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Container Corporation: A weak quarter - Views on News from Equitymaster

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Container Corporation: A weak quarter
Jan 31, 2013

Container Corporation of India Ltd (Concor) has announced its results for the third quarter of financial year ending 2013 (3QFY13). The company has reported a 3.5% year on year (YoY) increase in the topline and 2.0% YoY decline (excluding extraordinary items) in the bottomline. Here is our analysis of the results.

Performance summary
  • Revenues were up 3.5% YoY during the quarter. For the first nine months (9mFY13), the revenues grew by 7.6% YoY.
  • The operating profits for the quarter registered a 5.1% YoY decline with margins at 24.3% versus 26.5% in 3QFY12. For the nine months, the operating profits declined by 1.5% YoY with margins at 24.8% versus 26.7% in 9mFY12.
  • The reported net profits for the quarter were down by 2.0% YoY with margins at 20.3% versus 21.6% in 3QFY12. For the nine months, the reported net profits were up by 9.7% YoY with margins at 20.9% versus 20.4 % in 9mFY12.
  • The Board of Directors has declared an Interim Dividend of Rs. 8.0 per equity share of face value of Rs. 10.0 each.

Standalone performance snapshot
(Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Sales 10,462 10,828 3.5% 29,898 31,746 7.6%
Expenditure 7,688 8,195 6.6% 21,901 23,866 10.3%
Operating profit (EBDITA) 2,774 2,632 -5.1% 7,998 7,879 -1.5%
EBDITA margin (%) 26.5% 24.3%   26.7% 24.8%  
Other income 698 840 20.4% 2040 2473 21.7%
Interest (net) 0 0   0 0  
Depreciation 413 442 7.0% 1188 1271 7.1%
Profit before tax 3,060 3,031 -0.9% 8,850 9,081 2.6%
Pretax margin (%) 27.4% 26.0%   27.7% 26.5%  
Tax 646 665 2.9% 2342 1939 3.8%
Profit after tax/(loss) 2,414 2,366 -2.0% 6,508 7,142 9.7%
Net profit margin (%) 21.6% 20.3%   20.4% 20.9%  
Extraordinary item(one time tax adjustment) 1.25 0   0 0  
Reported Net profits 2,412 2,366 -1.9% 6,508 7,142 9.7%
Reported net profit margin 21.6% 20.3%   20.4% 20.9%  
No. of shares (m)         130  
Diluted earnings per share (Rs)*         72.4  
Price to earnings ratio (x)*         12.8  
On traling 12 months basis

What has driven performance in 3QFY13?
  • The company reported a mere 3.5% YoY growth in the revenues for the quarter. The company faced a challenging business situation this quarter as the volumes handled slipped down in both domestic and EXIM category due to weak macroeconomic scenario. While the realizations during the quarter were higher on a year on year basis, the company has not yet passed the entire freight hike to its clients. During the quarter, the export import imbalance also increased.

  • The operating profits for the quarter declined by 5.1% YoY during the quarter with margins slipping to 24.3% as compared to 26.5% in 3QFY12. This was mainly because of the higher empty running costs and increase in the rail freight that the company has not yet entirely passed on to the clients.

    Segmental breakup
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    EXIM
    Revenue 8,513 8,611 1.1% 24,223 25,725 6.2%
    Operating Profits (EBIT) 2,273 2,166 -4.7% 6,661 6,496 -2.5%
    Operating profit margins (EBITM %) 26.7% 25.1%   27.5% 25.3%  
    Domestic
    Revenue 1,949 2,217 13.7% 5,676 6,021 6.1%
    Operating profit margins (EBITM %) 215 186 -13.5% 506 539 6.5%
    Operating profit margins (EBITM %) 11.0% 8.4%   8.9% 8.9%  

  • The net profits for the quarter declined by 2.0% YoY with net profit margins at 20.3% as compared to 21.6% in 3QFY12. The other income for the quarter increased by 20.4%. However, this was partially offset by an increase in the depreciation expenses (up 7.0% YoY) during the quarter.

    Cost breakup
    (Rs m) 3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Rail freight expenses 5,985 6,255 4.5% 17,005 18,298 7.6%
    as a % of sales 57.2% 57.8%   56.9% 57.6%  
    Employee costs 247 299 20.9% 706 853 20.7%
    as a % of sales 2.4% 2.8%   2.4% 2.7%  
    Other expenses 1,457 1,642 12.7% 4,189 4,715 12.6%
    as a % of sales 13.9% 15.2%   14.0% 14.9%  
    Total expenses 7,689 8,195 6.6% 21,901 23,866 9.0%
    as a % of sales 73.5% 75.7%   73.3% 75.2%  

What to expect?
The company is currently facing challenging business situation. The volumes in both EXIM and domestic segment have slipped reflecting the broad macroeconomic scenario. Also, with increase in the rail freight, the margins have come under pressure as the higher expenses have not been completely passed on to clients. Going forward, the management expects the volumes in the domestic segment to improve. However, domestic segment faces significant competition from the road sector and hence passing the higher costs to clients in this segment will not be easy for the company. For EXIM segment, the volumes remain a concern. The management expects empty running costs to increase further in the future, thus impacting the margins adversely.

As per the management, the tax rates are likely to remain low (below 21%). Regarding capex, the company has given a guidance of Rs 9.4 bn which is much lower than the initial expense planned (over Rs 16 bn) as company is facing some challenges in land acquisition. Till the end of December 2012, the company has already incurred a capex of Rs 5.8 bn. At current prices, the stock is currently trading at a twelve months trailing Price to Earnings multiple of 12.8x. We expect the challenges to continue due to slowdown in the global economy and trade and thus are negative on the stock from a short to medium term perspective.

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