PhillipCapital retained its buy call after the Indian railways offered hefty discount in haulage of empty containers and flat wagon movement.
Container Corporation of India shares rallied 4 percent intraday Thursday after global brokerage house PhillipCapital has maintained its buy call on the stock and sees a whopping 38 percent potential upside to Rs 900 levels.
The research house retained its buy call after the Indian railways offered hefty discount in haulage of empty containers and flat wagon movement.
"25 percent discount in rail haulage charge is positive for cost reduction & volume growth of the company, and with revised rates, haulage cost for empty container would decline from around 10 to Rs 7.50 per km," PhillipCapital said.
Indian railways offered discount of 25 percent on the haulage rate per TEU on movement of empty containers and empty flat wagons from January 2019 to December 2019 in order to facilitate movement of containers by rail.
The movement of empty container or flat wagon are operational part of business due to imbalance in originating and return cargo. Concor has annual empty running charges of around Rs 250 crore accounting for around 6-7 percent of total freight cost.
PhillipCapital feels the relief in haulage empty charge could save around Rs 50 crore per annum for Container Corporation. "The reduction will directly benefit in domestic segment and flat movement while benefit for empty movement for Exim will be passed on to the shipping line.
The most of the empty containers are moved by road currently which can now shift to rail and reduce flat movement for container train operators on Exim route, the research house believes.
Haulage charge is basically the freight paid by container train operators to the Indian Railways for using its locomotives, fuel, network and other facilities. Haulage charges account for around 70 percent of the operating cost of a container train operator.
Recent increase is one of the lowest increases in past six years and last haulage increase for container movement was of 7.7 percent announced in March 2015. Earlier Indian railway used to differentiate haulage increase based on distance and weight slab of container and haulage increase was most frequent from 2011 to 2015, while there was no increase for past three years.
Concor increased rates for rail movement by around Rs 1,000 per TEU in May 2018 and has started charging around Rs 1,500 per TEU from September 2018 post rationalisation of free storage days to 45 days for loaded and 90 days for empty containers.
"Successful tariff hikes by Concor in the recent past would help company to absorb the hike in haulage charges. The volume growth of around 10-12 percent along with reduction in empty charges will help the company to maintain margins," PhillipCapital said.
The research house expects revenue and earnings CAGR of 19 percent and 14 percent over FY18-20, assuming economic recovery and operating leverage from current capex.
"The company is leveraging its strong asset base to benefit from multimodal movement and providing end to end third party (3PL) logistics solutions with focus on coastal shipping and distribution logistics," it said.
At 11:45 hours IST, the stock was quoting at Rs 663.60, up Rs 10.20, or 1.56 percent on the BSE.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.