Weak business outlook overshadows Concor’s strong Q4 margin performance


Shares of Container Corporation of India Ltd (Concor) lost about 3% in Monday’s trade after the management warned about a steep fall in business volumes in current fiscal FY21.

Revenues in March quarter (Q4 FY20) dropped 10% reflecting a 3.85% fall in business volumes. But thanks to lower rail freight charges and expenditure, operating earnings grew by an impressive 24%. Profit margins expanded 8.4 percentage points expansion to 30%, exceeding Street estimates.

The management has warned that business volumes could fall 20% in current fiscal.

Market share gains are helping railways mitigate the impact of sharp slowdown in container trade. The fall in export-import (Exim) container rail trade, where Concor is the market leader, is notably slower than the fall in container volumes at major ports in April and May. Still, the management guided for a sharp fall in business volumes.

“Management has guided for 20% volume decline in FY21, which seems very cautious. Based on Indian Railways data, our assessment is ~15% volume decline,” analysts at Edelweiss Securities Ltd said in a note.

Perhaps, the cautious commentary underscores the weak outlook for Exim trade. Some fear prolonged restrictions on urban centres and economic slowdown may crimp trade volumes.

“Management mentioned that, even though ports and logistics have been functional during the lockdown, there will be an impact as clients have not necessarily taken timely offtake given weak demand and also a lack of road transportation for last-mile connectivity,” analysts at Jefferies India Pvt. Ltd said in a note. “Guidance is based on an expectation that India’s export-import trade is likely to be down 30% YoY in FY21E, and Concor will outperform the market as rail gains some share from roads.”

Rising costs is adding to the concerns of the company. Indian Railways revised the amount it charges Concor for using its land for terminals. According to analysts the revised policy pegs the Concor’s annual fee liabiloty at 450 crore against 150 crore in FY20.

Many fear the sharp rise in land license fee in a weak business volume environment can adversely affect Concor’s operating leverage negating some of the March quarter’s margin gains. “While we like Concor’s market leadership (the biggest beneficiary of the upcoming dedicated freight corridor), we are constrained by its expensive valuation (14.2x FY22E EV/EBITDA) amid macro headwinds and weak profitability,” analysts at JM Financial Institutional Securities Ltd said in a note.

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