Accumulate Container Corporation of India - Kotak

Container Corporation of India (Concor) continues to report muted growth in profitability - No surprises Concor reported its Q4FY12 net profit at Rs 2,270 million (+5% YoY) ~ as per our expectation. This was on account of slightly improved realizations in the Exim segment of Rs 15,746per TEU (versus Rs 15,076 per TEU YoY). This hike in realisation was offset to some extent by falling lead distance with some originating volumes shifting from JNPT to Pipavav and Mundra for the company. The realization have also increased in the domestic segment, as it has passed a significant portion (not entirely) of the rail haulage hike by Indian Railways (IR) to the customers. Other operating expenses have increased considerably for the company due to arrears of contingent payment to Indian Railways (IR). Consequently the operating margins of the company came in at 20.9 % falling by 700 bps YoY. Revenues were reported at Rs 10.7 bn growing 7% YoY primarily aided by growth in volumes in the Exim segment (+3% YoY) and domestic segment (+4% QoQ) and improved average realisation (+8%YoY).

Falling lead distance, higher haulage (margin pressure), competition, increased empty running and infrastructure bottlenecks of IR are jeopardizing the growth prospects of Concor. We estimate the company to spend around Rs 10 bn in FY13 to add new ICDs and rakes. Post that we expect the company to deliver 4% volume growth (both Domestic and Exim) for FY13E, operating margins to sustain at ~25% and ROE of ~15%.

The stock at CMP of Rs 840 trades at 12 times FY13E earnings which we believe is fully valued for the estimated 3% growth in profitability in FY13E. We continue to value the company at 13 times FY13E EPS of Rs 70 per share. P/E of 13x is at 25% discount to one year forward P/ E of 17x for the company during high growth phase of FY06 to FY10. We rate the stock Accumulate with a target price of Rs 910. Upside to our call includes: 1) Rationalization of haulage charges by the IR or 2) Pick-up in containerized trade both in Exim and domestic segment.

Source : Equity Bulls

Keywords