Container Corp: Estimates cut on muted show

But company hopeful of better performance in rest of financial year on agriculture exports

Container Corporation of India stock was down 1.8 per cent on Tuesday after a disappointing show in September quarter and reduction in volume forecast for FY17, second time in six months. At the start of the financial year, the firm had indicated volume growth would be 9-10 per cent, which was revised to 7.5-8 per cent at the end of the June quarter. This is now being modified to six-eight per cent, given weak show in the first half of FY17, which saw volume growth of three per cent. The company expects export-import (Exim) volumes (86 per cent of volumes) to pick up in the second half of the financial year, given increased agricultural exports on good monsoon. Exim volumes in first half were just under four per cent while domestic volumes fell two per cent. Growth in Exim volumes is crucial given higher profitability of the segment           (16 per cent) as compared to sub-three per cent for the domestic one. 
 

Though volumes in September quarter were up four per cent year over year, the company posted revenue decline of 8.2 per cent to Rs 1,378 crore. Revenue growth was led by Exim, while domestic operations growth was flat. Revenue fall was on lower blended realisations, which were down 12 per cent year over year due to pricing (stiff competition from road operators), lower lead distances, and removal of port congestion surcharge.
 
This, coupled with higher empty running costs, and increase in licence fee for railway land, impacted operating profit, which came in at Rs 228 crore, 26 per cent lower from a year ago. Operating profit margin, too, was down over 400 basis points to 16.6 per cent, about 400 basis points lower than analyst estimate of 20 per cent. Net profit at Rs 160 crore was 20 per cent below estimate.
 
Given the weak show, analysts have revised their volume growth as well as earnings growth estimates downwards. While volume growth estimates for FY17 have been pegged now at five-six per cent, they were earlier seven-eight per cent. Earnings growth estimates for FY17 have been cut by 10-15 per cent. Higher land rent is expected to worsen the situation, given falling revenues.