Visit http://indiaer.blogspot.com/ for complete details 2QFY11 Result Highlights
Concor reported 2QFY11 PAT of Rs2.1bn, growth of 1.2% yoy (above our estimates of Rs2.0bn) primarily due to
higher than estimated realizations during the quarter.
Volumes in the exim sector grew by just 1.8% yoy (we saw 2.0%yoy growth) impacted mainly by volumes lost during
the August 2010 after a collision of ships in the approach channel of the Mumbai Harbour restricted entry of vessels
into the JNPT Port and the Mumbai Port. Only smaller vessels requiring draught upto 6m were allowed to navigate in
the channel and the rest were diverted to other west coast ports like Mundra and Pipavav.
The domestic business witnessed continued traction and volumes grew by 6.6%yoy (we saw 7.0%yoy growth). Going
forward we expect recovery in exim volumes even as growth continues in the domestic volumes.
The realizations have fallen by 4.3% yoy. Concor typically charges its clients based on distance and weight. The
average distances have fallen during the quarter both in the domestic and the exim segment
o Exim realisations fell by 6.9% yoy led by ~80km yoy fall in the lead distance driven by lower volumes from JNPT
(which is long lead distance route).
o Domestic realisations grew by 6.1%yoy despite ~20km fall in lead distance likely due to increase in heavy cargo
carried during the quarter.
Resultant, revenues declined by 1.6%yoy to Rs9.44bn, above our estimate of Rs9.3bn due to higher realizations.
EBIT margins in the exim segment expanded by 150bps yoy to 28.5% led by lower empty running charges (17%yoy
drop in empty running charges in H1FY11). Empty running charges have been declining due to improving balance
between import and exports resulting from a strong growth in exports (15%yoy in H1FY11). EBIT margins in the
domestic segment fell sharply by 290bp yoy to 9.9% led by lower cost pass through.
EBIDTA margins expanded by 130bp to 27.7% against our estimate of 26.8% led by a lower cost base at the operating
level.
Other income fell by 13% yoy to Rs381mn despite cash balance of ~Rs23bn primarily due to lower yield on its free
cash. Concor has to compulsorily deploy its cash in fixed deposits which has adversely impacted its yield.
Depreciation increased by 11% yoy to Rs365mn in 2QFY11 led by wagon additions as well as investments in terminal
handling equipment. Concor has been spending on capex, despite the slower volumes, in view of the long term
growth in volumes and ensuing capacity requirement. Accordingly, it plans to invest Rs6bn in FY11 towards rolling
stock (20 rakes), terminals (6 nos), etc.
Sharp hike in haulage charges by Indian Railways; expect operators to pass on the cost burden
The Indian Railways had decided to hike haulage charges by 70-89% on a few commodities being moved by the container
rail operators for a standard 20 ft container with effect from October 1 2010. Commodities for which rates have been
hiked are cement, iron & steel, stone (except marble), alloys & metals, and petroleum products. The rate increases are
much higher for a 40ft container. If there is more than one type of commodity in a container, the rate levied on the
container will be that of the commodity which attracts the higher rate. In case of false declaration by the container
operator, the penalty is as high as 4x the highest rate. On five false declarations, the container operator is liable loose its
license.
Expect operators to pass on the increase
We believe the railways’ move to hike haulage charges so sharply is to discourage container operators from moving
commodities that it regards as its own cargo. We believe such a sharp increase in haulage rates will drive movement of
these commodities to road transport from rail, especially in the exim segment where the export/import is by containers.
Further, operational issues are likely to increase as railways will have to check the containers for the commodity type
being carried. We expect the operators to completely pass on this haulage hike as they will be unable to absorb the same.
All the operators move these commodities either in the domestic or exim segment, and hence the impact on volumes can
be quite high. The container rail operators have already been impacted due to poor metals volumes in 1QFY11, especially
in the northern region, and the ship collision at JNPT in August. For Concor, such commodities account for nearly 33% of
volumes in the domestic segment and 20% of volumes in the exim segment. The sharp hike in rail haulage charges is
likely to impact profitability in 2HFY11 due to market share loss to roads. However, the container operators are talking to
the Indian Railways for softening the rate hike. IR has now deferred the implementation of the rate hike to November 1
2010 since the discussions with the container operators are still continuing. We await further clarity on the rate hike.
Maintain Neutral
We have not changed our FY11E and FY12E earnings estimates for Concor. We believe the growth in international trade
coupled with higher penetration, will drive volume growth for Concor over the longer term. On the other hand, we
believe competition from the new entrants is unlikely to impact Concor considering its strong infrastructure (ICD
network and wagon fleet) as well as strategic alliances to garner volumes and offer end to end logistics solutions to
clients. Concor currently trades 19.3x FY11E and 16.6x FY12E earnings, which we believe factors in the near term upsides
to volume pick up as well as stable margins on a yoy basis. Consequently, we maintain a NEUTRAL rating with a target
price of Rs1375/share.
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