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Concor: Domestic business aids topline growth - Views on News from Equitymaster
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Concor: Domestic business aids topline growth
Jan 25, 2010

Performance summary
  • Topline grows by 4.6% YoY during 3QFY10, led by growth in domestic business.
  • Domestic business reports a strong growth of 29% YoY on the back of higher volumes. EXIM business, which contributes more than 75% to the total revenues, reports a marginal 1.4% YoY decline.
  • Operating profits grow by 4.2% YoY. Net profits however report a 2.8% YoY fall. This is mainly on the back of lower other income and higher depreciation costs.

(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 8,457 8,845 4.6% 25,728 27,517 7.0%
Expenditure 6,010 6,295 4.7% 18,184 19,955 9.7%
Operating profit (EBDITA) 2,447 2,550 4.2% 7,544 7,562 0.2%
Operating profit margin (%) 28.9% 28.8%   29.3% 27.5%  
Other income 501 382 -23.8% 1,414 1,234 -12.8%
Depreciation 283 335 18.3% 833 978 17.5%
Profit before tax 2,665 2,596 -2.6% 8,125 7,817 -3.8%
Tax 601 590 -1.8% 1,804 1,758 -2.6%
Profit after tax/(loss) 2,064 2,006 -2.8% 6,321 6,059 -4.1%
Net profit margin (%) 24.4% 22.7%   24.6% 22.0%  
No. of shares       130.0 130.0  
Diluted earnings per share (Rs)*         58.9  
P/E ratio (x)*         21.2  
* On a trailing 12-months basis

What has driven performance in 3QFY10?
  • Container Corporation (Concor) reported a 5% YoY growth in sales during 3QFY10. The company’s domestic business, which contributed nearly 24% of the revenues (19% in 3QFY09), grew 29% YoY. Concor’s major business of EXIM (Export-Import) saw a marginal fall in revenues (1.4% YoY) during the quarter. The management attributed the change in mix of goods transported as the reason for the same. By change in mix of goods transported, it meant that the mix changed to low weight commodities, which in turn translated to lower realisations. For example, scrap sales (which are high weight commodities) reduced during the quarter. However, the management believes that the EXIM business will pick up going forward. This is due to increasing volumes (although lower in 9mFY10 as compared to 9mFY09) on the back of increasing exports from India.

    Segment-wise performance
      3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Revenue (Rs m) 6,812 6,718 -1.4% 20,895 21,697 3.8%
    % share 80.6% 76.0%   81.2% 78.8%  
    PBIT margin 30.3% 28.4%   30.5% 27.5%  
    Revenue (Rs m) 1,645 2,126 29.3% 4,833 5,821 20.4%
    % share 19.4% 24.0%   18.8% 21.2%  
    PBIT margin 9.9% 18.5%   13.0% 16.1%  
    Revenue (Rs m) 8,457 8,845 4.6% 25,728 27,517 7.0%
    PBIT margin 26.3% 26.0%   27.2% 25.1%  

  • Concor's operating performance during the quarter was quite similar as compared to last year. Operating margins stayed at almost 3QFY09’s levels.

  • Profit before interest and tax (PBIT) numbers for the Concor’s domestic business were quite commendable during the quarter. The same increased to 18.5% as compared to 9.9% during 3QFY09. On the other hand, the EXIM business’ PBIT margins contracted by 1.9% and fell to 28.4% during 3QFY10. This was the key reason for the company’s overall PBIT margins to fall to 26% (down by about 0.3% YoY).

  • Concor's net profits dropped by about 3% YoY during the quarter. This was mainly due to lower other income (lower by about 24% YoY).

What to expect?
At the current price of Rs 1,250, the stock is trading at 21.2 times its trailing 12-month earnings. As per the company’s management, the situation is improving considering that the numbers of empty rakes is coming down. This would lead to better economies of scale for Concor going forward. As of now, the company is also seeing improving volumes, which is definitely a good sign considering that the 9mFY10 volumes are lower as compared to the corresponding quarter last year. In addition, the company is also looking at moving towards spot contracts, which have better realisation as compared to forward contract (which at the moment form about 60% of the company’s contracts).

One strong positive for Concor is that its focus on domestic market seems to be paying off. As the company’s EXIM business was impacted on the back of the slowdown, it has been focusing on the domestic business in recent times. Looking at the growth numbers and the improving PBIT margins of the domestic business, it has turned out to be a step in the right direction. However, at the same time, this is also a strategy that many of the domestic logistics players are also applying. As such, the domestic business is definitely much more competitive in nature.

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