Container Corp Of India:: Accumulate:Strong performance in EXIM despite JNPT port shutdown: Alchemy

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Strong performance in EXIM despite JNPT
port shutdown
Impressive growth in EXIM volumes despite one month deadlock at JNPT
CONCOR reported strong set of results with volume growth of 2.3% YoY to 624,781 TEU
(against our expectation of 5% YoY volume decline) due to strong performance in EXIM
segment. EXIM volumes grew 1.8% YoY to 493,233 TEU despite a month long deadlock at
JNPT (due to ship collision). This was due to partial shift of traffic to Mundra and Pipavav.
Domestic volumes grew 6.6% YoY to 131,548 TEU. The Revenues marginally declined 1.2%
YoY to Rs9.44bn due to 4.3% YoY decline in realisation to Rs15, 112/TEU. This was mainly
due to 6.8% decline in EXIM relalisation (due to decline in average lead distance). The
domestic realisation grew 6.1% YoY to Rs16, 031/TEU.
EBIDTA margin improve due to lower empty running in EXIM
The EBIDTA margin improved by 130bps YoY to 27.7% led by lower empty running in EXIM
segment. This was on account of sharp recovery in exports reducing mismatch between
exports and imports. In 1HFY11, the empty running (as a percentage of rail freight expenses)
stood lower at 8.5% (Rs900mn) against 9.9% (Rs1080mn) in same quarter last year. While
the EBIT margin in EXIM grew by 150bps YoY to 28.5%, that in domestic declined by 290bps
YoY to 9.9%.
Management maintains 12% volume growth guidance for FY11E; but we remain
cautious
Despite only 5% volume growth in 1HFY11, the company still maintains its FY11E volume
growth guidance of 12% on the back of favorable economic outlook and recovery in exports.
This implies volume growth 18.6% in 2HFY11.
We are cautious about this magnitude of growth in context of a) recent hike in haulage
charges by IR from October 1, 2010 on select commodities such as iron, steel, cement and
POL (would reduce competitiveness against roadways and impact 20% of CONCOR volumes)
and, b) declining market share of CONCOR in EXIM segment. Our channel checks suggest
there can be a partial roll back of haulage charges but it is unlikely to result in any major relief
for operators. We have assumed volume growth of 10.5% for FY11E implying growth of
15.8% in 2HFY11E.
Valuations
CONCOR is the best bet in the logistics sector to capitalise on the revival in container traffic.
It enjoys its strong competitive advantage, both in terms of infrastructure and financials. The
recent policy measures (PFT, SFTO) are expected to open up new avenues of growth for
container operators by allowing them to handle non-conventional bulk cargo traffic such as
chemicals, fertilisers and fly ash. The key risks to our view include a) shift of container traffic
to roads due to decline in hinterland movement on account of development of new ports and
b) any sharp increase in haulage charges by IR and the inability to pass this to customers. We
maintain Accumulate rating on the stock.