Sachin Pal Moneycontrol Research
Container Corporation of India (Concor), the leading rail freight transporter, reported a decent set of earnings for the first quarter of the current fiscal. Growth in topline was driven by higher volumes. The jump in operating profit was aided by operating efficiencies as well as higher share of double stack container trains.
For the quarter-ended June, revenue increased 7 percent year-on-year (YoY) to Rs 1,568 crore. This was aided by higher volumes across both segments as well as Rs 70 crore in incentive-related income from Service Exports from India Scheme (SEIS). The same for FY18 stood around Rs 287 crore.
The company reported an earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 391 crore in Q1 FY19 as compared to Rs 338 crore YoY. Operating margin stood at 24.9 percent versus 23 percent in the year ago period. Profit after tax stood at Rs 254 crore as against Rs 246 crore YoY on account of higher tax outgo.
On a segmental basis, domestic volume for Q1 FY19 grew 9 percent YoY, while the export-import (EXIM) segment reported an 11 percent jump in volumes. Overall, the company’s handling of volumes for the quarter gone by stood at 0.9 million TEUs (Twenty-foot Equivalent Unit), up 11 percent YoY.
The company reported a revenue growth of 7 percent as realisations in both segments moved downwards on account of reduction in lead distance. The latter declined 30 km to 713 km in the EXIM segment and 120 km to 1,310 km in the domestic segment. Higher contribution from EXIM segment resulted in an improvement in overall EBIT margin from 17.7 percent to 19.8 percent quarter-on-quarter.
During May, the management undertook a price hike of Rs 1,000/TEU to pass on input cost pressures. The full benefit of this hike will be realised from Q2 onwards. Besides, the company is planning to pass on inflationary cost pressures via other routes.
The 190-km railway line between Dadri in Uttar Pradesh and Phulera in Rajasthan, which forms a part of the 1,500-km long Western Dedicated Freight Corridor (DFC), is expected to commence operations from August 15 and will be available to the company for container movements. This will have a positive impact on the business, but the full benefits will only be realised once both the eastern and western freight corridors turn operational.
The outlook for the company is positive as it undertakes several initiatives to aid future growth. It plans to add 11 new terminals this fiscal. The company expects growth in domestic volumes and sales to continue as continuous increase in diesel prices will result in shift of freight volumes from road to rail.
Concor’s foray into coastal shipping (with an exclusive business partner) should aid both topline and bottomline. The company has also started a trial run for Bangladesh EXIM container movement in April. The same is expected to gain further traction in coming months.
The management has maintained its volume and revenue growth guidance of 10-12 percent for FY19. Based on the guidance, we expect net profit growth in the 15-18 percent range driven by price hikes, cost rationalisation, market share improvement and economies of scale.
The stock currently trades at a FY19e price-earnings multiple of 25. Market leadership position along with healthy balance sheet justifies its trading multiple. We expect Concor to be a steady performer over the next few years and recommend a buy on dips to investors on account of strong revenue and profit visibility.
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