Published on 25/05/2019 9:29:43 AM | Source: Religare Securities Ltd

Buy Container Corporation of India Ltd For The Target Rs.630 - Religare Securities

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Better realisation but volume remains lower

Container Corporation of India (Concor) posted strong numbers for the quarter, in-line with our expectation. Revenue grew by 12% yoy to Rs 1,834cr, driven by strong realisation. The company’s gross profit, EBITDA and PAT margins improved by 308bps, 116bps and 140bps yoy respectively, on the back of better product mix and lower cost. Going forward, we remain positive on the company’s growth prospects as Concor is exploring opportunities both in domestic and international business, which would help in diversifying its business segments, strengthening core, achieve higher realisation and volume led growth across its businesses. Hence, we maintain a Buy on the stock with price target of Rs 630.


Q4FY19 Result Update:

* Concor posted healthy revenue growth of 12% yoy to Rs 1,834cr, led by strong realisation growth of 9%. However, volumes were below our expectation in lower single digit as compared to double-digit growth in earlier quarters. Further, volumes for the quarter remained lower and grew by 3%. The company’s EXIM and domestic business grew by 11.2% to Rs 1,401.5cr and 14% yoy to Rs 432.8cr respectively. EXIM and domestic volumes grew in single digit by ~2.5% and ~5.5% yoy respectively. While the volume growth remains challenging, the management remains positive on the company’s overall growth going forward which would be driven by improving volumes and better realisation both in EXIM and domestic businesses.

* On the margin front, its gross profit grew by 19.7% yoy, with improvement in its margin by 308bps yoy, on back of improved realisation and business mix. Further, its EBITDA and PAT grew by 17.2% yoy to Rs 467.2cr and 20.7% yoy to Rs 352.3cr with improvement in margins by 116bps and 140bps yoy.


* Other Key Highlights:

1) CONCOR has paid an amount of ~Rs 3,000cr to Indian Railways in April as advance freight to insulate itself from haulage hikes in FY20. 2) Lead distance continued to remain stable on a sequential basis. 3) Concor is also exploring various opportunities both on the domestic as well as international front to tap into the freight and logistics market. 4) The company also initiated coastal shipping operations in Q4FY19. 5) Volume grew by 8% for FY19, which was lower than management guidance of 10-12% yoy. However, they expect volumes to pick up in FY20E. 


Outlook & Valuation:

The Indian logistics industry stood at Rs 6.4 Tn in FY17 and is estimated to grow at a CAGR of 13% by FY21 on the back of implementation of GST, economic recovery, improvement in logistics infrastructure and government support. In FY19, Concor registered consolidated revenue growth of 5% yoy, while its EBITDA and PAT margins stood healthy due to business mix and lower charge on empty running racks. Going forward, we believe the company’s growth would be driven by positive sector outlook, expansion in rail infrastructure (double-rack model), better realization, developing network and strategic tie-up in international markets and its entry into new segments such as coastal shipping, warehousing and other value added services. For FY20E, management has maintained its volume growth guidance of ~10-12% on the back anticipated pick up in volumes, business mix and better realisation. Further, we estimate the company’s Revenue/EBITDA/PAT to grow by 10%/12%/12% CAGR respectively over FY19-21E and we maintain a Buy on the stock with target price of Rs 630.


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