Given that the company dominates the export import (exim) container volumes and has substantial infrastructure both in the form inland container depots as well as at the ports, the buyer gets access to the infrastructure as well as the operator’s customer base. The implementation of the dedicated freight corridor (DFC) in western India will give Concor a poll position helping it to boost volumes, bring in economies of scale and leverage its enviable infrastructure. Even as overall trade volumes have been sluggish, containerisation has continued which is positive for players such as Concor and prospective buyers.
In addition to healthy and consistent growth history of exim container volumes, it will be a tough act for any new entrant to replicate the logistics infrastructure of Concor. Analysts at Kotak Institutional Equities say the related rail transportation business requires scale, timely investments in assets at the right location and network balancing (giving the buyer) protection against new competition.
The key risk for the company now and for the new owner will be changes in haulage charges by the Indian Railways. The passing on of the same depends on competitive nature from roadways and the need to maintain market share. What could possibly offset some of the pressures on margins is the volume uptick from double stacking and better utilisation of capacities.
While there is little doubt about the gains for the company once the DFC is completely rolled out, most of the gains are already captured in the stock which is trading at 37 times its FY20 earnings estimates. Given the time lag for implementation of the DFC and the stock run up, investors should await a meaningful correction before considering Concor.