Friday, November 30, 2007


Fundamental strengths of CONCOR.

A large integrated logistics player like Concor will clearly benefit from the expansion in domestic and international trade. Exim revenues (80% of total revenues).

Improvement in Railway & Port Infrastructure will be a key driver of growth in containerised traffic.

Slow growth in containerised traffic at ports, has resulted from lack of container handling infrastructure at ports, and poor yard and traffic management at Inland Container depots (ICDs), which also affects smooth transshipment of cargo to ports. Containerisation ensures safety of goods being transported, reduces packing costs and increases the speed of transportation. It facilitates inter-modal transport (entire movement from the point of origin to the destination, using different modes en route like road, rail, ship, airlines etc.
Development of ports such as Mundra, Kandla & Pipavav in Gujarat and Cochin(Kochi) in Kerala, will boost container volumes for CONCOR over the long term.

The company is debt free. This enables future expansion through debt in event of stiff competition from the private sector.

CONCOR’s entrenched market position and the long gestation period required in the rail container logistics business will be obstacles for potential entrants, who will take several years to build an integrated logistics chain.

Concor enjoys a distinct cost advantage by virtue of its Inland Container Depot (ICD) locations, which have rail-head connection and which therefore eliminates multiple handling and transportation.

Replicating such infrastructure would be an enormous challenge for the private sector, with spiraling real estate prices likely to impede land acquisitions for setting up depots.

The private sector is currently piggy-backing on CONCOR’s rail operations, through Joint Ventures, until they set up their own container infrastructure.

CONCOR enjoys positive Free Cash Flows vs. negative FCFs for competitors as capital expenditure on acquiring new rakes exceeds cash returns. Rail Logistics players currently face a shortage of rolling stock (wagons) and wagon wheels, due to order backlogs at wagon manufacturing workshops, resulting in a12-15 month time delay for wagon delivery.

Railways regaining market share from Roadways in the future – Once the Dedicated Freight Corridor (DFC) is built, the railways will be the most efficient and economical mode for long haul cargo transport. The DFC is a project of new railway lines exclusively for carrying freight, isolated from normal IR traffic and passenger trains.

CONCOR enjoys a superior Asset Turnover Ratio (= Revenue/Capital employed) given existing infrastructure and rolling stock set up at key locations over the years at low acquisition costs. Its Return on Equity is also well above the industry average.

Load factor of the rail operator is a crucial determinant for profitability in this sector. With established ICD infrastructure in the western ports and the north western hinterland (Dadri,U.P and National capital region (NCR)) region, CONCOR is well placed to benefit from India’s highest traffic cargo route. The Mumbai to Delhi route accounts for 60% of India’s Container movement.

Risks to new players:
New players will thus find it difficult to generate cash in the first few years, and will face serious execution risks as they implement their organic/inorganic growth strategies.

Frequent changes in haulage charges by Indian railways (2-3 times per year) for container train operators and policy changes banning movement of certain categories of bulk cargo through containers, also disrupts long term planning for new entrants.

Also CONCOR, in order to capture higher volumes, deter competition and gain marketshare, has been increasing discounts on the high traffic routes of National Capital Region(NCR) to JNPT/Mundra Port/Pipavav Port.
Lastly heres a note on ICDs CFSs & Rail Freight expenses.
What are ICDs and CFS?CFS and ICDs are facilities set up for the purpose of in-transit container handling as well as the examination and assessment of cargo with respect to regulatory clearances.
An ICD is located in the interiors (outside the port towns) of the country, away from the gateway ports. A CFS, on the other hand, is an offdock facility located near the gateway ports and helps in decongesting the port by shifting cargo and customs related activities outside the port area.
What are Rail freight expenses? They are charges paid to the Indian railways for using its infrastructure facilities such as tracks, signaling systems and locomotives to haul the flat wagons and containers.

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