Concor - Initiating Coverage

8/8/2019 Concor - Initiating Coverage

1/24SparkResearchisavailableonBloombergGOandReutersKnowledge Page1of24

ContainerCorporationofIndia

Price-Rs.785

Target-Rs.952OUTPERFORM

FinancialSummary

Year

Revenues

(Rs.mn)

EBITDA

(Rs.mn)

PAT

(Rs.mn)

EPS

(Rs.)

P/E

(x)EV/EBITDA

(x)

FY08* 33,530 9,023 7,553 58.1 13.5 9.9

FY09E 41,858 11,023 8,309 63.9 12.3 7.9

FY10E 50,748 12,993 9,783 75.3 10.4 6.5

*ConsolidatedestimatesforFY08

Playonincreasingcontainerization

We initiate coverage on Concor, Indias largest container rail haulage operator,withanOUTPERFORMrating.Inourview,containerizationinIndiaispoisedfora fillip with a cumulative government spend of Rs. 558bn on port and relatedinfrastructure.Thisshouldprovidea significantboosttocontainerization,whichiscurrently at18% in Indiacomparedwithlevels of70% globally.Coupledwithahealthy EXIM (export import) growth of 15-20%, we think Concor will be theprincipalbeneficiaryofport-relatedinfrabuildout.

WealsobelievethatsomeoftheconcernssurroundingtheopeningupoftherailhaulagesectortoprivateplayersandtheattendantimpactonConcorsdominanceareoverstated.GiventhebreadthofConcorterminalnetworkandthehighstart-upcostsinvolvedinsettingupcontainerterminals,webelievethatnewplayerswillperforcehavetoadoptacollaborativestancevis--vis`Concor.

Investmentrationale Increase in EXIM cargo traffic and containerization Considerable

investmentsinportandrelatedinfrastructurewilldrivehighercontainerizationandplaceConcorinademandsweetspot

Railwayssettogainmarketshare-Asportandassociatedinfrastructurebuildhappens,webelievethatthetrendofrailwaysgainingsharefromroads(26%shareinFY98toalmost35%attheendofFY07)willaccelerate,playingtoConcorsstrengths

Market dominance to sustain In our opinion, new private operators willcontinue to face challenges in terms of both start-up costs (terminals andwagonprocurement)andoperationstoposeasignificantcompetitivethreattoConcormarketdominance

StrongrelationshipwithkeycustomersLong-standingrelationshipswithcorporate and ventures with shipping lines such as Maersk will ensurepredictableflowofbusiness,inourview

ExtensiveterminalnetworkisbiggestentrybarrierConcorsnetworkof57terminalsis,inourview,itsbiggestcompetitiveadvantage,whichprivateplayerswillfindtoughtoreplicate;atbest,weexpectthelattertoenterintocollaborativearrangementswithConcor

Valuationandview

We are positive on Concors prospects and believe that it is best positioned tocapitaliseonfavourableinfrastructure-relatedtailwinds.Overourforecastperiod(FY08-10E),weexpectConcortopostearningsCAGRof14%.WeexpectRoEs

tosustainathealthylevelsofabove20%overourforecastperiodandexpectcashper share of Rs. 141 at end FY10E. We note that apart from its strong returnmetrics,Concorgeneratessignificantfreecashon accountofanegativeworkingcapital cycle and has almost zero leverage. Against this backdrop, wethink thecurrent correction in the stock provides an attractive entry point, with currentmultiplesat12.3xFY09Eand10.4xFY10EEPS.

WeuseacombinationofP/EandDCFtovalueConcorscorebusiness(Rs.929);wethenascribeavalueforitsinvestmentsinvariousJVs(Rs.23)toarriveatacompositeSOTP-based target price of Rs. 952. We initiate coveragewith aOUTPERFORMratinganda21%upsidefromcurrentlevels.

InitiatingCoverage

Dated 5th

June2008

BSESENSEX 15770

NI FTY 4677

O/SShares 130mn

MarketCap Rs.102,037mn

52weekHi-Lo Rs.1,235Rs.723

AverageDailyVolume(nos)

36,095

FreeFloat(%) 37.0

BSECode 531344

NSECode CONCOR

Bloombergcode CCRIIN

Reuterscode CCRI.BO

ShareholdingPattern(%)asonMarch2008

Promoters 63.0

Institutions 33.5

Public 3.5

NathBalakrishnan

[email protected]

+91.44.43440035

SriramSekhar

[email protected]

+91.44.43440040

SparkCapitalAdvisors(I)PrivateLimited

Reflections,New#2,LeithCastleCenterSt.

SanthomeHighRoad

Santhome,Chennai600028

Perform ance(%) 1m 3m 12m

Concor (12.7) (10.6) (28.2)

Sensex (11.4) (6.3) 6.6

-0.80

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0.00

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0.80

1.20

Jun-07

Aug-07

Oct-07

Dec-07

Feb-08

Apr-08

Closeprice

Concor Sensex

ConcorvsSensex- Relativeperformance


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ConcorInitiation

Contents

PageNo.

BusinessBackground.. 3

InvestmentRationale 5

KeyRisks. 14

ValuationDiscussion.... 15

IndustryOverview....... 18

FinancialSummary.. 23


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ConcorInitiation

BUSINESSBACKGROUND

Corebusinessofoperatingcontainer

wagons

EnteredcoldchainlogisticsinFebruary2006

Container Corporation of India (Concor), a mini-ratna enterprise, was established in1988bytheIndianRailwaystoexclusivelycatertocontainertraffic.Thecompanyhasgrown from a network of seven Inland Container Depots (ICD)/ Container FreightStations(CFS)to57,givingitthelargestnetworkinthecountry.Thecompanyisrunbyateamofprofessionals,headedbyMr.RakeshMehrotra,themanagingdirector.

Concors core business is operating containerwagons across the country, with EXIMtrade accounting for over 79% of its revenues. It currently has ~7,200 wagons andproposestopurchase~3,300wagonsoverthenexttwoyears.Until2007Concorwasamonopolyinthisfield,withgovernmentrestrictingprivateparticipation.However,in2007the Railway Ministryopened this sector to private players and till date 15companieshave entered this space. Despite competition, Concor continues to retain its marketleadership position in FY08, with a 94% share on the Delhi-JNPT route. In order tofurther strengthen its leadershipposition, Concor has tied-up with eightof the privateoperatorstoshareitsinfrastructureinreturnforaleaserental/shareofrevenues.

In the EXIM segment, railways are the preferred mode of transport, with roadwayscompetingformarketshareonlyinthedomesticsegment.Althoughrailhaulageismorecost efficient and faster than transportation byroad,the latter is preferred forshorterdistances,asrailwaysdoesnotprovidedoor-to-doordelivery.Toovercomethishurdle,ConcorhastiedupwithTransportCorporationofIndia(TCI)andRelianceLogisticstoprovideend-to-endsolutions.

Concor enjoys higher realizations in the EXIM segment due to lower lead times andlesser number of empties running. In addition to the CFS/ ICD handling charges, itreceivesgroundrentinthe case ofimports,which isbasedon the dwelltime ofeachcontainer.Althoughthedomesticsegmentenjoyshigherrealizations,marginsarelower

duetolongerleadtimes,runningofmoreempties,andcompetitionfromroadways.

Source:Company

In an effort to diversify from a pure rail haulage company to a complete logisticsprovider,Concorisenteringotherareassuchascoldchainlogistics.ThissectorisstillataverynascentstageinIndia,andisexpectedtogrowsignificantlyonthebackoftheretail boom. Concor established a subsidiary, Fresh & Healthy, in February 2006 to

pursueopportunitiesinthisspace.Fresh&HealthypurchasesapplesfromwholesalersinHimachalPradesh,rebrandsthemandsellsthemtoretailers.ItcurrentlyhasonecoldchainstoreatRai,Sonepat,withacapacityof12,000MT.

Apart from the cold chain venture, Concor is actively looking at entering the coastalshippingsectoraswellasforayingintotheaircargobusiness.ThecompanyhasalsoformedjointventureswithcompaniessuchasMaerskIndia,TransworldGroupandAPL

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

TEUs

HistoricalThroughput(TEUs)

EXIM Domes tic


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ConcorInitiation

IndiatosetupandrunCFSs/ICDsacrossthecountry.Concorconstructedandrunsthe

thirdberthatJNPTthroughajointventurewithMaerskCopenhagen,andproposestoformfurtheralliancestobidforexpansioninkeyports.

Source:Company

ConcorsrevenueshavegrownbyaCAGR(03-08)of17.7%toRs.33,530mninFY08.The operating margins have consistently been over 25%, while net margins haveincreasedfrom18.4%inFY03to22.5%inFY08.Thegrowthinrevenueshasbeenonthebackofan11.3%CAGR(03-08)incontainerthroughput,whilethefavourablemixbetweenEXIManddomesticcontainertrafficcontributedtotheimprovementinmargins.

Source:Company

28.8 29.031.5

28.7 29.3 26.9

18.4

20.821.5 21.6 23.1 22.5

0

5

10

15

20

25

30

35

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY03 FY04 FY05 FY06 FY07 FY08

%

Rs.mn

Revenuesandmargins

Re ve nu es E BI TDA Ma rg in s(RHS ) P ATMa rg in s(RHS )

29.727.9 27.7

29.8

25.9

22.7 22.0 22.423.9

21.0

0

5

10

15

20

25

30

35

FY04 FY05 FY06 FY07 FY08

%

ReturnRatios

RoE RoA

Concorsrevenuesgrownby17.7%

CAGR(03-08)

ConcorrunsthethirdberthatJNPT

withMaersk

Establishedtooperatecontainertrains

JointVenturewithMaerskIndiaforICDatDadri

JointVenturewithMaerskCopenhagenforBOTproject-JNPTsthirdterminal

FormedFresh&Healthy,a100%subsidiary,toforayintocoldchainlogistics

JointVenturewithGatewayDistriparkstooperateanICDatGarhiandruncontainertrains

1988 2004 2005 2006 2008


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ConcorInitiation

INVESTMENTRATIONALE

EXIMcargotrafficisincreasingat~15-20%p.a.

ContainerizationinIndiais

lowat~18%

#1IncreaseinEXIMcargotrafficandcontainerization

Cargotrafficatmajorportsisincreasingat~15-20%p.a.onthebackofimprovedglobaltrade and the consumption boom in India. According to the National MaritimeDevelopmentProgram(NMDP)thecargohandledatmajorportsisexpectedtoincreasefromthecurrent469mntonsto616mntonsbyFY12.Thecurrentportinfrastructureisnot capable of supporting these volumes, and capacities at major ports are nearing100%utilization.

The Ports Authority of India has established the National Maritime DevelopmentProgram(NMDP)toincreasecapacitiesatportsandimprovetheexistinginfrastructure.SomeoftheportprojectsareexpectedtobethroughthePPProute,whilesomewillbe

followaBOTmodel.Developmentprogramatmajorports

Port No.ofprojects

Spendonroadandrailconnectivity

(Rs.Mn)

CurrentCapacity

(mntons)

TargetedCapacityby

FY09(mntons)

TotalCapacityby

FY12(mntons)

Haldia 15 - 42.2 42.8 65.2

Paradip 28 10,200 51.4 60.1 88.9

Vizag 38 4,160 54.9 74.7 106.6

Ennore 14 3,760 13.0 35.0 45.2

Chennai 14 4,500 48.8 73.6 60.6

Tuticorin 24 1,250 20.6 35.6 39.5Cochin 14 4,750 19.4 33.5 42.9

NewMangalore 20 9,960 38.0 47.8 54.9

Mormugao 12 - 29.5 41.5 53.3

Mumbai 14 3,280 43.8 57.9 61.5

JNPT 32 15,810 36.1 59.5 81.9

Kandla 26 1,445 46.0 77.4 92.2

Total 251 59,115 443.7 651.0 792.7

Source:NMDP,SparkResearch

ContainerizationinIndiaisveryat~18%asagainst~70%inothercountriesduetothelackofadequateinfrastructureintermsofports,roads,andrailways.ThePortsAuthorityofIndiaisspendingoverRs.558bntodevelopinfrastructureandincreasecapacitiesatthemajorandintermediateportsto810.4mntonsbyFY12.ItisexpectedtospendRs.59bnondevelopingroadandrailconnectivitytotheports.

Inouropinion,thisinfrastructuredevelopmentbodeswellforaugmentingtheshareofcontainers as a percentage of total cargo handled. After theexpansionat major andintermediate ports, capacity for container traffic is expected to increase to ~15.2mnTEUsbyFY12from~4.2mnTEUsinFY05,representingaCAGRof20%.AsperNMDPestimates,containertrafficislikelytoincreasefrom83mntonsto140mntonsbyFY12E.


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ConcorInitiation

Source:NMDP

IndiaislaggingintermsofcontainergrowthascomparedtopeerssuchasChina.Thelackofportinfrastructurewasthemainreasonforthistepidgrowth.Chinahadatotalcapacitytohandle~76mnTEUsin2005,ascomparedtoIndiascapacityof5mnTEUs.Although EXIM trade in the region in burgeoning, India will not benefit unless thecapacity of ports is increased. The government, recognizing the earlier pitfalls, hasactivelystartedtoincreasecapacityandimproveinfrastructure.Inourview,Indiaisonthecuspofasignificantopportunityintermsofcargothroughputandcontainerization.

ContainerizationopportunityforIndia

Source:UNESCAP

Inourview,theincreaseincontainerizationcombinedwiththerailwaysaugmentingitsmarketshareincontainerhaulage,willbenefitexistingplayersintherailhaulagespace.WeexpectConcortoretainitsmarketleadershippositiononthebackofitsextensiveterminalnetwork,largestfleetofwagonsandstrongrelationshipwithkeycustomers.

It is also likely to benefit from the enhancement in cargo throughput by way of itsinvestments into BOT projects at ports, such as the third berth at JNPT. Concorproposes toformconsortia tobid forBOT projectssuchas the expansionof Gujarat,EnnoreandChennaiPorts,andthefourthterminalatJNPT.

66

8394

107

123

140

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20

40

60

80

100

120

140

160

0

100

200

300

400

500

600

700

FY07 FY08 FY09E FY10E FY11E FY12E

mntons

mntons

TotalEXIM cargo vs.container cargo

TotalEXIMcargotraffic(LHS) Containertraffic

2005capacity(China)was76mnTEUs

2005capacity(India)was5mnTEUs

Indiahastremendousgrowthopportunitiesin

cargothroughput

Concorisexpectedtoretainitsmarket

leadershipposition


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ConcorInitiation

#2Railwayssettogainmarketshare

Transportation by railwaysis much cheaper and faster than road transport. However,manufacturers prefer roadways for domestic transportation and shorter distance, asrailwayterminalsarenotpresentnearallindustrialzones.Moreover,therailwaysdonotprovideaserviceguaranteesimilartothatprovidedbythetruckingcompanies.

In the post independence era, the railways enjoyed a dominant market share incontainer haulage due to a lack of road infrastructure and trucks capable of carryingcontainers.However,backedbytheimprovementinhighwayqualityandentryofflatbedtrucks,themarketdynamicsshiftedinfavourofroadways.Therailwayscurrentlyhavea~33%marketshareintransportofcontainers.

Source:IPA,SparkResearch

Asportandassociatedinfrastructurebuildonhappens,webelievethattherailwaysiswellpositionedtogainincrementalsharefromroads.Thisisastructuralpositiveforrailhaulage operatorsas a whole and specifically to Concor, the dominant player in thisspace.

CostDifferentialRoadvs.Rail

Rs./TEUDelhi-JNPT Delhi-MundraPort

Railways Road Railways Road

Upto20tons 12,942 42,000 10,896 33,00020-26tons 16,255 48,500 13,728 38,000

Above26tons 18,096 58,000 15,252 44,000

Source:Concor,GatewayDistriparks

#3-Marketleadershiptosustain

Concor enjoyed a monopoly position till 2007, when the government permitted othercompanies to enter the rail container haulage sector. As a result of the competition,Concorsmarketsharehascomedownto94%inFY08.However,inourviewthethreatofprivateplayersgarneringachunkofthemarkethasbeenoverplayed.

WeexpectConcortobeabletoretainitsleadershippositiongoingforwarddespitetheadvent of competition, since most of the private operators are struggling with

considerablelandacquisitioncostsandthesignificantcapitalrequiredforpurchaseofwagons.Concorsnetworkhasbeendevelopedatasubstantiallylowerlandcostthanprevalent.

26.0

29.930.4 30.5

31.430.7

32.132.5

33.7 34.7

9.2 9.410.2

11.5

12.913.9

14.8 14.3

14.6

15.8

0

2

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FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07

%%

Railwaymarket sharevs.containerization

Rai lway markets hare Co n tai neri zation(RHS)

Concorwagons:4,528

Marketdynamicsfavouringrailhaulage

Concorhasa94%marketsharein

EXIMtraffic

Concor

wagons:7,284


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ConcorInitiation

AsitstillhasunutilisedlandatmanyofitsICDs,Concorcanexpandthesefacilitieswithmarginal overheads. The competitive advantage of owning land at historical costs isevident in Concors high return metrics, an area we believe private operators will behard-pressedtomatch.

Most of the private players are currently plying their wagons on the lower margindomesticroute,astheydonothavethenecessaryinfrastructuretoplytheEXIMroute.Asaresult,theirmarginssuffer,asdomesticroutesentailhigherrunningofemptiesandlongerleadtimes.EBITmarginsforthedomesticsegmentare~14%asagainst28%fortheEXIMsegment.

Source:IPA,Company,SparkResearch

Someoftheprivateoperatorsareusingtheirwagonsforcaptivepurposes,anddonotpose a threat to Concor. We have excluded these players, and estimated the totalnumber of wagons the private operators currently have operational and expectedadditions.

Source:SparkResearch

Inourview,thereare~2,490wagonscurrentlybeingoperatedbyprivateplayers,withapproximately 6,390 wagons to be operational by FY10. On the other hand, Concorcurrently owns over 8,282 wagons and is expected to have ~11,584 wagons byend-FY10. In addition, Concor also leases wagons from the railways based on therequirementandtypeofcontainertobetransported.WeexpectConcortoretainmarketleadershipintermsofwagonsoperatedaswellasthroughput.

100 100

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FY05 FY06 FY07 FY08

%

mnTEUs

ConcorEXIMMarketShare

TotalEXIMContainerTraffic Con tain ersTransp ortedthroug hRa ilConcorMarketShare(RHS)

PrivateplayersusingwagonsforcaptivepurposesAdaniLogistics

BoxTrans(JMBaxiShipping)

DineshETA

HindTerminalsInnovativeB2BLogistics(BothraShipping)

Indialinx(APL)MSC

Someprivateoperatorsareusingwagonsfor

captivepurposes


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ConcorInitiation

Source:Company,SparkResearch

Inourview,endcustomerswouldpreferusingConcorsservicesduetothevastterminalnetwork, sizeable wagon fleet, and door-to-door services provided through its tie-upswithRelianceLogisticsandTCI.

WagonsConcorvs.privateplayers

Wagons FY08 FY09 FY10

Concor(nos) 8,284 10,084 11,584

PrivatePlayers(nos) 2,490 4,440 6,390

Totalnumberofwagons 10,774 14,524 17,974


#5Strongrelationshipwithkeycustomers

Concorhasawellestablishedrelationshipwithseveralshippinglines,andhasformedjoint ventures with key customers such as Maersk. These joint ventures are forconstructionandrunningofCFSs/ICDs,ensuringcaptivebusinessfromshippinglines.Apartfromthejointventures,Concorhasservicedtheseclientsfornearlytwodecades,andinourviewitisunlikelythattheprivateplayerswillbeabletogarnerameaningfulshare of the EXIM container traffic, as shipping lines are likely to continue transportthroughConcor.

AfewofConcorsJointVentures(JVs)


1.61.7

1.92.1

2.3

2.6

3.1

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0.5

1.0

1.5

2.0

2.5

3.0

3.5

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2,000

4,000

6,000

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10,000

12,000

14,000

FY04 FY05 FY06 FY07 FY08 FY09E FY10E

mnTEUs

Nos.

Concorwagonaddition

W ag o ns(L HS ) Th ro ug hp ut

NameofJV JVPartner NatureofJV

Star Track Terminal Maersk India ICDatDadri

Trident Terminal APL India ICDatDadri

Albatross CFS Transworld Group ICDatDadri

Gateway Terminals India* Maersk Copenhagen ThirdberthatJNPT

JWG-Air Cargo Complex Hindustan Aeronautics & Mysore Sales Air Cargo Business in Bangalore

CMA-CGM Logistics Park (Dadri) CMA-CGM Global India ICDatDadri

HALCON Hindustan Aeronautics Air Cargo Complex & ICD at Ozar Airport, Nasik

Ind ia Ga teway Te rminal Duba i P ort Interna tiona l Setting Up and Managing Container Terminals at Cochin

EndcustomerswouldpreferusingConcors

services


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ConcorInitiation

#4Extensiveterminalnetworkisthebiggestentrybarrier

Concorhastheadvantageofavastterminalnetworkacrossthecountry,ascomparedtoa handful owned and operated by the private players. Concor currently has ~57terminalsandisaddingafewmoreeachyear,theseincludeCFSs/ICDs.Inourview,thenewplayerswillfacehurdlesinlandacquisitionintheformofhighlandpricesandregulatoryissues,whileConcorsexistingterminalsarepricedathistoricalcosts,anditcan procure railway land for ICDs/ CFSs ona preferential basis due to its mini-ratnastatus.

Since setting up a similar terminal/ ICD/ CFS network is not feasible for any singleprivatecompany,mostofthemareenteringintofeebasedagreementswithConcortoshare its infrastructure. In our opinion, given the capacity constraint faced by private

playersintermsofterminalnetwork,theydonotposeasignificantthreattoConcorsmarket dominance, especially with Concor benefiting from private players lack ofinfrastructure. Unless the private players collaborate with Concor, we do not foreseethemincreasingtheircontainerthroughputastheylackthenecessaryinfrastructure.

Concorsterminalnetwork

Source:Company

Concorcurrentlyhas~57terminals


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ConcorInitiation

#6FocusonthefastgrowingnorthernhinterlandThemajorityofConcorsrevenuesarederivedfromthenorthernregionsofthecountry,whichcontribute~51%ofEXIMtraffictoJNPT,backedbytheincreasedindustrializationintheseregions.Withthegovernmentthrustondevelopingthenorthernhinterlandmostmajorindustrial houseshavesetup factoriesin this region, resultingin anincreaseinEXIMtrade.

Source:Company

Many companies are setting up ICDs in the northern and central hinterland sincecapacitiesofexistingICDsinregionssuchasTughlakabadarealreadyrunningatcloseto100%.ICDsarebeingconstructedinplaceslikeDadriandGarhitocatertotheriseinEXIMtrade.

The railway route between JNPT and Delhi and its surrounding regions carries themaximum throughput. The current capacity on this route is ~34 rakes/ day, and isrunningat76%utilization.Concorruns~20rakes/dayonthisroute,whiletheprivateoperators run ~5 rakes/ day. In our view, the track utilization on this route will go to~100% in the next few years, with increasing cargo volumes being handled by thewesternports.Thegovernmentproposestostartconstructionofthenorth-westfreightcorridor,whichwhenoperationalwillde-bottleneckthecurrentcongestionontheroute.Weexpectanincreaseinrailwaycontainerfreighttrainsrunningonthisrouteoncethecorridorison-stream,withConcorgarneringamajorityofthecargothroughput.

Region-wisecontributiontoJNPTscargotraffic

Source:JNPT,SparkResearch

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500,000

1,000,000

1,500,000

2,000,000

2,500,000

TEUs

Break-upofTEUshandledbyConcor

Northern Central E astern Western S outhern

Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports ImportsChandigarh 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%Haryana 5.1% 5.6% 5.1% 5.6% 5.1% 5.7% 5.1% 5.7% 5.2% 5.8% 5.2% 5.8%HimachalPradesh 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.8% 0.7% 0.9% 0.7%Punjab 3.9% 2.2% 3.9% 2.2% 3.8% 2.1% 3.7% 2.1% 3.7% 2.1% 3.6% 2.0%Rajasthan 3.0% 2.3% 3.0% 2.3% 3.1% 2.3% 3.1% 2.3% 3.2% 2.3% 3.2% 2.3%UttarPradesh 10.2% 11.7% 10.3% 11.7% 10.3% 11.7% 10.3% 11.8% 10.4% 11.8% 10.4% 11.8%Uttaranchal 1.5% 1.4% 1.5% 1.4% 1.4% 1.3% 1.4% 1.3% 1.4% 1.3% 1.3% 1.3%Delhi 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0% 1.4% 1.0%AndhraPradesh 7.4% 7.1% 7.3% 7.0% 7.2% 6.9% 7.1% 6.9% 7.0% 6.8% 6.9% 6.7%Gujarat 11.1% 16.2% 11.1% 16.2% 11.2% 16.3% 11.2% 16.4% 11.2% 16.5% 11.2% 16.6%Karnataka 6.6% 5.0% 6.6% 5.0% 6.6% 4.9% 6.6% 4.9% 6.6% 4.9% 6.6% 4.8%Kerala 2.5% 1.8% 2.5% 1.8% 2.5% 1.8% 2.5% 1.8% 2.5% 1.7% 2.5% 1.7%MadhyaPradesh 3.2% 3.4% 3.2% 3.4% 3.2% 3.4% 3.2% 3.4% 3.3% 3.4% 3.3% 3.4%Maharashtra 18.3% 19.7% 18.4% 19.8% 18.5% 19.9% 18.6% 20.0% 18.7% 20.1% 18.8% 20.1%Others 25.0% 22.0% 24.9% 21.9% 24.9% 21.9% 24.8% 21.8% 24.7% 21.7% 24.6% 21.7%

2004-05 2005-06 2006-07 2007-08 2008-09E 2009-10E

Source:JNPT

Portscateringtothe

north

26%ofexporttrafficand25%ofimporttraffictoJNPToriginatefromthenorth


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ConcorInitiation

#7RevenuemixfavouringhighlyprofitableEXIMsectorThemajority(79%)ofConcorsrevenuescomefromthehighmarginEXIMsector.Thisisincontrasttomanyoftheprivateplayers,whoderivemostoftheirrevenuesfromthelowermargindomesticcontainerhaulagesector.ThereasonforConcorsdominanceinthe EXIMsector is its established relationships with major shipping lines, andtie-upswithsomeoftheseshippinglinestoconstructICDs.Forinstance,Concorformedajointventure with Maersk India to construct an ICD at Dadri resulting in Maersk having avestedinterestintransportingcargothroughConcor.


TheEXIMsectorishighlyprofitable,withEBITmargins~28%,ascomparedtothe~14%marginsinthedomesticsector.Althoughthedomesticsectorislessprofitable,itenjoyshigherrealizationsof~Rs.15,200comparedto~Rs.14,000fortheEXIMsector.Thisdisparitybetweentherealizationsandmarginsisduetothelongerdistancesandmorenumberofemptiesrunningonthedomesticsector.

Unlike the EXIM sector, where Concor receives revenues on empty containerstransported,inthedomesticsectoritbearsthecostofemptiesrun.Apartfromtheemptycontainers transported, Concor has a higher proportion of trains running without anycontainersonthedomesticsector.

DuetoConcorsdominanceintheEXIMsector,andanincreasingdemandfordomesticrailway container haulage, private operators are plying most of their trains on thedomesticroute.

#8 Entryintodoor-to-doorserviceswillpositionConcor asend-to-endsolutionsprovider

Concorhastied-upwithTransportCorporationofIndia(TCI)andRelianceLogisticstoprovide door-to-door services to its clients. Since the main reason for customerspreferringroadtransportisduetotheunavailabilityofrailwayinfrastructureneartheirfactories, in an attempt to garner market share from road transport, railway containerhaulageplayersarenowprovidingcompleteend-to-endsolutions.

31.6

33.029.2 29.7 27.8 28.5 28.2

15.118.5 18.9 17.2

13.7

15.014.0

-

5

10

15

20

25

30

35

-

10,000

20,000

30,000

40,000

50,000

60,000

FY04 FY05 FY06 FY07 FY08 FY09E FY10E

%

Rs.mn

Revenuebreak-up vs.margins

EXIMRevenues(LHS) DomesticRevenues(LHS)

EXIMEBITMargins DomesticEBITMargins

EXIMsectorEBITmarginsare~28%


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ConcorInitiation

Concor outsources the last mile delivery to one of its two trucking partners (TCI andRelianceLogistics)dependingontheregion.Thisenablesittoprovidecompletelogisticssolutions without requiring purchasing of trucks and operating them. In our view, thisvalueaddedservicewillfurtherstrengthenConcorsmarketleadershipposition,andaidinimprovingtherailwaysmarketshare.


Shippingline Railwayterminal Transportbyrailways

DeliveredtoICDTransportbytruckDeliveryto

customer'sfactory

Lastmiledelivery:valueaddedserviceprovided

Concoroutsourceslastmiledelivery


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ConcorInitiation

KEYRISKS

#1SlowdowninEXIMtrade

Concor'srevenuegrowthisleveragedtogrowthtrendsinEXIMtrade;aslowdownonthisfrontwouldhaveasubstantialnegativeimpact.EXIMtradetypicallygrowsat~2xgrowth in GDP, and any significant drop in Indias GDP could lead to a sharpdecelerationinEXIMtradegrowth,impedingConcorsgrowthprospects.

#2Higher-than-anticipatedmargincontraction

Concorsmarginsareexpectedtocontractgoingforwardduetoincreasedcompetition.Although wedo not foresee a significant drop inConcors market share, margins arelikely to drop with prices becoming more competitive. Apart from this, due to theincreasedsensitivitytoprice,Concormightnotbeabletofullypassonanyhikesinthe

haulagechargesleviedbytherailways.#3Increasingcontributionofthelowmargindomesticsector

ThedomesticcontainerrailhaulagesectorisgrowingfasterthantheEXIMsector,whichcould resultin revenues tilting in favour of the former. This would result in a drop inprofitabilitysinceConcorwillfacecompetitionnotonlyfromtheprivaterailoperatorsbutalsofromcompaniesoperatingintheroadhaulagespace.Apartfromthecompetitioninthis sector, Concor also faces the problem of running more empties (containers andwagons).

#4Delaysinwagonprocurement

Concorproposestoacquire1,800wagonsinFY09and1,500wagonsinFY10,andanydelay in the procurement of wagons will negatively the earnings potential, and might

erodemarketshare.Sinceaxlesforwagonsarefacingasupplycrunch,Concorintendsto import axles from railway approved vendors to ensure its requirements are met.However, in the event of wagon procurement being delayed despite import of axles,Concorsrevenuepotentialandmarketsharewilldrop.

Delaysinwagonprocurementwill

negativelyimpactearnings


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VALUATIONDISCUSSION

Concorenjoysanegative

workingcapitalcycle

Atthe current priceof Rs. 785, Concor tradesat 12.3xFY09E and 10.4xFY10EEPS.Overourforecastperiod(FY08-10E),weexpectConcortopostanearningsCAGRof14%.Returnmetricsarerobust,withROEof23.7%and23.3%inFY09EandFY10Erespectively.Withanegativeworkingcapitalcycle,weforecastfreecashflowsofRs.4,613mninFY10E.WeexpectConcortogeneratecashpershareofRs.141inFY10E.

WehavenotascribedanyvalueforthecoldchainsubsidiaryFreshandHealthy,asitisstill ina nascent stage and we do not expect it to scale up significantly till FY11.Concor is compared domestically to only Gateway Distriparks, as there are no otherlistedcompetitorsoperatinginthesameindustrysub-sectors.

Intheglobalarena,wecompareConcorwithCSXCorp(USA)andCanadianNationalRailwayCo.(Canada).Wenotethatglobalpeerstradeatanaverageone-yearforward

P/E of 14x, in spite of an earnings growth of only 11%. In contrast, Concor enjoyssignificantlybetterreturnmetrics,higherearningsgrowthandmoreattractivevaluations.

WeuseacombinationofP/EandDCFtovaluethecorebusinessandoverlaythatwithanSOTPtocaptureConcorsinvestmentsinJVstoarriveatacompositetargetprice.Applyingatargetmultipleof12xonourFY10EEPS,wearriveatatargetpriceofRs.903. Our DCF model yields a fair value of Rs. 954. We use an average of the twovaluationmethodstoarriveatourtargetpriceofRs.929forthecorebusiness.WevalueConcorsinvestmentsinJVsatRs.23pershare.Combiningthevalueofcorebusinessandtheinvestments,wearriveatourSOTP-basedtargetpriceofRs.952.Atourtargetprice,Concorwouldtradeat14.9xFY09Eand12.6xFY10EEPSwithEV/EBITDAof9.9xFY09Eand8.2xFY10E.

Inouropinion,Concorsearningswillhaveafairdegreeofpredictabilityandgiventhecurrent volatility in the markets, will think itwillcommanda multiplethatclosely trailsearningsgrowth.Inthiscontext,webelievethatourtargetmultipleof12xFY10EEPSinthe context of a 14% EPS CAGR is not unjustif ied. Initiate coverage with aOUTPERFORMratingfora21%upsidefromcurrentlevels.

Valuationmethodology

DomesticPeerComparison

Source:Bloomberg,SparkResearch

InternationalPeerComparison

Source:Bloomberg,SparkResearch

Valuation

methodMultiple

Value/Share

(Rs.)Corebusiness P/E 12x 903Corebusiness DCF 954

(A)Averagevalue 929(B)JWG-AirCargoComplex P/E 10x 8(C)Otherjointventures P/B 2x 15(A+B+C)TargetPrice 952

FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E FY09E FY10E

Concor 41,858 50,748 23.7 23.3 8,309 9,783 12.3 10.4 7.9 6.5GatewayDistriparks 4,151 5,844 14.2 16.5 990 1,235 11.5 9.2 6.6 5.1

P/E

(x)

EV/EBITDA

(x)

Revenues

(Rsmn)

RoE

(%)

PAT

(Rsmn)

CY08E CY09E CY08E CY09E CY08E CY09E CY08E CY09E CY08E CY09E

CSXCorp 11,150 11,840 15.9 17.6 1,458.0 1,620.0 18.0 15.2 9.0 8.1CanadianNationalRailwayCo. 8,331 8,840 7.2 7.5 1,713.0 1,906.0 15.1 13.1 8.9 8.1

RoE

(%)

PAT

(USDmn)

P/E

(x)

EV/EBITDA

(x)

Revenues

(USDmn)


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ConcorInitiation

Basecase

DCFvaluation


(Rs.mn) FY08 FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E

Revenues 33,530 41,858 50,748 60,898 72,468 85,513 100,050 116,058 133,466 152,152 171,931 190,844

RevenueGrowth(%) 10.2 24.8 21.2 20.0 19.0 18.0 17.0 16.0 15.0 14.0 13.0 11.0

EBIT 7,949 9,688 11,383 12,789 14,494 16,247 18,009 19,730 21,355 22,823 22,351 22,901

EBIT*(1-taxrate) 6,200 7,557 8,879 9,975 11,305 12,510 13,867 15,093 16,229 17,117 16,540 16,489

Depreciation 1,074 1,335 1,610 1,979 2,226 2,474 2,699 2,924 3,126 3,329 3,509 3,689

ChangeinWC 155 416 445 507 579 652 727 800 870 934 989 946

OperatingCashFlow 7,430 9,308 10,933 12,461 14,110 15,637 17,293 18,818 20,226 21,380 21,038 21,123

Capex 5,069 6,173 6,010 6,000 5,500 5,500 5,000 5,000 4,500 4,500 4,000 4,000

FreeCashFlow 2,361 3,135 4,923 6,461 8,610 10,137 12,293 13,818 15,726 16,880 17,038 17,123

No.ofYears - 1 2 3 4 5 6 7 8 9 10

DiscountFactor 1.00 1.14 1.29 1.47 1.68 1.91 2.17 2.47 2.81 3.20 3.64

DiscountedFCF - 3,135 4,327 4,990 5,844 6,046 6,444 6,366 6,367 6,006 5,327 4,705

90 85 80 75

40 85.9 81.8 77.6 73.5

36 79.1 75.3 71.6 67.8

33 72.9 69.4 66.0 62.6

30 67.3 64.2 61.1 57.9

Railway

share

(%)

Concormarketshare(%)

FY10EPSsensitivitytochangeinmarketshare(Rs.)

Equity(Rs.mn) 38,241.12

Debt(Rs.mn) 450.00

TotalCapital(Rs.mn) 38,691.12

Debt:Capital 0.01

Equity:Capital 0.99

RiskFreeRate(%) 8%

Riskpremium(%) 7%

Beta 0.9Costofdebt(%) 11%

Taxrate(%) 22%

Tax-adjustedDebtCost 9%WACC 14%

WACCCalculation

Terminalgrowth 4%

TerminalValue(TV) 181,928

DiscountedTV 49,993

CumulativeDiscountedFCF 109,550

Debt 450

Cash 14,905

DCF 124,006

No.ofShares(mn) 130FairValue/Share(FY09) 954

Targetpricecalculation


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ConcorInitiation

KeyAssumptions FY09E FY10E

TotalNo.ofRakes 10,084 11,584

Capex(Rs.mn) 6,173 6,010

WagonAdditionperYear(Nos) 1,800 1,500

Trips/Month/Rake 12 12

EmptyContainersasaPercentageofTotalTEUs(%) 55 54

RailHaulageCharges(Rs./TEU) 10,834 11,364

EXIMThroughput(TEUs) 2,081,749 2,394,011

DomesticThroughput(TEUs)550,168 671,205

TotalThroughput(TEUs) 2,631,917 3,065,217

EXIMRealizations(Rs./TEU)* 14,000 14,500

DomesticRealizations(Rs./TEU)* 15,000 15,500

TotalContainerTrafficinIndia(mnTEUs)# 8 10

AssumedShareofRailways(%) 35 36

WagonAdditions/YearbyCompetitors(excludingcaptiveusage 4,440 6,390

ConcorEXIMMarketShare(%) 90 85

*RealizationsexcludeTerminalHandlingFees#

Source:KPMG

Rakes&Capex

Throughput&Realizations

MarketScenario


18/24 une08

IN

The comp ends

Com

Sou

Desp hom parti

C I

Frei

Frei

Fragmentationisrampantinthelogistics

industry

USTRYOVERVIEW

logistics industry is highly fragmented in terms anyofferingaspecializedservice.Thelargercongl

olutions,backedbyjointventures,subsidiariesora

ponentsoflogisticschain

ce:SparkResearch

ite the multiple functions and companies inv genous network, with the logistics provider typica sinvolved.

Theexporterselects qualityofservice,effic Exporter

Undertakestheshipm withthevariousinter deliverthegoodstoth

LogsiticsProvider

Thestuffedcontainer customsclearenceta afeebasedonthese

ntainerFreightStation(CFS)/landContainerDepots(ICD)

Theseagentscomple andareinchargeoff shippinglines

ightForwarder/CustomsHouseAgent

Sincemanufacturedp containers,thesecom differentlogsiticsplay

LCLConsolidators

Thesecompaniesow tothedestinationcou betweenportsandch

ShippingLine

Shippinglinesdeliver thedestinationcountr Thelatterchargeagr chargesleviedonser

CFS/ICD

Theyworkinconjunct thecustomsformalitie

ightForwarder/CustomsHouseAgent

Thesecompaniesspli componentsbasedon LCLConsolidators

Thelogisticsprovider internationalnetworkt ICDtotheimporter

LogisticsProvider

Thesearetheendcu dependingontheagr companiessometime

Importer

Page18of24

ConcorInitiation

of service offerings, with each omeratesoffercompleteend-to-

cquisitions.

lved, the supply chain is a lly coordinating with the various

helogisticsproviderbasedon iency,andpresenceintheregion

entfromtheexporter,andliases ediariesinthesupplychain,to

eimporter

issenttotheCFSs/ICDswherethe esplace.Thesecompaniescharge

rvicesprovided

ethecustomsclearenceprocedures rwardingthecontainerstothe

roductsaretypicallyshippedin paniesconsolidatecargofrom

rsintoasinglecontainerload

shipsandtransportthecontainers try.Theyrunonafixedschedule

rgeratespercontainer

thecontainerstotheCFSs/ICDsat tocompletecustomsformalities. undrentapartfromtheother

ices

ionwiththeCFS/ICDtocomplete sinthedestinationcountry

tacontainerloadintodifferent theimporterandfinaldestinat ion

hiredbytheexporterusesits otransportthegoodsfromtheCFS/

tomersofthesupplychain,and ementwiththeexporter,these bearthecostofthesupplychain


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ConcorInitiation

ThebiggestentrybarriertotheCFS/ICDsectorisland

availability

Logisticsmatrix

We have mapped the l isted integrated logistics providers into their areas ofspecialization, to better understand the business models, competition, and marketdynamics.Inourview,theCFS/ICDbusiness,althoughhighlyprofitable,isevolvingintoarealestateplay.ThebiggestentrybarriertotheCFS/ICDsectorisland,andinouropinionthecompanywiththebestplacedlandwillgetachunkofthecontainertraffic.

Therearesignificantentrybarriersintheotherareasofspecializationaswell,suchasanetwork of terminalsfor the railway container haulage space,tie-ups and relationshipwith the shipping lines for the LCL consolidation sector, and ships with adequatecapacityandpermissionsincoastalshipping.Inourview,newplayerswillfinditdifficultto break into these markets, while existing players will start consolidating to providecompleteservicestotheendcustomer.


Raillogistics

Railhaulageisoneoftheleastexpensiveformsoftransportation,andtherailwayshavea~33%shareincontainerhaulage.RailwaysareusedextensivelyforEXIMtrafficsincecustomsclearanceispossibleattheICDsandexportersarenotrequiredtogototheport to complete these formalities. Since railway haulage is cheaper and faster thantransportationbyroadways,exportersareenticedtosendtheirshipmentsviarail.

However, on the domestic container traffic, manufacturers prefer road transportation

Allcargo

GatewayDistriparks

Concor

Gati

ource:Company,SparkResearch

North-Westrailconnectivityandmajor

goods

ColdChain

ExpressCargo

CoastalShipping

Warehousing

3PL

TruckingMultimodal

Transportation

AirCargo

LCLConsolidation

CFS/ICD

RailwayContainerHaulage


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ConcorInitiation

despite being more expensive, since railway terminals are not located close to everyindustrial zone. In order to overcome this challenge, rail haulage companiesare now

providingdoor-to-doorservicesthroughtie-upswithtruckingcompanies.

We expect the market share of railways in container haulage to increase to ~36% inFY10onthebackofitscostadvantageandimprovedserviceslikelastmiledelivery.Thecostadvantageofrailhaulageissignificantlyhigherthanroadhaulage,asitcosts~Rs.1.6/kmtotransport1-tonofgoodsthroughroad,whiletherailwayscostonly~Rs.0.8/kmforasimilarcargoload.

Break-upofEXIMcargohandledinIndiain2008

Source:IPA,SparkResearchTheEXIM cargointhe countrycanbe classified onthebasis oftypeofcargo,andin2008 containers accounted for ~18% of the total cargo handled. JNPT handled themajority of the container cargo with a 60% market share. Once the containers areunloadedintotheport,~40%of themaretransportedtoCFSs,therestaretransportedtoICDsordirectlytofactoriesifcustomsclearancehasbeencompleted.

Containerizationinothercountriesisaround70%,whileitismuchlowerinIndiaduetopoorinfrastructureandbottlenecksintransportation.Inourview,containerizationinIndiaissettoincreasebackedbyinfrastructuredevelopmentandmoreprivateparticipationindevelopingberthsatports.

Privateparticipationincontainerrailhaulage

Thegovernmenthasrecentlypermittedprivateparticipationincontainerrailhaulagefora license fee ofRs. 500mn tooperate onall tracks, and Rs. 100mn forpoint-to-pointoperations. There has been significant interest to receive railway licenses, and 15companies have received approval till date. The economics of rail haulage is highlyattractive,withaROCEof~25%.Themainentrybarrierislackofaterminalnetwork,and all the new entrants have to construct terminals and ICDs across the country toeffectively provide rail haulage services. Until the terminal network is established, amajorityoftheprivateplayersareusingConcorsterminalsforafee/lease.

ListofPrivatePlayers

AdaniLogistics GatewayRailFreight

ArshiyaInternational HindTerminals

BoxtransLogisticsIndia IndiaInfrastructure&Leasing

CentralWarehousingCorporation InnovativeB2BLogisticsSolutions

Concor PipavavRailwayCorporation

ContainerRailRoadServices RelianceInfrastructureEngineering

DelhiAssamRoadways SicalLogistics

EmiratesTradingAgency


TotalEXIMCargo

519mntons

General&OtherCargo

427mntons

ContainerCargo

92mntons

JNPT

52mntons

OtherPorts

40mntons

TransportbyRoad

62mntons

TransportbyRailways

30mntons

Weexpectrailwaysmarketshareto

increaseto~36%

Containersaccountedfor~18%ofthetotalEXIMcargoinFY08

RailhaulageenjoysROCEof~25%


21/24

une08 Page21of24

ConcorInitiation


Dedicatedfreightcorridor

The government proposes to setup a dedicated freight corridor to facilitate fastermovementoftrainsanddoublestackingofcontainers.Theestimatedcostfortheprojectis $ 4.7bn, and the tracks will run between JNPT and Dadri and from Ludhiana toHowrah.Thiscorridorwillsolvevariousproblems,suchas:

SpeedFreightandContainertrainswhichcurrently runat speedsof25-30km/hrcanreachspeedsof~100km/hronthefreightcorridorastherearenopassengertrainsontheseroutes

LoadingDuetoelectricallinesonthenormalrailwaytracks,containertrainsareunabletodoublestackloads.Thefreightcorridorwillallowdoublestackingasitisadieselline

Asaresultofindustrializationinthenorthernregion,thereisaburgeoningdemandforrail container haulage. There are a considerable number of ICDs being setup in thisregion to cater to this demand, as most of the private players with a railway licenseproposetooperateinthenorth-westandnorth-eastsectors.

Source:DFCC&SparkResearch

The government proposes to start work on the corridor shortly, and the north-westcorridorisexpectedtobeon-streaminapproximatelyfiveyears.Sincetheroutesare

No.ofRakes 1

No.ofWagons/Rake 45

Containers/Wagon(Nos.) 2

TotalTrips/Year/Wagon@10Trips/month 120

TotalTraffic(TEUs) 10,800

AverageRealization(Rs/TEU) 15,000

HaulageChargestoRailways(Rs/TEU) 10,200

TotalRevenues(Rs.mn) 162

Less: Operatingexpenses(Rs.mn) 110

Less:OtherExpenses(Rs.mn) 8

Less: Depreciation(Rs.mn) 7

EBIT(Rs.mn) 37

CapitalEmployed(Rs.mn) 113ROCE(%) 25

EconomicsofRailHaulage

Estimatedcostfortheprojectis

$4.7bn


22/24

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ConcorInitiation

dieselbasedandhavenopassengertraffic,railoperatorswillbeabletoincreasetheaxle load and speed of the rakes, as well as double stack containers, making rail

haulagemoreefficient.

Thecontainertrafficinthenorth-westsectorisexpectedtoincreaseto6.2mnTEUsby2022fromthecurrent0.7mnTEUs,whilethetotalcargotrafficinthenorth-eastsectoristoincreaseto143mntonsby2022from52mntonsaspertheRailwayMinistry.

Coldchainlogistics

Withtheadventofaretailboominthecountry,therehasisaburgeoningdemandforcoldchainlogistics.Apartfromtheretailboom,otherindustriessuchaspharmaceuticalcompaniesrequirerefrigeratedtransportationduetothetemperaturesensitivenatureofthe drugs. Tocaterto this demand, several cold chain logistics companies are beingsetup,withthelargelogisticsconglomeratesalsoenteringthisspace.

Theclientbasevariesdependingonthespecialtyofthecoldchainprovider.Certaincold

chain operators cater solely to FMCG and diary companies while others cater topharmaceuticalcompanies.Goodsaretypicallystoredina controlledatmosphere,withsegregatedtemperaturesettingsforeachproduct.Thistranslatesintoanadditionalshelflifeofover6-months.

Dependingon the nature ofthe product, storage iseither in cold stores orcontrolledatmosphere stores. In a cold storage the goods are frozen using refrigerators, whilecontrolledatmospherestorageregulatesthe atmosphereinthe warehouse,thisresultsinbetter preservation. Coldstorage isusedfor dairyproductssuchas ice cream andseafood; controlled atmosphere storage is typically used for fruits & vegetables, anddrugs.

ShelfLifeofColdStoragevs.ControlledAtmosphereStorage

Fruit/VegetableStorageTemp.

(Centigrade)

ShelfLife

ColdStore

ShelfLife

CAStore

Apples 1 3months 10months

Mango 12-13 2weeks 8weeks

Grapes 1 2weeks 4weeks

DryFruits/Nuts 0-10 3-4months 10months

Litchi 2 2weeks 8weeks

Tomato 10-12 2weeks 10weeks

Carrots 0 2-3weeks 12-16weeks


InIndia,thecoldchainstorageacapacitytohandleonly10%ofthetotalfoodproduceand as a result of the lack of storage facilities over 25% of the food gets spoiled.AccordingtoareportbyFICCI,thecoldchainindustryinIndiaisexpectedtogrowat~20-25%p.a.backedbytheentryofforeignretailplayersandthesettingupoffoodparks.Inourview,thisindustryisinaverynascentstageanditwillbeafewyearsbeforethenewerplayersareabletobreak-even.

Coldchaingivesanadditionalshelflifeof~6-months

InIndia,coldchaincapacityisonly10%ofthetotalproduce


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ConcorInitiation

FINANCIALSUMMARY

Note:FY08Enumbersareconsolidatedestimates

Profit&Loss(Rs.mn) Growthratios(%)

FY07 FY08E FY09E FY10E FY07 FY08E FY09E FY10E

Revenues 30,421 33,530 41,858 50,748 Sales 25.0% 10.2% 24.8% 21.2%

OperatingCosts 21,511 24,507 30,835 37,755 EBITDA 27.7% 1.3% 22.2% 17.9%

EBITDA 8,909 9,023 11,023 12,993 EBIT 29.8% -0.3% 21.9% 17.5%

Depreciation 936 1,074 1,335 1,610 PBT 31.6% 8.1% 11.8% 17.7%

EBIT 7,973 7,949 9,688 11,383 NetProfit 33.8% 7.3% 10.0% 17.7%

OtherIncome 848 1,587 969 1,164 CAGR(08-10E)

Interest - - - - Sales 23.0%

PBT 8,821 9,536 10,657 12,547 EBITDA 20.0%

NetProfit 7,036 7,553 8,309 9,783 NetProfit 13.8%

Marginratios(%)

FY07 FY08E FY09E FY10E

BalanceSheet(Rs.mn) EBITDA 29.3% 26.9% 26.3% 25.6%

FY07 FY08E FY09E FY10E EBIT 26.2% 23.7% 23.1% 22.4%

PaidupCapital 650 650 1,300 1,300 PBT 29.0% 28.4% 25.5% 24.7%

Reserves&Surplus 25,647 31,342 36,941 44,285 NetProfit 23.1% 22.5% 19.9% 19.3%

Totaldebt 305 400 450 500

DeferredTax 1,613 1,632 1,670 1,728 Performanceratios

TotalNetworth&Liabilities 28,214 34,024 40,361 47,813 FY07 FY08E FY09E FY10E

GrossFixedassets 20,254 25,583 31,916 37,976 RoA(%) 24.0% 21.0% 19.5% 19.5%

AccumulatedDepreciation 4,738 5,812 7,147 8,757 RoE(%) 29.8% 25.9% 23.7% 23.3%

Netfixedassets 15,516 19,771 24,769 29,219 RoCE(%) 30.0% 26.7% 24.0% 23.7%

CWIP 2,570 2,310 2,150 2,100 Sales/TotalAssets(x) 1.0 0.9 1.0 1.0

Investments 967 967 967 967 FixedAssetsTurnover(x) 1.6 1.5 1.5 1.5

Tot alLongtermasset s 19, 053 23,048 27,886 32,286

Currentassets Financialstabilityratios

Inventory 47 75 95 117 FY07 FY08E FY09E FY10E

Debtors 99 110 138 167 TotalDebttoEquity(x) 0.0 0.0 0.0 0.0

Cash 10,776 12,778 14,905 18,348 NetDebttoEquity(x) (0.4) (0.4) (0.4) (0.4)

Loans&Advances 2,710 2,790 2,870 2,950 Currentratio(x) 3.0 3.2 3.2 3.5

OtherCurrentAssets 212 213 214 215 WorkingcapitaltoSales(%) (4.6) (4.2) (5.0) (5.1)

Currentliabilities 4,685 4,993 5,749 6,273 Inventory&Debtordays 2.0 2.0 2.0 2.0

Netcurrentassets 9,159 10,974 12,474 15,524 Creditordays 27.5 30.0 30.0 30.0

Misc.Expenditure 2 2 2 2 DebttoEBITDA(x) 0.0 0.0 0.0 0.0

DeferredTax - - - -

TotalAssets 28,214 34,024 40,361 47,813 Valuationmetrics

FY07 FY08E FY09E FY10E

CurrentSharePrice(Rs.)

MarketCap(Rs.mn) 102,036.5 102,036.5 102,036.5 102,036.5CashFlows(Rs.mn) FullyDilutedShares(mn) 130.0 130.0 130.0 130.0

FY07 FY08E FY09E FY10E FullyDilutedEPS(Rs.) 54.1 58.1 63.9 75.3

CashflowsfromOperations 7,527 7,230 9,305 10,623 P/E(x) 14.5 13.5 12.3 10.4CashflowsfromInvesting (2,556) (3,482) (5,204) (4,846) PricetoSales(x) 3.4 3.0 2.4 2.0CashflowsfromFinancing (1,109) (1,745) (1,975) (2,334) EV(Rs.mn) 91,565.5 89,658.0 87,581.1 84,188.2CashGenerated 3,862 2,003 2,126 3,443 EVtoSales(x) 3.0 2.7 2.1 1.7OpeningCash 6,913 10,776 12,778 14,905 EV/EBITDA(x) 10.3 9.9 7.9 6.5ClosingCash 10,776 12,778 14,905 18,348 DividendYield(%) 1.4 1.6 1.7 2.0

785.0


24/24

ConcorInitiation

Ratinginterpretation

OUTPERFORM Greaterthan15%upsidefromcurrentpriceNEUTRAL Upsideordownsidefromthecurrentpriceiswithin15%UNDERPERFORM Greaterthan15%downsidefromthecurrentprice

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Concor - Initiating Coverage