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Container Corporation: A strong quarter - Views on News from Equitymaster
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Container Corporation: A strong quarter
Feb 23, 2015

Container Corporation of India Ltd (Concor) has announced its results for the quarter ended December 2014 (3QFY15). The company has reported 17.0% year on year (YoY) increase in the topline and 20.6% YoY growth in the bottomline for the quarter. Here is our analysis of the results.

Performance summary
  • Revenues were up 17.1% YoY during the quarter, mainly driven by the EXIM segment.
  • The operating profits for the quarter registered a 28.4% YoY growth with margins at 25.3% versus 23.0% in 3QFY14.
  • The reported net profits for the quarter grew by 20.6% YoY with margins at 20.7%, up from 20.1% in 3QFY14.

Financial summary
Rs m 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
Sales 12,393 14,518 17.1% 36,878 40,763 10.5%
Expenditure 9,536 10,849 13.8% 28,523 30,982 8.6%
Operating profit (EBDITA) 2,856 3,669 28.4% 8,355 9,781 17.1%
EBDITA margin (%) 23.0% 25.3%   22.7% 24.0%  
Other income 888 852 -4.0% 2,572 2,601 1.1%
Interest (net) 0 0   0 0  
Depreciation 468 937 100.2% 1,394 2,917 109.2%
Profit before tax 3,276 3,584 9.4% 9,533 9,465 -0.7%
Pretax margin (%) 26.4% 24.7%   25.9% 23.2%  
Tax 780 573 -26.6% 2,146 1,917 -10.7%
Effective tax rate (%) 23.8% 16.0%   22.5% 20.3%  
Profit after tax/(loss) 2,496 3,011 20.6% 7,387 7,548 2.2%
Net profit margin (%) 20.1% 20.7%   20.0% 18.5%  
No. of shares (m)         195  
Diluted earnings per share (Rs)*         51.3  
Price to earnings ratio (x)*         31.4  
*trailing twelve-month earnings

What has driven performance in 3QFY15?
  • The topline growth for the quarter came in at 17.1% YoY. While EXIM segment (around 82%) witnessed a growth of 23.5% YoY, the revenues in the domestic segment declined by 4.9% YoY. The handling volumes in the EXIM segment grew by 11.8% YoY and declined by around 9.4% in the domestic segment (overall handling volume growth for the quarter at 8.1% YoY). The domestic segment suffered a decline due to the negative impact of higher freight and diversion of rakes from EXIM to domestic segment to take care of increase in import traffic. Percent wise, the traffic at JNPT came down and was shared by other ports like Mundra and Pipavav.

    Segment-wise breakup
    (Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    EXIM
    Revenue 9,626 11,886 23.5% 29,012 32,559 12.2%
    Operating Profits (EBIT)  2,344 2,924 24.8% 7,005 7,034 0.4%
    Operating profit margins (EBITM %)  24.4% 24.6%   24.1% 21.6%  
    Domestic
    Revenue 2,766 2,632 -4.9% 7,866 8,204 4.3%
    Operating Profits (EBIT)  246 139 -43.4% 568 554 -2.5%
    Operating profit margins (EBITM %)  8.9% 5.3%   7.2% 6.8%  

  • During the nine months, revenue growth came in at 10.5% YoY. Of the total revenues till date, 78% were on account of rail freight.

  • During the quarter, the railways increased tariff which the management has passed on fully. While there is a temporary roll back in the extent of hike, full hike will come into effect in the current quarter ending March 2015. As the company passed on this increase in rates and reported growth in the combined volumes, the overall margins during the quarter expanded to 25.3% from 23% in 3QFY14. Double stacked operations and lower empty costs also supported the margins during the quarter

    Cost breakup
    (Rs m) 3QFY14 3QFY15 Change 9mFY14 9mFY15 Change
    Rail freight expenses 7,282 8,277 13.7% 21,887 23,462 7.2%
    as a % of sales 58.8% 57.0%        
    Employee costs 341 410 19.9% 905.3 1206 33.2%
    as a % of sales 2.8% 2.8%        
    Other expenses 1,913 2,163 13.1% 5,731 6,314 10.2%
    as a % of sales 15.4% 14.9%   15.5% 15.5%  
    Total expenses 9,536 10,849 13.8% 28,523 30,982 8.6%
    as a % of sales 77.0% 74.7%   77.3% 76.0%  

  • The net profit margins for the quarter improved by around 60 basis points on account of good growth and profitability in the EXIM segment. The effective tax rate was also lower during the quarter (YoY basis). The rebate provisioning for the 9 months stood at around Rs 64 crore vs 59 crore last year. The depreciation for the quarter increased by around 100% due to change in the depreciation policy.
What to expect?
The company has so far added 10 rakes this year, versus the target of 18 rakes. The shortage has been due to some technical problems. The management plans to add more rakes this quarter and in the coming year.

On the multimodal logistic park front, one or two projects are facing some slowdown while others are going as planned. While three parks are already operations, the company has identified four to five further locations for the same. The Dedicated freight corridor (DFC) project is likely to be operational in December 2018.

The overall margins could get impacted as full impact of hike comes into play from this quarter.

While the company expects to maintain margins in the EXIM segment, domestic segment margins are likely to come under pressure.

The stock is currently trading at a trailing 12 months price to earnings ratio of around 31 times. While the Concor remains a fundamentally strong story from a long term perspective, current valuations seem to be factoring in the same and do not offer margin of safety. We recommend investors not to Buy at current price levels.

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