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Container Corporation of India (Concor) is a near monopoly as far as container train operations in India are concerned. Besides transportation, Concor provides a number of value added services like warehousing (both transit as well as bonded), less than container load (LCL) consolidation, custom clearance, factory stuffing and destuffing, container maintenance and reefer services (for perishable cargo). In 2006, the company entered into the cold chain business by setting-up a wholly owned subsidiary - Fresh and Healthy Enterprises Ltd. Over the past few years, the company has significantly ramped up its fleet of high-speed wagons. As of March 2009, the company had a total base of 8,117 wagons, 49 inland container depots and 9 domestic container terminals.
During FY09, Concor reported marginal 2% YoY growth in revenues as lower export volumes restricted the overall growth of the business. EXIM (export-import) business that accounts for 80% of the company’s business reported 3% YoY growth. Domestic business reported 1.8% YoY fall in revenues. Lower cost of operation has resulted in 2% EBITDA margin expansion for the fiscal. Net profits grew by 9% YoY on the back of 10% YoY growth in operating profits.
As the Indian Railways Association has opened up the sector to new players, the main concern for Concor will be the reduction in its market share in the long term. However, on the other side, a handful of private players have tied-up with Concor to avoid duplication of infrastructure and problems of wagon shortages in the country. Considering the sector potential and Concor’s strong balance we believe that it would be able to take advantage of the growth story that is unfolding in the sector. Also, the fact that Concor has a well-established network and infrastructure is likely to work in favour of the company going forward.
|Financial performance: A snapshot|
|Operating profit (EBITDA)||2,335||2,253||(3.50%)||8,917||9,773||9.60%|
|Profit before tax/(loss)||2,550||2,422||(5.00%)||9,485||10,547||11.20%|
|Profit after tax/(loss)||2,030||1,877||(7.50%)||7,522||8,195||8.90%|
|No of shares (m)||()||()||()||65||130||()|
|Diluted EPS (Rs)*||()||()||()||()||63||()|
|*trailing twelve month earnings|
|Cost break up|
|(as a % of sales)||4QFY08||4QFY09||FY08||FY09|
|Rail freight expenses||55.90%||56.10%||57.50%||55.10%|
- During 2QFY10, topline grows merely by 6.2% YoY. Muted performance of the EXIM business restricts overall growth.
- Operating profits decline by 6.2% YoY as growth in costs outpace topline growth.
- On account of poor show at the operating level, lower other income and higher depreciation costs, profit before tax (PBT) and net profits decline by 8.5% YoY and 8.6% respectively.
|Financial performance: A snapshot|
|Operating profit (EBITDA)||2,703||2,534||(6.20%)||5,097||5,012||(1.70%)|
|Interest||( )||( )||N.A.||( )||( )||NA|
|Profit before tax/(loss)||2,893||2,646||(8.50%)||5,461||5,221||(4.40%)|
|Profit after tax/(loss)||2,237||2,044||(8.60%)||4,255||4,052||(4.80%)|
|No of shares (m)||130||130|
|Diluted EPS (Rs)*||59.3|
*trailing twelve month earnings
What has driven performance in 2QFY10?
- Container Corporation's (Concor) revenues grew by 6.2% YoY during 2QFY10 largely on the back of double digit growth (16.2% YoY) reported by its domestic business. The EXIM (export-import) business that accounts for 80% of total revenues reported a muted 4% YoY growth. Considering the global economic scenario the single digit growth on the EXIM front is respectable. Going forward too, the company foresees the growth of the EXIM business to hover around the same levels as domestic business continues to report double digit growth on the back of improving domestic trade prospects.
- The cost of operation grew at a faster rate as compared to topline growth, which led to 6.2% YoY fall in operating profits. Much of the damage was caused by increase in rail freight expenses and higher employee costs. Slowdown in the EXIM business also impacted profitability as the margins of this segment are higher as compared to the domestic business.
- Profit before tax (PBT) declined by 8.5% YoY on account of dismal show at the operating level, lower other income and higher depreciation charges. The company has not scaled down its capex plans as it expects volumes to improve in the future with a revival in the economy.
- Concor has outlined capex of nearly Rs 6 bn for the current year. It has been adding 2 rakes every month. Considering the global economic conditions the company has been focusing on its domestic business to sustain growth. Moreover, despite increasing competition in domestic markets with the privatization of rail freight services, Concor being a dominant player with wider network enjoys competitive advantage over new entrants. However it remains to be seen whether it would be able to sustain this advantage in the future. Keeping in mind the increasing competition, Concor has increased focus on capturing new markets, marketing and providing end to end total logistics solution to retain customers and grow the customer base. It has also strategically entered into alliances with few newer entrants to share infrastructure and support revenue growth.
- Despite lower tax outgo, net profits declined by 8.6% YoY on account of subdued performance at the PBT level.