Container Corp: Lacklustre

Discounts, levies and empty wagons take a toll on profits.

Container Corporation took a hit in the September 2007 quarter due to discounts, additional charges by Indian railways and higher number of empty wagons.

The company's operating profit declined 15.2 per cent y-o-y to Rs 212.3 crore in Q2 FY08, while its net sales improved 6.7 per cent to Rs 818.8 crore.

Concor's operating profit margin declined 670 basis points y-o-y to 25.9 per cent in the second quarter. Its overall operating profit margin had declined 40 basis points to 29.4 per cent in the June 2007 quarter.

The exim segment, which accounts for 80 per cent of Concor's revenues, grew by 12.6 per cent in the September 2007 quarter. But the rise amounted to a mere 2.75 per cent in value terms.

Concor gave discounts to its clients in the second quarter to stimulate volumes, following sluggish exports and dipping road freight rates.

The company also incurred a higher freight expense of Rs 17.2 crore in the second quarter as it faced a higher number of empty wagons due to the growing imbalance between import and export volumes. The profit of the exim division declined 18.4 per cent y-o-y to Rs 175.9 crore.

In the domestic segment, growth in value terms was an impressive 26 per cent y-o-y. But containers had to be repositioned, resulting in the movement of empty wagons and an additional haulage charge of Rs 7.4 crore.

Also, Indian Railways imposed brake-van charges (to be paid twice a year) and 2 per cent surcharge, which is passed on by Concor with a 40-day lag.

At Rs 1885, the stock trades at nearly 15 times estimated FY08 earnings and leaves little room for further upside, given the intensifying competition from private players.

Exide Industries: Input blues

The performance of Exide Industries in the September 2007 quarter was adversely affected by the rising cost of the key input, lead.

The average lead prices in the September quarter were $3140.9 a tonne on the LME as compared with $1189.4 a tonne in the corresponding period of the previous year.

As a result of the rising lead prices, the company's operating profits grew 39.8 per cent y-o-y to Rs 117.2 crore in Q2 FY08, while the net sales expanded 48 per cent to Rs 667.8 crore. The operating profit margins also declined 110 basis points y-o-y to 17.5 per cent in the second quarter.

The adjusted raw material costs as a percentage of net sales went up by a whopping 750 basis points y-o-y to 63.6 per cent.

The company management highlighted that a significant portion of its orders has been covered by price fluctuation clause, which helped in minimising the impact of higher input prices to an extent. In contrast, the operating profit margin expanded 150 basis points y-o-y to 19.7 per cent in Q1 FY08.

Exide had earlier announced a rights issue in the ratio of 1:15 at Rs 30 a share aggregating Rs 150 crore. The direction of lead prices will remain crucial going forward.

The demand conditions in the automobile sector will also be important as it is the key input and the four-wheeler sales have been sluggish in the first half of FY08. At Rs 64, the stock trades at 31 times FY07 earnings and leaves little room for further upside.

Welspun Gujarat: Spinning gains

Welspun Gujarat Stahl Rohren has improved its operating profit by 93 per cent y-o-y in the September 2007 quarter, despite a sales growth of 37.5 per cent.

The company improved its operating profit margin by 470 basis points y-o-y to 16.5 per cent. With the boom in the hydrocarbon sector, the demand for Welspun's products has been robust. Its order book is at Rs 5,530 crore, which is nearly twice its FY07 revenues.

The company is expanding its helical submerged arc welded (SAW) pipe capacity from 400,000 tonne to 550,000 tonne a year, and adding 300,000 tonne a year capacity as well in longitudinal SAW pipes from the current 350,000 tonne by FY09.

The company will also reduce its dependence on suppliers once its 1.5 million tonne special steel plate manufacturing capacity comes on stream by the end of FY08.

The stock has appreciated nearly 40 per cent in the past three months as investments in the oil sector are expected to remain healthy. At Rs 339, Welspun trades at about 18-19 times estimated FY08 earnings and is likely to be a market performer.