The upcoming Dedicated Freight Corridor (DFC) project which is likely to revolutionize rail freight in the coming years will be a key driver in revving up the engines of Container Corporation Ltd (CONCOR).
It is believed that amid the commencement of DFC, CONCOR has the potential to double over the next three years driven by strong 16% compounded growth in volumes between the ongoing financial year and financial year 2024-25.
In 2020, as an effect of the pandemic, CONCOR stock drifted down by about 33%. However, as investors began to factor in volume gains from the dedicated freight corridor it started to pick up, on Friday it perked up about 4.4%.
While freight volumes in FY21 will be on the slow track, trial runs have already begun on some parts of the dedicated freight corridor. Analysts say freight volumes increasing in the coming years since the corridor will render rail more efficient for shorter distances under 430 kilometres. Western port traffic to central India could increase.
“Rail cargo movement should rise from Mundra’s and JNPT’s 35% and 30% to 70% and 50%, post-western dedicated freight corridor commissioning. We believe CONCOR’s volumes will clock a 31% CAGR over FY21-23, driven by Mundra and Pipavav ports and a 21% CAGR over FY23-25 with the JNPT contribution.”
~ analysts at Jefferies India in a note to clients
CONCOR has lost about an eight-percentage points year-on-year market share in FY20 in the export-import cargo trade already in FY20. Overall volumes dropped 2% year-on-year, which is another worry. The company also said that volumes could contract about 20% in FY21.
Furthermore, the increased land-license fees (LLF) by the railways ministry also does not bode well for Concor. The LLF demand for FY21 has increased to about ₹900. The increase in fees compelled Concor to surrender about 15 terminals that generated about 4% revenue. This could lead to some cost savings as volumes will change lines to nearby terminals.
Even so, CONCOR will have to pass on the increase in LLF to its customers through tariff hikes.
“The last 12 months have been impacted by COVID-19 and LLF. We believe current price levels reflect low confidence in DFC-linked volume accretion and the ability to pass on some of the LLF rise in prices,”
~ Jefferies India report
Capital expenditure plans are on track with about ₹500 crore, which is good enough evidence that the corporation is gearing for the corridor. Nevertheless, given that COVID-19 still continues to roil the economy, it may be a long haul before freight volumes truly pick up. Further, the freight corridor has already been long delayed. Another concern is that volume expectations could be belied if some of the roads-to-rail shift does not happen. These risks are derailing the stock’s rise.
