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Container Corporation: Domestic segment drags performance - Views on News from Equitymaster

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  • Jun 18, 2015 - Container Corporation: Domestic segment drags performance

Container Corporation: Domestic segment drags performance
Jun 18, 2015

Container Corporation of India Ltd (Concor) has announced its results for the quarter ended March 2015 (4QFY15). The company has reported 15.5% year on year (YoY) increase in the topline and 19.0% YoY growth in the bottomline for the quarter. Here is our analysis of the results.

Performance summary
  • Revenues were up 15.5% YoY during the quarter, mainly driven by the EXIM segment. For FY15, the revenues grew by 15.7% YoY. The growth for the year was mainly led by the EXIM segment.
  • The operating profits for the quarter registered a 19.5% YoY growth with margins at 21.3% versus 20.5% in 4QFY14. For FY15, the operating profit grew by 21.7% YoY with margins at 22.8%, as compared to 21.7% in FY14.
  • The reported net profits for the quarter grew by 19.0% YoY with margins at 19.5%, up from 19.0% in 4QFY14. For FY15, the bottomline grew by 11.4% YoY with net profit margin at 17.1%, versus 17.7% in FY14.
  • The Board of Directors has declared a final dividend of Rs 5.4 per share, in addition to an interim dividend of Rs 8 per share. This amounts to a total dividend yield of 0.8% at current stock price.

Financial summary
Rs m 4QFY14 (Standalone) 4QFY15 (Standalone) Change FY14 (Consol) FY15 (Consol) Change
Sales 12,968 14,975 15.5% 53,167 61,493 15.7%
Expenditure 10,304 11,790 14.4% 41,644 47,473 14.0%
Operating profit (EBDITA) 2,664 3,185 19.5% 11,523 14,020 21.7%
EBDITA margin (%) 20.5% 21.3%   21.7% 22.8%  
Other income 1144.9 1106 -3.4% 3,575 3,449 -3.5%
Interest (net) 0 0 nm 220 183 -16.9%
Depreciation 500 810 62.2% 2,357 4,108 74.3%
Profit before tax 3,310 3,481 5.2% 12,522 13,178 5.2%
Pretax margin (%) 25.5% 23.2%   23.6% 21.4%  
Tax 849 552 -35.0% 3,072 2,638 -14.1%
Effective tax rate (%) 25.7% 15.9%   24.5% 20.0%  
Profit after tax/(loss) 2,460 2,928 19.0% 9,450 10,540 11.5%
Net profit margin (%) 19.0% 19.6%   17.8% 17.1%  
Extraordinary items 0 -1 nm 0 -1 nm
Net profit for the period 2,460 2,927 19.0% 9,450 10,539 11.5%
Share of associates       7 21 191.7%
Minority interest       15 14 -3.4%
Group Profit after tax (PAT) 2,460 2,927   9,428 10,504 11.4%
Group PAT margin (%) 19.0% 19.5%   17.7% 17.1%  
No. of shares (m)         195  
Diluted earnings per share (Rs)*         53.9  
Price to earnings ratio (x)*         31.1  
*trailing twelve-month earnings

What has driven performance in 4QFY15?
  • The growth in the revenues during the quarter was mainly led by growth in the EXIM segment and increase in realizations due to rate hikes. For the quarter, the overall volumes remained flat on a year on year basis. While EXIM volumes registered a growth of 5%, the volumes in the domestic segment declined by 19% YoY. For FY15, overall volumes grew by 8.4% YoY, with EXIM volumes witnessing a growth of 11% YoY, while domestic segment volumes were down 3.5% YoY. The decline in the volumes in the domestic segment was offset by higher realizations on the domestic route.

    Segment-wise breakup
    (Rs m) 4QFY14 (Standalone) 4QFY15 (Standalone) Change FY14 (Consol) FY15 (Consol) Change
    EXIM
    Revenue 9,646 11,853 22.9% 40,730 49,273 21.0%
    Operating Profits (EBIT)  1,985 2,387 20.3% 9,304 10,106 8.6%
    Operating profit margins (EBITM %)  20.6% 20.1%   22.8% 20.5%  
    Domestic
    Revenue 3,321 3,121 -6.0% 11,584 11,897 2.7%
    Operating Profits (EBIT)  383 232 -39.4% 978 842 -13.9%
    Operating profit margins (EBITM %)  11.5% 7.4%   8.4% 7.1%  

  • During the quarter, because of the tariff hike by railways, rail freight expense (as a % of sales) increased on a YoY basis. However, overall, margins for the quarter were higher on a year on year basis as tariff increase was more than offset by controlled 'other expense'.

    Cost breakup
    (Rs m) 4QFY14 (Standalone) 4QFY15 (Standalone) Change FY14 (Consol) FY15 (Consol) Change
    Rail freight expenses 7,637 8,934 17.0% 29,505 32,530 10.3%
    as a % of sales 58.9% 59.7%   55.5% 52.9%  
    Employee costs 330 373 13.2% 1,459 1,976 35.5%
    as a % of sales 2.5% 2.5%   2.7% 3.2%  
    Other expenses 2,336 2,482 6.3% 10,680 12,967 21.4%
    as a % of sales 18.0% 16.6%   20.1% 21.1%  
    Total expenses 10,304 11,790 14.4% 41,644 47,473 14.0%
    as a % of sales 79.5% 78.7%   78.3% 77.2%  

  • The growth in the bottomline was supported by lower effective tax rate. However, this was offset to some extent due to increase in depreciation expense.
What to expect?
In the long term, we believe that fundamentals of Container Corporation will remain strong. Introduction of private freight terminals, dedicated freight corridors and Goods and Service tax bode well for the company's prospects. The management has given a growth guidance of 10% for the EXIM segment while prospects for Domestic segment remain uncertain. For the expected growth in the EXIM segment, four to five new facilities will need to be operational. The management expects some of the new capacities to become operational before March 2017. Regarding capex plan, the company has maintained guidance at Rs 60 bn for 12th five year planned capex. It will mainly focus on multi modal logistics park. . At the year end, the company was operating with 239 rakes and has ordered 17 more. Going forward, the margins may also get some support from double stacked operations. The stock is currently trading at a trailing 12 months price to earnings ratio of around 31 times and at 23 times our earlier earnings estimates for FY17e. We are in the process of updating the model and will come up with the revised target price very soon. As far as view is concerned, while 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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