Concor: Demand is a constraining factor

Better operating performance helped the company post net profit of Rs 186 cr, which beat estimates

The share price of India's largest container logistics company, Container Corporation of India (Concor) fell 2.1 per cent on weak December quarter results. Revenue for the quarter at Rs 1,330 crore was down 5.2 per cent year-on-year and was also lower than estimates, which pegged it in the range of Rs 1,340 crore to Rs 1,400 crore. Muted export import (Exim) performance led to the fall in revenue. Exim segment, which accounts for about 80 per cent of Concor's revenue, registered a 6.5 per cent fall year-on-year to Rs 1,058 crore thanks to pressure on pricing, while domestic segment was flat at Rs 272 crore.

The same is also visible from the commendable volume growth in the Exim segment, which was up 11.12 per cent to 6.67 lakh twenty foot equivalent units or TEUs, while domestic volume growth came in at 5.56 per cent to 1.16 lakh TEUs. While overall realisations fell 14 per cent year-on-year, Exim's was down 16 per cent and domestic by 5 per cent due to shorter delivery destinations, withdrawal of congestion charge (paid by customers), higher double stacking and discounts. Distance between origin and destination is falling as more north-bound cargo shifts to Mundra and Pipavav on the western coast from JNPT port in Mumbai.

The numbers at the operating level, however, are better as the company was able to keep a tab on its costs. Concor has reduced its empty running costs from Rs 44 crore in year ago quarter to about Rs 35 crore in the December quarter, a reduction of 25 per cent. Improvement in operational efficiencies also help prop up profitability. Operating profit margins at 19.6 per cent were five basis points lower than year ago quarter, but higher than analysts' estimates of around 18 per cent. Thus, operating profit, while down 5 per cent year-on-year to Rs 261 crore, was higher than estimates of Rs 256 crore.

Better operating performance helped the company post net profit of Rs 186 crore, which again, was down 9.5 per cent but higher than estimates of Rs 170 crore.

The key long-term trigger for the stock is the commissioning of the dedicated freight corridors, which are expected to come up in 2020, and improving market share gains for the rail freight sector from the road segment.

At the current price, the stock, which has not impressed the Street with the result as well as the bonus issue (1 for 4 shares held) and dividend (Rs 9.6 per share) announcement, is trading at 28.8 times its FY18 estimates. Investors should avoid the stock given lack of pricing power, muted demand environment and expensive valuations.