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Exim volumes surprise positively; upgrade to BUY
Despite a 10–12-day halt in operations at JNPT, Concor recorded ~2% YoY
growth in Exim volumes in Q2FY11. Domestic volumes also remained healthy,
though the 290bps YoY drop in domestic EBIT margin was disappointing. On the
whole, we believe that most of the larger concerns pertaining to sluggish global
trade and lacklustre volumes are factored into current valuations. Being the
largest player in the container logistics space, we expect Concor to be the key
beneficiary of a gradual recovery in the global economy, coupled with stronger
domestic trade. We upgrade the stock to BUY and roll forward our target P/E
multiple of 18x, giving us a 12-month forward target price of Rs 1,500.
Revenues marginally ahead of estimates: Concor’s revenues declined 1.6% YoY
(+3.1% QoQ) to Rs 9.4bn, marginally ahead of our expectations of Rs 9.1bn.
Owing to the container ship accident at JNPT in August, the company’s Exim
revenues declined by 5.2% YoY (+1.8% QoQ) to Rs 7.3bn, while domestic
revenues grew ~13% YoY (+7.8% QoQ) to Rs 2.1bn.
Above-expected Exim volumes; higher ground rent boosts margins: Despite the
container ship mishap at JNPT in August, Concor witnessed a 1.8% YoY increase
(+1% QoQ) in Exim volumes. The Exim EBIT margin also improved by 150bps
YoY and 90bps QoQ for the quarter. Margin expansion was primarily on the
back of higher ground rent income due to the monsoons and the JNPT ship
accident. In addition, Concor recorded a narrowing of its export-import
mismatch from 150,000teu in Q2FY10 to 80,000teu in Q2FY11, resulting in a
drop in empty-cargo handling for the quarter.
Domestic volumes up but margins disappoint: Domestic volumes grew 6.6% YoY
(+3.3% QoQ) in the quarter. The domestic EBIT margin, though, dropped to 10%
in the quarter which the management indicated was primarily due to lower lead
distance. However, the company’s overall EBITDA margin expanded 130bps YoY
(80bps QoQ), aiding a 1.2% YoY (+7.1% QoQ) growth in net profit to Rs 2.1bn.
Negatives factored in; upgrade to BUY: We maintain our volume growth
estimate of 9.7% for FY11 as against the management guidance of 12%.
Although there are concerns over another freight rate hike (by the railway
ministry) as well as lacklustre volume growth for the industry, we believe that the
downside to valuations is rather limited as most of the negatives are factored into
the stock price. Being the largest player in the container logistics space, we
expect Concor to be the key beneficiary of a gradual improvement in the global
economy, coupled with stronger domestic trade. We roll forward our target P/E
multiple of 18x, giving us a 12-month forward target price of Rs 1,500, and
upgrade Concor from HOLD to BUY.
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