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Container Corp.: The challenges continue - Views on News from Equitymaster
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Container Corp.: The challenges continue
Jul 25, 2012

Container Corporation of India Ltd. (CCIL) has announced its results for the quarter ending June 30, 2012 (1QFY13).The company has reported a 9.3% year on year (YoY) increase in the topline and 4.7% YoY increase in the bottomline . Here is our analysis of the results.

Performance summary
  • Revenues were up 9.3% YoY during the quarter.
  • Operating profits registered a growth of 2.9% YoY during the quarter with margins at 25.8% (as compared to 27.4% in the 1QFY12).
  • Net profits for the quarter were up 4.7% YoY with net profit margins at 23.6%, lower than 24.7% in the corresponding quarter last year.

Standalone performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Sales 9,490 10,369 9.3%
Expenditure 6,894 7,698 11.7%
Operating profit (EBDITA) 2,597 2,671 2.9%
EBDITA margin (%) 27.4% 25.8%  
Other income 588 823 39.8%
Interest (net) 0 0  
Depreciation 402 407 1.1%
Profit before tax 2,783 3,088 11.0%
Pretax margin (%) 29.3% 29.8%  
Tax 441 636 44.2%
Profit after tax/(loss) 2,342 2,451 4.7%
Net profit margin (%) 24.7% 23.6%  
No. of shares (m)   130.0  
Diluted earnings per share (Rs)*   72.0  
Price to earnings ratio (x)**   12.9  
*On the basis of trailing 12 months earnings

What has driven performance in 1QFY13?
  • The topline during the quarter was up 9.3% YoY. In terms of physical performance, the total volumes were up by 2.68%. Out of this, the volumes in the EXIM segment were up by 6.2% YoY while volumes in the domestic segment were down by 13% YoY. The gains in the EXIM segment were mainly due to increase in volumes from Mundra port to 17% during the quarter from 11% in 1QFY12.On a YoY basis, the realizations were up by 4.9% YoY in the EXIM segment by 15.4% YoY in the domestic segment. The company lost volumes in commodities like alumina, pig and sponge iron, steel etc. in the domestic segment. The rail freight contributed to 76% of the total revenues, while handling income and terminal service charges contributed to 11.3% and 6.3% respectively.

    Segmentwise break up
    (Rs m) 1QFY12 1QFY13 Change
    EXIM revenues 7,710 8,583 11.3%
    EXIM EBIT 2,147 2,201 2.5%
    EXIM EBIT Margins (%) 27.8% 25.6%  
    Domestic revenues 1,780 1,786 0.3%
    Domestic EBIT 143 214 49.5%
    Domestic EBIT Margins (%) 8.0% 12.0%  

  • The operating profits during the quarter were up 2.9% YoY. Overall margins during the quarter stood at 25.8% as compared to 27.4% in 1QFY12. Segmentwise, the domestic segment reported EBIT margins at 12.0%, up from 8.0% in 1QFY12 while margins for EXIM segment declined to 25.6% from 27.8%. Sequentially, the EBIT per TEU improved by 70% in the domestic segment on account of prudent movement of empties from point of unloading to point of loading, better utilization of stocks and gains from operational efficiency etc. The margins in EXIM were lower due to higher costs of empty repositioning.

    Cost break up
    (Rs m) 1QFY12 1QFY13 Change
    Rail freight expenses 5,390 5,920 9.8%
    as a % of sales 56.8% 57.1%  
    Employee costs 229 275 20.2%
    as a % of sales 2.4% 2.7%  
    Other expenses 1,275 1,503 17.9%
    as a % of sales 13.4% 14.5%  
    Total expenses 6,894 7,698 11.7%
      72.6% 74.2%  

  • The net profits have registered a growth of 4.7% YoY during the quarter. This was much higher than growth at the operating profit level on account of an increase in 'Other income' (up 39.8% YoY). Unlike last year when all discounts on volume sales were accounted for in the last quarter, the company will now be setting aside provision for volume discounts in the each quarter. The net profit margins for the quarter stood at 23.6% as compared to 24.7% in 1QFY12.

What to expect?
The management has suggested an improvement in the performance of domestic segment in the coming quarter. The company has capex plans of Rs 16.5 bn in FY13, a major portion of which will be used for land acquisition for new logistics parks. The management expects domestic and EXIM segment to grow by 9% each.

We believe rupee depreciation to be a major concern for the company as it will adversely impact the imports and hence the container traffic. On account of huge capex plans over next few years, we expect returns on capital to remain subdued. The company is currently trading at a trailing twelve months price to earnings ratio of 12.9x. The stock has gone by almost 13% since we recommended it. At current levels, we believe that the upside to the stock is limited. Hence we would recommend investors to Hold the stock.

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