The steep fall in container traffic at major ports may not have commensurate impact on Container Corp. of India Ltd (Concor). It is able to store cargo at its warehouses and thus gain market share, especially because of the restrictions on inland road transport.
Business volumes dropped 3.9% in January-March (Q4FY20) this year, more than the 1-2% fall in the earlier three quarters, the company said in a filing to the stock exchanges. Business volumes will be hit considerably in the current quarter as well, with April in full lockdown and restrictions continuing in May. “India, which has significant container volumes linked with severely hit covid-19 countries, is at risk of a sharp dip in container trade,” Crisil Research said in a note.
Container traffic dropped 37% in April at Jawaharlal Nehru Port Trust (JNPT), which is India’s largest container port and generates around a third of Concor’s business volumes. Industry interactions by PhillipCapital (India) Pvt. Ltd indicate a sharper fall in port container volumes in May.
However, restrictions on inland road transport and insufficient availability of lorry drivers is driving cargo traffic to rail. This can soften the blow for Concor. “Due to the covid-19 outbreak, long-distance cargo booking has shifted to Indian Railways and Concor, with its storage facilities, is able to manage de-congestion at ports by evacuating cargo and storing it at its warehouses/ICDs (inland container depots), thereby gaining market share,” PhillipCapital said in a note. The increased market share can cushion the earnings impact for Concor. Adani Ports and Special Economic Zone Ltd, a large private sector ports operator, concurs with these views. Waiver of haulage charges for movement of empty containers and empty flat wagons is helping rail transporters gain share. The share of rail in container transport at its flagship Mundra Port rose vis-à-vis pre-covid levels, said the company.
Analysis by Crisil Research also shows a notable rise in container transportation through rail at Chennai Port and JNPT. “In the case of JNPT, throughput for April was 0.28 million TEUs, and around 64,000 TEUs were moved through container rakes. The rail haulage accounted for ~22.5% of container traffic, which is higher than the rail coefficient observed in recent months,” said Crisil. TEU is twenty-foot equivalent unit.
However, the quantum of earnings impact will depend on the extent of lockdown and business slowdown. “We have assumed volume fall of 8.8% in FY21 (earlier estimate of 4.8%) while we maintain volume estimates for FY22. Ebitda should fall 29% to ₹1,100 crore in FY21,” added analysts at PhillipCapital. Ebitda is earnings before interest tax depreciation and amortization.
Thus, Concor shares are down about 40% lower in the past three months, though the shares have gained 29% from its lows in March, which is more than the 20% rise in the NSE 500 index.