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Concor: Higher empty runs drag performance

Feb 7, 2012

Container Corporation of India Ltd. has announced its results for the third quarter of financial year 2012(3QFY12). The company has reported a 7.7% year on year (YoY) increase in the topline and 5.6% YoY increase in the bottomline respectively. Here is our analysis of the results.

Performance summary
  • Revenues were up 7.7% YoY during the quarter. For the first nine months, the topline was up 5.6% YoY.
  • Operating profit growth registered a decline of 1.1% YoY during the quarter with margins at 26.5% (as compared to 28.9% in the 3QFY11). For the first nine months, the operating profit was up 1.3% YoY, with margins coming at 26.8% (versus 27.9% last year).
  • Net profits for the quarter were up 5.6% YoY with net profit margins at 23.1%, slightly lower than 23.5% in the corresponding quarter last year. For the first nine months, the bottomline registered a modest increase of 3.5% YoY, with margins at 21.8% (versus 22.2% last year).
  • The company has declared an interim dividend of Rs 7.5 per share for the current fiscal year.

Standalone performance snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 9,711 10,462 7.7% 28,312 29,898 5.6%
Expenditure 6,905 7,688 11.3% 20,417 21,899 7.3%
Operating profit (EBDITA) 2,807 2,774 -1.1% 7,895 7,999 1.3%
EBDITA margin (%) 28.9% 26.5%   27.9% 26.8%  
Other income 479 698 45.9% 1,218 2,040 67.4%
Interest (net) 0 0 na 0 0 na
Depreciation 335 413 23.3% 1,052 1,188 12.9%
Profit before tax 2,950 3,060 3.7% 8,062 8,851 9.8%
Pretax margin (%) 30.4% 29.2%   28.5% 29.6%  
Tax 655 646 -1.2% 1,763 1,874 6.3%
Profit after tax/(loss) 2,296 2,414 5.1% 6,298 6,977 10.8%
Extraordinary items -11 -1   -11 -469  
Profit after tax/(loss) 2,285 2,412 5.6% 6,287 6,508 3.5%
Net profit margin (%) 23.5% 23.1%   22.2% 21.8%  
No. of shares (m)         130  
Diluted earnings per share (Rs)*         65.6  
Price to earnings ratio (x)**         14.4  
*On the basis of trailing 12 months performance

What has driven performance in 3QFY12?
  • The increase in the topline was on account of modest increase in volumes. The share of other value added services was higher during the quarter .The freight charges were not hiked by the company (the increase of 11.8% in November represented the increase in surcharge by Railways which was fully passed on). For the first nine months, the company's market share has slipped to 74% (versus 75% last year).

  • The share of domestic segment in topline came down to 19% from 22% last year. The international bookings were up by 6.86% YoY. The EXIM lead distance for this year so far has declined on an annual basis and stands at 1,037 km versus 1,068 km last year. Overall lead distances are down from 1,167 km to 1,119 km. The company has witnessed highest growth at the Pipavav port, followed by Mundra port and JNPT port.

    Segmentwise performance summary
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    EXIM revenues 7,616 8,513 11.8% 22,151 24,223 9.4%
    EXIM EBIT 2,346 2,273 -3.1% 6,421 6,661  
    EXIM EBIT Margins (%) 30.8% 26.7%   29.0% 27.5%  
    Domestic revenues 2,095 1,949 -7.0% 6,161 5,676 -7.9%
    Domestic EBIT 239 215 -10.3% 715 506 -29.2%
    Domestic EBIT Margins (%) 11.4% 11.0%   11.6% 8.9%  

  • The operating profits for the quarter registered a decline of 1.1% YoY during the quarter. The margins for the quarter slipped down to 26.5% versus 28.9% last year. As per the management, the company has been facing issue of running higher number of empty rakes due to which costs have gone up. The increase in the number of empty rakes is on account of traffic imbalance amongst the ports and imbalance between imports and exports. Segmentwise, the margins in the domestic segment stood at 11.0% for the quarter (versus 11.4% last year) while margins for the EXIM segment stood at 26.7% (versus 30.8% last year).
    Cost break up
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Consumption of raw materials 5,371 5,985 11.4% 15,998 17,005 6.3%
    as a % of sales 55.3% 57.2%   56.5% 56.9%  
    Staff costs 209 247 18.1% 605 706 16.7%
    as a % of sales 2.2% 2.4%   2.1% 2.4%  
    Other expenditure 1,325 1,456 9.9% 3,814 4,188 9.8%
    as a % of sales 13.6% 13.9%   13.5% 14.0%  
    Total expenditure 6,905 7,688 11.3% 20,417 21,899 7.3%
    as a % of sales 71.1% 73.5%   72.1% 73.2%  

  • The net profits for the quarter registered an increase of 5.1% YoY. The performance at the net profits level was better than that at the operating level. This is due to 46% YoY increase in 'Other income' and lower tax expense, partially offset by high depreciation charges.

What to expect?
At the current price the stock is trading at a PE (Price to earnings multiple on trailing 12 months basis) of 14.4. Higher empty running has become a major issue for the company. Besides, the business conditions in the domestic segment still remain adverse. The management has given a guidance of 7.5% -10% growth in the volumes in EXIM segment. While domestic segment remains subdued this year, the management expects 10%-12% growth in the domestic segment next year (on a lower base this year). In the current fiscal year, on account of poor prospects in domestic segment, the company has gone slow on wagon acquisition plans. While business from Logistics Park has a huge growth potential in the long term, land acquisition still remains an issue. Due to shift in the traffic across ports (from JNPT to Mundra and Pipavav), lead distances have also been shortening which is negative for the company's business.

The company doesn't expect any freight hike in the next six seven months as transportation scenario already looks dark. Going forward, policy changes remain will determine the business prospects. The stock price has seen an appreciation of 16% since the beginning of this year which we believe takes into account the growth prospects of the business and offers limited upside from here.

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