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Concor: Domestic blues - Views on News from Equitymaster
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Concor: Domestic blues
Jul 17, 2008

Performance summary
  • Topline grows by 6% YoY during 1QFY09, led mainly by the Exim business

  • Operating margins contract marginally by 40 basis points owing to higher staff costs and other expenses

  • Net profits have grown by 8% YoY, higher than the 5% growth in EBITDA, owing to 29% growth in other income.



(Rs m) 1QFY08 1QFY09 Change
Net sales 7,759 8,228 6.0%
Expenditure 5,478 5,839 6.6%
Operating profit (EBDITA) 2,281 2,390 4.7%
EBDITA margin (%) 29.4% 29.0%  
Other income 351 453 29.1%
Interest (net) - -  
Depreciation 258 275 6.4%
Profit before tax 2,374 2,568 8.2%
Extraordinary income/(expense) - (0)  
Tax 503 549 9.2%
Profit after tax/(loss) 1,871 2,018 7.9%
Net profit margin (%) 24.1% 24.5%  
No. of shares (m) 65.0 130.0  
Diluted earnings per share (Rs)*   59.4  
Price to earnings ratio (x)*   12.8  
(* on trailing twelve months earnings)

What has driven performance in 1QFY09?
  • The 6% YoY growth in topline during the quarter has been led by the Exim business, which managed a 9% YoY growth. Domestic business, the star performer of the company in FY08 has seen its revenues fall 5% YoY, thus pulling down the overall topline of the company. Given the inability of the company to raise its freight rates in the wake of stiff competition from roadways, the growth in the Exim business seems to have been led by volumes. The 5% fall in the domestic business was perturbing, especially in light of the fact that the management had expected to grow this segment to grow by a good 20% during the fiscal. Making up for it during the remainder of the fiscal would be a tall order. Growth in the domestic business has come in lower than our estimates of 7% as well. However, we would like to wait for some more time before we change our estimates.

    Segmental break-up…
    Exim 1QFY08 1QFY09 Change
    Revenues 6,116 6,644 8.6%
    PBIT 1,793 1,976 10.2%
    PBIT margin 29.3% 29.7%  
           
    Domestic      
    Revenues 1,668 1,585 -5.0%
    PBIT 326 242 -25.8%
    PBIT margin 19.6% 15.3%  

  • On the segmental margins front, the show spoiler once again has been the domestic business as margins from this segment have taken a 430 basis points hit. Margins for the Exim business though have improved marginally by 40 basis points.

  • Bottomline of the company has shown a growth of 8% YoY during the quarter, higher than the 5% growth in operating profits. This was made possible mainly due to a 29% YoY growth in other income. The fact that the depreciation charges remained benign also helped.

What to expect?
At the current price of Rs 760, the stock is trading at 10.8 times our estimated FY10 earnings of the company. 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 1QFY09 numbers have been slightly disappointing, we remain confident on the company’s long-term growth prospects.

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