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Concor: A challenging quarter - Views on News from Equitymaster
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Concor: A challenging quarter
Aug 5, 2015

Container Corporation of India Ltd (Concor) has announced its results for the quarter ended June 2015 (4QFY15). The company has reported 11.9% year on year (YoY) increase in the topline and 21.0% YoY decline in the bottomline for the quarter. Here is our analysis of the results.

Performance summary
  • Revenues were up 11.9% YoY during the quarter, mainly driven by the EXIM segment.
  • The operating profits for the quarter registered a 3.6% YoY decline with margins contracting to 20.3% from 23.5% in the corresponding quarter last year. Both EXIM and domestic segment suffered contraction in the operating margins on a sequential and year on year basis.
  • The reported net profit for the quarter declined by 21.0% YoY.

Financial summary
(Rs m) 1QFY15 1QFY16 Change
Sales 12,697 14,209 11.9%
Expenditure 9,712 11,330 16.7%
Operating profit (EBDITA) 2,985 2,879 -3.6%
EBDITA margin (%) 23.5% 20.3%
Other income 829 798 -3.7%
Interest (net) 0 0
Depreciation 493 907 83.7%
Profit before tax 3,320 2,770 -16.6%
Pretax margin (%) 26.1% 19.5%
Tax 701 701 0.0%
Effective tax rate (%) 21.1% 25.3%
Profit after tax/(loss) 2,619 2,069 -21.0%
Net profit margin (%) 20.6% 14.6%
No. of shares (m) 195
Diluted earnings per share (Rs)* 51
Price to earnings ratio (x)* 32.0
*trailing twelve-month earnings

What has driven performance in 1QFY16?
  • The revenue growth for the quarter stood at 11.9% YoY. This was mainly driven by higher realizations as the company passed on the haulage rate hike by railways. The volumes for both domestic and EXIM segment declined on a year on year basis.

  • The domestic segment was adversely impacted due to service tax amendment (company absorbed high service tax charge), high haulage charges, empty running costs and high competition from the domestic segment.

    Segment wise summary
    (Rs m) 1QFY15 1QFY16 Change
    EXIM
    Revenue 9,788 11,570 18.2%
    Operating Profits (EBIT) 2,319 2,139 -7.8%
    Operating profit margins (EBITM %) 23.7% 18.5%
    Domestic
    Revenue 2,909 2,639 -9.3%
    Operating Profits (EBIT) 312 42 -86.5%
    Operating profit margins (EBITM %) 10.7% 1.6%

  • In the EXIM segment, high haulage charges, service tax amendment, export import mismatch and slowdown in the growth at the key ports impacted the performance. Further, one off factors such as Gujjar agitation, fire accident at a critical railway junction and rains in Gujarat disrupted the operations.

    Cost breakup
    (Rs m) 1QFY15 1QFY16 Change
    Rail freight expenses 7,430 8,963 20.6%
    as a % of sales 58.5% 63.1%
    Employee costs 323 373 15.5%
    as a % of sales 2.5% 2.6%
    Other expenses 1,960 1,994 1.8%
    as a % of sales 15.4% 14.0%
    Total expenses 9,712 11,330 16.7%
    as a % of sales 76.5% 79.7%

  • The operating margins for the quarter declined to 20.3% from 23.5% in the corresponding quarter last year. This was mainly on account of sharp increase in the rail freight expense (as a percentage of sales) and increase in employee costs. Further, empty running costs led to lower profitability. The empty running costs for the domestic and EXIM and domestic segment stood at Rs 34 crore and Rs 27 crore respectively. The margins for domestic segment declined sharply to 1.6% as compared to 10.7% in the corresponding quarter last year. For EXIM segment, the operating margin declined to 18.5% from 23.7% last year. The company has also provided a rebate provisioning worth Rs 18 crore for the quarter. As per the management, double stacking as a percentage of total comprises around 5% -10% of the total volumes.

  • The net profit for the quarter declined by around 21% YoY. Apart from a weak operating performance, higher effective tax rate, lower other income and increase in depreciation expense (due to change in the way depreciation expense is calculated) contributed to lower profits.
What to expect?
The company had a tough quarter, especially in the domestic segment, as increase in the haulage rates, empty running costs and service tax amendment led to the shift in the traffic from rail to road. Apart from these factors, the EXIM segment suffered due to one off factors. Since company is targeting volumes and facing stiff competition from the road segment, the margins in the domestic segment had to be sacrificed to protect volumes. While the management has given revenue growth guidance of 14%, margins may remain under pressure in the near to medium term.

The management has suggested there are more logistics projects park projects coming in, with states like Haryana, UP and MP showing interest in the same. The company is looking at 5 additional projects.

The capex for FY16 has been revised from Rs 14 bn to Rs 11.5 bn, of which Rs 4 to Rs 5 bn has been earmarked to be invested in the land. As far as DFC project is concerned, the management expects it to be ready in calendar year 2018.

We believe that Container Corporation of India Ltd is a fundamentally strong player from a long term perspective. However, at the stock price of Rs 1,629 per share, it is trading at a trailing 12 months price to earnings ratio of around 32 times which does not leave enough margin of safety for the investors. As such, we recommend investors not to buy the stock at current price levels.

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