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Concor: Lower volumes impair growth - Views on News from Equitymaster

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Concor: Lower volumes impair growth
Apr 17, 2009

Performance summary
  • For FY09, topline grows marginally by 2% YoY led by 3% YoY growth in export-import business; domestic business revenues drop by 2% YoY.
  • In 4QFY09, topline and operating profit drop by nearly 6% YoY and 4% YoY respectively.
  • Stable to lower cost of operation result in 2% EBITDA margin expansion for the fiscal.
  • Net profits grow 9% YoY in FY09 on the back of 10% YoY growth in operating profits.


Financial performance snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 8,931 8,412 -5.8% 33,472 34,133 2.0%
Expenditure 6,596 6,159 -6.6% 24,555 24,361 -0.8%
Operating profit (EBITDA) 2,335 2,253 -3.5% 8,917 9,773 9.6%
EBITDA margin 26.1% 26.8% - 26.6% 28.6% -
Other income 482 482 0.0% 1,631 1,921 17.7%
Interest - - N.A. - - NA
Depreciation 267 313 17.2% 1,063 1,146 7.8%
Profit before tax/(loss) 2,550 2,422 -5.0% 9,485 10,547 11.2%
Tax 520 545 4.9% 1,963 2,352 19.8%
Profit after tax/(loss) 2,030 1,877 -7.5% 7,522 8,195 8.9%
Net margin 22.7% 22.3% - 22.5% 24.0% -
No of shares (m) - - - 65 130 -
Diluted EPS (Rs)* - - - - 63.0 -
P/E (times) - - - - 12.3 -
*trailing twelve month earnings

What has driven performance in FY09?
  • Container Corporation (Concor) has reported marginal 2% YoY growth in topline for the full year ended FY09 on the back of 3% YoY growth in EXIM (export-import) business. Domestic business that contributes 20% to the topline reported 1.8% YoY fall in revenues this fiscal. Despite lower volumes, the growth has come in on account of improved realisations. Ability to pass on the hike in tariffs, diversified customer base and focus on premium customers has helped the company to grow in otherwise sluggish environment.

  • The global economic slump was the primary reason for the drop in export revenues for Concor this fiscal. During 4QFY09 the company reported 6% YoY fall in net income from operations. However, during the second half of the fiscal, particularly during the last quarter, domestic business witnessed uptrend and grew by nearly 8% YoY, The EXIM business reported 10% YoY fall in revenues in the last quarter. As EXIM business accounts for 80% of the companyís business, lower export volumes restricted the overall growth of the business.

    Cost break up
    (as a % of sales) 4QFY08 4QFY09 FY08 FY09
    Rail freight expenses 55.9% 56.1% 57.5% 55.1%
    Staff cost 2.1% 2.1% 1.6% 1.9%
    Other expenditure 15.8% 15.0% 14.2% 14.3%

  • Stable to lower cost of operation has resulted in 2% EBITDA margin expansion for the fiscal. Despite wage hike provision that stepped up employee cost by nearly 19% YoY in FY09, focus on orders that would support margins or increase asset utilization (lesser empty weeks i.e. reduced rate of empty journeys) supported profitability. As far as segmental profitability is concerned, PBIT margins of the domestic business remained stable at around 14%, while the same for EXIM business expanded by 2% YoY to 29.7%.

  • PBT reported robust 11% YoY growth in FY09 on the back of 10% YoY growth in operating profits and higher other income. The company also reported 18% YoY growth in other income in FY09.

What to expect?
At the current price of Rs 777, the stock is trading at 12.3 times its trailing twelve month earnings. There is huge potential for growth in the company's core business of container transportation and given its strong competitive advantages, we do not think competition will easily nibble away at the company's market share. Although Concor has reported sluggish growth in FY09, from a long term perspective considering the sector potential and Concorís strong balance we believe that it would be able to take advantage of the growth story that is unfolding in the sector.

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