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Container Corporation: Profits up 4%
Oct 26, 2013

Container Corporation of India Ltd (Concor) has announced its results for the second quarter of the financial year 2013-14 (2QFY14). The company has reported 18.9% year on year (YoY) increase in the topline and a 4.4% YoY growth in the bottomline for the 2QFY14. Here is our analysis of the results.

Performance summary
  • Revenues were up 18.9% YoY during the quarter. For the first half of the year (1HFY14), the revenues grew by 17.1% YoY.
  • The operating profits for the quarter registered 8.1% YoY growth with margins at 22.2% versus 24.4% in 2QFY13. For 1HFY14, the operating profits were up 4.8% YoY with margins at 22.5% as compared to 25.1% in 1HFY13.
  • The net profits for the quarter registered a growth of 4.4% YoY with margins at 19.4% versus 22.0% in 2QFY13. For 1HFY14, the bottomline was up 2.4% YoY with net profit margins at 20.0% versus 22.8% in 1HFY13.

Standalone performance snapshot
Rs m 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Sales 10,549 12,540 18.9% 20,918 24,485 17.1%
Expenditure 7,973 9,756 22.4% 15,671 18,987 21.2%
Operating profit (EBDITA) 2,576 2,784 8.1% 5,247 5,498 4.8%
EBDITA margin (%) 24.4% 22.2%   25.1% 22.5%  
Other income 810 785 -3.1% 1632 1684 3.2%
Interest (net) 0 0 nm 0 0 nm
Depreciation 423 466 10.1% 830 926 11.6%
Profit before tax 2,962 3,103 4.7% 6,050 6,257 3.4%
Pretax margin (%) 28.1% 24.7%   28.9% 25.6%  
Tax 638 676 6.0% 1274 1365 7.2%
Profit after tax/(loss) 2,325 2,427 4.4% 4,776 4,892 2.4%
Net profit margin (%) 22.0% 19.4%   22.8% 20.0%  
No. of shares (m)         195  
Diluted earnings per share (Rs)*         48.8  
Price to earnings ratio (x)*         15.5  
* On a trailing 12 months basis

What has driven performance in 2QFY14?
  • The company reported 18.9% YoY growth in the revenues. The throughput for the quarter grew by around 14% YoY. Of the total, the throughput for the EXIM segment (80% of the total sales) increased by 14.3% YoY during the quarter. The volumes in the domestic segment were up 12.69% YoY. As per they management, the growth in the company's volumes was despite a decline in the port volumes at the major traffic, implying that the company gained market share during the quarter. The revenues for the EXIM and domestic segment grew by 16.9% YoY and 27.4% YoY respectively.

    Segmental summary
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    EXIM
    Revenue 8,531 9,970 16.9% 17,114 19,385 13.3%
    Operating Profits (EBIT)  2,129 2,394 12.4% 4,331 4,661 7.6%
    Operating profit margins (EBITM %)  25.0% 24.0%   25.3% 24.0%  
    Domestic
    Revenue 2,018 2,570 27.4% 3,804 5,100 34.1%
    Operating Profits (EBIT)  140 136 -2.8% 353 322 -8.7%
    Operating profit margins (EBITM %)  6.9% 5.3%   9.3% 6.3%  

  • The operating profits grew at a lesser rate of 8.1% YoY on account of increase in operating expenses, as rail freight expenses and other expenses (both as a percentage of sales) during the quarter grew to 59.5% and 16.1% (of sales)respectively, from 58.1% and 14.9% respectively in the corresponding quarter last year. Segment wise, the operating profits in the EXIM grew by 12.4% YoY. However, the operating profits in the domestic segment declined by 2.8% YoY during the quarter. The high empty movement over longer distances led to increase in the costs and dragged the profits in the domestic segment. In contrast, strong export growth helped in restricting empty repositioning costs in the EXIM segment. The company has also revised the rebate estimates upwards. As such, the provisioning for rebate was higher.

    Cost breakup
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Rail freight expenses 6,124 7,459 21.8% 12,043 14,605 21.3%
    as a % of sales 58.1% 59.5%   57.6% 59.6%  
    Employee costs 279 283 1.6% 554 564 1.8%
    as a % of sales 2.6% 2.3%   2.6% 2.3%  
    Other expenses 1,570 2,013 28.2% 3,074 3,818 24.2%
    as a % of sales 14.9% 16.1%   14.7% 15.6%  
    Total expenses 7,973 9,756 22.4% 15,671 18,987 21.2%
    as a % of sales 75.6% 77.8%   74.9% 77.5%  

  • The net profits for the quarter grew by 4.4% YoY. The growth in the bottomline was subdued as compared to growth in the net sales. This was mainly because of increase in the operating expenses and decline in the other income.
What to expect?
As per the management, the total port volumes still remain subdued. However, the company reported higher volumes implying a gain in the market share during the quarter.

Going forward, we believe that higher empty running costs in the domestic segment are likely to keep company's margin under pressure. Regarding this, the management is in talks with the railways to permit more commodities so that the empty movement comes down. Also, in contrast to an 18% hike in the freight, the company has been able to pass just 13% to the customers. As per the management, it will be difficult to pass on further hike as traffic is not very encouraging. The stock is currently trading at a trailing twelve months price to earnings ratio of 15.3x. We recommend that investors should Sell the stock at current price levels.

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