Container Corporation, Gateway Distriparks post a good show

In a weak environment, container freight operators Container Corporation (Concor) and Gateway Distriparks managed to post respectable numbers for the quarter ended December 31. While Concor's performance was aided by improving traffic, especially in exports segment, strong performance of the rail freight business helped Gateway.

While volumes for Concor grew 14 per cent year-on-year in the export-import (EXIM) segment, they were up 12 per cent in the domestic segment. The higher volumes came on the back of improving market share in private ports, rebates and higher exports. As a result Concor’s revenues grew 14 per cent year-on-year to Rs 1,240 crore for the quarter.

For Gateway, the good performance of its rail freight division (55 per cent of revenues), as well as the cold chain business (16 per cent of revenues), helped its overall revenue grow  five per cent year-on-year.

Notably, both did reasonably well on the operating front, given the tough quarter, with Gateway posting a rise in margins while those of Concor came down marginally. Gateway’s margins improved 105 basis points to 25.4 per cent. This was led by the rail business, where segment margins jumped sharply by 580 basis points to 18.8 per cent as Gateway moved out of the non-profitable short distance routes. Higher revenues on the back of capacity additions and operating performance of the cold chain business also helped the segment margins improve 149 basis points to 24.1 per cent. These business segments helped Gateway overcome the steep margin fall of its most profitable container freight station (CFS) segment with the CFS at JNPT (Mumbai) witnessing a 957 basis points margin fall to 34 per cent.

For Concor, while operating profit improved a healthy 8.5 per cent year-on-year, margins were down by 100 basis points to 23 per cent for the quarter due to promotional activities and empty running. Margins, however, were up on a sequential basis on the back of higher exports. ICICI Securities analysts Bharat Chhoda and S Banerjee believe with EXIM imbalance coming down significantly, margins are likely to improve.

Both companies, however, had their share of woes. CFS segment, which is the cash cow for Gateway, was hit by the slowdown and intense competition especially at the company’s largest facility, JNPT. For Concor, higher haulage, weak container market, empty running (rakes) and provisioning for rebates continue to impact the operational performance, says Amit Agarwal of Kotak Securities.

While top line performance helped Concor improve net profit by seven per cent to Rs 250 crore, higher margins and lower taxes improved Gateway's net profit (excluding one-offs) by 15 per cent to Rs 32 crore, on a year-on-year basis.

While the key trigger for Gateway is the listing of its cold chain subsidiary, Snowman, for Concor a decline in empty running rakes and setting up of private freight terminals (PFTs) is expected to enhance its earnings in medium term.

Analysts continue to be bullish on the prospects of both companies. Agarwal says for Gateway though the near-term outlook is not encouraging, attractive valuations (9.1 times price to earnings, 1.4 times price to book value and four per cent dividend yield based on FY15 estimates) and stable balance sheet prevents significant downside. For Concor, the premium (14 times FY15 earnings) is justified given its dominant market share, strong asset base and balance sheet, he feels.