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  • Jun 3, 2014 - Container Corporation: Volumes improve, gains market share

Container Corporation: Volumes improve, gains market share

Jun 3, 2014 | Updated on Jun 4, 2014

Container Corporation of India Ltd (Concor) has announced its results for the quarter and year ended 2014 (FY14). The company has reported a 5.3% year on year (YoY) increase in the topline and 8.9% YoY growth in the bottomline for the quarter. Here is our analysis of the results.

Performance summary
  • Revenues were up 5.3% YoY during the quarter. For FY14, the revenues grew by 13.1% YoY.
  • The operating profits for the quarter registered a 2.6% YoY growth with margins at 20.5% versus 21.1% in 4QFY13. For FY14, the operating profits grew by 5.2% YoY with margins at 22.1% versus 23.8% in FY13.
  • The reported net profits for the quarter were up by 8.9% YoY with margins at 19.0% versus 18.3% in 4QFY13. For FY14, the reported net profits were up by 4.8% YoY with margins at 19.8% versus 21.3 % in FY13.
  • The Board of Directors has declared a final dividend of Rs. 5.3 per equity share .Along with an interim dividend of Rs 7, this implies a total dividend of Rs 12.3, with a dividend yield of 1.1% at the current stock price.

Standalone performance snapshot
Rs m 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 12,316 12,968 5.3% 44,062 49,846 13.1%
Expenditure 9,720 10,304 6.0% 33,586 38,827 15.6%
Operating profit (EBDITA) 2,596 2,664 2.6% 10,476 11,019 5.2%
EBDITA margin (%) 21.1% 20.5%   23.8% 22.1%  
Other income 899 1,145 27.3% 3,372 3,717 10.2%
Interest (net) 0 0   0 0  
Depreciation 456 500 9.6% 1,727 1,893 9.6%
Profit before tax 3,040 3,310 8.9% 12,121 12,843 6.0%
Pretax margin (%) 24.7% 25.5%   27.5% 25.8%  
Tax 781 849 8.7% 2,721 2,995 10.1%
Profit after tax/(loss) 2,258 2,460 8.9% 9,400 9,848 4.8%
Net profit margin (%) 18.3% 19.0%   21.3% 19.8%  
No. of shares (m)         195  
Diluted earnings per share (Rs)*         50.5  
Price to earnings ratio (x)*         22.8  

What has driven performance in 4QFY14?
  • The company reported a 5.3% YoY growth in the revenues for the quarter, mainly driven by growth in the domestic segment. The company witnessed a growth in the volumes during the quarter. The revenue growth in the EXIM business (74% share in the revenues) was flattish despite around 8% YoY volume growth. This was mainly due to lower realizations and shorter lead distances. The company maintains focus on volumes over margins; hence it has not been aggressive on realizations. In the domestic segment, the volume growth remained strong with revenue growth coming at 25.7% YoY during the quarter.

  • For FY14, the EXIM and domestic business grew at 9.2% YoY and 29.1% YoY respectively.

    Segmental breakup
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Revenue 9,673 9,646 -0.3% 35,398 38,657 9.2%
    Operating Profits (EBIT)  2,012 1,985 -1.4% 8,508 8,990 5.7%
    Operating profit margins (EBITM %)  20.8% 20.6%   24.0% 23.3%  
    Revenue 2,641 3,321 25.7% 8,662 11,187 29.1%
    Operating Profits (EBIT)  304 383 26.0% 843 952 12.9%
    Operating profit margins (EBITM %)  11.5% 11.5%   9.7% 8.5%  

  • The operating profit margin for the quarter declined to 20.5%, down 53 basis points (YoY). Higher cost of diesel, lower realizations with main focus on volume growth and shorter lead distances in the EXIM segment were some of the key reasons for lower margins we believe. As shown in the table, the employee costs and other expenses increased to 2.5% and 18.0% (as a % of sales) respectively during the quarter, up from 1.8% and 16.2% respectively in 4QFY13. While the operating margins in domestic segment remained almost stable at 11.5%, for EXIM segment, the margins came at 20.6% during the quarter, down from 20.8% in 4QFY13. In the domestic segment, margins improved due to better volumes and lower empty running cost.

    Cost breakup
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Rail freight expenses 7,501 7,637 1.8% 25,799 29,525 14.4%
    as a % of sales 60.9% 58.9%   58.6% 59.2%  
    Employee costs 220 330 50.2% 1072.3 1235.1 15.2%
    as a % of sales 1.8% 2.5%   2.4% 2.5%  
    Other expenses 1,999 2,336 16.9% 6,714 8,067 20.2%
    as a % of sales 16.2% 18.0%   15.2% 16.2%  
    Total expenses 9,720 10,304 6.0% 33,586 38,827 15.6%
    as a % of sales 78.9% 79.5%   76.2% 77.9%  

  • The net profits for the quarter grew by 8.9% YoY mainly due to increase in other income. The discounts offered to customers for higher volumes and lower operating margins restricted the bottomline growth. For FY14, the net profit growth came at 4.8% YoY. The growth rate was slow on account of increase in haulage charges that has not been fully passed on to customers and discount provisions,
What to expect?
While the volumes have improved for the company, the focus on volumes over margins has restricted realizations. For the same reason, the company has passed on entire benefits of double stacking to the clients. On the positive part, the empty costs have reduced for the company due to better traffic balancing. The company witnessed a reduction in empty cost in FY14 but there is further scope of improvement. The company has raised its market share to 79% from 73%-74% in FY13.

The work on multimodal logistics parks is going on as planned. In FY14, the company has opened three terminals and plans to open 3 more in FY15. The management has given capex guidance in the range of Rs 10 bn - Rs 11bn. The management seems upbeat regarding the business in both EXIM and domestic segment and has given a volume growth guidance of 10%-12% with Mundra and Pipavav ports being the major growth drivers. However, focus on volumes is likely to keep margins expansion under check.

At current prices, the stock is currently trading at a twelve months trailing Price to Earnings multiple of 22.8x. While the company seems to be well positioned now, current valuations seem expensive. We would recommend investors not to buy the stock at current price.

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