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50175855 Idfc Container Rail

50175855 Idfc Container Rail

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Sections

  • INVESTMENT ARGUMENT
  • CONTAINER RAIL BUSINESS: SHIFT FROM ROAD TO RAIL THE KEY
  • UTILIZATION LEVELS, TURNAROUND TIMES & ICDS CRITICAL FOR PROFITS
  • RAIL TRANSPORTATION VS ROADS: RAIL WINS HANDS DOWN…
  • …BUT RAIL YET TO GAIN MARKET SHARE
  • Average loading per container (tonnes) 18
  • THE RAIL CONTAINER INDUSTRY LANDSCAPE POST PRIVATIZATION
  • ECONOMICS OF CONTAINER RAIL OPERATORS
  • HARD INFRASTRUCTURE: A KEY OPERATIONAL REQUISITE
  • UTILIZATION, TURNAROUND TIME AND VALUE ADD DRIVE PROFITABILITY
  • PROFITABILITY BETTER ON EXIM VS DOMESTIC VOLUMES
  • PROFORMA FINANCIALS OF A RAIL OPERATOR (INDICATIVE)
  • CHALLENGES AND RISKS FOR CONTAINER RAIL OPERATORS
  • COMPANIES
  • Arshiya International
  • Container Corp
  • Gateway Distriparks
  • Adani Logistics
  • Boxtrans (JM Baxi)
  • Container Rail Road Services Pvt. Ltd (DPW)
  • Central Warehousing Corporation (CWC)
  • ETA Freight Star
  • Hind Terminals
  • India Infrastructure and Logistics Pvt Ltd (IIPL)
  • InLogistics (Innovative B2B Logistics)
  • Sical Multimodal And Rail Transport (SMART)
  • Other operators

Sector report

INDIA RESEARCH

December 2009 BSE Sensex: 16720

Logistics: Container rail
Thrive(al) of the fittest
Privatization of container rail operations has enticed 16 players, including incumbent Concor, to the space since 2005. These players are eyeing 3% (97m tonnes) of the overall freight market by trying to shift volumes from road to rail. Operators can ‘create the market’ by offering integrated, value-added logistics solutions with last mile connectivity. However, to attain these capabilities and garner higher volumes, operators need to invest heavily in hard infrastructure. As the business entails a longer gestation period, scale and efficiency (utilization and turnaround times) are extremely critical to generate returns of 15%+ on capital employed. In view of their competitive strength, and thereby ability to attract volumes and drive strong earnings growth, we believe Concor, Arshiya and Gateway Distriparks (GDL) are well positioned to generate superior returns. Reiterate Overweight on the sector.
Integrated service offering to attract volumes to rail: While the number of operators appears high at 16, we believe there are enough volumes. With 500 rakes expected to be operational by FY12/13, players are eyeing only 3% (97m tonnes) of the overall freight market. However, volumes are required to be shifted from road to rail, for which operators have to offer timely, reliable and value-added services with last mile connectivity and customized solutions. Returns linked to turnaround times and utilization levels: Container rail is a highly capital-intensive and long gestation business with hefty investments required in rakes (capacity) and rail sidings (cargo consolidation and value added services, etc) to attract volumes. Hence, asset turnaround time and utilization levels assume greater relevance for an operator to derive economies of scale and be profitable. Once an operator achieves critical mass, we believe it can earn RoCE of 15%+, which can be further augmented by offering integrated services. Attractive valuations; Overweight: We believe operators need deep pockets to survive the long gestation period. In this context, Concor, Arshiya and GDL possess the competitive edge in terms of funding and strong infrastructure to secure higher volumes. Arshiya and GDL are fast attaining scale, and their rail operations are likely to turn profitable in FY11, supported by an expected upturn in the trade cycle. With 12-30% earnings CAGR over FY09-12E and attractive stock valuations, we are Overweight on the sector and Outperformer on the three stocks.
Valuations

Bhoomika Nair bhoomika@idfcsski.com 91-22-6638 3337
IDFC – SSKI Securities Ltd 701-702 Tulsiani Chambers, 7th Floor (East Wing), Nariman Point, Mumbai 400 021. Fax: 91-22-2204 0282

Company
Container Corporation Gateway Distriparks

Price (Rs)
130

Mcap (Rs m)

Reco. P/E
Outperformer Outperformer Outperformer 16.9 14.5 12.3

FY11E (x) EV/EBITDA
11.2 8.1 8.5

Target price (Rs)
1,450 160 250

Upside (%)
18.2 23.4 33.0

1,227 159,514 13,965 11,040

Arshiya 188 Prices as on 18 December 2009

“For Private Circulation only”

“Important disclosures appear at the back of this report”

SSKI INDIA

Contents
Investment Argument ............................................................................3
Container Rail Business: Shift from road to rail the key .....................................3 Utilization Levels, Turnaround Times & ICDs Critical for Profits.....................5 Concor, Arshiya and GDL are Our Bets in the Sector ........................................9

Is There Enough for All? ......................................................................12
Is the market large enough for 16 players? ........................................................12 Rail Transportation vs Roads: Rail wins hands down… ...................................14 …but rail yet to gain market share ...................................................................16 The Rail Container Industry Landscape Post Privatization ...............................20

Economics of Container Rail Operators ...............................................21
Hard infrastructure: A key operational requisite ...............................................21 Utilization, Turnaround Time and Value Add Drive Profitability....................23 Profitability Better on Exim vs Domestic Volumes...........................................25 Proforma financials of a rail operator (indicative) .............................................26 Challenges and Risks for Container Rail Operators ..........................................28

Companies ...........................................................................................30
Arshiya International .......................................................................................31 Container Corp................................................................................................41 Gateway Distriparks .........................................................................................49 Brief profiles ...............................................................................................59 Adani Logistics .................................................................................................60 Boxtrans (JM Baxi)...........................................................................................61 Container Rail Road Services Pvt. Ltd (DPW) .................................................62 Central Warehousing Corporation (CWC) ......................................................64 ETA Freight Star..............................................................................................65 Hind Terminals ...............................................................................................66 India Infrastructure and Logistics Pvt Ltd (IIPL) ..............................................67 InLogistics (Innovative B2B Logistics)..............................................................68 Sical Multimodal and Rail Transport (SMART)...............................................69 Other Operators...............................................................................................70

DECEMBER 2009

2

SSKI INDIA

INVESTMENT ARGUMENT
At a freight market size of ~3bn tonnes, we see enough volumes for all the 16 players in the container rail industry. Currently, penetration of containerized rail movement is abysmally low at ~1% for domestic cargo and 30% for the exim business. While we expect 12% CAGR in exim volumes for container rail operators over FY09-11, there is immense scope for volume growth in the domestic segment. However, players need to ‘create the market’ for a gradual shift of volumes from road to rail. This depends on their ability to provide integrated, reliable, regular and cost-effective services, and thereby invest into rakes, terminals, technology and last mile connectivity. Notably, once critical mass is achieved, players can generate healthy returns (15%+) from the business. Besides Concor, we see Arshiya International (Arshiya) and Gateway Distriparks (GDL) well placed to grow profitably. Both the players are in a rapid ramp-up mode and expected to turn their rail business profitable by FY11 with strong earnings growth over FY09-12E.

CONTAINER RAIL BUSINESS: SHIFT FROM ROAD TO RAIL THE KEY
Container rail business opened up to private operators
Indian Railways (IR) opened up the container rail business to private operators in 2005. Since then, 15 new players, besides the incumbent Concor, have joined the fray. Of these players, 12 hold a pan-India license while four have opted for a route-specific license, which entitles them to operate only on NCR-JNPT route.
Exhibit 1: Players in Rs500m license fee category (all India)
Companies Concor Gateway Distriparks (GRFL) Hind Terminals (MSC Group) India Infrastructure Logistics Pvt Ltd (APL) Emirates Trading Agency (ETA) CRRS (DPW) Arshiya international Adani Logistics Sical Logistics Central Warehousing Corp (CWC) Reliance Infrastructure Leasing Kribco Rakes operational 218 18 10 9 7 7 6 5 5 Operational rail siding 59 terminals 3 ICDs - Garhi (Delhi), Sanewal (Ludhiana), Kalamboli (Mumbai) Strategic alliance with Allcargo & C WC at JNPT, Mundra & NCR Tie ups with CFS/ ICD operators Tie ups with CFS/ ICD operators Tie ups with CFS/ ICD operators Vizag; Tie ups with various private sidings Patli in Gurgaon (NCR) and Kishengargh, Rajasthan 3 CFs (Chennai, Tuticorin & Vizag); Tie up with CFS/ ICD operators & private sidings Has several ICDs and CFSs of it s own NA NA Planned rail sidings 3-4 IC Ds/Logistics parks Faridabad (NCR) New locations in strategic alliance with Allcargo Panipat 2 owned sidings NA Khurja (NCR); 5 others Land acquired for more sidings More sidings planned NA NA NA

Players in Rs100m license fee category (sector-specific routes)
Companies Inlogistics (B2B) Boxtrans (JM Baxi and Co) Delhi Assam Roadway s Corp. Pipavav Rail Corporation (PRCL) Rakes operational 12 12 2 Operational rail siding Kalamboli (JNPT); Tie ups with CFS/ ICD operators Vizag & Rajasthan; Tie ups with CFS/ ICD operators NA NA Planned rail sidings 3 sidings planned 5-6 sidings planned NA NA

All players have collaborations with ICD/CFS operators as also operate from either IR sidings or private sidings Source: Companies, Company websites, IDFC-SSKI Research

DECEMBER 2009

3

445 FY07 728 1.55 2.478 464 1. Indian railways are trying to address the loss of market share through containerized operators. which have been expanding (8% CAGR over the past three years) in line with the rapid economic growth. or ~2m TEUs. being transported by rail.612 519 1. we believe there are enough volumes for all the players in the system.40 2.353 424 1. container rail estimated to have only 1% penetration The domestic segment is extremely fragmented with limited penetration of containerized rail movement. Penetration of container rail is relatively higher in port volumes (exim cargo) with 30%.927 FY09 850 1. IDFC-SSKI Research FY06 667 1.726 530 1.726 6. of trips / month / rake 500 180 5 450.3 1. Accordingly. Exhibit 3: With 500 rakes. the total number of rakes is likely to increase by 200 rakes to 500 rakes over the next three years.0 With estimated rake capacity of 500 over next 3 years. faster and more efficient mode of freight movement against roads due to lack of focus by IR on aggregation of cargo. operators eying 5-6% of road freight volumes Total capacity in a month (TEUs) Annual capacity (TEUs) Average loading per container (tonnes) Total capacity of rail operators (m tonnes) Estimated freight in India for FY09 (m tonnes) % of volumes for container rail operators Total road freight in India (m tonnes) % of volumes for container rail operators Source: IDFC-SSKI Research DECEMBER 2009 4 . of rakes (Concor and private operators) Per rake capacity for a trip @ 100% utilization (TEUs) Average no.400.71 2. we estimate that container rail operators would have a capacity of 97m tonnes.70 3.108 3. the targeted volumes are 3% of the overall freight market in India (including all modes of transportation) and only 6% of the volumes moved by road.1bn tonnes in volumes. IR estimated to be handling only 30% of India’s freight volumes India has a large freight market estimated at 3.108 …but penetration of container rail is quite low In the domestic market. container rail operators to have 3% capacity of overall freight market Total no. of which Concor accounts for 218 rakes with the remaining being with private players. Interestingly.2 3. With 500 rakes operational and at 100% utilization.000 5. the container rail industry has a capacity of ~315 rakes. Notably. Exhibit 2: Indicative break-up of freight handled in the country (m tonnes) Rail freight Road freight Sea freight Air freight Total freight in the country Source: Industry data.671 FY08 794 1. Currently. As per our discussions with various operators. only 30% of this cargo is estimated to be handled by the railways despite rail being a cheaper. which is estimated to be 1% (~6m tonnes) currently.SSKI INDIA Enough freight volumes in the system… Despite being cheaper than road.000 18 97.

operators should possess the ability to provide reliable and cost-effective solutions. etc) as also truck-related and software investments. TURNAROUND TIMES & ICDS CRITICAL FOR PROFITS A capital-intensive business Players need to attain a critical asset base to attract volumes To grow the container rail market and drive a shift in volumes from road to rail. container handling equipment (reach stackers. and thereby attract. For last mile connectivity. To attract volumes to the container rail segment. While these facilities impart the ability to offer seamless and DECEMBER 2009 5 . etc Market creation Shift from road to rail Drivers for growth in volumes Source: IDFC-SSKI Research Hub-and-spoke model can plug the gap in terms of last mile connectivity Last mile connectivity is the key differentiating factor between rail and road movement. cargo. wherein movement from hub-to-hub is via rail and the end destination is serviced by roads. higher is its ability to handle. container operators need to provide integrated service offerings that include last mile connectivity by road for ensuring a seamless transportation service to clients.SSKI INDIA End-to-end integrated services to drive volumes and shift to rail Players need to ‘create the market’ by offering innovative and efficient solutions While target volumes of container rail operators appear to be low in comparison to the total freight market. will prompt customers to outsource their logistics requirement to a container rail operator and drive the shift of volumes from road to rail. Higher the number of rakes and terminals with an operator. players have to invest into creation of an asset base comprising rakes. for which aggregation of cargo can be done for an entire rake movement. UTILIZATION LEVELS. etc Integrated solutions • Road bridging • End to end services to provide first and last mile connectivity Innovative solutions • Customised wagons or containers for different cargo • Eg. To provide this service effectively. players face the imperative to ‘create the market’ – a time consuming process in our view. operators need to provide reliable. Towards this end. customised wagons for cars • Reefer containers Aggregation of cargo • Aggregation of cargo to fill an entire rake load • Improves turnaround time of assets • • • • Value added services Customs clearance Warehousing solutions Stuffing & De-stuffing Packaging & labelling. operators can either tie-up with truck operators or own trucks for road haulage. a hub-and-spoke model. regular and integrated services to develop and create a market – especially in segments with cluster of clients. by integrating the cost-effectiveness of rail and the point-to-point delivery of road. Exhibit 4: The right steps towards ‘creation of market’ Regular & reliable services • Timely delivery • Scheduled services or as per requirement – daily / weekly. In order to attract volumes. terminals (ICDs/ rail sidings). The hub-and-spoke integrated model. is the apt solution. containers.

cargo to be moved from the destination to the start point – go a long way in improving utilization levels and profitability of the business. Moreover. Hence.Trucks. realizations. the hubs can be utilized to provide value added services to clients such as warehousing. while nearby locations can be serviced by roads. to some extent. Considering the above. Such rail sidings/ ICDs can act as a hub from where rail connectivity can be provided. Moreover. Also. Break-even level. DECEMBER 2009 6 . value-added services. return loads – i. The average turnaround time in the domestic business typically stands at 3-4 trips (to and fro) in a month per rake. tonnage. In this light. packaging. Exhibit 5:The business is extremely capital intensive. while turnaround times for exim segment can go up to 7-8 trips (to and fro). faster turnaround time of a rake increases the capacity and ability of the operator to handle higher volumes. is also dependent on the capital structure and asset base of a company. with a long gestation period requirement. etc. it also makes the business extremely capital-intensive. thereby enhancing utilization levels. operators tend to balance turnaround times and utilization levels for improving profitability levels. thereby having a long gestation period Capital intensive business Rakes Rakes Container handling Container handling equipment equipment Containers Containers Rail/sidings/ICD Rail/sidings/ICD Road related Road related infrastructure infrastructure .Trucks. and return loads improve utilization levels There is no set break-even level of utilization for a container rail operator as the break-even point depends on the distance moved by a rake. the cargo can be consolidated from various clients for an entire rake movement.e.SSKI INDIA integrated solutions. break-even levels can vary from 65-85% based on the above factors. Container rail operators have to pay the Indian Railways (IR) a fixed charge for using the rail network to move a rake to the destination. etc Source: IDFC-SSKI Research Higher utilization and turnaround times – critical for profitability Faster turnaround of rakes augments a player’s capacity to handle higher volumes. Thus. and turnaround times are extremely critical in determining the profitability of these operations. etc. Rail sidings enable an operator to expedite the process of loading/ unloading containers on to the rake. utilization levels (in turn highly dependent on return loads). etc . Sidings – required to operate on hub-and-spoke mechanism Rail sidings expedite loading/ unloading of containers on to the rake ICDs/ Rail sidings play a critical role in attracting cargo volumes and achieving a faster turnaround of rakes as also improved utilization levels for an operator.

but high returns over the longer term With critical mass. rakes as also volumes.SSKI INDIA Exhibit 6: Sidings can significantly enhance turnaround times and thereby drive profitability Aggregation & consolidation of cargo (improves utilization levels) Faster turnaround times Benefits of sidings Act as hub centers (operate on hub & spoke model) Area to provide value added services Source: IDFC-SSKI Research Long gestation business. etc. once a company achieves a level to attain economies of scale in terms of rail sidings.) Cost / rake Cost of all rakes Cost of setting up 1 ICD Cost of setting up 4 ICDs Other handling equipment & establishments Registration fees Total Capital Employed Gearing (x) Debt Interest rate (%) Depreciation rate (%) (Rs m) 40 122 4. returns are typically quite high.000 90 197. faster turnaround of rakes.000 500 500 8.100 30. returns can be improved beyond this level by optimizing the mix between exim and domestic cargo.316 11 5 Operational details – key assumptions Average time per trip (days) Average trips / yr / rake (no. higher utilization levels. However. players can generate returns of 15%+ which can be further augmented The container rail business is capital-intensive and requires a long gestation period to build volumes. Further. Exhibit 7: Proforma financials of a rail container operator Asset details Rakes (no.3 RoE can improve significantly with faster turnaround time and higher utilization levels DECEMBER 2009 7 .860 1. an operator has the ability to generate returns in excess of 15% (provided utilization levels and turnaround times are high). value added services can enhance realization RoCE (%) RoE (%) Source: IDFC-SSKI Research 14.3 16.000 5.860 750 3.) Capacity (TEUs) Utilization (%) Volumes handled (TEUs) Realization (Rs/TEU) Revenues (Rs m) EBITDA (Rs m) PAT (Rs m) 6. Our analysis reveals that on a base of 40 rakes and 4 ICDs at critical locations.5 5.913 1.0 61 219.707 577 Blended turnaround time Realization vary based on tonnage and distance.

Operators have limited control over the largest cost component (rail haulage). Therefore. On the other hand. However. higher would be the stickiness of customers even at higher prices.SSKI INDIA Sensitivity analysis to turnaround time and utilization levels A higher degree of integrated services assures customer stickiness even at higher prices To arrive at profitability of the business. lower utilisation levels and turnaround times. Exhibit 8: Sensitivity analysis Profit increase (%) 1% increase in utilization levels Turnaround improvement by 0. have an extremely adverse impact on financials. Similarly.6 trips per month for an operator. Turnaround times have a bearing on players’ capacity. The capital structure can also have a significant impact on profits and return ratios of an operator. Operators can thereby reduce the dependence of profitability to utilization levels and turnaround time. profits are highly sensitive to utilization levels. average profits for a player would increase by 20%. as is being witnessed by the players over the past 2 years.5 days Gearing (2x) Source: IDFC-SSKI Research 8 23 (10) RoE (%) 18 20 18 Risks of an operator • Operators’ financial performance is highly dependent on utilization levels – a function of return loads. • • • • DECEMBER 2009 8 . and thereby revenues and profits as the business is extremely capital-intensive and entails a long gestation period. Consequently. as IR typically increases rates on an ad-hoc basis. There is no third-party independent arbitrator in case of any dispute between a container rail operator and the IR. and at an economical cost. lower turnaround times impact capacity adversely. we have assumed a base case of 4. these variables impact returns based on the extent of value-added services provided by an operator and the ability to provide integrated solutions. and a 1% increase in utilization rate improves profits by 7%. Non-availability of land. lower utilization levels can have material negative impact on profitability. The higher the degree of integrated services provided. In case the frequency of trips goes up to five a month. to build ICDs at strategic locations can hamper the ability to garner volumes.

Growth would primarily be driven by scale-up with expansion of the container rail business. containers as also a pan-India footprint with 59 terminals. we believe. DECEMBER 2009 9 . especially in terms of return loads which is a critical factor determining an operator’s profitability. Having commenced operations in March 2009. The healthy profit growth. Concor has adopted a multi-pronged strategy centered on long-term volume contracts with clients. We expect 12% CAGR in Concor’s earnings over FY09-12 (15% CAGR over FY10-12). The long-term contracts ensure higher utilization level for its rakes. Arshiya has been able to enter into long-term contracts due to its end-to-end logistics capability of freight forwarding. equipment. we believe. To further consolidate its position. through its subsidiary Arshiya Distriparks. Further. either from internal accruals or fund raising. supply chain and IT solutions. Arshiya has six rakes operational which it plans to scale up to 30 rakes over the next two years. which imparts a strong competitive edge to them against smaller peers. listed plays better placed Our coverage stocks well placed to grow profitably Based on our interaction with various industry players and analysis of the industry. etc. We expect 28% CAGR in Arshiya’s earnings over FY09-12 (60% CAGR over FY10-12). ARSHIYA AND GDL ARE OUR BETS IN THE SECTOR With funding and infrastructure in place. the rail businesses of these players are set to turn profitable in FY11E. all the three players have cash on books. Arshiya has come a long way – as is evident in its financial performance over the past two quarters. Given this dominance. will enable Concor to maintain its leadership and grow its volumes in the coming years and thus sustain margins. Within a short span. Arshiya holds a pan-India license. picking up equity stakes in ports (such as JNPT terminal 3). The rail business has achieved break-even (in comparison to loss making peers) and appears set to turn profitable in FY11E. commencement of FTWZ at JNPT as well as in Khurja.SSKI INDIA CONCOR. Huge cash on books of Rs20bn and depreciated assets lend further resilience to Concor’s business model. we believe the listed entities – Concor. Our universe of players are also ahead of the curve in terms of infrastructure (rakes. we see the company largely insulated from competition over the next 2-3 years. Concor – unlikely to be impacted by competition An unmatchable competitive edge in terms of infrastructure and capital structure Concor is a dominant player in the container rail business with 95% market share and dominance in the exim sector. Arshiya – long-term contracts to drive profitability Rail business has achieved break-even and appears set to turn profitable in FY11E A recent entrant in the containerized rail segment. setting up logistics parks in strategic locations. sidings. These initiatives. long term contracts with clients. Concor has created a large asset base over the years in terms of number of rakes. Delhi and a growing core freight forwarding and supply chain solutions business. Further. Arshiya has had the opportunity to understand the nuances of the business. With all the building blocks in place. Arshiya and GDL – are well positioned to capitalize on the expected growth in industry volumes. across the country (under owned/ leased land). etc). The rail business would further benefit from the commencement of FTWZ operations in FY11E as the zones bring in captive volumes. Arshiya is in the process of setting up rail sidings/ ICDs. Being a late entrant. will enhance shareholder value over the medium term.

5 12.0 15.SSKI INDIA GDL – fund raising to aid turnaround in FY11E Having achieved a critical asset base. GDL’s rail business is expected to secure healthy volumes of 100.3 PE (x) 16.9 41.9 8.514 13.9 12.1 1.8 10.0 16. GDL is the only private player with three operational rail sidings/ ICDs and another terminal to be commissioned over the next 12 months.9 1.5 P/BV (x) 3.965 11. Valuations attractive – we are Overweight on sector We believe all the three listed entities in the container rail industry have the competitive strength to secure increasing volumes over the next 2-3 years.0 12.2 8.227 Gateway Distripark 130 Arshiya 188 Source: IDFC-SSKI Research FY11E EPS (Rs) 72. we reiterate Outperformer rating on Concor.9 14. Funding for the business expansion is in place with the Rs3bn raised from the Blackstone private equity group. Arshiya International and Gateway Distriparks. At attractive valuations (12-17x FY11E earnings) and with healthy earnings growth ahead.3 (Rs m) 159.040 EPS growth (%) 11.4 RoE (%) 19. GDL has rapid scale-up plans over the next two years for the rail operations with plans to add more rakes and terminals.0 1200 800 400 0 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Source: IDFC-SSKI Research DECEMBER 2009 10 .2 RoCE (%) 20.9 13.000 TEUs in FY10. GDL expected to secure healthy volumes of 100. We expect 15% CAGR in GDL’s earnings over the next three years (22% CAGR over FY10-12).3 EV/EBITDA (x) 11. Having achieved a critical asset base.5 9. Exhibit 9: Comparative valuations Company Price Market Cap (Rs) Container Corporation 1.9 Exhibit 10: Concor PER band 1600 Container Corporation 8.0 20.1 8.000 TEUs in FY10 GDL is among India’s largest private container rail operators with 18 rakes operational and plans to add another three in the next 2-3 months. and generate healthy shareholder returns.8 20.

0 12.0 16.SSKI INDIA Exhibit 11: Arshiya PER band 400 Arshiya International 8.0 180 120 60 0 Jun-05 Jun-06 Jun-07 Jun-08 Mar-05 Mar-06 Mar-07 Mar-08 Dec-05 Dec-06 Dec-07 Dec-08 Mar-09 Jun-09 Source: IDFC-SSKI Research DECEMBER 2009 11 Dec-09 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 .0 20.0 300 200 100 0 Jun-06 Jun-07 Jun-08 Mar-06 Mar-07 Mar-08 Dec-06 Dec-07 Dec-08 Mar-09 Jun-09 Dec-09 Sep-06 Sep-07 Sep-08 Sep-09 Source: IDFC-SSKI Research Exhibit 12: Gateway Distriparks PER band 240 Gateway Distriparks 8.0 20.0 16.0 12.

According to industry sources.671 FY08 794 1.353 424 1. DECEMBER 2009 12 . Integrated and value-added services through reliable and cost-effective solutions. 15 new players have joined the incumbent Concor in the fray.71 2.478 464 1. we believe. which has expanded at an 8% CAGR over the past three years.40 2. we believe players are eyeing to shift 5-6% of the ~3bn tonnes of the road freight market to the more economical and efficient rail route.70 3. will expedite the shift.927 FY09 850 1. while over the longer term by FY14E to double India’s exports of goods and services. etc. Notably. players need to identify niches where there are enough volumes for two-way movement of cargo. International trade may remain weak in FY10 as well. Imports into India are also set to grow.445 FY07 728 1. lacklustre years due to the global recession.1bn tonnes annually Only 30% of the 3. We expect the momentum to return in the exports segment driven by manufacturing sectors such as auto.612 519 1.108 Increasing international trade… We expect strong traction in exim in the long term as the global economy bounces back India’s international trade (exim) has witnessed strong growth over the past few years barring FY09 and FY10E. IDFC-SSKI Research FY06 667 1. particularly of oil and capital goods. While exports have grown on the back of increased competitiveness of the manufacturing sector and policy focus.726 530 1. imports and trans-shipment cargo. Over the next three years. the GoI has set a target of scaling up exports to US$200bn in FY11E from US$168bn in FY09 (9% CAGR). To garner higher volumes.1bn tonnes. Air cargo movement is limited to light and perishable cargo while sea freight is used primarily for handling exports.SSKI INDIA IS THERE ENOUGH FOR ALL? Since opening up of the container rail business to private players in 2005.1bn tonnes freight estimated to be handled by IR We estimate India’s total freight market at ~3.55 2. only ~30% of the freight is handled by Indian Railways. jewellery. textiles. imports are being driven by rising domestic consumption. Exhibit 13: Indicative break-up of freight handled in the country (m tonnes) Rail freight Road freight Sea freight Air freight Total freight in the country Source: Industry data. while the remaining gets transported via road. but we expect strong traction in the long term as the global economy bounces back. IS THE MARKET LARGE ENOUGH FOR 16 PLAYERS? Total freight market estimated to be 3.

0 25. we expect container penetration in the exim market to rise from 54% in FY09 to 57% over the next three years (12% CAGR).8m TEUs in FY09.0 15. This is attributable to the poor infrastructure at ports as also lack of awareness on benefits of containerization.95m TEUs was handled only at JNPT port. albeit at a slower pace of 8% CAGR due to sluggish economic activity in FY09 and FY10.000 0 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09R Source: RBI …expected to drive 8% CAGR in port traffic… 9-10% CAGR seen in traffic at major Indian ports over the last 4-5 years Traffic at major Indian ports has registered 9-10% CAGR over the last 4-5 years. As international trade grows and port infrastructure (particularly at container terminals) improves. of which 3.Containerizable cargo (%. Exhibit 15: Trend of container penetration for exim traffic of major ports (mn tonnes) Total volumes at Major Ports .8m TEUs.0 5.0 Port volumes Containerisable cargo Container volumes FY00 272 28 72 FY01 283 32 78 FY02 288 37 83 FY03 314 44 97 (%) 60.0 (5. We expect this trend to persist over the next three years. leading to total exim container traffic of 7.0) FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 15.0 FY04 345 51 106 FY05 384 55 120 FY06 423 62 138 FY07 464 73 155 FY08 519 92 176 FY09 530 93 171 Container penetration (as % of containerisable cargo) Global average of 75%+ 12% CAGR over next 3 years 45.0 0. container penetration likely to rise Container penetration in India is extremely low.Container (tons) .0 20.0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 Source: Indian Ports Association. IDFC-SSKI Research DECEMBER 2009 13 .0 10.0 0. yoy growth) 30.000 150. at ~54% in FY09. compared to the global average of >75%. Mundra and Pipavav handled another ~1m TEUs of traffic.000 75. …and 12% CAGR in container port traffic over next three years With improving port infrastructure. led by strong international trade as well as improved port infrastructure.0 30.SSKI INDIA Exhibit 14: International trade has been growing at a strong pace over the past few years (US$ m) 300. International container traffic at major ports was 6.000 Exports Imports 225.

Containerization standardizes the dimensions of containers and mechanizes handling of containers. thereby enabling quick and easy transfers at an economical cost. chemical. yarn. and related shipping and port activities.8m TEUs of cargo was moved via roads. in minimum units Containerization has brought about revolutionary changes in the concept of general cargo handling. or 1.SSKI INDIA 30% of exim cargo handled by rail. thereby making it difficult to move fragmented cargo in trucks. electronic equipment.8m TEUs handled at the major ports for international trade in FY09. With economies of scale being the norm in today’s world of production. domestic penetration very low Penetration of containerized cargo in domestic sector abysmally low at 1-2% Of the 6. and eliminating multiple handling of cargo. textiles. Containerization is widely used by all developed countries in international traffic with containers being adopted as basic storage units by shipping lines worldwide for moving break-bulk cargo. by Concor). The remaining 4. which has led to free flow of cargo through different modes of transport – road. only 30%. Containerization brings the benefits of road transport to rail transport with respect to flexibility and the size of cargo. Statistics in the domestic segment. auto components. leather. speak a similar story. were handled by the railways (27%. RAIL TRANSPORTATION VS ROADS: RAIL WINS HANDS DOWN… Containerization facilitates cargo handling Containerization gives flexibility in movement of assorted cargo. cargo such as iron & steel. Accordingly. in minimum units.85m TEUs. wherein 65-70% of the total freight movement in the country is by road. metals. paper. etc can be containerized and moved by container rail operators through rail. or ~2m TEUs. volumes to be handled have increased manifold. directly from the place of production to the place of consumption. This indicates immense scope for improvement in containerization levels in India. rail. sea and air. Exhibit 16: Huge benefits of containerisation Speedy intermodel transports Low handling costs Benefits of containerisation Low insurance costs Low packing costs Source: IDFC-SSKI Research Reduced pilferage & breakage DECEMBER 2009 14 . Containerization gives flexibility in the movement of assorted cargo. The penetration of containerized cargo in the domestic sector is abysmally low at 1-2%.

Our analysis reveals that over a distance of 1. rail transportation emerges as a faster and more reliable mode with lower instances of accidents in comparison to roads. etc). clients also may favour rail against road due to the pilferage factor.5 tonnes per container). at times. dealing with multiple vendors Source: Arshiya International corporate presentation DECEMBER 2009 15 . Heavy cargo preferred over light cargo load for rail movement Rail is also a safer mode of transport vs roads Container rail operators (as well as the IR) charge clients on per container basis – and not on per tonne basis as is the practice followed by road operators.185 vs Net Advantages of Rail • Cost per ton for movement lower by 37% • Increased efficiency with respect to time • Reduced Loading & Unloading issues/costs • One vendor relationship vs. This results in a higher cost of insurance. Economies of scale on container rail movement A single rake can handle up to 2. to carry 2. However.000km. which is extremely high during the course of road transportation. for higher loads. while weight of the cargo may be lower. freight costs are lower 20-25% for cargo transported via the rail route. Thus. This factor typically impacts the movement of cargo by rail in the exim sector as the average load of the container is 14-16 tonnes. dealing with one vendor against dealing with multiple truck operators. the difference between rail and road freight cost would narrow for multi-axle vehicles or excessive overloading of cargo on a truck. The same is reflected in exim cargo movement of rail (containerized) at only 30%. Thus. In this backdrop. which makes movement by road cheaper despite the longer distance. mainly owing to economies of scale offered by the former. Thus.4.000 MT per week Road • Average Trailer Turn Around Time for Circuit – 7 days @ speed of 16km/hour • Average carrying capacity /trailer – 27 MT • Trailers required for evacuation/week – 150 nos • Cost per tonne carried on Trailer – Rs1.430 tonnes of cargo (27. a road operator will require a big fleet of trucks.SSKI INDIA Transportation via rail is cheaper than by road Over a distance of 1. However.900 Rail • Average Rake Turn Around Time for Circuit – 4 days @ speed of 30km/hour • Average carrying capacity/ rake – 2. while a single truck has the capacity to carry 16-20 tonnes (tractor trailors can handle 27 tonnes). clients that need to move heavyweight cargo prefer the rail route over roads. In such cases.000km.430 tonnes. Exhibit 17: A study by Arshiya Intl highlights the benefit of moving heavy weight cargo by rail vs road Background • Distance – 900 km • Movement required . the value of cargo being transported may outweigh the cost differential between the two modes to avoid pilferage and theft. If there are large volumes to be handled. freight costs are lower 20-25% for cargo transported via rail route Movement of cargo by rail is cheaper than that by road over longer distances. containers having lower weight tend to become expensive to move by rail vis-à-vis road and vice versa.430 tonnes • Rakes required for evacuation/ week – 1 rake • Cost per tonne carried on rake – Rs1. rail movement gives economies of scale and lesser hassles (lower handling points.

Road transportation offered aggregation. consisting of 42 commodities. While this policy has provided significant operational gains for bulk commodities. Due to IR’s focus on bulk rake load movement. which could offer rake-load traffic. end to end services Road transportation offered a lucrative choice to customers having less than rake load cargo. and door-todoor delivery. frequency. This process would continue with wagons sometimes having to undergo sorting up to half a dozen yards – incurring significant yard waiting times. Apart from the road sector taking away bulk of the traffic. pipelines have also captured some share for moving POL (petroleum. oil and lubricants). a customer is required to offer a full rake of traffic. despite rail being a faster and more cost-effective medium of cargo transportation. Higher proportion of bulk movement by rail IR focuses primarily on bulk traffic movement Movement of freight accounts for nearly two-third of IR’s revenues. has reduced flexibility –leading to loss of market share In the early 1980s. Besides. high value items). the rake would move to the nominated yard. which was nearly 35% in 1974–75. However. IR was unable to offer economic and timely services to such customers as volumes were insufficient for rake load movement. IR’s share in other commodities (non-bulk. other goods. The wagon in the rake would then be sorted to build rakes for further yards towards the final destinations. coastal shipping has chipped at IR’s share due to cheaper pricing. and thereby operating inefficiencies and delays. bulk comprising of seven commodities and. in which case the rake moves right from the origin to destination without any intermediate sorting. Earlier. DECEMBER 2009 16 . these commodities have future potential due to the growth in containerization.SSKI INDIA …BUT RAIL YET TO GAIN MARKET SHARE Rail freight share tumbles over the past few decades Cheaper modes of transportation such as coastal shipping and pipelines IR’s share vs roads sharply down from ~89% in 1950s to 30% in 2008 The IR’s share vis-à-vis roads has fallen sharply from ~89% in 1950s to 30% in 2008. it has led to loss of share in other (high rated or break bulk) commodities due to customers’ inability to offer rake-load cargo. Such loaded wagons would be brought to the nearest yard. the IR changed its policy of ‘yard-to-yard’ movement of rakes (a train load of wagons) to ‘end to end’ movement of rakes. It broadly consists of two groups. and after sufficient accumulation of wagons for a full rake for a yard in the direction of the destination. dropped to just 11% by 2005–06 and to 8% in FY08. even at a higher price. with a full rake of traffic by client. a customer could offer traffic as a wagon load. due to the flexibility. Focus on bulk movement and not on aggregation IR’s end-to-end movement policy. Under the ‘end-to-end’ movement practice.

780 86. All the container operators. the total capacity of container rail operators would be 4. container rail operators would have a 6% capacity. etc.1 3. are targeting a cumulative fleet of ~500 rakes in another 3-4 years.330 38. IDFC-SSKI Research Concor – created to address the need for aggregation of cargo Concor has had limited focus on the domestic segment With IR’s focus on bulk cargo and limited servicing to small part wagon load cargo. the total capacity of container rail operators would be about 97m tonnes on an annual basis once the 500 rakes are operational after three years. DECEMBER 2009 17 .2 80. operators will be able to handle 6% of road freight Container rail operators. If we were to assume five round trips in a month at 100% utilization. Private participation.640 32.740 78.430 40. Cargo aggregation and end-to-end service to accelerate shift to rail Opening up of the container rail business to private entrants was driven by the intent to focus on aggregation of break bulk cargo such as white goods. Consequently.990 38.400 727.690 120.830 373.580 53.530 POL 4% Fertilisers 5% Foodgrain 4% Cement 10% Iron ore for exports 5% Raw material & finished goods for steel plants 10% 2005–06 2006–07 2007–082008–09 (RE) 2008–10 Other goods 16% 2008–10 (BE) Coal 46% 850.510 10.000 7.816 wagons (218 rakes) and handled 2.840 73. Importantly.000 33.1 81.000 882. including Concor.195 41. Concor’s limited focus on the domestic segment has left the turf open to road operators.230 35. including Concor.8 Source: Rail budget documents.390 86.250 39. textiles.SSKI INDIA Exhibit 18: Cargo break-up handled by Indian Railways – focus largely on bulk cargo (m tonnes) (BE) Coal Raw material & finished goods for steel plants Iron ore for exports Cement Foodgrain Fertilisers POL Other goods Total % yoy growth 69. electronic items.230 145.160 143.260 38.240 61.260 31.31m TEUs in FY09. Over the years.090 41. container rail operators would have the ability to handle only 3% of the total freight market (~3bn tonnes in FY08) in India.750 403. will catalyze a shift from road to rail transportation even as container rail operators are restricted from handling bulk commodities such as ores.830 35.660 34. steel.650 294. Further. of which 80% has been in the exim segment. auto components.880 133.000 666. At 97m tonnes of capacity (at 100% utilization of 500 rakes). cycles. IR set up Concor in 1988 to service the small cargo load (part rake or wagon loads) and garner some market share from the road segment. assuming an average loading of 18 tonnes/ TEU (current average loading on exim route is 14 tonnes/ TEU.480 43.840 34. leather.130 41. aggregation of cargo. continues to be done by road operators.150 43.810 793.330 336. specifically for the domestic segment. coal and coke. while domestic route loading ranges between 20-27 tonnes/ TEU).5m TEUs. Concor has built an inventory of 9.500 92.710 46.890 9.750 9. pharmaceuticals. handled approximately 30m tonnes in FY09 with around 300 rakes.7 74. As a proportion of the total road freight industry. Container rail operators’ capacity – 6% of road freight Once the targeted capacity of 500 rakes is operational.454 93.250 313. minerals.652 33. we believe.

For example.400. a hub-and-spoke model. the market for volumes needs to be created. of rakes (Concor and private operators) Per rake capacity for a trip @ 100% utilisation (TEUs) Average no. In order to attract volumes. wagon designs can be customized so as to handle more cars as also reduce damage to cars during transit. operators have to take various steps to attract cargo.108 3. Hence. which will then enable operators to enter into long-term contracts with clients and win business. Innovative solutions: Container rail operators will have to come up with innovative service offerings.SSKI INDIA Exhibit 19: With 500 rakes. For last mile connectivity. is the apt solution. container rail operators will have 3% capacity of overall freight market Total no. by integrating the cost-effectiveness of rail and the point-to-point delivery of road. Reliable service: Container rail operators need to provide reliable and regular services to clients. DECEMBER 2009 18 . Such innovation can be applied to various industries. any delay of movement of one rake can potentially delay the return movement or other rakes.2 3. Container rail operators need to operate on a huband-spoke model Offer end-to-end integrated services: Last mile connectivity is the key differentiating factor between rail and road movement. rail operators have the imperative to attain a certain scale to garner volumes. To provide this service effectively. which is likely to take some time.3 1.000 5. will prompt customers to outsource their logistics requirement to a container rail operator and drive the shift of volumes from road to rail. which is likely to be a time consuming process: Aggregation facilities and identification of right markets to help convert potential into demand Market creation: Though rail is cheaper than road as a mode of transportation. This activity will require rail sidings with enough yard space to do such kind of aggregation. which can be consolidated for certain routes.000 18 97.0 ‘Market creation’ initiatives required to attract volumes While the target volumes of container rail operators appear to be low in comparison to the total freight market. Consequently.726 6. container operators need to provide integrated service offerings that include last mile connectivity by road for ensuring a seamless transportation service to clients. operators can either tie-up with truck operators or own trucks for road haulage. Accordingly. wherein movement from hub-to-hub is via rail and the end destination is serviced by roads. of trips / month / rake Total capacity in a month (TEUs) Annual capacity (TEUs) Average loading per container (tonnes) Total capacity of rail operators (m tonnes) Estimated freight in India for FY09 (m tonnes) % of volumes for container rail operators Total road freight in India (m tonnes) % of volumes for container rail operators Source: IDFC-SSKI Research 500 180 5 450. the shift from rail to road is unlikely to happen immediately and will be a gradual process as operators prove the efficacy of their services to potential clients. If an operator has only 2-3 rakes. operators will have to identify markets where a cluster of clients require movement on a regular basis. The hub-and-spoke integrated model. which will allow the client to move over to railways from roads.

etc Market creation Shift from road to rail Drivers for growth in volumes Source: IDFC-SSKI Research DECEMBER 2009 19 .SSKI INDIA Exhibit 20: Key growth drivers for volumes Regular & reliable services • Timely delivery • Scheduled services or as per requirement – daily / weekly. customised wagons for cars • Reefer containers Aggregation of cargo • Aggregation of cargo to fill an entire rake load • Improves turnaround time of assets • • • • Value added services Customs clearance Warehousing solutions Stuffing & De-stuffing Packaging & labelling. etc Integrated solutions • Road bridging • End to end services to provide first and last mile connectivity Innovative solutions • Customised wagons or containers for different cargo • Eg.

Haldia. and domestic traffic – the entire rail network excluding any traffic which originates and also terminates at a location on or reached via the NCR route. and domestic traffic – the entire rail network excluding any traffic which originates and also terminates at a location on or reached via the NCR route. Chennai. in the Rail Budget presented in February 2005. Tuticorin. 16 players in container rail operations The opening up of container rail operations has resulted in the entry of 15 new players in the business apart from Container Corporation of India (Concor). In logistics (B2B) 4. Pipavav Rail Corporation (PRCL) DECEMBER 2009 20 . the IR will haul the rakes to the destination. and domestic traffic – the entire rail network excluding any traffic which originates and also terminates at a location on or reached via the NCR route. Category 4: Rs100m for exim traffic – the entire rail network which connects ports like Kandla. allowed entry of private players into containerized freight transportation by rail. Adani Logistics Ltd (MPSEZ) 2. Boxtrans (JM Baxi and Co) 2. New Mangalore. According to the Indian Railways private players would serve to: • increase Indian Railways’ market share of container traffic • provide incremental capacity to cater to the exponentially growing containerized traffic in India • ensure speedy clearance of export/ import of containerized traffic • substantially increase containerized domestic traffic on Indian Railways • improve quality of service to customers Licenses to private players for providing container rail movement The Indian Railways has given licenses to private players. Delhi Assam Roadways Corporation (DARC) 3. Sical Logistics Players which have obtained the Rs100mn license (sector specific routes) are: 1. Category 3: Rs100m for exim traffic – the entire rail network which connects the ports of Pipavav. excluding any location in and/ or reached via the NCR. Dinesh/ ETA (Emirates Trading Agency) 6. The license will entitle the container operator to source container volumes either for domestic movement or to and from ports for international cargo. (DP World) 11. while the remaining four have opted for a category-specific license. Of these 15 players. Reliance Infrastructure Leasing 12. Arshiya Rail Infrastructure (Arshiya International) 3. The private players can either take a pan-India license for Rs500m or a route-specific license for Rs100m.SSKI INDIA THE RAIL CONTAINER INDUSTRY LANDSCAPE POST PRIVATIZATION The Government of India (GoI). Ennore. India Infrastructure Logistics Pvt Ltd (APL) 9. which allows them to offer container train movement by rail. Mundra. Once the wagon is loaded and ready for movement. The license does not extend to private operators the right to lay tracks or haul the rakes from one destination to another. (Gateway Distriparks) 7. Kribco 10. Container Rail Road Services Pvt. Kolkata. The four categories for which the licenses were given to private rail operators are: Category 1: Rs500m for access to the entire rail network for both domestic and exim cargo Category 2: Rs100m for exim traffic – the entire rail network which connects the JNPT or Mumbai Port to any location. Gateway Rail Freight Ltd. Container Corporation of India (Concor) 4. Hind Terminals (MSC Group) 8. Kochi to any location. Vizag. 11 have obtained the pan-India license. Paradip and Mormugao to any location. Ltd. Players which have obtained the Rs500mn license (pan India) are: 1. Central Warehousing Corporation (CWC) 5.

The movement of volumes between one cluster to another – e. a rail siding with a yard for consolidating is extremely critical to consolidate cargo from various clients for aggregation. we believe economies of scale can enable them to generate 15%+ returns from the integrated value added services over the longer term. Some of the critical success factors for the business are: • • • Infrastructure: wagons and rail sidings (to load the containers) Return loads and utilization levels: volumes on both sides of a trip Turnaround time: trips per month for a rake Container rail business is an asset-intensive business as operators are required to invest in rakes (wagons). packaging. etc The investment in rail sidings (terminals) is extremely essential for a container rail operator. owning rail sidings gives the flexibility to the operator for attracting cargo and handling more volumes by providing timely and reliable services to its clients. etc. Terminals enable integrated services on hub-and-spoke mechanism A hub-and-spoke model can reduce empty running of rakes Considering that volumes are spread out and operators are likely to service clusters of clients. players should have a valueadded offering comprising integrated solutions. Moreover. As players scale up their business and develop the market. HARD INFRASTRUCTURE: A KEY OPERATIONAL REQUISITE Having established volumes for the business. where cargo can be aggregated and operations can be carried out on the hub-andspoke model. DECEMBER 2009 21 . Also. Rail terminals are required as a point to load and unload rakes with containers. acting as hubbing points. the yard area around the rail siding can be used for stuffing and de-stuffing of containers and providing various value-added services such as customs clearance. Consequently. a rail operator needs to ensure higher utilization levels of its rakes by restricting empty running as also achieve a higher turnaround time of rakes to enhance profitability. between Chennai and NCR region – can be done by rail by having terminals at both ends. a hub-and-spoke model can reduce empty running of a rake. to attract higher volumes. packaging. we have tried to analyze what will be the economics of a container rail operator and the critical success factors for them to generate returns. rail sidings (terminals) as well as in other related infrastructure such as containers.g. To optimize returns. Rail sidings required for timely movement of cargo Owned rail sidings enable a player to offer services like customs clearance. clusters can be serviced from the hub centers by road to provide integrated solutions to these clients. Further. container handling equipment such as rubber tyre gantries (RTG). As an integrated offering calls for heavy investments and with rail haulage being a key fixed cost. Consequently. etc. forklifts. the business is highly capital intensive. for consolidation. storage. storage.SSKI INDIA ECONOMICS OF CONTAINER RAIL OPERATORS Container rail operators are required to invest in ICDs or rail sidings.

aggregation or disaggregation of cargo (including value added services) will have to be done at another location and then transported to the rail siding. there are a few perils associated with using common user facilities. Moreover. etc While use of a rail siding may provide immediate relief to container rail operators by facilitating a centre for aggregation. aggregation of cargo. which would inflate costs. Availability of land poses to be the largest challenge for rail operators as the land for building the siding has to be near the existing rail network for connectivity. which eased availability of wagons. approval process expedited and advance orders placed for wagons Availability of rakes was a big concern at the time of opening up of the sector for private participation with non-availability of wheel sets and axles being the key hindrance. Some of them are: Indian Railways siding to allow limited mechanization for loading: Rail terminals for container handling are different than those used by IR for bulk handling as bulk cargo loading is primarily manual (using platforms). which can be a time consuming process at times. wagon manufacturers placed advance orders for these critical components. IR (in its recent budget) proposed to open up the usage of unused rail sidings and various private sidings for the use of container rail operators. However.SSKI INDIA Building rail sidings is a challenge Land availability. timely and reliable services to clients. If a container rail operator does not have a rail siding of its own. rake availability has improved considerably. Texmaco. there are various approvals required from the Indian Railways for connectivity to its network. As a result. logistics parks. mechanization would be limited for loading and unloading of containers. cost and approvals from IR are key issues in creating ICDs As discussed earlier. Perils of using a rail siding or common facility …it is fraught with issues such as lack of space for loading/ unloading. Turnaround time may increase depending on availability of terminal: If rail terminals are shared between other players and IR. etc. Moreover. Apart from acquiring land. Once such usage of siding is allowed to private parties. aggregation/ disaggregation. while that for containers is largely mechanized. IR has since then identified more vendors for wheel sets and axles as also accelerated the approval process. container rail operators can use these sidings to load/ unload cargo. Rake availability – no more a big concern Steps taken by IR to ease wheel sets and axles availability. the turnaround time of a rake may increase for loading or unloading depending on the availability of the siding. Aggregation / Disaggregation will be a problem for lack of space: Rail terminals are also points for aggregating cargo of rail container operators. Also. and provide value-added. having rail sidings at strategic locations is extremely critical for a container rail operator to attract volumes. the price of land for the siding can lead to a jump in cost of setting up the infrastructure. IR to allow usage of private and unused rail sidings to operators While permission for private operators to use IR’s sidings is a welcome move… To address the issues faced by private rail operators for setting up sidings as areas of consolidation. as most container rail operators have been going easy on ramp-up plans due to the economic slowdown. DECEMBER 2009 22 . Jessop. setting up rail sidings with storage yard (commonly referred to as ICDs. etc) is quite a challenge. However. wherein cargo of various clients is aggregated or disaggregated. if an operator utilizes IR sidings. Some of the major wagon manufacturers are Titagarh Wagons.

SSKI INDIA

Other ancillary infrastructure
Apart from investing in rakes and sidings, container rail operators are required to invest in containers, container handling equipment such as reach stackers, RTGCs, etc. Such handling equipment enables efficient movement of containers, mechanized loading and unloading of rakes, etc.

UTILIZATION, TURNAROUND TIME AND VALUE ADD DRIVE PROFITABILITY
IR charges based on per container, telescopic, weight slabs
Haulage charges paid to IR a key component of fixed costs for operators

IR charges haulage rates to container operators on per TEU rather than per tonne basis for providing a locomotive and moving a rake from one destination to another. Moreover, haulage charges are telescopic-based, implying that charges for a longer lead distance are lower than for shorter lead distances. IR charges on a weight slab basis as well as for moving empty flats and containers. Notably, charges for moving empty rakes or containers as well as 40ft containers are typically lower than for normal laden containers. Also, charges do not typically differ for exim and domestic cargo.
Exhibit 21: IR charges based on per container, weight slab and telescopic basis
Up to 20 tonnes 21-27 tonnes Above 27 tonnes Empty wagons Empty containers Source: IDFC-SSKI Research

Higher utilization and return loads key to profitability
Operators need to reduce empty running to make higher profits

As IR charges for an entire rake, container rail operators require higher utilization levels and return loads to cover the cost of haulage, which forms a significant part of overall costs. If rakes have low utilization levels and there is empty running, a container rail operator will have to bear the cost of moving empty wagons, which would hit profitability and return ratios. Consequently, higher the utilization of rakes, higher is the profitability for the business.

Operators entering into long-term volume contracts
Container rail operators tie in long-term volumes or ply on heavy traffic routes to achieve almost 100% utilization, at least on one way so as to ensure a minimum 50% utilization for a round trip. In some cases, there may not be enough cargo movement on the return journey on that route for the entire rake. Consequently, some operators tend to wait for 3-4 days to aggregate cargo for the return load. However, if the operator is running a regular service on a daily or bi-weekly basis or for a client with whom it has entered into a long-term contract, the operator may not be able to wait for volumes. This then results in lower utilization levels for the return journey. Sometimes, the operator may run a short empty journey and fill the rakes at a third location and incur less empty running costs, which would somewhat improve utilization levels for the return load.

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SSKI INDIA

Higher turnaround of assets results in better profitability
With faster turnaround of rakes, and thereby higher capacity, an operator can derive material operating leverage benefits

As discussed earlier, the container rail business is extremely capital intensive with hefty investments required for creating the infrastructure of rakes, terminals, containers, etc. Consequently, if an operator can turnaround rakes faster and thereby increase its capacity to handle volumes, the operator can derive significant operating leverage benefits. A faster turnaround of rakes can be achieved by either owning sidings or having access to sidings, as it allows quick loading and unloading as also facilitates faster transit times on a route. Another way to improve the turnaround time is having enough volumes on both ends of a route so that the rake does not wait for volumes to be loaded. As private container operators have recently entered the business, some of them do not have enough volumes at both the ends and tend to wait for rakes to fill up rather than run empty. Consequently, the turnaround time is lower, specifically in the domestic segment wherein volumes are not readily available. However, the exim sector witnesses faster turnaround of rakes with sufficient volumes ready to be moved from ports to the hinterland and vice-versa.
Exhibit 22: Drivers for an operators’ profitability

Value added services

Higher profitability
Faster turnaround Return loads & higher utilization

Source: IDFC-SSKI Research

Average turnaround time at 4-5 trips per month for a rake
Rake capacity can increase or decrease based on the turnaround time of the rake

Based on our discussions with various container rail operators, we estimate an average turnaround time per rake of 3-4 trips (to and fro) per month in the domestic segment, and 7-8 trips in the exim segment. These turnaround times can vary depending on the distance travelled of the rake as also volumes on both ends of the route. Assuming a turnaround of 5 trips a month, each rake can do around 60 trips per year. Further, assuming a 100% utilisation and 60 trips, each rake can have a capacity of 10,800TEUs annually. The rake capacity can increase or decrease based on the turnaround time of the rake (number of trips).
Exhibit 23: Rake capacity based on 5 trips per month (average of exim and domestic movement)
Rake Rake capacity (per trip – to & fro) Average trip per month/rake Total capacity in a month (TEUs) Annual capacity (TEUs) Source: IDFC-SSKI Research 1 180 5 900 10,800

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SSKI INDIA

Mechanical testing – mars turnaround times of a rake
Mechanical testing of rakes, if available at more sidings, can improve industry turnaround times

As per IR and RDSO norms, each rake is required to undergo mechanical testing from a safety standpoint, for which IR has designated mechanical testing centers across the country. Mechanical testing is required to be done after a rake has run 6,000km or one month (which ever is earlier), which results in longer turnaround time of the rake and lower capacity available. If mechanical testing is available at a higher number of sidings, including private ones, we believe the turnaround times of all the rakes in the system can improve substantially.

Value added and integrated services enhance profitability
The ability of container rail operators to offer various integrated logistics solutions as part of rail offerings augments their profitability. Services like customized containers, storage/ warehouse infrastructure, accountability of handling & transportation at both loading and unloading points, last mile connectivity, cargo visibility through IT solutions and service level driven performance allow operators to offer significant value to clients, and thereby reduce dependence on turnaround times and utilization levels.

PROFITABILITY BETTER ON EXIM VS DOMESTIC VOLUMES
Concor’s financials reveal higher profitability ratios for business on the exim routes vis-à-vis the domestic sector (the only publicly available numbers for the two segments). We analyze the difference between the two business lines for operators as the cost of rail haulage (60-70% of revenues) is same for the two sectors.

Terminal revenues aid exim margins
To service exim volumes, an operator should have the ability to provide value added services including customs clearance, documentation, stuffing and destuffing, storage space, etc at either its ICDs or CFSs. These services entail higher revenues and margins for an operator vis-à-vis the domestic volumes.

Balanced exim tends to ensure return loads and utilization
Return volumes are largely assured on exim routes…

In the exim business, a balance between export and import volumes ensures return loads and reduces empty running for an operator, thereby improving the utilization levels. Moreover, as 65-70% of exim container volumes are handled through JNPT, there are enough volumes in both directions to restrict empty running. This enhances operator profitability on an exim route vis-à-vis the domestic sector as there are no set routes for the latter stream of business, and players have to develop and create routes.

Improved turnaround time of rakes in exim volumes
…and thus turnaround times as also margins are higher

As exim cargo offers adequate volumes in both directions, rakes typically do not have to wait for containers to fill up. This substantially improves the turnaround time for rakes. In the exim segment, turnaround time of rakes can be as high as 7-8 trips per month. Further, the time sensitivity attached with exim cargo, especially exports, sometimes enables operators to charge higher rates for timely movement. This further boosts margins in the exim sector.

DECEMBER 2009

25

i. DECEMBER 2009 26 . which can enhance profitability on the domestic sector for the operator. results in faster turnaround time Turnaround time Source: IDFC-SSKI Research PROFORMA FINANCIALS OF A RAIL OPERATOR (INDICATIVE) Based on our discussions with various container rail operators. Hence. return loads and turnaround times. hence. While there are enough volumes in the Indian freight market. create and develop the market to move volumes from road to rail. Exhibit 24: Profitability parameters between exim and domestic segments Exim Domestic • Limited terminal handling revenues due to no requirement of customs clearances • Can be enhanced by offering value added services of warehousing.e. If the container rail operator provides integrated value added services to its customers through innovative solutions to its clients. container rail operators need to identify. A value-added integrated offering can reduce the dependence of container rail operators on turnaround and utilization levels. etc Return loads • Return loads is typically ba lanced out due to ba lance of trade between imports and exports • Lower empty running • Adequate volumes ready to be moved. Based on our interaction with industry players. we understand that there is no fixed break-even point for the business. player’s dependency can reduce on lower utilisation.SSKI INDIA Margins can be comparable for domestic and exim volumes The domestic sector has the potential to deliver similar profits as the exim sector. etc • Need to find return loads on same routes – results in higher empty running • Empty running can be reduced by operating on routes with return loads and long term contracts with clients • Limited volumes impacts turnaround time of rake • Can be improved by consolidation of cargo Terminal revenues • Revenues on terminal handling due to custom clearances. packaging. Once operations are scaled up (higher volumes and economies of scale) to cover fixed costs. That is the point when all the costs are covered and the business would turns profitable. which has enticed private participants into the business. Returns are tied to the nature and type of services provided by an operator. the break-even point for an operator would be at utilization level of 6585% for three round trips per month. Scaled-up rail container operations can generate 15%+ returns driven by economies of scale The container rail business is extremely capital intensive and. has a long gestation period. However. the business can generate sustainable returns of 15%+. we believe this is likely to take time as operators are still in the process of developing the market. whether an operator’s rakes run on the exim or domestic route and if value-added integrated solutions are provided to clients. container rail business offers the potential to generate high returns.

040 4.100 30.5 5. profits are highly sensitive to utilization levels. The higher the degree of integrated services provided.000 Realizations linked to tonnage and distance as also level of value add Realization vary based on tonnage and distance.206 1.6 trips per month for an operator. we have assumed a base case of 4.913 3.166 1. the capital structure can have a significant impact on profits and return ratios of an operator.SSKI INDIA Exhibit 25: Proforma financials of a rail container operator Asset details Rakes (no.3% Sensitivity analysis to turnaround time and utilization levels Higher value-add and integrated solutions ensure client stickiness even at higher prices To arrive at profitability of the business. In case the frequency of trips goes up to five a month.707 28. Operators can thereby reduce the dependence of profitability to utilization levels and turnaround time.3% 16. Similarly.0% 577 14.000 90 197.264 585 679 102 15.000 500 500 8. DECEMBER 2009 27 .) Cost / rake Cost of all rakes Cost of setting up 1 ICD Cost of setting up 4 ICDs Other handling equipment & establishments Registration fees Total Capital Employed Gearing (x) Debt Interest rate (%) Depreciation rate (%) (Rs m) 40 122 4. However.860 1.) Capacity (TEUs) Utilization (%) Volumes handled (TEUs) Realization (Rs/TEU) 6 61 219. value added services can enhance realizations P&L Revenues Rail haulage Other costs Total costs EBITDA Margin (%) Depreciation EBIT Interest PBT Tax Tax rate (%) PAT ROCE (%) ROE (%) Source: IDFC-SSKI Research RoE can improve significantly if turnaround time is faster and utilization levels improve (Rs m) 5. higher would be the stickiness of customers even at higher prices. the average profits would increase by 20%. these variables impact returns based on the extent of value-added services provided by an operator and the ability to provide integrated solutions.860 750 3.9 443 1. Further. and a 1% increase in utilization rate improves profits by 7%.316 11 5 Operational details – key assumptions Average time per trip (days) Average trips / yr / rake (no.

we believe the congestion for connectivity to the western ports will impact turnaround time of rakes on the exim route. with no caps. For example. CHALLENGES AND RISKS FOR CONTAINER RAIL OPERATORS Exim segment – congestion on key routes (JNPT-NCR) Congestion for connectivity to western ports to impact turnaround of rakes on the exim route Exim container traffic is largely serviced through the western ports of JNPT. we believe. Consequently. the JNPT-NCR route tackles substantial passenger traffic as also bulk of the traffic undertaken by IR. At times. exim container rakes are operated primarily on the JNPT-NCR route. Kandla and Pipavav. Consolidation. it will significantly improve the turnaround time of rakes. Consequently. We believe turnaround time of rakes can improve substantially once the dedicated freight corridor is operational. would be positive for the industry as it would reduce competitive intensity. IR had hiked its haulage rates by an average of 15% effective 1 August 2008. Mundra. which has stemmed fund availability for business scale-up while also impacting volumes. The IR is addressing this by setting up a Dedicated Freight Corridor (DFC). With the ever-increasing number of rakes (by container rail operators and for bulk cargo) to service the growing cargo at these ports and locations.5 days Gearing (2x) Source: IDFC-SSKI Research Profit increase (%) 7 20 (10) RoE (%) 17 20 18 Likely consolidation in the industry The economic slowdown has tested a player’s ability to stoke expansion As discussed earlier. we believe players with deep pockets – and thereby the ability to infuse hefty funds into the business for scale-up and bear losses for a comparatively longer period of time – would survive in the longer term.SSKI INDIA Exhibit 26: Sensitivity analysis Parameters 1% increase in utilisation levels Turnaround improvement by 0. would sift weaker players from the stronger ones. double stacking is not possible on the routes connecting the ports to NCR as they are largely electrified. which is currently under implementation. the route has become saturated as no new railway tracks have been added. Moreover. DECEMBER 2009 28 . Given this. container rail operators may also have to absorb the increase in haulage rates for some time till it is passed on to the clients. We believe once the DFC is operational. which cumulatively handle ~70% of the total container traffic at Indian ports. Apart from container traffic. container rail is a long gestation and extremely capitalintensive business. We see consolidation ahead as the recent economic slowdown. Dealing with the Indian Railways (IR) Operators may have to absorb the increase in haulage rates till it is passed on Erratic increase in haulage charges: The concession agreement between the IR and container rail operators does not specify any schedule for hike in haulage rates. The erratic increase in rail haulage charges hampers container rail operators’ ability to price their services to clients on a fixed rate basis. The rate increase by IR can be any time and as many times during a year.

issues pertaining to the type of cargo handled. However. loss of cargo in transit. IR dons the hat of both the vendor and regulator. efficiency of a container rail operator is also hampered as any delay in movement of rakes impacts the planning for loading and unloading of wagons. and resolves. ores and coke. The sector has been privatized to increase IR’s market share in freight movement by aggregating break-bulk cargo. there is no guarantee extended by the IR on timely movement of these rakes. which at times creates a problem for container rail operators. haulage rate hikes. With increasing freight handling capacity and scope of services. a thirdparty regulator required to mediate disputes Absence of a regulator: Currently. DECEMBER 2009 29 . minerals. Initial movement of bulk cargo by container rail operators: As per the model concession agreement. Nevertheless. In the interim. Thus. we see increasing need for a regulator. etc. in case of a dispute between the IR and a container rail operator. on an ad-hoc basis. In the absence of guaranteed timelines at their end. As capacity and the scope of services offered by container rail operators expand. container rail operators are banned from handling coal. private players may fail to secure a full rake load and therefore operators are targeting to shift heavy bulk traffic (from which they are not categorically banned) from road to rail. turnaround time by the IR. container rail operator cannot provide the same to clients. the IR may view the movement of such bulk traffic as its own. However. the IR attaches a locomotive to the rake and hauls the rake to the destination. Moreover. creation of market and shift from road to rail will happen over a period of time.SSKI INDIA Congested routes lead to lower turnaround times No turnaround time guarantees: Once an operator loads its rake with containers. there is no third party to resolve the issue. stabling.

SSKI INDIA COMPANIES DECEMBER 2009 30 .

The first zone is being set up at JNPT.1 Arshiya International (Arshiya) straddles the entire logistics services supply chain.8 24. valuations appear to be extremely attractive in view of the 67% earnings growth in FY11E. Through its various tie-ups and a unique web-based solution.2 (16.4 8.3x FY11E earnings. Such assured volumes would enable higher utilization and thereby drive profitability of the rail operations.6 15.1 1.IDFC .3xFY11E earnings.370 59 23.5 12.1 1. net profit (Rs m) Shares in issue (m) Adj.com 91-22-66 38 3337 Price/ Book (x) EV/ EBITDA (x) RoE (%) RoCE (%) Prices as on 18 December 2009 DECEMBER 2009 31 . Outperformer: Arshiya’s integrated solutions comprising freight forwarding.8 11. Arshiya’s value proposition has been further strengthened by pioneering the FTWZ concept in India. Arshiya is strengthening its offering by entering the container rail business as also pioneering the FTWZ concept in India.3 10. execution visibility of new initiatives has improved significantly in the last six months with all projects achieving financial closure. Arshiya has adopted a strategy of entering into long-term agreements to enhance utilization and profitability with plans to scale up to 30 rakes over the next two years. which will act as a trading and warehousing hub for international trade.8 15.3 (0.3 11.4 16.8 12.2 15.9 FY12E 12.8 72.2 16.9 3-yr 100.5 1.1 2. US$236m Stock data Reuters Code Bloomberg 1-yr high/low (Rs) 1-yr avg daily volumes (m) Free Float (%) ARTC.05 59.3 66. Projects in advanced stages of execution: Construction has commenced at Arshiya’s FTWZs and the first phase at JNPT is likely to be operational in Q1FY11 with Delhi FTWZ starting operations in H2FY11E.2 Bhoomika Nair bhoomika@idfcsski.5 15.9 8.299 1. Arshiya offers containerized solutions for both domestic and international trade in India and the Gulf region. which will act as a trading and warehousing hub for exim cargo.2 19. Arshiya – an integrated logistics solutions provider: Arshiya offers dynamic. In the rail business.2 5. Presence across the entire logistics chain.BO ARST IN 194/43 0.4 FY09 5. A customized service with last mile connectivity is being offered to enhance value proposition to rail customers.8 112. At 12. At 12.941 900 59 15.2 FY10E 4.3 1.2 8.012 457 59 7.0 41.3 17.SSKI INDIA Company update Arshiya International Integrated opportunity 21 December 2009 BSE Sensex: 16720 Rs188 OUTPERFORMER Mkt Cap: Rs11bn. for which it has strategically entered into long-term contracts with clients to secure assured volumes. end-to-end logistics solutions including indigenized software solutions that facilitate seamless logistics management across geographies and transport modes.4 7. Reiterate Outperformer with a price target of Rs250 per share.846 539 59 9. Also. Key financials As on 31 March Net sales (Rs m) Adj.2 1-yr 65. Arshiya is linking all its solutions through container rail movement.5) 20. reiterate Outperformer with a price target of Rs250.4 21.3 52. EPS (Rs) % change PE (x) Price performance 240 180 120 60 Oct-09 Dec-08 Dec-09 Feb-09 Apr-09 Jun-09 Aug-09 Arshiya International Sensex Performance (%) 3-mth 6-mth Arshiya Sensex 24.3 FY11E 7.8 129.2 FY08 4.1) 17.005 646 59 11. containerized rail and FTWZ logistics solutions would drive strong growth in revenues (64% yoy) and earnings (67% yoy) in FY11E.

SSKI INDIA INVESTMENT ARGUMENT Arshiya is fast emerging as an integrated logistics solution provider. Arshiya has tied up with various global freight forwarding companies to draw upon the partners’ expertise in integrated solutions. will enable Arshiya to turn around its rail business in FY11E and enhance returns. IDFC-SSKI Research Container rail Distriparks (ICD/Rail Sidings) DECEMBER 2009 32 . signs of pick up are visible. FTWZ and Distriparks) Arshiya’s business operations span mainly three segments – a) freight forwarding. the first FTWZ at JNPT is likely to commence operations in Q1FY11 (to commission in phases over FY11-12). and c) project logistics. Dubai and Oman to strengthen its end-to-end solutions capability. While volumes from the Gulf locations have been impaired due to the slower trade activity in the region. Apart from infrastructure-led service offerings (rail. along with the scale-up. We expect 67% growth in Arshiya’s earnings in FY11 driven by improvement in the core business. We believe such agreements. ARSHIYA: AN END-TO-END LOGISTICS SOLUTIONS PROVIDER Arshiya offers end-to-end logistics solutions for international movement of cargo. To offer superior logistics solutions across the world. Arshiya has set up companies in Qatar.IDFC . With the core business expected to revive in H2FY10 led by a pickup in freight rates and volumes. Exhibit 1: Arshiya – integrated approach Freight forwarding & project logistics Supply chain management IT solutions (Cyberlog) Arshiya‘s Integrated Logistic Solutions Free trade warehousing zones (FTWZ) Source: Company. Outperformer with a price target of Rs235 per share. b) supply chain logistics (forward and reverse) solutions. commencement of FTWZ operations and turnaround of the rail business. especially in Qatar and Oman. The existing business is being integrated with container rail business and FTWZs are being set up at various locations to provide hassle-free warehousing activities. Arshiya has entered into long-term agreements with clients to enhance utilization levels as also turnaround times in the container rail operations.

only a handful of players operate in this segment. Arshiya is pioneering the concept of FTWZs in India and plans to set up two FTWZs in phase I at JNPT (Mumbai) and Khurja (New Delhi). hubbing. Going forward. and the unit operating within the zone would be accorded special status with various fiscal and non-fiscal benefits.SSKI INDIA Capabilities in the fast growing project logistics – a key strength With limited competition. Arshiya will also be looking to set up more FTWZs at other locations including central India (Nagpur). integrated project logistics businesses fetch high margins Given that project logistics is a highly complex solution involving transportation of over-dimensional cargo. which will continue to generate annuity income Arshiya offers seamless logistics solutions through its proprietary IT solution – an integrated supply chain management software solution. as it is the only company offering the entire gamut of services from freight forwarding to rail to FTWZ logistics solutions. As Arshiya’s focus on infrastructure-led logistics business has increased. The completely integrated application facilitates seamless logistics management of demand fulfillment across all geographies and transport modes. etc. Further. stock levels. Arshiya will write off development expenses of ~Rs100m. thereby ensuring that it continues to offer IT solutions to clients as part of its total integrated logistics service offering. thereby securing net income of Rs370m form Cyberlog. Arshiya provides IT visibility for its clients – a key value-add Arshiya has realized net income of Rs370m from selling Cyberlog. thereby reducing costs. Arshiya will receive an annual fee for the existing client base and a 20% royalty on new clients. This implies significantly higher margins for incumbents. the IPR and new development rights shall remain with Arshiya. wherein the area under development would be classified as a deemed foreign territory. DECEMBER 2009 33 . The FTWZ would provide the much-needed infrastructure required for trading and storage activities relating to foreign trade such as deferred duty benefits. and cycle time while meeting delivery timelines. We expect Arshiya to capitalize on the growing demand for project logistics solutions in both India and the Gulf region. eastern and southern regions. Free Trade Warehousing Zones – a new growth avenue for Arshiya The new concept of FTWZ to boost business prospects for Arshiya in the coming years Free Trade Warehousing Zones (FTWZ) are proposed to be developed along the lines of a Special Economic Zone (SEZ).IDFC . All the FTWZs would have a CFS/ ICD facility as also rail connectivity. Against the consideration. it has sold the marketing rights of Cyberlog (its software solution company) for US$10m (Rs470m). Arshiya believes that sale of Cyberlog will not dilute its value proposition to clients.

sorting. while initial construction work for leveling and boundary wall is ongoing. Simultaneously. which we expect to start generating revenues from Q1FY11. The JNPT FTWZ is likely to have three (aggregating 450.000 sq. which is likely to yield a rental of Rs70/ sq. Apart from lease rentals. The work has been awarded to L&T and Tata Blue Scope for construction of the warehouses. same as that for JNPT FTWZ). The approvals have been received. The subsequent warehouses will be built during the year and would be operational by end-FY11E. ft) of the 16 planned warehouses to be operational from Q1FY11. Once designing work is finalized for the warehouses. ft / month.SSKI INDIA Exhibit 2: Arshiya’s planned FTWZs at strategic locations to be rail linked 40% of India’s manufacturing done here (Phase 1) Port that processes 62% of India’s container freight traffic (Phase 1) Source: Company First FTWZ at JNPT to be operational in Q1FY11 Arshiya is in advance stages of finalizing contracts with potential unit holders within the JNPT FTWZ Arshiya has commenced construction on its first FTWZ. we expect the Delhi FTWZ to be operational in H2FY11 (commissioning in phases by FY12). work will be awarded for building the facility to contractors (L&T and Tata Blue Scope. labeling. etc) provided within the zone. Accordingly. DECEMBER 2009 34 . Arshiya plans to start signing up agreements with clients for the FTWZ. Arshiya is in advance stages of finalizing contracts with potential unit holders within the FTWZ. Arshiya will also earn revenues from the CFS facilities provided within the yard as also from the value-added services (packaging.IDFC . Delhi FTWZ – to be operational by H2FY11E For Delhi FTWZ. stuffing. approvals have been received and initial construction work undertaken The Delhi FTWZ at Khurja is progressing with a lag of 3-4 months to the JNPT FTWZ.

We have not factored in the multiplier effect that the FTWZ can have on the existing business.SSKI INDIA Other FTWZs to be operational in 3-4 years After JNPT and Delhi. Arshiya has entered into long-term contracts with clients on a take or pay basis – which compensates for empty running or lower utilization levels. southern and eastern India Arshiya is looking to expand the current FTWZs at JNPT and Khurja as also set up FTWZs at other locations such as Nagpur (for which it has already acquired land). Entry into containerized rail movement will enable Arshiya to provide integrated logistics solutions to clients. Arshiya targets to have a base of 30 rakes over the next 1-2 years. Accordingly. especially on the return haul. Arshiya has the benefit of knowing beforehand the challenges faced by other operators in terms of profitability. Further. which is likely to have 8-10 rakes operational by the year-end. Arshiya began its operations in March 2009 and is currently operating with six rakes. Long-term contracts to aid profitability To secure volumes. We believe the other FTWZs are likely to be rolled out in a phased manner over the next 3-4 years once the first two FTWZs are operational and running smoothly. Mitsubishi. DECEMBER 2009 35 . etc. At its end. we believe Arshiya can utilize the FTWZ to provide integrated logistics solutions to customers as well as offer it as a hubbing zone for international trade. Consequently. despite such agreements. other FTWZs to be rolled out in central. Moreover. and southern and eastern India. our earnings estimates do not factor in any revenues or earnings from other facilities or expansion of the existing facilities. We believe the long-term agreements (key clients include Vedanta. we have not factored in any significant revenues and profits from the container rail business in FY10. However. Essar. thereby imparting the ability to provide seamless logistics solutions to customers. any hiccups in the initial stage of operations may restrict profitability. transportation. FTWZs to fetch incremental revenues for existing business as well Considering the strategic location of the FTWZ at JNPT (the largest container port in India). With the need for movement of volumes for clients as well as the use of software for tracking consignments within the zone through its proprietary IT solutions. we expect profitability of the rail business to ramp up slowly as Arshiya is operating trial runs for customers at its own cost. the container rail business will enable Arshiya to link its FTWZ across all the locations. RAIL BUSINESS: INTEGRATING LOGISTICS SOLUTIONS Entry into container rail business – completing the logistics chain Arshiya currently operating rail business with six rakes Arshiya has entered the container rail space by taking a license for pan-India operations. Mitsubishi. Accordingly. Arshiya is required to maintain certain service level standards in terms of rake availability. etc Being a late entrant into the space. Essar. we believe the FTWZ will drive the core logistics business as well.IDFC . Arshiya has entered into long-term agreements with Vedanta. etc) will mitigate a key risk factor of running empty rakes.

expected to turn profitable with a fleet of 15-20 rakes in FY11 Capitalizing on its late entry in the container rail operations. Arshiya is setting up Distriparks across some key locations of the country such as the Delhi siding. Arshiya plans to take on lease unused sidings from either private operators or railways (as per the recent railway budget) to enhance the usage of sidings. Operations expected to turn profitable in FY11 Rail operations have performed well in H1FY10.IDFC . Arshiya has taken various steps to reduce dependence on utilization levels and ensure a quicker turnaround by offering integrated logistics solutions. which is next to its FTWZ in Khurja (which also is a central junction on the railways-proposed DFC). Arshiya setting up own sidings Arshiya is currently operating its rakes from private. Apart from this. profitability of the rail operations is likely to improve rapidly. Further. entering into long-term contracts. Khurja. with various sidings commencing operations at Vizag. With the overall ramp-up in rake fleet. Arshiya has developed one own rail siding in Vizag to handle rakes for various customers. where it can hub cargo as also earn warehousing revenues.SSKI INDIA One siding operational in Vizag – setting up Distriparks To complement its rake fleet. one already operational Drivers for rail profitability Integrated services Customised solutions Source: IDFC-SSKI Research Return loads tied in IT visibility DECEMBER 2009 36 . the rail business is already breaking even for H1FY10. we believe Arshiya will need to have its own sidings to consolidate cargo so that it can operate on a hub-and-spoke mechanism. The strategy has worked in favour of Arshiya as despite FY10 being the first year of operations. We expect Arshiya to turn profitable from FY11 on a sizeable base of 15-20 operational rakes. port or rail sidings for loading and offloading cargo. etc. Further. etc. Exhibit 3: Drivers for rail profitability Long term contracts Sidings planned.

IDFC . we believe freight rates have bottomed out and we expect 15-20% revenue CAGR in the core freight forwarding and supply chain solutions business over the next 2-3 years.SSKI INDIA FINANCIALS & VIEW Expect 35% CAGR in revenues over FY09-12 Though revenues could be flat in FY10. primarily on the back of better margins in the core business. However. Exhibit 4: FTWZ commissioning & scale-up in rail business to drive revenues in next 3 years (Rs m) 14. Moreover. driving a robust 35% CAGR in revenues over FY09-12. Exhibit 5: High margin business of FTWZ & rail to lead to margin expansion 35 (%) EBITDA margin 30 25 20 15 10 FY07 Source: IDFC-SSKI Research FY08 FY09 FY10E FY11E FY12E DECEMBER 2009 37 .500 7. we expect margins to expand by 180bp to 17%.000 Core logistics JNPT FTWZ Delhi FTWZ RAIL 10.500 0 FY07 FY08E FY09E FY10E FY11E FY12E Source: Company. IDFC-SSKI Research Overall margins to expand with entry into high-margin business… We expect margins to improve to ~25% in FY11 Arshiya’s value-added service offerings have enabled deeper penetration of clients. Arshiya could see lower realizations in FY10E as it passes on the lower freight charges to clients. we expect revenues to grow at a robust pace of 64% in FY11E. with the ramp-up in rail business and the FTWZ commencing operations in FY11E. despite flattish revenues in FY10E.000 3. we expect robust 65% revenue growth in FY11 After flat revenues in FY09.8% in FY11. Accordingly. Revenues from the high-margin FTWZ business and ramp-up in the rail business are likely to further drive a 780bp expansion in margins to 24.

Arshiya will raise project specific debt of Rs12. Moreover. while the remaining capex will be funded through equity. Exhibit 7: Return ratios to start improving with operational FTWZs & scale-up in rail business 35 (%) RoE ROCE 28 21 14 7 0 FY07 Source: IDFC-SSKI Research FY08 FY09 FY10E FY11E FY12E DECEMBER 2009 38 .5bn. Accordingly. IDFC-SSKI Research Return ratios to improve as projects start generating returns Ramp-up of new projects to drive return ratios Fund raising in FY07 and capex on FTWZ and rail operations have led to muted return ratios for Arshiya over the past two years.IDFC . we expect return ratios to be in the 18-20% range. While various projects are currently in the execution phase with no revenues or profits. An equity component of Rs5. Arshiya to incur capex of Rs19bn over FY10-12E Arshiya has earmarked a capex of ~Rs19bn over FY10-12 for its various FTWZ projects (excluding Nagpur) as well as to ramp up rail operations.600 Adjusted net profit (Rs m . Arshiya has begun drawing down on debt to meet the debt component of its various projects. with the remaining Rs1.LHS) EPS growth (% .4bn has already been infused.200 85 800 50 400 15 0 FY07 FY08 FY09 FY10E FY11E FY12E -20 Source: Company.2bn to be incurred over the next two years through internal accruals as also release of working capital. Once the projects are fully operational (FY12-13 onwards). Exhibit 6: New projects to drive strong growth in profits over FY11-12E 1.RHS) 120 1.SSKI INDIA …but higher interest and depreciation on new projects With various projects in execution mode. we expect revenue and profit contribution from the first FTWZ in FY11 and rampedup rail business to drive an improvement in return ratios.

3x FY11E earnings. maintain Outperformer Buy with a price target of Rs250 per share Arshiya has a strong competitive advantage in its ability to provide integrated logistics solutions to clients. valuations are attractive. At 12. DECEMBER 2009 39 . which imparts higher visibility on project execution. Moreover. We believe the new initiatives (FTWZs.IDFC . which should drive a robust 25% CAGR in earnings over FY09-12.SSKI INDIA Attractive valuations. etc) can add significant shareholder value over the medium term. Arshiya has funded the first phase of its projects (FTWZ and rail). We reiterate Outperformer on the stock with a price target of Rs250 per share. rail container transportation business.

2 0.1) FY12E 12.9 11.8% Cash flow statement Year to 31 March Pre-tax profit Depreciation Chg in working capital Total tax paid Ext ord.337 1.3 1.303) (3.4 7.3 15.352) 830 1.759 7.562 Shareholding pattern Public & Others 14.232) 4.313 (3.5 FY12E 23.251 12.788) (1.879 1.753 3.133 118 7.0 FY12E 31.005 24.900 98.9 11.8% As of September 2009 DECEMBER 2009 40 .8 2.239 13.6 40 (492) 431 1.087 190 897 3 900 (1.3 0.3 12.5 63 (9) 42 529 (3) 77 456 2 (3) 454 160.385 12.109) 1.177 10.8 11.882 532 3.0 FY09 15.385 FY12E 118 9.2 Year to 31 March EBITDA margin (%) EBIT margin (%) PAT margin (%) RoE (%) RoCE (%) Gearing (x) FY08 12.034 9.476 0 2.551 5.9 5.3 8.782 818 7.562 2.3 15.336 0 (751) 428 FY09 765 70 (535) (122) 16 194 (3.696) (3.972 1.3 12.0 17.446 17.604 17.5 9.5 24.2 FY10E FY11E 17.2 15.7 25.4 2.664 7.9 11.8 12.395) Foreign 35.567 1.1 1.4 0.9 15.3 FY10E FY11E 15.151 1.846 (3.9% Non Promoter Corporate Holding 7.085) (347) 20 1.6 2.087 431 (860) (190) (3) 464 (3.328) 0 2.0 20 (1.497 1.937 3.133 8.021 826 8.2 88 (14) 70 765 (2) 122 645 2 8 654 44.855 5.5 19.1 11.9 1.SSKI INDIA Earnings model Year to 31 March Net sales % growth Operating expenses EBITDA % change Other income Net interest Depreciation Pre-tax profit Deferred tax Current tax Profit after tax Minorities Non-recurring items Net profit after non-recurring items % change Key ratios FY08 4.133 (3.2 2.338 63 1.1 8. one already operational Drivers for rail profitability Integrated services Customised solutions IT visibility Return loads tied in Total shareholders' equity 5.243 762 47.941 63.155 (4.632 4.7 5.337) (32) 4.3 23.911 498 17 22 536 2.3 11.295 22.905 7.0 14.3 3.851) (1.664 12.503) 3.2 Valuations Year to 31 March Reported EPS (Rs) Adj.4 30 (96) 134 625 94 531 8 370 909 39.935 17.196 2.877 5.0% Institution 1.9 8.299 54.4 11.7 7.219 9.2 16.025 Total equity & liabilities 5.222 5.070 (428) 411 FY12E 1. items & others Operating cash inflow Capital expenditure Free cash flow (a+b) Chg in investments Debt raised/ (repaid) Capital raised/ (repaid) Dividend (incl.012 115.494 517 135.461) (1.8 24.972 579 1.048 3 1.737 347 1.8 4.204) (3.8 19.970 138.370 52.291 5.1 2.2) 4.2 FY10E FY11E 4.3 10.400 3.7 15.2 20.337 2.737 830 (1. EPS (Rs) PE (x) Price/ Book (x) EV/ Net sales (x) EV/ EBITDA (x) FY08 7.IDFC .2 1.0 FY09 5.658) (3.5% Promoters 40.979 22.562 FY09 118 5.5 FY09 11.446 Long term contracts Sidings planned.1 1.4 15.296 30 1. tax) Misc Net chg in cash FY08 529 42 (396) (77) (34) 64 (1.201 (126) 747 1.877 FY10E FY11E 118 6.764 6.2 1.173 1.2 13.0 7.390 (20) 1.1 16.1 8.4 Balance sheet As on 31 March Paid-up capital Preference share capital Reserves & surplus Total current liabilities Total debt Other non-current liabilities Total liabilities Net fixed assets Investments Total current assets Other non-current assets Working capital Total assets Drivers for rail profitability FY08 114 4.155 3.279 175 (53) 51 (321) FY10E FY11E 625 134 (95) (94) 1.5 1.0 11.

In view of the high earnings growth visibility and superior return ratios. Concor’s dominance would also allow it to be the key beneficiary of the rising container volumes over the next 2-3 years. and set a price target of Rs1.660 11. High resilience to competition: Concor’s large rake fleet and pan-India ICD network impart economies of scale and the flexibility to aggregate cargo (implying higher utilization levels and faster turnaround times).9x FY11E earnings. Reiterate Outperformer with a price target of Rs1.0 22.473 7.450 per share. Key financials As on 31 March Net sales (Rs m) Adj.9 3-yr 16. However.9 3. especially in the exim segment.505 130 58 7.6 21. While the sizeable asset base ensures economies of scale.824 9.4bn Stock data Reuters Code Bloomberg 1-yr high/low (Rs) 1-yr avg daily volumes (m) Free Float (%) CCRI.4 65. we expect volumes to pick up sharply in H2FY10 and continue into FY11 led by revival in trade.915 130 61 5.1) 31.5 FY09 34. Given the high earnings visibility and superior return ratios.8 16.0 16.2 1-yr 94.9 20.5 20.0 20.IDFC .1 11. Volumes expected to pick up from H2FY10: Slack international and domestic trade had impacted cargo movement.9 3.5bn.4 Bhoomika Nair bhoomika@idfcsski.4 21.7 9.7 21. in H2FY09 as also H1FY10. and thereby Concor’s volumes.2 2.2 19. Power of precedence 21 December 2009 BSE Sensex: 16720 Rs1227 OUTPERFORMER Mkt Cap: Rs159.2 15.BO CCRI IN 1355 / 594 0.8 25. current valuations appear attractive. net profit (Rs m) Shares in issue (m) Adj. Despite the entry of private players. we expect 12% CAGR in Concor’s earnings over FY09-12. High earnings visibility. Further.4 (0. Concor is also entering into strategic alliances to tie in long-term volumes and limit the impact of competition. As volumes pick up and empty running reduces. A strong balance sheet and depreciated assets give Concor the ability to compete effectively. Outperformer: Concor stands to be the key beneficiary of the rising industry volumes.9 Container Corporation of India (Concor) has acquired an unmatchable competitive edge in the container rail business with its large fleet of rakes. we reiterate Outperformer on the stock at current valuations of 16.1 20.com 91-22-66 38 3337 Price/Book (x) EV/EBITDA (x) RoE (%) RoCE (%) Prices as on 18 December 2009 DECEMBER 2009 41 . strategic alliances and strong balance sheet. we do not see new players making a material dent in Concor’s dominance.172 7.450.5 18.369 8.07 36.3 17.0 25.3 FY10E 38. we see Concor well-placed to defend its leadership status over the medium term.6 13. EPS (Rs) % change PER (x) Price performance 210 175 140 105 70 Oct-09 Nov-09 Dec-08 Dec-09 Mar-09 Feb-09 Jan-09 May-09 Apr-09 Jun-09 Jul-09 Aug-09 Sep-09 Container Corporation of India Sensex Performance (%) 3-mth 6-mth Concor Sensex 5.8 FY08 33. Over the next 2-3 years. pan-India network of terminals.2 14.232 130 86 19.428 130 65 6.SSKI INDIA Company update Container Corp.9 FY12E 51.3 5.3 FY11E 43.419 130 72 11.8 22.8 21. US$3. . Concor’s increased focus on the domestic business is likely to drive domestic volumes.2 4.

9x FY11E earnings are attractive in this backdrop. while it facilitates movement of containers between cities across various parts of India in the domestic segment.430. Concor has developed an excellent infrastructure in terms of a panIndia network of container handling terminals and rakes to offer seamless logistics services to its customers. Outperformer with an 18-month price target of Rs1. The extensive infrastructure gives Concor a strong competitive edge vis-à-vis peers. Strength of Concor’s business is underlined by return ratios of 20%+ and operating return ratios of 40%+ (net of Rs20bn cash).SSKI INDIA INVESTMENT ARGUMENT Concor has indeed lost the monopoly in container rail operations but not its competitive edge vis-à-vis the new players. panIndia terminal network. Concor facilitates inland penetration of containers from ports to the hinterland. Strong competitive advantages Over the years. Concor is best placed among peers to derive economies of scale and benefit from the expected recovery in trade. owned 63% by the Government of India. Valuations of 16. Concor – India’s dominant container rail operator Concor has been the pioneer in India to undertake specialized containerization activities Concor. Some of the key competitive advantages that Concor has over other players are: Exhibit 1: Concor has an extremely strong competitive edge vis-à-vis peers Large fleet (218 rakes) A large fleet of rakes. at least in the medium term. We expect Concor to retain its dominance. Concor offers its clients integrated logistics services for container movement with business primarily divided into two segments – international (exim) and domestic cargo. We expect Concor to maintain its lead.IDFC . depreciated assets and high cash on books are Concor’s key strengths Cash balance (Rs20bn) Competitive strengths Pan India network (59 terminals) Depreciated assets Source: IDFC-SSKI Research DECEMBER 2009 42 . commenced operations in 1989 by taking over existing terminals of the Indian Railways (IR). Exim cargo accounts for ~80% of Concor’s volumes. The IR established Concor as an independent organization to undertake specialized inter-modal containerization activities. on the back of the strong asset base created over the past 20 years – the most critical success requisite in the business. at least over the next 2-3 years till other players scale up. In the international segment.

Similarly. led by sluggish international trade and a drop in port traffic. However. Cash on books: Concor has an extremely strong balance sheet with huge cash of Rs20bn and no debt on books. stuffing. Concor’s wagon strength currently stands at 9.2m-1.8m-3m for a new player. high-speed wagons to improve its turnaround time. Concor plans to add 20-25 rakes every year to meet the growing demand in both domestic and exim segments. etc. Depreciated assets: Concor’s sizeable asset base of 59 terminals and 218 rakes. not a single rake of Concor had to be stabled in contrast. accumulated over the past 20 years. the higher number of terminals enables Concor to contain its empty running as also improve the turnaround time of rakes. We believe the strategy will enable Concor to tie up volumes for the longer term. The large wagon fleet. while it is Rs2. Moreover. enables Concor to capture higher volumes and effectively restrict its empty running compared to other players.000 TEUs/ day in Q1FY10.816 or 218 rakes. A case in point is that while peers have suffered an acute slowdown due to the economic downturn. we believe. Concor has a 26% stake in the third container terminal at JNPT (Jawaharlal Nehru Port Trust).3m. Concor is looking to acquire stakes in other container terminals as well. storage. For example. places it in an enviable position vis-à-vis peers. which is a key edge over new players in the business. The panIndia network allows Concor to target volumes across the length and breadth of the country in both domestic and exim segments. Largely insulated from competition Concor continues to hold a 95%+ market share as its strengths largely insulate it from competition post the entry of private players in the business. Accordingly. Exim volumes expected to grow in H2FY10 While import volumes have picked up sharply. export volumes too have started to improve Concor took a hit on exim volumes (accounting for 80% of total volumes) in FY09 and H1FY10. gives it significant economies of scale. average cost of a wagon for Concor is Rs1. coupled with a pan-India ICD network. Such a large fleet of rakes gives Concor the flexibility to handle more volumes and offer reliable services. volumes have stabilized from March 2009 onwards. de-stuffing. as import volumes have picked up sharply – thereby driving a rise in port pendencies from 3.SSKI INDIA A large fleet of rakes: Concor has purchased all of IR’s wagons suitable for carrying containers so as to prevent other players from leasing them. exports have started showing signs of improvement over the past 2-3 months. Going forward. The fact that Concor can easily meet its capex needs from internal accruals. we expect the qoq 43 DECEMBER 2009 . which enables the company to aggregate volumes across the country as also provide valueadded services such as customs clearance. Entering new business areas to tie-up volumes Strategic focus on securing volumes to help maintain dominance Concor has tied up with many shipping lines for warehousing and terminal facilities to capitalize on the growing volumes. The company has also acquired additional state-of-the-art.IDFC . In addition. Concor has depreciated assets on books. we expect Concor to remain a dominant player in the business and unlikely to be impacted by new players in the medium term. Concor’s huge network of 59 terminals enables it to aggregate volumes panIndia and offer value-add A pan-India network: Concor has a pan-India network of 59 terminals.000 TEUs/ day in H1FY09 to ~10. We believe such an extensive network of ICDs and CFSs is a strong competitive edge that Concor has over peers.

Notably. Also. Shortage of wagons in earlier years had also prompted Concor to focus more on exim volumes. Accordingly. IDFC-SSKI Research Efforts to balance import and export volumes Lower empty running and cost-cutting initiatives to aid margin expansion in exim segment In view of the strong growth in import volumes and the trade imbalance (mismatch between exports and imports).0 1QFY06 2QFY06 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10E Source: Company. Exhibit 2: Exim volumes to rebound in H2FY10E 550. Concor has been laying due emphasis on the domestic business. as wagon availability has eased over the past few years. and the management expects further growth in H2FY10. we have factored in a 7% CAGR in domestic volumes for Concor over FY09-12E.000 -30.0 400.000 Exim (TEUs . but have been witnessing a pick-up since December 2008.000 -15. Importantly. we believe higher competitive intensity is likely to restrict growth in the longer term.000 15.0 250. With improving export volumes. While domestic volumes are likely to bounce back in FY10 and grow at a strong pace. Focus increased on domestic business We expect a 7% CAGR in Concor’s domestic volumes over FY09-12 Concor has traditionally focused on exim volumes as demand for clearing ports is typically higher and return volumes have been easier to procure in this segment. domestic volumes have bounced back relatively faster in H1FY10. imply significantly higher profitability in the exim business. However. coupled with Concor’s focus on the domestic sector. thereby improving operating margins in exim segment. higher volumes and utilization levels culminate into better turnaround times which. pendencies at JNPT and other ports had led to higher empty running for Concor (18% in Q1FY10). has led to higher domestic volumes. Concor has undertaken costcutting initiatives while increasing its terminal handling charges to reduce the impact of empty running on margins.000 0. We believe higher charges on import volumes will mitigate the impact of empty running. Revival in the domestic activity. 4QFY10E DECEMBER 2009 44 .0 325. Concor has also hiked rates on import volumes by 3% effective 1 July 2009.LHS) % growth (RHS) 30.IDFC . trade imbalance has reduced and we expect empty running (currently at 9%) to come down as export volumes pick up further. Domestic volumes had declined in FY09 due to the economic slowdown. Also. with the uptrend continuing into H1FY10 as well (20%+ yoy growth).0 475. Concor has strived to grow the domestic business to compensate for the sluggishness in exim cargo.SSKI INDIA improvement in volumes to continue as also drive strong volume growth for Concor in H2FY10. in turn.

0 20.500 32. However.000 Domestic (TEUs .0 15.5 95.500 -2. etc) to ensure that margins are not impacted despite lower exim volumes and the trade imbalance. we expect 15% CAGR in Concor’s revenues over the next three years. IDFC-SSKI Research Operating margins to remain range-bound Despite escalating competition. the higher empty running and significant capex would lead to slower growth in earnings (7% yoy) relative to revenues (12% yoy) in FY10E.0 EBITDA margin 25.000 15.0 72. With its various competitive strengths such as a pan-India network. we expect Concor’s margins to remain stable at 27-28% over FY09-12 We expect Concor’s margins to remain stable within a range of 27-28% over FY0912.0 10. higher utilization and turnaround times as also depreciated assets with no debt on books.5 50.LHS) % growth (RHS) 50. Exhibit 4: Margins to remain stable despite higher competition (%) 30.IDFC .SSKI INDIA Exhibit 3: Domestic volumes have been relatively more resilient to the economic downturn 140. hike in terminal charges. 4QFY10E 1QFY06 2QFY06 3QFY06 4QFY06 1QFY07 2QFY07 3QFY07 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 DECEMBER 2009 45 .0 FY06 FY07 FY08 FY09 FY10E FY11E FY12E Source: IDFC-SSKI Research Expect 15% CAGR in earnings over FY10-12 Driven by higher volumes. depending on the mix of volumes and the quantum of empty running.000 -20.0 3QFY10E Source: Company. We expect earnings growth to rebound over FY10-12 to 15% CAGR.0 117. Concor is also well placed to protect its margins from the onslaught of competition. Concor is taking various steps (higher tariffs on import volumes.

Concor has cash of Rs20bn on books.450 per share. Moreover. cold chain. we believe that Concor currently trades at attractive valuations of 16. etc. Concor is exploring other business opportunities such as shipping. We maintain Outperformer rating on the stock with a DCF-based target price of Rs1. without committing any significant investments for these businesses. pan-India network of ICDs and CFSs as well as depreciated assets (thereby economies of scale) – and thereby ability to garner higher volumes.450 for Concor We continue to like Concor’s business model considering that it is a play on the growth in international trade and rising container volumes (both international and domestic). ICDs/ CFSs and other handling equipment at various facilities.SSKI INDIA Strong free cash flow generation – high return ratios Concor generates high return ratios of 20-25%. Concor generates high return ratios of 2025%. we believe Concor is well placed to defend its dominance in the medium term given its large wagon fleet. while it generates 40%+ operating RoCE (without cash). which it will enter into on MoU basis. and 40%+ operating RoCE (without cash) Concor generates significantly higher free cash flows of Rs6bn-7bn annually (precapex) on the back of better utilization of assets and economies of scale. The hefty investment into wagons is being undertaken to maintain its dominant position and attract higher volumes. Attractive valuations. Considering the earnings growth visibility and high return ratios. Capex – new areas of business being explored The management expects to utilize the free cash to incur Rs4bn capital expenditure annually on acquiring additional rakes.IDFC . In our view. the management has been proactive in tying up volumes through strategic alliances. Accordingly. maintain Outperformer We set a DCF-based price target of Rs1. which will continue to drive consistent growth in volumes. The capex will be funded through internal accruals. DECEMBER 2009 46 . Besides funding the core business.e. i.9xFY11E earnings.

SSKI INDIA THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK DECEMBER 2009 47 .IDFC .

422 13.2 24.108 18.499 (237) (1.6 11.147) (33) 9.371 1.757 FY10E FY11E 1.737 7.2% Institutions 10.419 9.3 27.262 201 2.063 (314) (1.9 FY09 34.764 13.9 20.267 19.285 8.419 11.9 23.582 45.735 255 (3.9 60.664 8.5 72.587 204 3.931 219 2.425 1.426 (4.497 12.344 1.159 10.703) 4.1 3.937 10.213 Promoters 63.654 (4.2 FY10E FY11E 38.432 12.2 4.3 27.554 19.292) (1.111 1.4 22.947 2.673) 4.021 13.3 5.8 25.300 56.232 19.658 2.876 61.485 1.330 142 (2.000) (2.143 10.330 10.8 18.5 21.465 Concor has an extremely strong competitive edge vis-à-vis peers Large fleet (218 rakes) Total shareholders' equity 31.9 3.156 9.523 8. EPS (Rs) PER (x) Price/Book (x) EV/Net sales (x) EV/EBITDA (x) FY08 57.540 FY12E 1.9 3.896 17.407 (493) 71.4 2.4 14.043) 12.369 12.3 16.622 6.9 - FY12E 26.322 71.634) FY12E 14.4 2.798 7.0% Non Promoter Corporate Holding 1.8 FY12E 51.063 9.589 FY09 10.118 (4.053) 2.7 21.735 14.864) 11.881) 6.2 2.0 FY09 60.2 23.311 4.0 72.540 28.513 25.6 21.485 126 1.8 22.151) 13.523 10.522 6.172 2.854) 8.7 21.5 16.322 37.4 25.031 21.428 6.0 23.780 15.992) (1.500) (2.147 7.854 7.9 23.5 13.1) 1.992 11.650) 5.824 14.2 23.947 FY09 1.285) 10.0 FY10E FY11E 64.223 1.3 - FY10E FY11E 27.2 22.951 (477) (2.1 Balance sheet As on 31 March Paid-up capital Preference share capital Reserves & surplus Total current liabilities Total Debt Deferred tax liabilities Other non-current liabilities Total liabilities Net fixed assets Investments Total current assets Working capital Total assets FY08 650 31.7 22.931 1.832 13.900 2.0 9.9 20.189 5.535 29.500) 8.0% Foreign 24.1 15.9 57.513 1.SSKI INDIA Earnings model Year to 31 March Net sales % growth Operating expenses EBITDA % growth Other income Depreciation Pre-tax profit Deferred Tax Current Tax Profit after tax Non-recurring items Net profit after non-recurring items % growth Key ratios FY08 33.372 1.7% As of September 09 DECEMBER 2009 48 .135 45.000) 6.5 19.300 42.344 62 2.300 36.151 11.715 53.5 43.197 1.465 31.645 1.1 24.559 2.5 - FY09 27.428 8.023 9.6 23.1% Public & Others 1.843 58.828 1.938 8.660 17.2 4.0 1.262 1.650 38.300 49.664 53.519) (13.6 2. tax) Misc Net chg in cash Shareholding pattern FY08 9.158 (5.2 Year to 31 March EBITDA margin (%) EBIT margin (%) PAT margin (%) RoE (%) RoCE (%) Gearing (x) FY08 26.159 412 (2.497 180 (2.473 10.7 3.232 11.839 Cash balance (Rs20bn) Competitive strengths Pan India network (59 terminals) Total equity & liabilities 38.248 (410) 61.8 64.713) 1.218 10.904 (0.IDFC .364 50.9 37.380 (1.468 (16.009 1.7 20.757 21.158 (5.915 (3) 7.0 20.2 FY12E 86.2 31.420 FY10E FY11E 10.4 86.505 17 7.498 43.6 3.4 - Valuations Year to 31 March Reported EPS (Rs) Adj.587 1.861 9.770 24.864 9.6 21.0 4.912 5.947 Depreciated assets Cash flow statement Year to 31 March Pre-tax profit Depreciation chg in Working capital Total tax paid Ext ord. Items & others Operating cash Inflow Capital expenditure Free cash flow (a+b) Chg in investments Debt raised/(repaid) Capital raised/(repaid) Dividend (incl.926 (5.569 8.

we estimate 15% earnings CAGR and higher return ratios for GDL over the period. Key financials As on 31 March Net sales (Rs m) Adj.1 23. is expected to be a key beneficiary of the rising container traffic growth in India.62 54. At 14. we expect the CFS business to generate cash of Rs700m-900m annually with limited capex plans.9 14. an established CFS player with presence at key strategic locations.6 12.4 1.1) 39.5 10.2 FY09 4. Improving operational performance. net profit (Rs m) Shares in issue (m) Adj.2 10.2x FY11E earnings.5 12. GDL is India’s largest private container rail operator and the business is being scaled up by adding rakes and sidings. would aid profitability as utilization and turnaround times improve. revival in volumes and higher capacity would improve turnaround time of rakes and utilization levels.3 (6. for which it would utilize the funds raised recently. which enables it to tap the growing container volumes.2 1-yr 48.3 13. Overall.9 8.3 2.195 108 11.8 FY12E 8.9 3-yr (29.2) 21. we believe. This. valuations are attractive in view of healthy cash flows from CFS business and value-creation potential in GRFL (to be profitable in FY11E).9 11.9 65.SSKI INDIA Company update Gateway Distriparks Harvest time 21 December 2009 BSE Sensex: 16720 Rs130 OUTPERFORMER Mkt Cap: Rs14bn.2 1.6 17. US$300m Stock data Reuters Code Bloomberg 1-yr high/low (Rs) 1-yr avg daily volumes (m) Free Float (%) GATE.714 730 116 6.2x FY11E earnings. we expect healthy growth in volumes for the CFS business. We also see margin expansion FY11 onwards as operating margins stabilize in the CFS business and improve in the rail business.4 16.6 17.3 FY10E 5.510 793 108 7. CFS business – a cash cow: GDL has its CFS facilities at strategic locations.6 12.1 2.6) 20.674 965 108 9.7 6. .9 FY11E 6.1 9.9 8.5 (0. Reiterate Outperformer. At 14.BO GDPL IN 148 / 42 0. driven by rising volumes for both CFS and rail operations.2 2.8 FY08 2.466 798 108 7. the capital infusion would also accelerate turnaround of the business. EPS (Rs) % change PE (x) Price performance 200 160 120 80 40 Oct-09 Nov-09 Dec-08 Dec-09 Mar-09 Feb-09 Jan-09 May-09 Apr-09 Jun-09 Jul-09 Aug-09 Sep-09 Gateway Distriparks Sensex Performance (%) 3-mth 6-mth GDL Sensex 15.5 Gateway Distriparks (GDL). GDL’s forward integration into the value chain by entering rail container business completes its service offering. attractive valuations: We expect 25% CAGR in GDL’s revenues over FY09-12.9 11. the recent fund raising in rail business (GRFL) is extremely positive.0 20.0 Bhoomika Nair bhoomika@idfcsski.6 15. as besides limiting the strain on parent balance sheet. Rail business to turn profitable in FY11E: GDL’s rail business (GRFL) is the largest private container rail operator in India with 18 rakes and three ICDs operational. Accordingly. GDL plans to acquire more rakes and set up additional ICDs. While the scale-up in operations would provide GFRL the flexibility of operations.IDFC . we reiterate Outperformer on the stock with a price target of Rs160 per share. With an expected revival in international trade from H2FY10.1 13.com 91-22-66 38 3337 Price/ Book (x) EV/ EBITDA (x) RoE (%) RoCE (%) Prices as on 18 December 2009 DECEMBER 2009 49 .4 0. Notably. Further.4 12.6 17.856 1.4 7.

Exhibit 1: Services offered at the CFS – Key functions of CFS’s – storage and handling containers Container freight station • Box handling & storage • Stuffing & Destuffing (less than container load) • Goods handling • Warehouse & storage Delivery of goods as full container load Factory Inbound and outbound movement of less than container load traffic Port terminal Container transportation Source: IDFC-SSKI Research Presence in strategic locations gives competitive edge GDL the largest private player in container rail business with CFSs at key locations… GDL has CFSs in key strategic locations in India – JNPT (Mumbai). Chennai and the Vizag ports handle 78% of the total containerized cargo in India. fund raising (Rs3bn) in the rail business would allow a faster scale-up which. one of the largest private container rail operators. especially at JNPT (wherein it has a 25% market share). The locational advantage places GDL in a position to capitalize on the ongoing volume recovery in both CFS and rail businesses. Chennai. GDL has emerged as the largest private sector player in the segment. has a strong competitive positioning in the space. and has presence on the East and West coasts of India as well as in the Delhi-Manesar industrial belt. in turn. GDL has tie-ups with most of the shipping companies across Indian ports to cater to all the markets in India. Chennai. etc). Setting up of container rail operations has enabled GDL to provide end-to-end logistics solutions as also utilize the free cash being generated from the CFS business. would accelerate its turnaround. Another ICD at Faridabad (Delhi) is under construction. while Kochi is set to be developed over the next few years. has CFS and ICD facilities across key locations such as JNPT. Vizag and NCR. GDL. Vizag and Kochi. Notably. We expect the rail business to be profitable in FY11. GDL has three operational ICDs in the hinterland (housed in the rail business) – at Garhi Harsaru (near Delhi). stuffing and de-stuffing cargo and customs clearances. Outperformer CFS BUSINESS: GDL’S CASH COW GDL – a leading CFS player GDL was incorporated in April 1994 and commenced business operations in December 1998 as a CFS (Container Freight Station) operator. GDL provides logistics support services for export-import of containerized cargo including transportation of containers to and from facilities. a leading CFS player in India. with 18 rakes and three ICDs operational and further expansion planned over the next 12 months.SSKI INDIA INVESTMENT ARGUMENT GDL. storage of containers in container yards and other related services (general and bonded warehousing services.IDFC . The JNPT. Ludhiana (Sanewal) and Kalamboli (Panvel). DECEMBER 2009 50 .

000 TEUs Source: Company.IDFC .000 TEUs Capacity 24. Volumes at Chennai.000 320. Vizag and Kochi ports are expected to grow at a faster clip of 15-20%.SSKI INDIA Exhibit 2: GDL – three ICD and four CFS facilities operational across India Ludhiana Garhi Faridabad JNPT Kalamboli Vizag Capacity 366. IDFC-SSKI Research JNPT Chennai Vizag Kochi % yoy growth 60 45 30 15 (15) DECEMBER 2009 51 . Exhibit 3: GDL’s volume trend (TEUs) 400. We expect CFS volumes to revive in H2FY10 and grow at 8% in FY11. IDFC-SSKIR Research Operational CFS ICDs/rail sidings Planned ICDs Volumes expected to grow in line with port traffic …which will help it capitalize on volume upturn at India’s ports Sluggish international trade in H2FY09 and H1FY10 led to a sharp fall in port volumes and lower volumes for GDL in turn.000 240. we believe GDL’s largest CFS at JNPT (75% of overall CFS volumes) is likely to grow at a slower pace of 5% due to slower volume growth at JNPT as also intense competitive intensity.000 FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E Source: Company. However.000 TEUs Capacity 15.000 80.000 TEUs Chennai Kochi Capacity 60.000 160.

Mumbai). ICD business housed in GRFL – three operational ICDs GRFL has infrastructure to consolidate cargo for an entire rake load. Vizag and Kochi give GDL exposure to ports which are expanding capacities and would thus give a volume push in the coming years.SSKI INDIA JNPT CFS – key driver for CFS profits Margins higher at JNPT CFS as congestion mandates faster shifting of volumes to CFSs GDL’s CFS business is primarily driven by its CFS at the JNPT port. DECEMBER 2009 52 . GRFL is one of the few private players to have three operational ICDs which. GRFL also uses Indian Railways’ sidings as also some private sidings. GDL has commenced container rail operations by taking a pan-India license under Gateway Rail Freight (GRFL) – a subsidiary set up for this business. Considering that GDL is unlikely to have aggressive capex plans due to limited land availability at JNPT and minimal requirement at other CFS facilities. The entry into rail-based container movement will help GDL provide complete end-to-end services from the port to inland destination and vice-versa. CFS business to remain a cash cow We expect CFS business to throw up cash of Rs700m-900m annually GDL generates ~Rs800m of net profit from the CFS business annually. along with support from CFS facilities at ports. GRFL would have the capability to consolidate cargo for an entire rake load. Although the specialization has led to high profitability. to be operational in 12 months. we believe. GRFL currently has three operational ICDs at Garhi Hasaru. Incrementally. operate on a hub-and-spoke mechanism and improve the turnaround of rakes. GDL has housed all its ICDs under GRFL. with limited working capital requirements. Over FY10-12. RAIL BUSINESS (GRFL): TURNING PROFITABLE IN FY11E Diversification into rail business for integrated logistics solutions Further integration into the logistics chain via entry into container rail GDL. the other CFSs at Chennai. Operating margins at the JNPT CFS are higher due to port congestion.IDFC . we expect 9-10% revenue and earnings CAGR in GDL’s CFS business to drive stable cash flows. This is evident in the fact that the JNPT CFS contributed 85-88% to GDL’s overall CFS profits in FY08 and FY09. which requires faster shifting of volumes to CFSs for various clearances and other activities. Notably. we expect the CFS business to generate steady cash flows of Rs700m-900m annually (based on volumes and margins in a particular year). With 3-4 ICDs in key locations. operate on a hub-and-spoke mechanism and improve turnaround of rakes Considering the requirement for consolidation and value-added services in the hinterland. is a strong edge over other private peers. GRFL is adding another ICD in Faridabad (NCR region). Ludhiana (Sanewal) and Kalamboli (near Panvel. caters to a specific niche in the logistics value chain. Besides utilizing its own ICDs. further integration into the logistics chain became an imperative for long-term growth prospects. we do not see a repeat of the FY09 performance in terms of profit levels of the CFS business in the medium term as dwell times (and hence rental incomes) had jumped in H2FY09 with a chunk of exim cargo languishing at CFSs due to the severe financial crunch. Accordingly. through its CFS network.

DECEMBER 2009 53 . IDFC-SSKI Research Rs3bn raised from Blackstone – a private equity fund Blackstone to hold a 37.SSKI INDIA 21 rakes by end-FY10E to make GRFL the largest private operator… The largest fleet of 18 rakes operational to be further scaled up to 21 rakes by end-FY10 Over the past 2-3 years. as well as a higher number of rakes provides GRFL the flexibility to operate on either of the routes based on availability of volumes.9% stake in GRFL. Exhibit 4: Assets on book of GRFL Rakes ICDs 18 rakes (18 operational.27-49. The agreement also includes a call option for GDL to acquire the CCPS at the end of five years from the date of the investment and a put option for Blackstone to sell the CCPS to GDL at the end of 10 years.9%. While GRFL has 18 rakes operational. Handling Equipment. through compulsory convertible preference shares (CPPS).27-49. Blackstone will have a stake between 37. Tractor trailers. Blackstone’s stake in GRFL will proportionately increase. GRFL needs to achieve the EBITDA target set in any one of the five years to limit Blackstone’s stake to 37. we believe the higher number of rakes and ICD facilities provide it flexibility to operate on either of the two routes. such as the northern hinterland.27%. The point is well demonstrated by the fact that exim vs domestic volumes differ on month to month basis with the swing as sharp as 80:20 or 50:50 or 40:60 between the two segments. especially in the domestic segment. the higher number of rakes gives GRFL flexibility to provide services between rail sidings for customers. As such. Post the conversion. with a cap of 49. it plans to add another three rakes by end-FY10 to reach a rake fleet of 21. GDL’s stake in GRFL will reduce to between 48-60% (based on Blackstone’s stake).IDFC . and thereby garner higher volumes. a 95% subsidiary of GDL. GRFL has consistently added rakes to increase the reliability of its service offerings. On conversion of the preference shares into equity at any time over the next five years. Blackstone’s stake in GRFL depends on EBITDA milestones that GRFL needs to achieve over the next five years. In case GRFL misses the EBITDA targets specified as per the agreement. With its 18 rakes as of date. depending on latter’s profitability Blackstone GPV Capital Partners (a private equity fund) has announced its plans to invest Rs3bn in Gateway Rail Freight (GRFL). Moreover. Considering that GRFL is creating a market for itself. GRFL is the largest operator among private container rail operators. Further. …providing flexibility between exim and domestic routes Exim/ Domestic volume swing of 80:20 or 50:50 or 40:60 shows flexibility of operations o adapt to market conditions Presence at key strategic locations. etc Source: Company. More rakes would be added in FY11E to capture higher volumes in both domestic and international markets. GRFL has not set any volume mix targets between the two segments. 3 rakes to be added in 3-4 months) Garhi Ludhiana Navi Mumbai (Kalamboli) Faridabad (under execution) Others Containers.9% in GRFL (dependent on the company’s operational performance). the entire fund infusion into GRFL is likely to happen within a span of 1-2 months. Blackstone will have a representation on the board of GRFL. However.

9% GDL 47.861 26.012 95% 2.5x PBV. Considering that GRFL is currently in the ramp-up phase and making losses.5x PBV As GRFL is currently in ramp-up phase and making losses. Exhibit 6: Valuation of GRFL by Blackstone % stake of Blackstone Fund infusion by Blackstone Post money valuation Pre-money valuation GDL stake GDL stake value (Pre – money) GDL per share value (Rs) GDL's equity investment in GRFL Valuation of GRFL on PBV (x) basis Source: Company. DECEMBER 2009 54 .5-2. the Blackstone deal values GRFL at 1.797 44. GDL has invested Rs2bn as equity into GRFL.5% Source: Company. GRFL’s pre-money value works out to Rs3bn at the lower end (49.000 2.1% Management 2.05bn at the higher end (37. We expect the rail business to turn around in Q4FY10 and be profitable in FY11.049 95% 4.000 6. Accordingly. We have not taken into account the Rs1.000 1.27% stake) of the valuation.27% 3.5 37. The expansion would enhance flexibility of operations as also capacity.5 Fund raising to accelerate GRFL’s turnaround The capital infusion in GRFL would allow it to expand without leaning on parent and accelerate rail business’s turnaround Funds raised through the private equity deal will be utilized to scale up the business by adding more rakes as also more ICDs (including the Garhi ICD which is currently on GDL’s books) in FY11E.000 8.SSKI INDIA Exhibit 5: GRFL – shareholding pattern Current Management 5% At Rs5bn valuation Blackstone 37. valuation of GRFL seems reasonable Based on the Blackstone deal.15bn as advance given to GRFL as it is to be refunded to GDL over the next five years at a coupon of 6% p. we believe valuation of the rail business (GRFL) is reasonable.6% GDL 95% Management 3.90 3.012 3.6% GDL 59. thereby reducing losses of the rail business.5-2.3% At Rs3bn valuation Blackstone 49.5 2. IDFC-SSKI Research 49.049 5. IDFC-SSKI Research Blackstone deal values rail business at 1. the funds raised would enable GRFL to add scale to the business without straining GDL’s balance sheet. Based on the same.9% stake) and Rs5.IDFC .6 2.a.

a revival in exim volumes would allow GDL to capture higher volumes for both CFS and rail businesses. Also. At the same time.150 P&L (Rs m) Revenues EBITDA PAT FY09 1.500 20 FY07 FY08 FY09 FY10E FY11E FY12E 0 Source: IDFC-SSKI Research Margins to stabilize – led by improvement in rail business Higher competitive intensity.IDFC .000 2.000 1.500 60 5. dwell times as also expansion of the CFS business into new locations have been impacting margins at GDL’s CFS business. we expect margins to stabilize at Q2FY10 level of 46. Exhibit 8: Revenues to grow at a robust pace (Rs m) 10. primarily owing to the scale-up in rail business. higher exim volumes as also better utilization levels in the domestic segment are the key margin drivers in the rail business.834 140 (250) 1HFY10 1. DECEMBER 2009 55 . which will drive volumes. and we expect it to continue in FY11 as well. lower volumes.000 CFS (LHS) Rail (LHS) Cold chain (LHS) % yoy growth (RHS) 80 We expect strong volume growth in both CFS and rail businesses 7. though we expect margins to expand in FY11 driven by stability in CFS business and expansion in the rail business margins. margins have already started improving in the rail business.150 5. IDFC-SSKI Research (Rs m) 2.000 40 2.5% as volumes revive and dwell times return to normalized levels of 10-12 days. margins would likely dip in FY10 due to lower margins for CFS business. In H2FY10.454 169 (69) FY10E 3. Flexibility due to scale-up of operations. We expect realizations to be largely flat due to the escalated competitive intensity in the two businesses.245 422 (50) FINANCIALS & VALUATIONS Expect 25% growth in revenues over FY09-12 We expect GDL to deliver 25% CAGR in revenues over FY09-12.SSKI INDIA Exhibit 7: Key financial details of the rail business Balance sheet of GRFL Equity Debt Advance from GDL Total capital employed Source: Company. Overall.

5 0. As the rail business turns profitable.0 FY07 Source: IDFC-SSKI Research FY08 FY09 FY10E FY11E FY12E DECEMBER 2009 56 . we expect return ratios to inch up over the next 2-3 years GDL had extremely strong return ratios up to FY07 led by healthy margins and profitability of CFS business.0 (%) RoE ROCE 13. we expect return ratios to inch up over the next 2-3 years.04bn on GDL’s books. Return ratios to improve As the rail business turns profitable.5 9. However. putting up warehousing facilities or increasing stake in Snowman Frozen Food (a 50% cold chain subsidiary).IDFC . Moreover. entry into the rail business as also limited growth in CFS business has capped return ratios.0 4. improve from FY11E onwards 60 OPM (%) We expect margins to expand in FY11 led by stability in CFS business and expansion in the rail business margins 45 30 15 0 FY07 Source: IDFC-SSKI Research FY08 FY09 FY10E FY11E FY12E Free cash in CFS to be utilized for acquisitions or warehousing GDL has been infusing the surplus funds generated from core business into GRFL towards business expansion as well as to fund losses. resulting in excess cash of Rs1. The funds are likely to be utilized by GDL for funding capex at its Kochi CFS (Rs350m-400m) and other expansions in the CFS space. GRFL will pay Rs840m to GDL for the transfer of the Garhi ICD land. reduces the strain on GDL’s balance sheet. we believe. The fund-raising.SSKI INDIA Exhibit 9: Margins to bottom out in FY10E. Exhibit 10: Return ratios to start improving from FY11E onwards as rail turns around 18.

is likely to be the key beneficiary of the rising container traffic in India. an established CFS player. with footprint at key strategic locations and aggressive expansion strategy. we believe valuations are attractive in view of cash flow generation in the CFS business and value creation in GRFL. We believe GDL’s forward integration into the value chain via rail-based container movement as well as cold chain logistics solutions would enable GDL to offer end-to-end services to clients. maintain Outperformer Buy with a price target of Rs160 per share GDL. Maintain Outperformer with a price target of Rs160 per share. the recent fund raising in rail business (GRFL) is extremely positive for GDL as it limits the fund infusion into GRFL on GDL’s part while also accelerating the turnaround process of GRFL. which is expected to turn profitable by Q4FY10.2x FY11E earnings.SSKI INDIA Attractive valuations. Further. DECEMBER 2009 57 . At 14.IDFC .

6 119 (201. EPS (Rs) PE (x) Price/ Book (x) EV/ Net sales (x) EV/ EBITDA (x) FY08 6.552 731 (358) (310) 1.4 10.581 6.606 7. items Operating cash inflow Capital expenditure Free cash flow (a+b) Chg in investments Debt raised/ (repaid) Capital raised/ (repaid) Dividend (incl.0 14.797 7 1.7 6.6 9.6 12.195 1.5 15.IDFC .651 0 1.665 8.6) 465 781 (17.3 241 (255.8% Foreign 21.472 9 827 8.0 26.045 185 606 3.156 5.3 0.2 3.3 FY10E FY11E 24.7 1.0 8.077 6.3 20.132 230 1.4 FY10E FY11E 7.997 (Rs m) 10.6 12.1 13.7 14.932 224 (377) (39) 2.800) (521) 109 (377) (73) (861) FY12E 1.997 12.135 539 (258) (136) 1.6 171 (311.4 1.3) 155 (234.785) 653 (377) (85) (1.986 1.856 32.279 (1.461 42.378 185 3.432 2.6 Balance sheet As on 31 March Paid-up capital Reserves & surplus Total current liabilities Total debt Deferred tax liabilities Total liabilities Total equity & liabilities Net fixed assets Investments Total current assets Other non-current assets Working capital Total assets Revenues to grow at a robust pace FY08 1.3 FY10E FY11E 5.917 13.594) Promoters 45.3 6.5% Non Promoter Corporate Holding 2.3 25.921 14.077) 141 19 (111) (83) (1.077 5.8 0.884 7 2.132 FY09 1.168 7.7 27.6) FY09 4.0) 539 1.160 6.987 8.689 1.031 185 3.529 9.024 26.3 17.500 20 FY07 FY08 FY09 FY10E FY11E FY12E 0 Shareholding pattern Public & Others 12.1 13.022 (1.077 5.9 FY09 7.688 27.4 6.223) (1.4 7.686 15.829 (640) (502) 43 (364) FY10E FY11E 781 465 (81) 17 3.510 66.466 21. tax) Misc Net chg in cash FY08 857 292 (37) (123) 158 1.887) (865) (230) 1.132 6.740 1.552 47 310 1.1 144 (20.326 (9.255 230 3.3) 798 798 0.SSKI INDIA Earnings model Year to 31 March Net sales % growth Operating expenses EBITDA % change Other income Net interest Depreciation Pre-tax profit Deferred tax Current tax Profit after tax Minorities Non-recurring items Net profit after non-recurring items % change Key ratios FY08 2.2 14.962 230 2.3 9.1% Cash flow statement Year to 31 March Pre-tax profit Depreciation Chg in working capital Total tax paid Ext ord.6) 445 933 16 146 772 21 3 796 8.250) 2.195 23.714 68.615 (3.4 17.4 7.0) 292 857 19 123 715 15 5 735 (5.575 8.4 22.5 17.2 4.3 2.3 FY12E 27.077 6.658 858 2.382 7 3.0 0.6 1.131 14.1% As of September 2009 DECEMBER 2009 58 .135 34 136 965 965 20.5 10.0 FY09 32.0) 731 1.2 1.111 3.5 13.1 11.245 962 2.400) (1.766 8.3 5.311 645 215 169 1.606 7.140 1.4 7.423 43.000 CFS Rail Cold chain % yoy growth (RHS) 80 Total shareholders' equity 6.376 FY12E 1.182 (1.1 11.2 0.4 Valuations Year to 31 March Reported EPS (Rs) Adj.2 2.146 (2.064 1.766 FY10E FY11E 1.5 12.1 2.933 15.1 FY12E 11.376 10.9 Year to 31 March EBITDA margin (%) EBIT margin (%) PAT margin (%) RoE (%) RoCE (%) Gearing (x) FY08 37.1 4.396 7 703 9.9 8.4 17.111) FY09 933 445 (183) (146) (27) 1.000 40 Other non-current liabilities 636 2.9 FY12E 8.8 6.467 7.674 22.269 185 3.606 6.237 694 2.1 2.9 0.000 4.2 3.9 11.6 12.500 60 5.955 230 4.524 13.3 15.0 9.5% Institutions 18.9 2.049 1.4 19.575 1.

Tie up with CFS/ ICD operators & private sidings Has several ICDs and CFSs of it s own NA NA Planned rail sidings 3-4 IC Ds/Logistics parks Faridabad (NCR) New locations in strategic alliance with Allcargo Panipat 2 owned sidings NA Khurja (NCR). Kalamboli (Mumbai) Strategic alliance with Allcargo & C WC at JNPT. Tie ups with various private sidings Patli in Gurgaon (NCR) and Kishengargh. Players in Rs500m license fee category (all India) Companies Concor Gateway Distriparks (GRFL) Hind Terminals (MSC Group) India Infrastructure Logistics Pvt Ltd (APL) Emirates Trading Ag ency (ETA) CRRS (DPW) Arshiya international Adani Logistics Sical Logistics Central Warehousing Corp (CWC) Reliance Infrastructure Leasing Kribco Rakes operational 218 18 10 9 7 7 6 5 5 Operational rail siding 59 terminals 3 ICDs . which highlights their current and future strategies.Garhi (Delhi). Rajasthan 3 CFs (Chennai. Pipavav Rail Corporation (PRCL) Rakes operational 12 12 2 Operational rail siding Kalamboli (JNPT). Sanewal (Ludhiana). Tie ups with CFS/ ICD operators Vizag & Rajasthan. Tie ups with CFS/ ICD operators NA NA Planned rail sidings 3 sidings planned 5-6 sidings planned NA NA DECEMBER 2009 59 . Tuticorin & Vizag).SSKI INDIA PROFILE OF CONTAINER RAIL OPERATORS There are 16 players in the container rail business. 5 others Land acquired for more sidings More s idings planned NA NA NA Players in Rs100m license fee category (sector-specific routes) Companies Inlogistics (B2B) Boxtrans (JM Baxi and Co) Delhi Assam Roadway s Corp. Mundra & NCR Tie ups with CFS/ ICD operators Tie ups with CFS/ ICD operators Tie ups with CFS/ ICD operators Vizag. Below we have a brief profile of each of the players in the business.IDFC .

plugging and monitoring of refrigerated containers. wherein ALL will take the cars from the factory till Mundra Port. will be setting up CFS and ICD facilities across India. MPSEZ is looking to expand its capacity over the next five years. ALL – in line with peers – has curtailed its capacity addition plans even though it has already acquired land across various locations in India for setting up ICDs/ CFSs.651 (193) 1. Depending on demand and return volumes. Mundra Port is located in the Kutch region of Gujarat.408 3. While Mundra is not a major port. The ICDs enable ALL to consolidate cargo from various clients. Further.024 223 ALL FY09 511 (218) 292 1. in the exim sector. ALL currently operates six rakes at Patli and Kishangarh. storage.8m TEUs in FY09) as the port is among the top three container ports in the country.IDFC . wherein the cars will be loaded onto the ship utilizing the RoRo service at the port terminal. ALL has taken a Category 1 license (pan-India) for both domestic and exim operations. ALL has set up an ICD at Patli in the NCR and another at Kishengarh in Rajasthan. Accordingly. besides providing container rail services. Striving to provide integrated logistics solutions MPSEZ has set up a subsidiary. ALL plans to focus on agri logistics and rail connectivity for various group requirements.570 (333) 4. Container rail and ICDs to enable MPSEZ to provide end-to-end solutions Port/SEZ Source: IDFC-SSKI Research CFS Rail ICD Customer Infrastructure – two ICDs and six rakes operational In order to provide integrated services to clients as also value-added services such as customs clearance. which facilitates a faster turnaround time of rakes and higher utilization levels in both exim and domestic cargo. palletization. ICPL* – the company which has the ICD assets.645 24 (62) Profit / loss before tax (30) (189) Source: MPSEZ annual report. ALL also occasionally runs rakes in the domestic sector.240 1.470 (63) 1. primarily servicing the Mundra port. IDFC-SSKI research.029 2. Financial details – ALL and ICPL (Rs m) FY08 Share capital Reserves Total Networth Debt / liabilities Others Total capital employed Revenues 511 511 516 (3) 1.750 560 ICPL* FY08 1.240 1. Till volumes pick up. MPSEZ is positioning itself as a provider of end-to-end logistics services by servicing customers from plant to the port. Notably. Going slow on expansion and business ramp-up Given the sluggish business conditions. ALL is trying to attract clients in the automotive industry. volumes at MPSEZ’s two container terminals are quite high (0.268 - FY09 1. ICPL and ALL are to be merged in FY10 DECEMBER 2009 60 . Adani Logistics (ALL) which.SSKI INDIA Adani Logistics Entry into container rail business through Mundra Port & SEZ (MPSEZ) UNLISTED The Adani group has forayed into container rail operations through Mundra Port and Special Economic Zone (MPSEZ).

Orissa. agency services for cruise and visiting naval ships. ship chartering. freight forwarding (MTO). Besides adding more ICDs to expand volumes.IDFC . Ludhiana and Ahmedabad. in the existing proportion. Currently using terminals on shared basis. plans to add more ICDs Boxtrans has its own terminals in Vizag and Durai (Rajasthan). Nagpur. Vizag.M.M.SSKI INDIA Boxtrans (JM Baxi) UNLISTED Boxtrans Logistics (Boxtrans) is a subsidiary of J. Boxtrans will be looking at a mix of debt and equity. Baxi & Co. Boxtrans plans to set up own rail terminals (ICDs/ CFSs) in Sonepat. The investment has been funded through a mix of debt (Rs2bn) and equity (Rs1bn). Boxtrans primarily focuses on domestic cargo movement as the management sees ample scope for a shift from road to rail. Going forward. The equity fund raise will be done internally using the group’s free cash flows. port development. container transport management.5bn for rakes and containers. while it utilizes CWC’s Loni terminal in NCR and IR terminals in other parts of the country. Boxtrans has four rakes on order. ownership & management of CFS and container terminals. Baxi has businesses in several shipping support service lines including a shipping agency. it runs services in areas such as Kolkata. Rake expansion on hold Like peers. etc. Chennai. Boxtrans has eschewed from adding rakes over the past year in the wake of the economic slowdown and continues to operate with 12 rakes. Category III license – focus on domestic business Boxtrans has taken a Category III license. As per its license. In the exim sector. which allows it to offer container rail services across India. but will defer the delivery till volumes improve. Boxtrans is also eyeing the automotive market and plans to acquire specialized containers that can rack more cars in a rake to create a niche for itself and grow volumes. etc. For further investments. Rs2bn invested in container rail business so far Boxtrans has till date invested Rs2bn in the container rail business with Rs100m towards rail license fee. Gujarat. Boxtrans also utilizes the ICDs set up by Adani in Patli to run its rakes. The facilities will improve efficiencies at its rail operations and facilitate aggregation of cargo as well as hub-and-spoke services. ULA too has a shipping agency and provides services in the areas of stevedoring. and the remaining ~Rs400 towards land and other infrastructure. Ltd (ULA). J. Boxtrans can run rakes to JNPT using any other route other than the NCR-JNPT route. international freight forwarding. Haryana (NCR – to be operational in 4-5 months). DECEMBER 2009 61 . ~Rs1. NCR. Boxtrans provides connectivity to the Mundra port from NCR. terminal management. Orissa. and United Liner Agencies of India Pvt. Accordingly. which are extremely critical to draw volumes in the domestic segment. project cargo.

DPW handled ~4m TEUs in FY08 across its terminals in India. where DPW have captive volumes from the container terminal that it operates. Kulpi. DPW handled more than 46. Ltd (CRRS) for its container rail operations. etc. DPW has significant presence in India with terminals in Mundra. In 2008. As can be seen in the exhibits below. JNPT. Cochin. CRRS current network and routes it operates on Hinterland Port Source: Company. China and the Middle East. IDFC-SSKI Research DECEMBER 2009 62 . DPW has seven rakes operational on the NCR-Mundra and NCR-JNPT routes. Vizag.8m TEUs (20-feet equivalent container units) across its portfolio from the Americas to Asia – an increase of 8% on 2007. With a pipeline of expansion and development projects in key growth markets including India. experienced and professional team of nearly 30. Container Rail Road Services Private Ltd (CRRS) DPW has set up Container Rail Road Services Pvt. Currently. CRRS has weekly rakes running from three locations in NCR to JNPT and Mundra ports.000 people serves customers in some of the most dynamic economies in the world. Its dedicated. capacity is expected to rise to around 95m TEUs over the next 10 years.SSKI INDIA Container Rail Road Services Pvt. while it uses the rail siding at the ports to load and unload cargo. Seven operational rakes running from various ICDs in NCR Currently.IDFC . CRRS uses private ICDs or rail sidings to operate rakes in NCR. DPW aims to provide end-to-end integrated logistics solutions in the exim segment as it already handles almost 4m TEUs at various ports. Container rail operations will enable DPW to connect the terminals at various ports to hinterland. CRRS has taken a Category I license for pan-India services. Ltd (DPW) Background UNLISTED DPW is one of the largest marine terminal operators in the world with 49 terminals and 12 new developments across 31 countries. Vallarpadam.

rakes.SSKI INDIA Weekly schedule of services in the exim segment Services from Mundra JNPT JNPT Ludhiana (NCR) ACTL (NCR) Daurai (NCR) Ludhiana (NCR) Ludhiana (NCR) Ludhiana (NCR) Source: Company To Ludhiana (NCR) ACTL (NCR) Ludhiana (NCR) JNPT JNPT Mundra Mundra ACTL (NCR) Daurai (NCR) Trips per week Thrice a week Once week Thrice a week Thrice a week Twice a week Once a week Once a week Once a week Once a week Going slow on expansion plans Considering the slowdown in the international trade and the decline in container volumes at ports. CRRS has been slow on scaling up operations. containers and some handling equipment.IDFC . CRRS has not added a single rake or invested in ICD/ CFS till date and the company has been using terminals of other private operators.5bn. In the past one year. CRRS’s investments in the container rail business have been limited to Rs1. incurred towards rail license. DECEMBER 2009 63 .

CWC is one of India’s largest public warehouse operators offering logistics services to a diverse group of clients. Moreover. Apart from such CFS and ICD facilities. The leased rake model limits CWC’s capital infusion into the business beyond the license fee as the company already has a sizeable base of ICDs operating across the country. Such rail side warehousing complexes and a network of ICD/ CFS enable CWC to attract cargo.7m tonnes across a wide basket of products ranging from agricultural produce to sophisticated industrial products. These rakes are primarily being run on the JNPT-Loni (NCR) route. Currently. Runs rakes of other operators – no plans of adding rakes CWC has not yet acquired or placed orders for rakes and instead has leased four rakes from other private players. A pan-India license CWC has taken a category I license. DECEMBER 2009 64 . CWC does not plan to add any of its own rakes and is looking to collaborate with other players for leasing out further rakes and growing volumes.IDFC . CWC is a premier warehousing agency in India providing logistics support to the agricultural sector. 6-7 operators are utilizing CWC’s Loni ICD in NCR to consolidate cargo and load and unload rakes. CWC utilizes its ICDs in the NCR. CWC has also developed rail side warehousing complexes across 22 locations. Pan-India network of ICDs and warehouses CWC has developed an extensive infrastructure of 36 CFSs and ICDs across India over the past few decades. for operating container trains on the exim route. primarily Loni and Noli. CWC generates revenues by extending its ICDs to be used by other operators that do not have their own ICDs.SSKI INDIA Central Warehousing Corporation (CWC) Background UNLISTED Established in 1957. CWC operates 488 warehouses pan-India with a storage capacity of 10. can be provided to its customers. The CFSs/ ICDs offer composite services for containerised movement of export as well as import cargo. with value added services. where aggregation can be done and total solutions. which allows it to operate pan-India on all routes and handle domestic as well as exim cargo.

ETA provides a daily service between Loni and CWC in collaboration with other players. while ICDs and logistics parks will facilitate provision of end-to-end solution on hub-and-spoke basis for domestic and exim customers.SSKI INDIA ETA Freight Star Background of the ETA group UNLISTED ETA Engineering Pvt. for which it has entered into long-term contracts of 1-3 years with clients.IDFC . engineering. we believe. DECEMBER 2009 65 . healthcare. Debt tied up. scouting for PE funds ETA has already tied up funds to expand its business – while debt worth Rs3. etc.25bn has already been secured. shipping/ logistics. equity amounting to Rs1bn has also been infused. The expansion of its own fleet will enable ETA to run daily services to JNPT as well as cater to other ports. Pan-India license with eight rakes operational ETA has a pan-India license acquired for Rs500m. education. Ltd (ETA) is a part of the US$5. ETA is currently looking for private equity funds to further expand and grow the scale of the business. including rail operations. facilities management. ETA is also setting up its own ICDs and CFSs (logistics parks) in NCR and Nagpur. ETA has well diversified activities over 16 broad industry verticals. real estate.4bn ETA-Ascon and Star Group (a Dubai-based group). ACTL ICD and Dhapper and JNPT on the exim route. allowing the company to operate its rakes and offer services across India for exim and domestic cargo. insurance. ETA is also focussed on a niche market of moving liquid cargo in containers such as vegetable oil. ETA commenced container rail operations in November 2007 and currently operates seven rakes between Loni (CWC’s ICD). Expanding the ICD network and fleet of rakes ETA plans to expand its fleet from seven rakes currently to 20 rakes over the next two years based on volume ramp-up. manufacturing and assembly. MEG. etc. Apart from other domestic cargo. trading. aviation. carbon black. In addition. are a logical extension of ETA’s trading and shipping operations. ETA is looking to collaborate with other players to set up shared terminals. Integrated services – a logical extension Integrated multimodal logistics. Among the prominent verticals of the group are contracting.

a strong and well-known business conglomerate in Dubai with interests in business of shipping. The said CFS is one of the largest at Nhava Sheva with a rail siding. DECEMBER 2009 66 . The company is part of the Sharaf Group. at Palwal and other locations to capture sizeable traffic from the North India which is the hinterland for JN Port and Mundra Port. Hyderabad. Nhava Sheva near JNPT Port over an area of 75 acres under Strategic Alliance Agreement with Central Warehousing Corporation (CWC). HTPL is in the process of developing ICDs in the NCR. HTPL operates a Container Freight Station (CFS) at Mundra over an area of 40 acres belonging to Central Warehousing Corporation. etc. operating and managing CFSs and ICDs at Indore. Developing ICDs / CFSs either on its own or through strategic alliances HTPL has developed a state-of-the-art Container Freight Station at Dronagiri. 1956. HTPL has already acquired land admeasuring ~100 acres for development of Palwal ICD. collateral management.SSKI INDIA Hind Terminals Background UNLISTED Hind Terminals (HTPL) is a Private Limited company. Nagpur and Bangalore as also such other locations as agreed by both the parties. incorporated in India under the Companies Act.IDFC . logistics. Category I license HTPL holds a pan-India license for container train operations and currently operates 10 container trains between NCR/ Ludhiana and Mundra & JNPT as also various other locations in India. HTPL has entered into a long-term Strategic Alliance Agreement with All Cargo Global Logistics for setting up.

JNPT NCR (Loni. and would consider ramping up only when demand accelerates. Extension of shipping services IIPL aims to provide reliable and intermodal services to its international customers from origin to destination. IIPL has not added any rakes in the past year.Mundra NCR (Faridabad. With volumes picking up. The service is run under the APL banner – a brand that is synonymous with transport and logistics services globally. the company plans to go slow on rake addition. it plans to set up other ICDs across India. The company has also started operations at Ludhiana (using GDL’s siding). and HIPE (Hindustan Infrastructure Projects & Engineering Pvt.6bn). CWC) . which carries out operations of APL’s IndiaLinx service.6bn of capital employed has been funded through debt (total capital employed of Rs2. which has witnessed a marked slowdown due to sluggish international trade. Ltd (IILPL). Current services of IIPL in exim and domestic trade Exim NCR (Loni. DECEMBER 2009 67 . Ltd). which is likely to be operational by Q3CY10. while the remaining Rs1. Operating on the exim route IIPL is currently running its container rail operations with nine rakes on the NCR-JNPT and Mundra routes.IDFC . Further. APL has taken a Category I license (pan-India) for Rs500m. IIPL is in the process of setting up the Panipat terminal (land already acquired). by providing an integrated and seamless service through coordination of both inland and ocean transportation. Till such time. CWC) . ACTL) . southern and central India Demand linked expansion Considering that 90-95% of IIPL’s volumes are in the exim segment. IIPL has already invested Rs1bn as its equity contribution. Going forward.SSKI INDIA India Infrastructure and Logistics Pvt Ltd (IIPL) UNLISTED APL IndiaLinx is a joint venture between APL. Adani) . IIPL plans to continue sharing terminals with other operators. Further. including two reefer services to JNPT and Mundra. ACTL at Faridabad as also Adani’s Patli ICD to load and unload containers in NCR. container transportation arm of the NOL Group.JNPT NCR (Patli. the company runs domestic reefer services between NCR and Mumbai. The two entities have come together to form India Infrastructure and Logistics Pvt.JNPT Source: Company website Frequency 5 times a week Once a week Once a week Twice a week Domestic Schedule service from Panipat to eastern. IIPL is using CWC’s ICD at Loni.

interest costs too are likely to reduce. Accordingly. The funds raised will enable Inlogistics to scale up the business. Currently. With focus on the domestic route. we believe there are enough volumes for all container rail operators. the company’s focus on the domestic route has had mitigated the adverse impact of the economic slowdown as domestic volumes were largely resilient to the slowdown. which will drive profits over the longer term. Inlogistics has recently set up a siding in Kalamboli (near JNPT). in turn.given on lease to CWC . Currently. Andhra Pradesh. However. Inlogistics is making marginal losses and is close to break even.IDFC . Inlogistics runs rakes primarily on the east-north (steel) and west-east (marble) routes. which allows the company to operate rakes across India except on the JNPT-NCR route. This. Notably. Category IV license with 12 rakes Inlogistics has taken a Category IV license. where it generates higher volumes from the domestic segment. While the equity infusion would enable operational scale-up in the form of higher efficiencies and volumes. which has taken a majority stake in the business.Use of private. would enable aggregation and faster turnaround of rakes as also higher utilization levels. Moreover. As mentioned earlier in the report. India Value Fund. some private rail sidings as well Indian Railways’ sidings. However. were among the first ones to enter the business and set up Innovative B2B Logistic Solutions Pvt. including last and first mile connectivity through road. West Bengal to Kakinada Port. Setting up rail sidings for aggregation purposes Inlogistics currently runs its container rail operations from CWC’s ICD in NCR (Loni). the shift of cargo from road to rail is likely to happen gradually as the market develops over a period of time. of which three have been leased out to CWC for running on the NCR-JNPT route.Operating on its own Sidings . but rake addition on hold Inlogistics primarily runs on the domestic route with limited exposure to the exim route (through lease of rakes to CWC). rail sidings . Bagadiya Brothers (P) Ltd. Inlogistics has 15 rakes operational. Inlogistics basic infrastructure details Particulars Rakes . Ltd for the purpose.200 Numbers 15 3 12 Domestic focus softens hit of slowdown. Inlogistics plans to have its own rail sidings across India to reduce the delivery time to customers and improve turnaround times of its rakes.new sidings planned Containers Source: Company website 1 3 1. and has leased land from CWC on long-term basis for the purpose. Inlogistics was the first private container operator to commence operations in November 2006 from Memari.own Kalamboli siding . traditionally exporters of food grains and iron ore. Inlogistics plans to add another 2-3 rail sidings in the northern and eastern parts of the country. especially in the domestic market where penetration of both containers and rail movement is quite low. Recently raised private equity funds Inlogistics has raised funds through a PE investor. Inlogistics provides end-to-end logistics solutions.SSKI INDIA InLogistics (Innovative B2B Logistics) UNLISTED As the container rail sector was thrown open to private players. DECEMBER 2009 68 .

Expansion of rake fleet and infrastructure assets will be funded through debt and some equity infusion.1bn of equity and the remaining through debt. Accordingly. SMART has five rakes operational for movement of containers and it plans to ramp up to 13 rakes over the next 2-3 years.IDFC . etc. Contracts are long-term in nature To ensure higher utilization and better turnaround time of its rakes. Considering the volumes from Hindustan Copper.5bn SMART has so far employed a capital of Rs2. Chennai and Vizag. Moreover. auto sector. which in turn is a 74% subsidiary of Sical Logistics. Sical’s entry into the container rail business (a pan-India license acquired for Rs500m) is a step towards offering seamless multimodal operations to clients. funded through Rs1. Three CFSs operational. there are two rakes that move between the northern and southern states for glass. the company has entered into a long-term contract with Hindustan Copper. Total capital employed of Rs2. collaborations for terminal access on other routes Through its group companies. As volumes ramp up and turnaround time as also utilization levels improve.SSKI INDIA Sical Multimodal And Rail Transport (SMART) UNLISTED SMART is a 100% subsidiary of Sical Infrastructure Assets (SIAL). Sical Logistics is a provider of port-based bulk as well as containerized services besides having trucking and warehousing operations. to which it provides complete multimodal solutions with last mile connectivity for transporting copper cathodes/ concentrates from Jharkhand to Rajasthan. In FY09. tiles. Further. SMART had revenues of Rs365m and incurred losses of Rs83m. marbles. A fifth rake moves on the exim route servicing the Chennai port. Besides. DECEMBER 2009 69 . The CFSs give Sical access to port volumes and enable it to move rakes in the exim sector. Notably. Sical is one of the few players in the industry servicing the southern parts of India. the company has entered into longterm collaborations with other terminal providers for terminal access on all the routes it operates. SMART has access to three CFSs in Tuticorin. SMART is likely to achieve a turnaround. The rail sidings enable SMART to load and unload containers on to rakes as also for volume aggregation in both domestic and exim segments. two rakes have been deployed for the client.5bn in the business. SMART prefers to enter into long-term contracts with clients. SMART also provides last mile connectivity for finished products from Hindustan Copper’s factory near Mumbai.

Kribhco was promoted by the Government of India. For terminal access. As per the MCA. However. Kribhco is yet to start operations. Krishak Bharati Cooperative Krishak Bharati Cooperative (Kribhco) is a cooperative society for manufacture of fertilizer. However. Ltd (RIEPL) is part of the Anil Dhirubhai Ambani Group (ADAG).2m TEUs to the hinterland. Tuticorin. RIEPL has taken a pan-India category I license for Rs500m in 2006. Kribhco operates in the area of bio-fertilizers. etc. Transrail Logistics. urea and seeds. Haldia. Accordingly.IDFC . for which it has taken a Category IV (Rs100m) license. to keep the license. warehousing. DARC has set up a 100% subsidiary. Pipavav Rail Corporation Pipavav Railway Corporation (PRCL) was set up as a 50:50 joint venture by Indian Railways and Gujarat Pipavav Port (GPPL) to construct. Kribhco acquired a pan-India license of Rs500m in 2007. IFFCO. connectivity to the port is being provided by Concor which runs a regular service to the port. Kribhco had plans to run rakes in the Gujarat. as per the MCA. for its container rail operations. Reliance Infrastructure Engineers Reliance Infrastructure Engineers Pvt. Maharashtra and Madhya Pradesh regions. Kolkata and Paradeep (on the east coast) for exim cargo as also all over India for domestic cargo (but restriction of operating on the NCR-JNPT route). However. As per press releases. container rail operators were mandated to begin operations within three years of obtaining the license (January 2006). the world’s third biggest container port operator. However. The Pipavav port is 54. Marmugao (on the west coast). DARC. PRCL has not yet started operations and has currently received a 1-year extension on the deadline for the same. PRCL is unlikely to begin operations in the near term. DECEMBER 2009 70 . Currently. it ran one rake in collaboration with BLR Logistics in February 2009 by leasing a rake from an existing operator. NCDC and other agricultural co-operative societies spread all over the country. Entry of PRCL into the container rail business was to provide reliable services that connect the Pipavav port. To service its captive volumes. project cargo services. New Mangalore. which handles 0. Its fertilizer complex is located at Hazira. aims to provide multi-modal transportation. as a logistics service provider. PRCL has till date not invested in the business through either rakes or rail sidings. for which it has another year as deadline as per the MCA.SSKI INDIA Other operators Delhi Assam Roadways UNLISTED Delhi Assam Roadways Corporation (DARC) is a transport and logistics company in India providing various services such as bulk truck transportation. it has two rakes operational. DARC can run container train operations to and from select Indian ports – Kandla. maintain and operate a 271km-long broad gauge railway line connecting Pipavav port to Surendranagar junction of Western Railway in Gujarat. Gujarat. The company has not yet started operations and does not own any rakes or sidings.8% owned by APM Terminals Management BV. Currently. Under this license. it has entered into an agreement with Adani for using the latter’s Patli ICD. seed plants at various locations in eight states and service centers called Krishak Bharati Seva Kendras at various places in the country.

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Media.SSKI INDIA Analyst Pathik Gandotra Shirish Rane Nikhil Vora Ramnath S Nitin Agarwal Chirag Shah Bhoomika Nair Hitesh Shah Bhushan Gajaria Salil Desai Ashish Shah Probal Sen Chinmaya Garg Aniket Mhatre Ritesh Shah Saumil Mehta Vineet Chandak Swati Nangalia Sameer Bhise Nikhil Salvi Shweta Dewan Rupesh Sonawale Dharmesh Bhatt Sector/Industry/Coverage Head of Research. FMCG Database Analyst Technical Analyst E-mail pathik@idfcsski. or perform investment banking. their directors and employees may from time to time have positions in or options in the company and buy or sell the securities of the DECEMBER 2009 mentioned herein.com vishal@idfcsski. Power. there may be regulatory.com aniket@idfcsski.shah@idfcsski. Underperformer: Less than 10% to Index Disclosure of interest: 1. may from time to time purchase or sell or may be materially interested in any of the securities mentioned or related securities. Pipes.com nikhil. Derivatives AVP. 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