Friday, May 25, 2012


Operating margins decline…
Container Corporation (Concor) reported its Q4FY12 numbers with a topline of | 1071.1 crore and PAT of | 227.1 crore. Revenues, which grew 7.6% YoY, were marginally above our estimates mainly on account of better-than-expected Exim (| 843.3 crore vs. expected | 833.6 crore) and domestic sales (| 227.8 crore vs. exp. | 206.7 crore). Exim volumes stood at 535575 TEUs, exhibiting a 3.4% YoY increase while domestic volumes of 124907 TEUs continued to exhibit a downward trend by declining by 10.4% YoY. Domestic volumes have reduced considerably since the sharp hikes in haulage charges on certain commodities and due to private players chipping away at Concor’s market share. The EBITDA margin of 20.9% in Q4FY12 contracted by 251 bps due to yearend discounts, higher other expenses on account of break van charges paid to Railways and higher empty running cost. Other income grew 49.3% YoY due to higher interest income, increased number of auctions to clear old containers and dividend payment from JV partners.

Outlook for Concor
Concor’s FY12 Exim volumes increased 5.8% while domestic volumes decreased 13.9% due to a change in rail haulage structure and competition from private companies. Going forward, we expect 8% and 6.3% CAGR in Exim and domestic volumes, respectively, factoring in inclusion of pig iron and sponge iron in notified commodities. We expect lower EBITDA margins of 23.5% and 23.6% in FY13E and FY14E, respectively

Concor maintains its market leadership and has the strongest balance sheet among its logistics peers. However, privatisation of container haulage has put pressure on its operating margin and put its market dominance at risk. We recommend a BUY rating on the stock based on 13x FY14 EPS with a target price of | 994.