Domestic business boosts Concor show; shares rise on strong Q1 results

Earnings expected to be upgraded with a sharp improvement in margin and volume

Shares of Container Corporation of India’s (Concor) on Tuesday gained 2.5 per cent, on the back of strong June quarter (Q1) numbers. After six quarters of year-on-year fall in revenue, the company posted 9.9 per cent growth, led by both higher volumes and a price increase a quarter earlier. The domestic segment contributes 22 per cent of revenue but its volume and revenue growth at 26-32 per cent was much faster than in the larger export-import (exim) one, which reported five to 13 per cent growth on the two parameters.

The management indicated the company had been building its network. Analysts say marketing efforts and networks based on route rationalisation had helped to improve volumes, while reducing trips without cargo on certain stretches. Also, launch of scheduled trains guaranteeing timely delivery between certain cities had helped it to book additional time-sensitive cargo.

The company there was a surge in volumes across commodities and goods prior to implementation of the goods and services tax (GST). This, with adequate network and infrastructure, had helped reap the volume and revenue benefits. Sweating of its assets helped the company improve its segment-level margins from one per cent in the past few quarters to eight per cent.

On exim, the company has been able to improve on the number of trains which operate with a double-stack (one container above another) arrangement, carrying more on a single journey. The management said double-stacking on exim routes (currently 17-18 per cent of trains) had trebled from 162 in the year-before quarter to 479 recently. While overall volumes have improved, more efficient operations and lower empty running had led to improvement in segment margins by 70 basis points (bps), to 19.5 per cent.

Analysts believe improvement in double-stacking and an increased network would maintain both volume and margins. Operating profit margins at the enterprise level, at 22.4 per cent, were up 269 bps over a year, breaching 20 per cent after six quarters.

Concor has given a forecast of 12 per cent volume and revenue growth for FY18 and is looking at maintaining the current margins. Analysts say the near-term trigger for the stock would be further improving of double-stacking and better domestic utilisation. While the company has started operations at five multi-modal logistics parks in a gradual manner and plans to add another eight in the current financial year, analysts say this would take another year to start contributing meaningfully to revenue. With GST coming in, this revenue stream could be a major contributor.

With a strong performance in Q1, the company could see some earning upgrade and stock re-rating, believe analysts. At the current price, the stock is trading at 21 times its FY19 estimate and could give decent returns over the next couple of years.