(Vipul Sharma/Mint )
(Vipul Sharma/Mint )

Increasing realizations bolster Concor, but volume overhang may persist

  • Revenue in the March quarter grew 12% to 1,834.29 crore, and net profit increased 19% to 352.9 crore, over the year-ago period
  • Total volume grew a mere 2.9% in the fourth quarter. Interestingly, higher realizations in originating containers came to the rescue

Container Corp. of India Ltd (Concor) delivered a steady set of numbers for the fourth quarter ended 31 March, primarily on the back of better freight realizations.

Revenue in the March quarter grew 12% to 1,834.29 crore, and net profit increased 19% to 352.9 crore, over the year-ago period.

But the Concor stock veered onto the slow track, dropping 4.6% over the last three trading days post its results, on volume growth concerns.

Total volume grew a mere 2.9% in the fourth quarter. Interestingly, higher realizations in originating containers came to the rescue.

Further, certain discounts from the ministry of railways led to lower costs, which kept Ebitda margins steady at 25.5% in the March quarter on a sequential basis. But that is still lower than the 27.2% in March 2018. Ebitda stands for earnings before interest, tax, depreciation and amortization.

Besides, Concor has paid advance rail freight charges of 3,000 crore for FY20. This was done by liquidating its investments of 2,000 crore and raising a working-capital loan of 1,000 crore.

The rationale for this was to offer steady freight rates to customers and, thereby, gain more market volume. While this will buoy revenue in the coming year, lower other income and rising financing costs could cap net profit growth.

The company is also planning third-party-distribution logistics, which could add to revenues, going ahead. Over the long haul, the dedicated freight corridor, which will be operational in FY21, is expected to further boost volumes.

“Concor’s strategy is clearly getting more aggressive for market-share gains as new fixed-pricing comes in. It has guided to 10-12% volume growth and ~12% bottom-line growth. However, the profitability dynamics will be different," said Edelweiss Securities Ltd.

Still, volume growth remains a concern, and it has been slipping since the second quarter of FY19. Both domestic and Exim (export-import) cargo volume growth has slowed down. Besides, recent market commentary from consumer non-durable goods firms has not been encouraging, suggesting the slowdown may continue.

If this slowdown persists, it limit upside for the stock. “We are concerned about the valuation, especially a) its past record of earnings growth (FY19 adjusted profit is almost similar to FY14), b) moderation in EXIM growth in recent quarters," said JM Financial Institutional Securities Ltd in a note to clients.

The forthcoming dedicated freight corridor could help swing fortunes higher with increased volume growth, but that is a good two years away.

Therefore, the Concor stock, quoting at a price-earnings multiple of 24.6 times trailing 12-month earnings, seems to be a shade pricey.

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