Monday, March 16, 2009

CFS business profitability headed south?

I was looking at a particular sector for investment and found that the short term outlook and the recent past are pretty good but future may not hold good promise for the sector. I am referring to CFS or Container Freight Station. There are many companies operating in this, namely Balmer Lawrie, Gateway Distriparks, Allcargo Global Logistics, etc... The problem with the sector stems from the fact that one CFS does not offer anything different from the other. History of capital markets show that when a business become very profitable and there are no entry barriers, as in case of CFS business, a lot of people will enter the business and bring the profits down. Starting a CFS doesn't require much, some land and you are done. The last year results of Gateway Distriparks and Balmer Lawrie shows that the profit margins are almost 88.88/203.58=43.66% for GDL and 86.05/328.93=26.16% for Balmer Lawrie. The ROCE for GDL is 88.88/441.21=20.15% while that for Balmer Lawrie is more than 1000%.
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1 comment:

arunsg said...

I agree on your analysis of CFS business. However, you seem to own Balmer Lawrie AND Concor :-)

Rohit Chauhan also seems to love Balmer and I greatly respect his views [ as I do your's!], but BL has a leather chemicals division & ticketing/travel division in addition to CFS!

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