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Container Corp: Volumes improve but realisations suffer - Views on News from Equitymaster

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  • Aug 4, 2014 - Container Corp: Volumes improve but realisations suffer

Container Corp: Volumes improve but realisations suffer

Aug 4, 2014

Container Corporation of India Ltd (Concor) has announced its results for the quarter ended June 2014 (1QFY15). The company has reported a 6.3% year on year (YoY) increase in the topline and 6.2% YoY growth in the bottomline for the quarter. Here is our analysis of the results.

Performance summary
  • Revenues were up 6.3% YoY during the quarter, mainly driven by higher volumes while realizations declined.
  • The operating profits for the quarter registered a 10.0% YoY growth with margins at 23.5% versus 22.7% in 1QFY14.
  • The reported net profits for the quarter were up by 6.2% YoY with margins at 20.6%, similar to margins in 1QFY14.

Standalone performance snapshot
Rs m 1QFY14 1QFY15 Change
Sales 11,945 12,697 6.3%
Expenditure 9,231 9,712 5.2%
Operating profit (EBDITA) 2,714 2,985 10.0%
EBDITA margin (%) 22.7% 23.5%  
Other income 900 829 -7.9%
Interest (net) 0 0  
Depreciation 460 493 7.3%
Profit before tax 3,154 3,320 5.3%
Pretax margin (%) 26.4% 26.1%  
Tax 689 701 1.8%
Effective tax rate (%) 21.9% 21.1%  
Profit after tax/(loss) 2,465 2,619 6.2%
Net profit margin (%) 20.6% 20.6%  
No. of shares (m)   195  
Diluted earnings per share (Rs)*   51.3  
Price to earnings ratio (x)*   24.7  
*On a trailing 12 months basis

What has driven performance in 1QFY15?
  • The company reported a 6.3% YoY growth in the revenues for the quarter, mainly driven by higher volumes. The overall handling during the quarter increased by 15.9% YoY (due to traffic arising from double stacked trains). Segment-wise, the company witnessed volume growth of 15.4% YoY in EXIM segment and 18.3% YoY in domestic segment. The revenue growth in the domestic and EXIM segment came at 15.0% YoY and 4% YoY respectively.

    Segment-wise breakup
    (Rs m) 1QFY14 1QFY15 Change
    EXIM
    Revenue 9,416 9,788 4.0%
    Operating Profits (EBIT)  2,267 2,319 2.3%
    Operating profit margins (EBITM %)  24.1% 23.7%  
    Domestic
    Revenue 2,530 2,909 15.0%
    Operating Profits (EBIT)  187 312 66.9%
    Operating profit margins (EBITM %)  7.4% 10.7%  

  • The operating profit for the quarter grew 10.0% YoY, with margins at 23.5%, up from 22.7% in the corresponding quarter last year. Segment-wise, the margins for EXIM and domestic segment stood at 23.7% (down from 24.1% in 1QFY14) and 10.7% (up from 7.4% in 1QFY14) respectively. The improvement in the domestic margins was mainly due to rationalization of empty haulage costs. However, the mismatch between exports and imports impacted the margin of EXIM segment. As per the management, realisations on exports are lower than imports and it was the former that witnessed most of the growth in the quarter.

  • The rail freight expenses (as a % of sales) declined to 58.5% during the quarter from 59.8% (as a % of sales) in 1QFY14. However, the benefit was offset to some extent due to marginal increase in staff costs and other expenses.

    Cost breakup
    (Rs m) 1QFY14 1QFY15 Change
    Rail freight expenses 7,146 7,430 4.0%
    as a % of sales 59.8% 58.5%  
    Employee costs 281 323 15.0%
    as a % of sales 2.3% 2.5%  
    Other expenses 1,805 1,960 8.6%
    as a % of sales 15.1% 15.4%  
    Total expenses 9,231 9,712 5.2%
    as a % of sales 77.3% 76.5%  

  • The net profits margins for the quarter stood at 20.6%, in line with the margins in 1QFY14. The growth in the net profits lagged the growth in the operating profits due to decline in other income (no IT refunds in this quarter unlike in the corresponding quarter last year) and increase in depreciation expenses, slightly offset by lower effective tax rate. The rebates offered during the quarter stood at Rs 20.78 crore vs. Rs 18.87 crore in 1QFY14.
What to expect?
The management aims to maintain market share at 75% and is quite confident that its share will not decline below 70%. Despite higher volumes, the revenue growth was moderate due to higher exports than imports (exports do not bring as much revenues as imports). Higher exports during the quarter kept international empty costs lower.

As per the management, the average realisations are likely to decline until 2016 (until heavy investments take time to break even). As such, the returns on capital employed (ROCE) are likely to remain under pressure until then. A rail freight hike by railways could further impact the margins. The management has given a capex guidance of Rs 11 bn .

Going forward, the management has given guidance of 12% and 15% volume growth in EXIM and domestic segment respectively (overall volume growth 12.7%). The increase in the manufacturing activity will be a significant driver for volumes for the company. The management expects revenue to grow by 8% YoY in FY15.

At the current price of Rs 1,268, the stock is trading at a twelve months trailing Price to Earnings multiple of 24.7x. While the company seems to be well positioned now, current valuations seem expensive. We are in the process of updating our estimates and will soon update our subscribers about the revised target price.

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