The Q4FY09 and FY09 results of Container Corporation (CONCOR) were marginally below our estimates on the profitability front.
For Q4FY09, EXIM business reported volume de-growth of 22.3% y-o-y and 7.7% on sequential basis. This was primarily due to decline in port volumes on account of exports de-growth.
The port volumes have declined by ~25% in the Q4FY09. Also CONOCR which used to run ~18 trains per day on Delhi – JNPT route ran ~14 trains in Q4FY09.
Due to the economic stimulus package by the Indian government the domestic business reported volume growth of 6.2% y-o-y and 21.0% on sequential basis.
This was also supported by reduction in the haulage charges of 10% by the Indian Railways on the domestic transportation of containers through railways.
Net Sales for Q4FY09 was at Rs8.4 billion, which is down 5.8% y-o-y and down 0.6% on sequential basis. This was due to 9.6% y-o-y de-growth in the revenues of the EXIM business.
However, the domestic business recorded growth of 8.3% (y-o-y) on the back of increased volumes from some new domestic customers.
EBIDTA margin during Q4FY09 was up by 70 bps to 26.8% on y-o-y basis on account of reduced other expenditure.
However, the operating margins are down 210 bps on sequential basis on account of increased empty running to clear the backlog of import containers. Running of empty trains increased form 12% to 16%.
Also the company provided Rs44 million for wage revision and Rs50 million for volume based discounts.
For FY09 the company reported revenues of Rs34.1 billion (up 2.0% y-o-y), operating margin of 28.6% (up 200 bps) and PAT of Rs.8.2 bn (up 9.3% y-o-y), thereby translating into FY09 EPS of Rs.63.1 and CEPS of Rs.71.9.
Outlook and valuation
Despite the current slowdown, the company is looking to invest Rs50 billion over next five years to create assets in the rail logistics business.
The company is debt free and has cash of ~Rs.17.6 billion on its books and thus is going ahead with its expansion plans. It has already ordered ~2000 high-speed wagons which will be delivered over next two years.
We maintain our FY10 earning estimates and expect CONCOR to report EPS of Rs61.5 and CEPS of Rs71.5. At the current market price of Rs772, the stock trades at rich valuations of 2.4x book value, 12.5x earnings and 10.8x cash earnings based on FY10E.
Due to near term concerns of slowdown in economy, export - import degrowth and decline in port volumes we maintain REDUCE on CONCOR with unchanged price target of Rs700.