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Concor: Growth led by the domestic business - Views on News from Equitymaster
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Concor: Growth led by the domestic business
Jul 20, 2009

Performance summary
  • During 1QFY10, topline grows by 10% YoY led by growth across the Exim and domestic segments.
  • Operating profits report tepid growth of 3.5% YoY. Rising cost of operation restricts growth in operating profits.
  • Profit before tax (PBT) reports marginal growth of 0.3% YoY owing to higher depreciation charges. PBT growth excluding other income stands at 2% YoY.
  • Net profits decline marginally by 0.5% YoY on account of subdued performance at the operating level and higher tax outgo.


Financial performance snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 8,228 9,074 10.3%
Expenditure 5,834 6,595 13.0%
Operating profit (EBITDA) 2,394 2,478 3.5%
EBITDA margin 29.1% 27.3%  
Other income 448 413 -8.0%
Interest - - N.A.
Depreciation 275 316 15.0%
Profit before tax/(loss) 2,568 2,575 0.3%
Tax 549 566 3.1%
Profit after tax/(loss) 2,018 2,009 -0.5%
Net margin 24.5% 22.1%  
No of shares (m) 65 130  
Diluted EPS (Rs)*   60.8  
P/E (times)   16.4  
*trailing twelve month earnings

What has driven performance in 1QFY10?
  • Container Corporation (Concor) reported a 10% YoY growth in topline for the quarter ended June, 2009 on account of growth across its segments. The EXIM (export-import) business reported 9% YoY growth, while the domestic business grew by nearly 16% YoY during the same period under consideration.

  • The company has not mentioned volume details. However, considering the global & domestic economic scenario, we expect that volume growth must have come in on account of the domestic business, as this segment is witnessing an uptrend in trade starting 2HFY09. The management of the company during a concall in FY09 had indicated that volumes (particularly of EXIM business) were lower on account of sluggish economic environment. However, overall volumes are expected to pick up with a revival in the economic scenario. The companyís diversified customer base and focus on premium customers must have helped the company sustain growth apart from the expected restoration in volumes.

  • The cost of operation grew at a faster rate as compared to topline growth. This restricted growth in operating profits to 3.5% YoY. Much of the damage was caused by increase in rail freight expenses and higher employee costs.

    Cost break up
    (as a % of sales) 1QFY09 1QFY10
    Rail freight expenses 54.5% 58.1%
    Staff cost 1.8% 2.2%
    Other expenditure 14.6% 12.4%

  • Profit before tax (PBT) reported marginal growth of 0.3% YoY during 1QFY10. This was a result of subdued performance at the operating level, lower other income and higher depreciation charges. Moreover, growth was arrested by the EXIM business that accounts for 80% of the total PBIT. EXIM business reported marginal decline of 1% YoY at the PBIT level, while that of the domestic business was higher by nearly 27% YoY. Excluding other income that declined by 8% YoY, growth at the PBT level stood at 2% YoY.

  • Net profits declined marginally by 0.5% YoY on account of subdued performance at the PBT level and higher tax outgo.

What to expect?
At the current price of Rs 1,000, the stock is trading at 16.4 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 had witnessed sluggish growth in FY09, the business prospects seem to return to normalcy with expected revival in economic growth. From a long term perspective, considering the sector potential and Concorís strong balance sheet, we believe that it would be able to take advantage of the growth story that is unfolding in the sector.

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