The Container Corporation (Concor) stock came under pressure in March on worries that the US action at the World Trade Organization (WTO) on export subsidies by India could impact container volumes as also a delay in commissioning of a dedicated freight corridor (DFC).
Ongoing investments in logistics parks are also expected to keep the return ratios subdued in the near term. The US Trade Representative has alleged India’s export subsidy programmes are detrimental to American workers and organisations.
Analysts at Goldman Sachs said any measure against export subsidy schemes or any potential trade war would hit volumes at Indian ports and container traffic for Concor.
Originating container rail volumes have witnessed a double-digit growth trend for the past seven months. Any adverse trade moves will affect volumes of Concor, which has 73 per cent share in container rail traffic.
The delay in commissioning of a dedicated freight corridor is another concern.
Earlier this month, the Dedicated Freight Corridor Corporation of India had indicated that the timeline to complete the projects has been deferred to December 2020 from December 2019.
Any delay will impact the stock sentiment as business volumes were expected to see a material jump after the commissioning of the DFC, said analysts at Citi Research.
Analysts have estimated volumes to double from FY18 levels, led by higher market share for rail container movement due to faster turnaround time, increased double stacking and more payload capacity.
The company will invest around Rs 10 billion annually to ramp up its presence in multi-modal logistics parks to 100 terminals from 76 over the next few years. Given the large investments, this could impair return ratios.
Most brokerages are bullish about the company’s prospects over the long term as superior infrastructure and current investments will help it to maintain a competitive edge.
Revenue growth, which has been muted over the past few years, is expected to improve as also the margins from 23 per cent to about 26 per cent in the next five years. The stock is trading at 28 times its FY19 estimates and investors with a two-three year horizon can look at the company on dips.