Container Corporation of India Ltd commenced operations in 1989 by taking over the existing network of 7 ICDs from Indian Railways. Today, it is an undisputed market leader, having the largest network of 81 ICDs and the largest rail container operator in the country.
Though rail is the mainstay of its transportation plan, road service also provides door-to-door service for international and domestic business. Indian Railways has recently announced that it would offer a discount of 25% on the haulage rate on the movement of empty containers and flat wagons from January 2019 to December 2019 in order to facilitate movement of containers by rail.
Haulage charge is basically the freight paid by container train operators to Indian Railways for using its locomotives, fuel, network and other facilities.
This discount should be very positive for cost reduction and volume growth of the company, as haulage cost for empty containers is expected to decline from around Rs 10 to Rs 7.50 per km. It is important to understand that the movement of empty containers and flat wagons are an operational part of business. This imbalance is due to origination and return of cargo movement. Haulage charges account for nearly 70% of the operating cost of a container train operator.
Analysts and fund managers tracking the company feel that this relief in haulage charges would save Container Corp approx Rs 50 crore per annum, which would directly benefit their bottom line. Moreover, successive tariff hikes by the company in the recent past would help it to absorb the increase in haulage charges. The quarter ending September 2018 has been quite good for the company, with it posting net sales of Rs 1,822 crore. The net profit also grew by nearly 50% to Rs 336 crore for the same period.
The EBITDA also grew by approx 50% to Rs 573 crore during the quarter ending September 2018. Container Corp continues to enjoy structural tailwinds as it is benefiting from healthy volume growth and better pricing power. Last week, the company was in the news when it recommended the issuing of bonus shares to its shareholders in the proposition of one bonus share for every four equity share held on the record date.
Many foreign brokerage firms have been very bullish on the Container Corp stock and have maintained a buy call for the stock in their research reports recently. While it remains a top pick in the infrastructure space, Container Corp stock can appreciate by nearly 30% from the present levels, with a potential target price of over Rs 850 in the next nine months.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.