The Q2FY09 results of Container Corporation (CONCOR) were inline with our estimates. Net Sales for Q2FY09 was at Rs9 billion up 9.8% on y-o-y basis due to 12.9% growth in EXIM business.
The growth was also aided by increase in the haulage charges by 5% to 16% as per various categories from 1st August 2008. However, the domestic business recorded de-growth of 2.6% on y-o-y basis.
For Q2FY09 on EXIM segment reported volume growth of 3.1% while domestic business reported de-growth of 8.8%. This is due to the fact that it lost some domestic business on account of banning exports of rice, maize and sugar by the government.
EBIDTA margin during Q2FY09 was up by 400 bps to 29.8% on y-o-y basis due to significant reduction in rail freight expenses as a percentage of revenues from 60.1% in Q2FY08 to 55.2% in Q2FY09.
This was sue to the fact that in the previous quarter the company has increased its terminal handling charges and passed on the cost increases of land lease charges. Also the company had introduced various cost cutting measures like using own equipments and reduction in running empty containers.
PAT for Q2FY09 was at Rs2.2 billion up 28.5% on y-o-y basis and up 10.8% on sequential basis thereby translating into quarterly EPS of Rs17.2 and quarterly CEPS of Rs19.3.
Despite the current slowdown, the company is looking to invest Rs50 billion over next five years to create assets in the logistics business.
The company is debt free and has cash of Rs17.4 billion on its books and thus is going ahead with its expansion plans. It has already ordered 1300 high-speed wagons and is in process of ordering another 1,500 wagons.
This year it has already acquired 12 rakes and would acquire another 12 rakes by March 2009. It would spend Rs3 billion for wagon acquisition. It has also approved purchase of equipments like reach stackers and is likely to spend Rs500 million and is also building three new terminals at cost of Rs1 billion.
We maintain our earning estimates and expect CONCOR to report EPS of Rs70.1 for FY09E. At Rs715, the stock trades at 2.4x book value, 10.2x earnings and 9x cash earnings based on FY09E.
The stock continues to remain our favored pick in the logistics sector as we feel that the valuations are attractive as CONCOR has tremendous advantage in terms of scale of operations for transportation of containers through railways.
We remain positive and reiterate our BUY on CONCOR with price target of Rs1,100 which provides upside potential of 54% from the current levels.