Domestic biz suffering; FY16 growth cut to 7.5-8%: Concor

Domestic business is hurting due to slowdown in the steel and construction sector, Anil Gupta Chairman and Managing Director of Container Corporation (CONCOR) told CNBC-TV18. The company’s management has reduced its FY16 growth guidance from the 9-10 percent to 7.5-8 percent. The topline growth has been cut to 11 percent from the earlier 15 percent, Gupta said. The management also expects a 300 to 400 basis points (bps) contraction in the earnings before interest, tax, depreciation and amortization (EBITDA) margin. However, Gupta said the company is confident of growth in the long term.

Concor is planning to add 15 new terminals to its existing 63 terminals by March 2017, Gupta said adding that this will further double the handling capacity by 2017 to 6 million TEUs. Below is the transcript of Anil Gupta's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: The volume growth in Q1 was down by 6 percent, will you still maintain your annual volume growth guidance which you gave at about 10 percent?A: We are little uncertain about it because in Q1 we faced certain constraints on the critical sectors. JN Port was not functional for a long time third terminal and then we had problem in Mundra, in Pipavav and still things are not very clear. So we don’t think we will be able to maintain more than 9 percent, but I think 7.5-8 percent is still a possibility. We are still bullish about it and working on that.Sonia: With the volume guidance cut, what is the topline outlook for the rest of the year?A: Topline should grow at around 11 percent.Sonia: So you have cut that down from 15 percent?A: Yes.Latha: Let me come to your domestic business, that continues to be a drag on your company's earnings. When can we expect a turnaround?A: There has been a problem in the Indian economy itself. Steel inventories are very high, steel sector is not doing well, construction sector is not doing well because lot of housing is not being sold, there are no buyers of flats and houses. The construction companies had put in their own money at heavy interest and they are now shying from putting in more money. So construction primarily implies a lot of movement of steel and cement for construction which used to be carried by us that is also down.On the contrary, diesel prices are going down, road capacity is surplus because of iron ore over movement reception, ore mining was close for a long time now - it is being resumed buy so because of all these factors there is a very great push on the domestic traffic sector, which is a big drag where we are not sure what is going to happen but fortunately our domestic proportion was only around 16-17 percent of the total revenues in the yearly estimates. If there is an improvement in international that would not have very great impact on the weighted volumes. That is what we are hoping.Sonia: Are you facing competition from road transporters due to the fall in diesel prices, has that impacted your market share in anyway?A: When we are talking about market share in our consensus we are doing the market share of CONCOR vis-a-vis other container train operators (CTOs) that is in the container. It is not rail versus road. If you consider rail versus road market share, yes, we are at around 19-20 percent. Around 80 percent is being carried by roads. There would be a slight drop in this because of domestic going away and also international because of the situation in Q1 for instance, international cargo did not go down but internal movement got affected. Therefore, people had no option but to empty their containers in port and move it by road. So to that extent we did have a hit in the competition.Latha: You have not been able to pass through the entire hike in service taxes so how much do you think that will impact the current year's margins?A: Overall as I maintained last time, our EBITDAs are in the range of 24-25, in Q1 also they were 24. My EBITDA margins will be going down to around 21-22. That will be the overall impact.Sonia: Give us an update on your capex plans, the company had plans to add about 15 more rakes and five terminals in the next five years, how many of these do we see coming onstream in the next two years?A: We had planned for 12th five year plan. We had planned a total capex of Rs 6,000 crore. We are well on the way to achieve the target and we will ultimately have 15 new terminals working during the period upto March 2017. We have also been able to identify another 10 facilities, which we are under different stages of land procurement and different stages of planning, which will take immediately after we are finished this job on hand. By around 2020 we will have 25 additional facilities in addition to 63 facilities that we already operate. We are very confident on that and going according to the plan. So our total handling capacity which was 3 million twenty-feet equivalent units (TEUs) till last year is expected to go up to 6 million TEUs by 2017 and further by around 9 million TEUs by 2020 which should keep us ready for meeting with the growth which we expect once the dedicated freight corridor (DFC) is commissioned.