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Trade imbalance leads to decline in Exim profitability
Container Corporation of India’s (Concor) Q3FY12 result was marginally better
than our expectations with standalone net profit at Rs2,414mn vs. our estimate of
Rs2,306mn (variance of 4.6%). Operating profit at Rs2,774mn (down 1.1% YoY),
and operating margin at 26.5% were in-line with our estimates at Rs2,713mn and
26.8% respectively. The domestic segment continued to underperform with
volumes declining 17.4% YoY and EBIT plunging 10.3% YoY to Rs215mn in Q3. For
the 9mFY12 domestic volumes fell by 15% led by IR policy related changes. The
Exim segment’ EBIT declined 3.1% to Rs2,273mn despite volumes increasing 7.3%
YoY mainly led by an increase in empty running costs. We have marginally
tweaked our estimate to factor in slower domestic volume growth, higher other
income and provision tax. We maintain Hold rating and target price of Rs1,015.
Operational performance in-line with expectations: Concor’s Q3 standalone
revenue increased 7.7% YoY to Rs10,462mn, 3.4% above our estimate. Operating
profit at Rs2,774mn (down 1.1% YoY) was 2.3% above estimate, while operating
margin at 26.5% was just 28bp higher than expectations.
Volume growth continued to remain slower: While Exim volumes grew 7.3%
YoY to 555,399 containers, the domestic segment continued with its poor
performance with volumes declining 17.4% YoY to 120,108 containers.
Higher realisations help increase revenues…: Concor’s combined volume
grew just 1.9% YoY to 675,507 containers, while blended realisations increased
5.7% YoY to Rs15,488 per container. Average realisations increased 12.6% YoY
to Rs16,227 per container in the domestic segment while it grew 4.1% YoY to
Rs15,329 per container in the Exim segment.
… but increase in empty running leads to decline in EBIT margins: Trade
imbalance and change in port cargo mix (Export-import) led to a 64% YoY
increase in empty flat running cost to Rs360mn (90% of this was in the Exim
segment). This led to higher rail freight expenses and decline in profitability
margins. Exim segment’s PBIT margins declined 411bp YoY to 26.7%, while it
declined just 41bp YoY in the domestic segment to 11.0%. The average lead
distance in the Exim segment declined ~30km YoY to 1,037kms while it was
flat in domestic segment at 1,430kms.
Maintain Hold with a TP of Rs1,015: At the CMP, the stock trades at 13.0x
FY13E earnings and 7.9x FY13E EV/EBITDA and appears fully-valued. Given the
lower profitability growth expected (6% CAGR over FY11-14E) and decline in
RoE to 16.1% in FY14 from 18.9% in FY11, we continue to remain neutral on the
stock. We maintain our Hold rating and target price of Rs1,015, valuing the
stock at 14x FY13 earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Trade imbalance leads to decline in Exim profitability
Container Corporation of India’s (Concor) Q3FY12 result was marginally better
than our expectations with standalone net profit at Rs2,414mn vs. our estimate of
Rs2,306mn (variance of 4.6%). Operating profit at Rs2,774mn (down 1.1% YoY),
and operating margin at 26.5% were in-line with our estimates at Rs2,713mn and
26.8% respectively. The domestic segment continued to underperform with
volumes declining 17.4% YoY and EBIT plunging 10.3% YoY to Rs215mn in Q3. For
the 9mFY12 domestic volumes fell by 15% led by IR policy related changes. The
Exim segment’ EBIT declined 3.1% to Rs2,273mn despite volumes increasing 7.3%
YoY mainly led by an increase in empty running costs. We have marginally
tweaked our estimate to factor in slower domestic volume growth, higher other
income and provision tax. We maintain Hold rating and target price of Rs1,015.
Operational performance in-line with expectations: Concor’s Q3 standalone
revenue increased 7.7% YoY to Rs10,462mn, 3.4% above our estimate. Operating
profit at Rs2,774mn (down 1.1% YoY) was 2.3% above estimate, while operating
margin at 26.5% was just 28bp higher than expectations.
Volume growth continued to remain slower: While Exim volumes grew 7.3%
YoY to 555,399 containers, the domestic segment continued with its poor
performance with volumes declining 17.4% YoY to 120,108 containers.
Higher realisations help increase revenues…: Concor’s combined volume
grew just 1.9% YoY to 675,507 containers, while blended realisations increased
5.7% YoY to Rs15,488 per container. Average realisations increased 12.6% YoY
to Rs16,227 per container in the domestic segment while it grew 4.1% YoY to
Rs15,329 per container in the Exim segment.
… but increase in empty running leads to decline in EBIT margins: Trade
imbalance and change in port cargo mix (Export-import) led to a 64% YoY
increase in empty flat running cost to Rs360mn (90% of this was in the Exim
segment). This led to higher rail freight expenses and decline in profitability
margins. Exim segment’s PBIT margins declined 411bp YoY to 26.7%, while it
declined just 41bp YoY in the domestic segment to 11.0%. The average lead
distance in the Exim segment declined ~30km YoY to 1,037kms while it was
flat in domestic segment at 1,430kms.
Maintain Hold with a TP of Rs1,015: At the CMP, the stock trades at 13.0x
FY13E earnings and 7.9x FY13E EV/EBITDA and appears fully-valued. Given the
lower profitability growth expected (6% CAGR over FY11-14E) and decline in
RoE to 16.1% in FY14 from 18.9% in FY11, we continue to remain neutral on the
stock. We maintain our Hold rating and target price of Rs1,015, valuing the
stock at 14x FY13 earnings.
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