Depreciation mutes quarter!!! • Concor :: ICICI Securities, PDF link

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Depreciation mutes quarter!!!
• Concor’s revenues in Q2YF15 grew ~8% YoY to | 1354.8 crore. On
the volume front, Exim volume in the quarter posted robust 12.2%
YoY growth to 676922 TEUs whereas on the domestic front, volume
growth remained muted with 1.3% YoY growth to 121168 TEUs
• EBITDA for the quarter recorded strong growth at 12% and 5% YoY
and QoQ, respectively, to | 312.7 crore. EBITDA margin for the
quarter expanded 88 bps YoY whereas it contracted 43 bps QoQ to
23.1%. Margins expanded YoY due to higher double stacking
(2,47,000 TEUs in Q2FY15 vs. 60,000 TEUs in Q2FY14) and better
cost management. Employee expenses increased significantly for the
quarter due to payment of arrears to the tune of | 10 crore to the
non-executive cadre and implementation of new pay commission
(revised every five years for non-executive cadre)
• PAT for Q2FY15 stood at | 191.9 crore, a decline of ~27% and 21%
QoQ and YoY, respectively. PAT declined significantly as the
depreciation for Concor in the new Companies Act was revised
considerably. Mainly four line items were impacted i.e. wagons
(useful life reduced from 20 years to 15 years), containers (useful life
reduced from 20 years to 15 years), Building, roads & pavements
(useful life reduced from 30 years to 10 years, thereby increasing
depreciation from 3.4% to 9.5%) and handling equipment
depreciation charge increased to 12.7% from 10%. As a result, the
net impact of additional depreciation for H1FY15 was | 98.5 crore.
Going ahead, the depreciation charge will increase by nearly | 200
crore for each fiscal, thereby impacting earnings of Concor
Ports volumes support Exim trade and logistic parks in focus
Concor remains a leader among container train operators with ~80%
market share. Container volumes at major ports faced pressure as volume
declined nearly 5.8% and 6.7% YoY in FY14 at JNPT and Chennai,
respectively. However, at the turn of Q2FY15 container volumes at major
ports posted growth of ~10% YoY whereas on a YTD basis container
volumes grew ~7%. As a result, Exim volumes for Concor grew ~12%
YoY leading to a shift of focus towards Exim from the slow growing
domestic segment. With demand recovering, going ahead, rake addition
is expected at 18 rakes (only six rakes received in H1FY15) for FY15 along
with focus on the development of multi modal logistic parks (MMLP).
Transition in growth trajectory; propelled by MMLP, PFTs
Concor plans to set up private freight terminals and MMLP across 15
locations in India with plans to add another five over the next couple of
years. Currently, PFTs at Khatuwas and Nagulpally are operational and are
expected to scale up in the near term. Further, Concor plans to acquire
land in the central and eastern regions of the country, in close proximity
to the dedicated freight corridor, to scale up its PFT business. Concor’s
FY15 capex plan stands at ~| 1146 crore with nearly | 700 crore towards
land acquisition.
Depreciation depresses earnings; volume growth remains intact
Earnings and revenue are expected to post a CAGR of 15% over FY14-
17E aided by significant volume CAGR of ~11% and development of
PFTs over the same period. Though change in depreciation depresses
earnings; long time growth remains intact. Hence, we continue to assign
a P/E multiple of 20x over FY17E revised EPS of | 74 to arrive at a target
price of | 1485 and continue to recommend BUY.

LINK
http://content.icicidirect.com/mailimages/IDirect_Concor_Q2FY15.pdf