CONCOR: Dominant, Growing Container Train Operator in India

Lalaram Singh of Vibrant Securities presented his in-depth thesis on Container Corporation of India (India: CONCOR) at Asian Investing Summit 2020.

Thesis summary:

Container Corporation of India is the largest container train operator in India with market share of ~70%, based on revenue, 10x bigger than the number-two player. CONCOR has 95+% share based on profit, as container train operations are a scale business. It is the best company to invest in the structural increase in the containerization of cargo and an increase in the share of railways in freight movement in India.

At the moment, the freight transport mix is heavily skewed toward roads (~60% of the market). The share of railways has dropped from ~80% in 1950 to ~30-35% recently. A dedicated freight corridor will significantly improve the railway freight infrastructure and is expected to reverse the trend of freight mix in favor of railways. Further benefit to volume should come from a shift in global manufacturing supply chains from China to India as global companies look to de-risk. CONCOR’s volume growth, which has averaged ~6% over the last five years, can increase into the double digits post-implementation of the dedicated freight corridor beginning in June 2020.

Earning power may increase one-and-a-half-fold to $230-250 million over the next two to three years, driven by double-digit volume growth and margin expansion. The recent P/E multiple of 16-17x represents a ~40% discount to the eight-year median multiple of 28x. Negative working capital, with days receivables of only five, leads to strong cash generation and a debt-free balance sheet. The shares offer a dividend yield of ~3%. CONCOR, with 56% of the equity owned by the Indian government, is one of sixteen state-owned enterprises shortlisted for privatization. Privatization could lead to a permanent re-rating of the stock.

Lalaram believes that the shares may have 2.5-3x upside over three years, driven by ~50% earnings growth and a re-rating of the P/E multiple toward the long-term median of 28x.

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About the instructor:

Lalaram Singh is the CIO at Vibrant Securities, managing the proprietary book based on long only, value investing principles. Vibrant Securities is a 20+ year old stock broking company based out of Mumbai. At Vibrant, Lalaram is responsible for building the research team from scratch and formulating the investment strategy, idea generation and portfolio management process. Previously, Lalaram was the co-founder of AnalyseWise Investment Advisors, an Independent Equity Research company catering to retail, institutions and brokers. Lalaram was a part of AnalyseWise from Aug-14 to July-16. Prior to co-founding AnalyseWise , Lalaram was a part of 12 member team in Bain Capital at their Mumbai Office where he evaluated investment opportunities across industries ranging from Healthcare, IT, Industrials, & Consumer Goods. Lalaram began his career at J.P. Morgan in July-2012 upon completion of his Bachelors in Mechanical Engineering from Mumbai University. At J.P. Morgan, Lalaram supported the Asia M&A team working on companies across banking, insurance, securities and asset management in India, China and South East Asia.