Container Corporation's Q1FY20 results (Outperformer) : Another quarter of margin surprise
Q1FY20 result highlights
- PAT declined 10% yoy to Rs2.28bn: and below estimates due to no recognition of SEIS income (FY20 benefit yet to be notified). However, earnings were operationally strong on margin expansion.
- Revenues +9.4% yoy to Rs16.4bn: led by 10% yoy in realisations (exim +10.4% yoy; domestic +10.6% yoy). Higher realisation are led by freight hike of 5% effective 1st April 2019 and service charge hikes in 2HFY19. However, weak port volumes and focus on profitable volumes led to 1% yoy volume decline in both exim and domestic (originating -6% yoy)
- Margins expand 320bps yoy to 24.6%: on price hikes, lower empty running charges (-16% yoy; exim -3%, domestic -29%) and lower costs on IndAS 116 (~100bps benefit). EBIT margins: Exim (excl SEIS) +300bps yoy to 22.2% (price hikes, low base), domestic +40bps yoy to 5.1%. Hence, EBITDA grew 26% yoy to Rs4.03bn.
- SEIS income – yet to be notified: Other income fell 56% yoy to Rs583mn as no SEIS income has been recognised (typically Rs800-850mn/q) as FY20 notification is pending and will be recognised through the year. Higher depreciation (impact of IndAS 116) +23% yoy to Rs1.25bn and finance cost of Rs112mn nil in 1Q19) impacted 1Q20 PAT.
Conf call highlights: (1) Volume guidance of 10-12% growth will be met if economy improves (2) Lost exim mkt share from 70%+ to 68% led by focus on profitable and long lead distance volumes (3) Rs7bn debt taken for advance rail freight has been repaid with Rs10bn+cash on books (4) Reduction of SEIS rate from 7% to 5% yet to be notified (5) Added 3 rakes in 1Q20 (6) Plans to add 8-10 MMLPs in FY20 (7) Coastal shipping has seen strong traction and booked Rs380mn revenues in 1Q20 (target of Rs1.5bn for FY20); (8) Distribution logistics park: the first park to be operational soon and another 4 more parks to be operational in FY20
Impact on financials: FY20/21 EPS cut by 5.1%/2.9% to Rs20.5/24.8
Valuations & view
Concor’s cost efficiencies has led to margin expansion despite muted volumes. We believe volumes are likely to be muted (4-5%) led by weak global trade in FY20. However, the 1st phase of DFC is likely to be commissioned by FY21, which will likely drive strong volume traction (improved turnaround times) and efficiencies (higher double stacking) over the medium term. Further, Concor’s investments in terminals would aid mkt share gains and drive 16% EBITDA CAGR over FY19-21E. Accordingly, valuations at 25x FY21E earnings are attractive. Outperformer.
Container Corp. of India is engaged in the transportation of containers by rail, management of ports, air cargo complexes and establishing cold-chain. Though rail is the main stay of Co.'s transportation plan, road services are also provided to cater to the need of door-to-door services, whether in the International or Domestic business. Co. is organized on All-India basis into two major operating divisions which are EXIM and Domestic divisions.
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