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Container Corporation: A disappointing quarter

Jul 26, 2013 | Updated on Oct 30, 2019

Container Corporation of India Ltd (Concor) has announced its results for the first quarter of the financial year 2013-14 (1QFY14). The company has reported a 15.2% year on year (YoY) increase in the topline and a marginal 0.5% YoY growth in the bottomline for the 1QFY14. Here is our analysis of the results.

Performance summary
  • Revenues were up 15.2% YoY during the quarter.
  • The operating profits for the quarter registered a 1.6% YoY growth with margins at 22.7% versus 25.8% in 1QFY13.
  • The net profits for the quarter improved marginally (up 0.5% YoY) with margins at 20.6% versus 23.6% in 1QFY13.

Standalone performance snapshot
Rs m) 1QFY13 1QFY14 Change
Sales 10,369 11,945 15.2%
Expenditure 7,698 9,231 19.9%
Operating profit (EBDITA) 2,671 2,714 1.6%
EBDITA margin (%) 25.8% 22.7%  
Other income 823 900 9.4%
Interest (net) 0 0  
Depreciation 407 460 13.1%
Profit before tax 3,088 3,154 2.2%
Pretax margin (%) 29.8% 26.4%  
Tax 636 689 8.3%
Profit after tax/(loss) 2,451 2,465 0.5%
Net profit margin (%) 23.6% 20.6%  
No. of shares (m)   130  
Diluted earnings per share (Rs)*   72.4  
Price to earnings ratio (x)*   14.6  
*On a trailing 12 months basis

What has driven performance in 1QFY14?
  • The sales for the quarter grew by 15.2% YoY. The company witnessed a 5.22% YoY growth in the overall handling - 2.38% YoY and 18.33% YoY in the international and domestic handling respectively. The growth in the domestic segment was on a lower base and boosted by higher movement of food grains. In the EXIM segment, the growth was mainly on account of higher exports (up by around 6% YoY). The share of railway freight in the total income increased while revenues from value added services declined. The revenues for the EXIM and domestic segment grew by 9.7% YoY and 41.6% YoY (on a lower base) respectively.

    Segmental breakup
    (Rs m) 1QFY13 1QFY14 Change
    EXIM
    Revenue 8,583 9,416 9.7%
    Operating Profits (EBIT)  2,201 2,267 3.0%
    Operating profit margins (EBITM %)  25.6% 24.1%  
    Domestic
    Revenue 1,786 2,530 41.6%
    Operating Profits (EBIT)  214 187 -12.6%
    Operating profit margins (EBITM %)  12.0% 7.4%  

  • The operating profits for the quarter grew by just 1.6% YoY while margins declined to 22.7% from 25.8% in 1QFY13. The rail freight expenses grew to 59.8% of the sales (from 57.1% of the sales in 1QFY13). The empty running costs also increased during the quarter, especially in the domestic segment. However, in EXIM segment, empty running costs were restricted on account of increase in the exports volume. The management has also made higher provisions (Rs 17 crore as compared to Rs 9 crore in 1QFY13) for the year for discount scheme. The operating profit margins for the EXIM and domestic segment stood at 24.1% and 7.4% respectively, as compared to 25.6% and 12.0% in the corresponding quarter last year.

    (Rs m) 1QFY13 1QFY14 Change
    Rail freight expenses 5,920 7,146 20.7%
    as a % of sales 57.1% 59.8%  
    Employee costs 275 281 2.0%
    as a % of sales 2.7% 2.3%  
    Other expenses 1,503 1,805 20.1%
    as a % of sales 14.5% 15.1%  
    Total expenses 7,698 9,231 19.9%
    as a % of sales 74.2% 77.3%  

  • The net profits for the year grew marginally by 0.5% YoY with net profit margins 20.6%, as compared to 23.6% in 1QFY13. This was mainly due to higher provisions for discount scheme, increase in the rail freight and higher effective tax rate.

What to expect?

While the volume growth has not been encouraging during the quarter due to tough macroeconomic environment, the management has maintained volume growth target of 10% in the EXIM segment in FY14. As per the management, the domestic segment should grow at 15% in FY14. While the empty running costs are higher, the management still wants to increase operations and get more volumes in the segment. The management has said that it will try to minimize empty running costs by offering discount on movement in the opposite direction.

While the overall port traffic and rail container traffic has declined during the quarter, Concor has performed relatively better in the EXIM segment. Its market in CTO (Container Transport Operator) segment stands at around 76%. That said, the competition both from the road segment and private players is a matter of concern. Other CTOs have idle assets and they are ready to operate even at lower margins. However, Concor having the largest market share and lowest cost operator seems to be in a better position in this regard.

Indian railways had increased haulage charges in the month of February 2013. The management has not given any guidance in this regard. It was suggested that higher diesel prices could be accounted for through some escalation formula but there is nothing certain at this stage.

Concor's two Private Freight Terminals (PFTs) are ready and management expects one more to be operational by FY14. However, here, the company is facing competition from Railways, especially in cases where PFTs are close to rail terminal since railways have dropped charges for its own terminals.

The management is also facing pressure on rentals in CFS and ICD business as the customers have become demanding and competitive pressure has increased. Limited port capacity is also a matter of concern for the company.

Concor has planned a capex of Rs 62 bn in 12th five year plan period. Of this, Rs 30 bn will be for the development of PFTs and new logistic terminals. In FY14, the management expects capex to exceed Rs 11 bn. The management aims to increase share of value added service to more than 30% over the long term.

At the current prices of Rs 1,055, the stock is trading at 14.6 times its trailing 12 months earnings per share. We suggest investors not to buy the stock at current levels.

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