Container Corporation : HOLD

Muted Volume Growth Mars Profitability

Container Corporation’s (Concor) Q4 operating performance was below expectations, with a 617 bps QoQ decline in EXIM margin to 24.6%, due to: a) volumes remaining flat QoQ (despite port volumes being up 4%); b) volume discounts (typically a Q4 event); and c) only ~30% of the rail haulage hike (of 4%) has been passed. Domestic ops (22%  of  revs)  continued  to  be  negatively  impacted  by  the  ~50-200% hike in rail haulage charges on 9 commodities in Dec’10, with 4% volume decline and subdued margins of 8.4% in Q4 (vs. 11.4% in Q3FY11). The mgmt has lowered its FY12E guidance to 10% revenue and profit growth.

Key highlights

• EXIM volumes flat QoQ (µ 5.6% YoY) to 0.52 mn TEUs in Q4FY11:  Concor’s  EXIM  volumes  for  FY11  grew  by  7%,  lower than the port volume growth of 10% – on account of a decline in rail throughput from JN Port (due to de-stuffing activity at port itself). FY11 realizations were 3.5% lower, mainly on account of shift in traffic from JNPT to Mundra and Pipavav (JNPT handling has fallen to 64% in FY11 vs. 74% in FY10), which has resulted in ~6% decline in lead distances to 1,109 kms.  We have factored in vol growth of 10% and 8.5% for FY12E & FY13E resp.
• Dom. volumes fell by 4% QoQ and 9% YoY to 0.14 mn TEUs in Q4:  Domestic  vol  growth  in  FY11  has  been  1%  (which  would have been ~7.5% in absence of the Dec’10 rail haulage hike). With higher empty running due to non-availability of certain commodities, EBIT margin for the year has declined to 10.8% (vs. 14% in FY10). The mgmt is in talks with railway ministry for the review of the policy; however, in the near term, dom ops are likely to remain weak. We have factored in vol growth of 4% and 10% for FY12E & FY13E resp.
• Of  the  4%  rise  in  rail  haulage  charges  on  both  EXIM  and  domestic  leg  w.e.f.  Jan 1st, the co. has been able to pass on ~30% (vs. 50% guided earlier).  
• Capex: Concor intends to spend Rs 700 cr in FY12E of which ~Rs 420 cr is towards wagon addition (~20 rakes likely to be added vs. 240 currently), while the rest is towards terminal development and setting up of logistics parks. While one of the logistics parks at Ahmedabad has just commenced operations, the second one at Andhra Pradesh is likely to come on stream in the next 3-4 months. 
• Fresh and Healthy (FHEL, fully owned subsidiary) has achieved PAT breakeven in FY11 (vs. loss of Rs 9.1 cr in FY10). The co. is targeting revenues of  ~Rs 90 cr in FY12E, with increased profitability.

Stock fully priced in; Maintain HOLD

We are reducing our FY12E EPS by 5% to Rs 71 on account of the near-term concerns on domestic ops and structural decline in lead distances. We maintain a HOLD rating on the stock, with a revised TP of Rs 1,213 (vs. 1,265 earlier), based on 17x FY12E EPS.