Overall markets and all sectoral stocks have been badly hammered by the recent coronavirus pandemic Bloodbath and now specifically it is looking oversold in some parts of the market. Retail and Long term Investors should always hunt for the opportunity of the ongoing bear market by slowly building a long-term portfolio of solid businesses and strong companies with quality fundamentals and good market positioning.
Today we had done deep insight research on one such company that holds a monopoly in its business and is currently trading at 6-year lows.
Container Corporation of India
Concor (CMP: Rs 280, Mcap: Rs 17,060 crore) is a company that has an excellent track record. Its valuations are now looking very reasonable after the stock price plunged by over 50 percent in the coronavirus led market Selloff. We are still remaining positive and optimistic on the company’s future prospects as its cash flows remain outstanding. As mentioned its enjoys a monopolistic position in the market and maintains a cash-rich balance sheet, the business has the power and experience to survive this storm and even it can strongly bounce back when things turn better.
Container Corporation of India Threats and Challenges
Strong Connection across the World
Concor is the leading rail freight transporter in India with a market share of around 70 percent in container trains. The company business has a direct correlation with the global economy and due to that, the performance in recent quarters has been disappointing and muted due to sluggish economic factors in both the domestic and international areas. For 9MFY20, the tepid business environment resulted in a 1.5 percent decline in volumes, but the overall operational performance was extremely good on the basis of improvement in realizations.
Concor’s volumes have been very consistent even after serious macroeconomic scenarios in the last two to three years. However, short-term business volumes remain totally unstable and unpredictable due to the outbreak of COVID-19. Travel restrictions, the slowdown in overall economic conditions and long term structural slowdown are forecasted to have a serious impact on overall volume contraction of around 15-20 percent over the next 3-4 quarters. Operating Margins will be further impacted by lower capacity utilization. Since the ongoing Cornonavirus outbreak, the present situation is predicted to ease out by July-August 2020 and we expect global trade volumes to show a slow and steady recovery in Second Half of Financial Year 2021.
Container Corporation of India Export based incentives at Stake
Under the foreign trade policy, the government of India is offering 3-7 percent incentives connected to exports of goods & services. Concor had recognized Rs 1,044 crore of income between FY15-FY19 through the Service Exports from India Scheme (SEIS). But later the company clarified that during its Q2 FY20 earnings call that total claims on incentives worth Rs 861 crore have not been approved by Directorate General of Foreign Trade. The company has made some special arrangements for the disputed amount and is looking for a legal alternative.
However, the Union government of India is in plans to modify the foreign trade policy by withdrawing SEIS. The rejections of incentives would hurt the pre-calculated tax profits by Rs 250 crore on a yearly basis.
Container Corporation of India Business Opportunities and Future Prospects?
A monopolistic position with Superb Promoter Support
Concor is a leading market player in container rail operations and holds exclusive rights to operate container trains between specific areas. As a piece of its development methodology, the organization is investigating different chances to reinforce its toehold in the cargo and coordinations showcase and rise as an incorporated holder rail arrangements supplier. All together broaden its income stream, the organization has gone into coastal shipping avenue in transporting through a strategic business partner. It is additionally attempted the improvement of 10-12 multimodal coordinations parks to enlarge its huge logistics and distribution network.
The promoter family is solid as the Indian government holds a 54.8 percent stake in Concor. The legislature has welcomed articulations of enthusiasm from vital partners for the divestment of its stake in the organization. Be that as it may, the arrangement is confronting a few detours as Concor’s offices are for the most part based ashore rented from the Indian Railways. The exchange is probably not going to occur in the close to term because of business rebuilding and amid ongoing bad share market conditions.
Container Corporation of India Strong Fund Flows and Powerful Stable Balance Sheet
Unlike the other Public Sector Undertakings, Concor is a unique self-reliant, Self Sufficient and profitable business with high barriers to entry. The company has a diversified business portfolio and excellent balance sheet spread by heavy cash flows, which is a sigh of relief in today’s unpredictable world. Though 2020 is forecasted to be one of the tough years, the company is in a very powerful position. From a liquidity paradigm, it is able to generate more than Rs 3,000 crore of fund flow in the first half of FY20 and ended Sep-19 with cash and cash equivalents of Rs 291 crore. The company also reported that it has managed to source additional cash from its strategic investments and bank balances, which accounted for close to Rs 1,500 crore after adjusting for the liabilities.
Container Corporation of India Building a Dedicated National Freight Corridor
The Indian Railways is developing a 3,000-km since quite a while ago dedicated National Freight Corridors (DFC) over the eastern and western parts of India to empower consistent cargo development across areas and ports. The DFC is being worked in stages and once operational, the new arrangement intensively reduces time, energy and cost, by 30-40 percent. The initiation of DFC is foreseen to positively affect Concor, however, the full advantages may be acknowledged once both the eastern and western cargo passages get operational in 2022.
Container Corporation of India Valuations Fairly Attractive amid missing earnings targets
In the short time span, the cargo administrator is relied upon to report a 20-25 decrease in profit throughout the following 2 quarters, much the same as the remainder of the business. The effect could be enhanced by the augmentation of the lockdown time frame and exacerbation of liquidity worry over the assembling segment.
With almost 50 percent decrease in market capitalization of this navratna, the stock is now currently trading at close to 6-year lows and a significant part of the vulnerability around revenues and profits has been valued into the stock. The risk-reward is tilting for financial specialists and valuations (around multiple times 2-year forward profit) have improved essentially. Investors should hope to collect this stock gradually on further plunges. In any case, one ought to be set up for certain redresses as the market instability is required to continue in the coming months.
Dividend-paying stocks like Container Corporation of India Limited (NSE: CONCOR) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
While Container Corporation of India’s 1.5% dividend yield is not quite good, we assume its long-lasting dividend history is extremely worth watching. Dividends are usually given from company reported earnings. If a company tries to stretch on dividends by paying more than it earned, then the dividend might become unsustainable in the long term. So we need to have a brief view if a company’s dividend is consistent and sustainable, in corelation to its calculated net profit after tax. As per the records, we can assume that 95 percent of Container Corporation of India’s profits were paid out in way of dividends in the last four quarters. As a result, it shows a high payout ratio but dividends were not related by earnings. We would have accepted this fact when earnings are stable and slowly growing, but it was not that case as in times of a downturn for the dividend to come under extreme pressure.
Additionally, if we compare dividends against company profits, we should further introspect whether the business managed to accumulate an ample amount of cash to pay its dividends. With a solid net cash balance, Container Corporation of India investors may not have much to worry about in the near term from a dividend perspective.
From the viewpoint of a passive investor who needs to enjoy dividends for a long time, there isn’t a lot of points purchasing a stock if its profit is normally cut or isn’t solid. With the end goal of this article, we just examine the most recent decade of Container Corporation of India’s dividends payout. The profit has been cut on at any rate one event verifiably. During the previous ten-year time frame, the main yearly installment was ₹2.99 in 2010, contrasted with ₹8.55 a year ago. This works out to be a compound yearly development rate (CAGR) of around 11% per year over that time. The profits haven’t developed at definitely 11% consistently, however, this is a helpful method to average out the recorded pace of development.
Container Corporation of India has developed circulations at a fast rate regardless of cutting the profit in any event once previously. Organizations that cut once regularly cut once more, however it may merit considering if the business has turned a corner.
With a moderately precarious profit, it’s considerably increasingly essential to check whether income per share (EPS) are developing. Why face the challenge of a profit getting cut, except if there’s a decent possibility of greater profits in the future? Container Corporation of India’s EPS has fallen by around 10% every year during the previous five years. With this type of slowdown and poor performance, we generally wonder what has changed in the business. The dividend is about stability, and Container Corporation of India’s earnings per share, which bolster the profit, have been definitely not steady.
Now as we had tried all our best to give you a best-detailed report on Container Corporation of India. Now Currently the Stock Price Trading around Rs 280 so if you looking to buy the stock keep a long term view of 2-3 years with a target of 800.