 8% p.a. for the next five years whereas Indian container traffic is expected to grow at 15% p.a.

Company
Concor enjoys monopoly in containerized freight transport through rail. Almost 85% of the total railway haulage is on Concor owned wagons and containers. It currently handles 1/3rd of Indias

international container traffic with its extensive cross-country network of 58 Inland Container Depots (ICDs) through which it provides containerized transport by organizing multi-modal logistics support. The only non-Concor owned ICD in India is run by Central

Warehousing Corp and is located at Loni in Uttar Pradesh. It is a carrier, terminal and warehouse operator owning freight containers and wagons. The company owns over 5200 BLC wagons and has more than 12000 railway freight containers. The company is in the process of transforming into a hub & spoke business model which will increase its reach and efficiency further.

Key Investment Arguments

Concor is a large and stable company with a market cap of 12271cr, average daily volume of 23640 shares and net sales of 2918.42cr for the trailing twelve months ended Dec 31, 2006. It is a highly profitable company with a return on net worth of 24.91% and impressive margins. Operating margin is at 29.34% while Net Profit margin is at 21.52%. It has achieved excellent growth rates with a 5-year CAGR of 17.73% in sales, 16.84% in EBITDA and 19.29% in net profits.

Stock idea Container Corporation of India Limited

Container Corp vs. BSE Sensex

Concor trades at a PE multiple of 18.66 and Price to Sales ratio of 4.20. This seems reasonable considering the strong growth potential of the company in the future. Even though the industry is highly capital intensive, the company has no debt on its balance sheet as on March 31, 2006. This enables Concor to avail credit facilities at reasonable costs. Growth in net sales/operating income accelerated in the nine months ended Dec 31, 2006 to 27.62% against 17.73% growth in FY06 over FY05.

Shareholding Pattern
31-Dec-06 (%) Promoters Indian Foreign Non Promoters FIIs/FDI FI/MF Public Total 63.1 63.1 0.0 36.9 26.6 7.0 3.3 100

Key Concerns
In the wake of the ongoing real estate boom, availability of land at strategic locations and at reasonable prices is crucial to the expansion plans of the company. Concor is a well established player with an extensive network. This factor shall affect the newcomers more than Concor, effectively warding off possible competition. Capacity additions in wagon manufacturing have been slow in India. As such wagon suppliers are not equipped to meet the rising demand. Hence, wagon acquisition cost has doubled up over last few years and is still rising. Imported wagons on the other hand cost 30% more and a technical certification is needed to induct imported wagons from Indian Railways which is a tedious process. High degree of dependence on Railways for using rail tracks, locomotives and rail land subject the company to risks of drastic tariff and other input cost hikes from railways. Passenger tariffs in India are lower than freight tariffs. As such freight carriers such as Concor effectively subsidize the

passengers. Indian Railway resorts to frequent hikes in freight rates, rentals and lease charges to subsidize the passenger tariffs. Globally, freight rates are lower than passenger tariffs.

Latest Developments
The company is considering moving into operating large railway goods-shed hubs including managing integrated freight terminals. It plans to set up Distriparks/ Freight Centres/ Trade Development Centres at some of its terminals with focus on the backward and forward integration of various value added services with the core business of transport logistics, in which the company already has an established foothold. Private players have been allowed to operate container trains on lines owned by Indian Railways. New private players such as

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Stock idea Container Corporation of India Limited

Gateway Distriparks, Pipavav Rail Corp, Hind Terminals, Mundra Analyst Window House
B&K Securities Edelweiss SSKI Enam

International Container Terminal and Sical Logistics are emerging View

Buy Buy Buy Buy

Price Target
N/A N/A N/A 2075

as future competitors to Concor. However, there are some impediments to their entry like availability of land, wagons and capital. Also, lack of cross-country network is a serious handicap for new entrants. Concor has formed a joint venture (JV) with Maersk for a third gateway terminal at the JNPT Port. It has formed another JV with Dubai Ports for management participation in two terminals at

Summary
View Buy Sell Hold Total No. of Analysts 4 0 0 4 % of total 100% 0% 0% 100%

Cochin Port. Some other JVs are in place with APL India, Transworld and CMA-CGM of France for Container Freight

Terminals and ICDs at Dadri. Concor is collaborating with new entrants such as Gateway Distriparks to work jointly towards business development. Concor is investing in a dedicated VSAT network at 52 of its locations with online tracking facility of container traffic. Recently, Concor has asked private licensees to pay huge sums for use of its ICDs. This might discourage or delay the entry of new players.

Conclusion
We recommend investors to BUY this stock at the current price with a target of Rs. 2403 in about 12 months.

Financials
FY06 Share Capital Networth Revenues EBITDA PAT Cash Flow from Operations Dividend % CEPS (Rs) EPS (Rs) Debt-Equity Ratio Interest Coverage RoNW (%) EBITDA Margin (%) PAT Margin (%) Asset Turnover Ratio Price/Sales PE Multiple P/BV Ratio 64.99 2239.0 2433.2 714.0 523.7 548.1 180.0 84.3 78.0 0.00 1752 24.9 29.3 21.5 1.09 4.2 18.7 5.9 FY05 64.99 1833.8 1995.1 636.0 428.9 512.6 145.0 78.9 64.0 0.01 1389 25.0 31.9 21.5 1.08 FY04 64.99 1498.6 1764.4 515.6 356.3 462.2 125.0 71.1 53.2 0.01 1395 25.6 29.2 20.2 1.17 FY03 64.99 1197.5 1483.4 428.6 270.6 338.0 110.0 52.0 40.2 0.01 135 24.0 28.9 18.2 1.22 FY02 64.99 982.9 1286.5 378.7 249.9 226.2 100.0 34.8 38.4 0.06 116 28.4 29.4 19.4 1.24 19.0 17.7 16.8 19.3 17.0 CAGR %

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Stock idea Container Corporation of India Limited

Information Sources
1. ISI Emerging Markets 2. Capitaline Plus

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