Container Corporation's Q2FY19 results (Outperformer) - Stellar performance
Q2FY19 result highlights
- PAT +45%yoy to Rs3.36bn: on strong operational performance & Rs1bn SEIS income recognition vs nil in 2Q18 (we re-classify as other inc).
- Revenues +19% yoy to Rs17.2bn: led by higher exim volumes on improved trade (handling +13% yoy; originating +9.% yoy) and domestic (+19% yoy). Importantly, realisations in exim improved by 6% yoy on Rs1000/TEU freight hike in May-18 and Rs1500/TEU hike in service charges in Aug-18. Domestic realisations were flat during the quarter.
- Higher charges offset higher empty charges: OPM +190bps to 23.5% (+210bps qoq) led by full benefit of Rs1000/TEU freight hike in May-18 and Rs1500/TEU hike in service charges in Aug-18. Accordingly, exim margins +420bps yoy to 22.4% despite 23% yoy increase in empty running cost. Double stacked rakes while up by 51% yoy, were steady on qoq basis. Domestic margins at 8.4% (-130bps yoy) on high base as empty running charges fell 4% yoy. Overall EBITDA +30%yoy to Rs4bn.
Conf call highlights: (1) Mid-Aug increased service charges by Rs1500/TEU, full benefit in 3Q19; (2) Empty running charges +11% yoy to Rs650mn (23% in exim to Rs378mn) (3) Double stacking traction sustains with 50% yoy in 1HFY19 (4) SEIS benefits have improved from 5% to 7% of revenues as per the new notifications, yet to be encashed. (5) Impact of 45-day free storage period from Sept-18 to be completely reflected in 3Q19
Haulage hike: Indian Railways hikes haulage charges by 5% effective 15th Nov-18. The hike is reasonable, considering it has increased after a gap of ~3.5 years (Mar-15). Considering limited hikes over the past few years and improved competitiveness vs road, we believe container operators are likely to pass the same and unlikely to impact volume growth /margins.
Impact on financials: FY19/20 EPS raised by 9%/5% to Rs25/27.6
Valuations & view
An uptick in port volumes is boosting volume growth. The company’s strategic alliances, price increases and ramp up in double stacking should help Concor post 17% EBITDA CAGR over FY18-20E. While investments in logistics parks will impact near term return ratios (long gestation period), we believe these parks will enable Concor to maintain competitive edge and offer seamless logistics solutions to clients over the long term. The stock currently trades at 23x FY20E earnings (28x excluding time bound export incentives). 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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