Container Corporation (CONCOR) 1230

Transcription

1 Result Update Rating matrix Rating : Buy Target : 1460 Target Period : 12 months Potential Upside : 19% What s changed? Target Unchanged EPS FY17E Changed from 41.9 to 39.8 EPS FY18E Changed from 47.4 to 46.4 EPS FY19E Changed from 66.5 to 65.2 Rating Unchanged Quarterly performance Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%) Revenue 1, , , EBITDA (5.6) EBITDA (%) bps bps PAT (9.6) Key financials Crore FY16 FY17E FY18E FY19E Net Sales 5,743 5,444 6,285 7,296 EBITDA 1, ,257 1,532 Net Profit ,272 EPS ( ) Valuation summary FY16 FY17E FY18E FY19E P/E (x) Target P/E (x) EV / EBITDA (x) P / BV (x) RONW (%) ROCE (%) Stock data Particular Amount Market Capitalisation ( Crore) 24,176.3 Total Debt (FY16) ( Crore) - Cash and Investment (FY16) ( Crore) 1,107.3 EV ( Crore) 23, week H/L 1544 / 1055 Equity Capital ( Crore) Face Value ( ) 10.0 Stock Return 1M 3M 6M 12M Container Corpn Gati Gateway Distr Transport Corp Research Analysts Bharat Chhoda bharat.chhodal@icicisecurities.com Ankit Panchmatia ankit.panchmatia@icicisecurities.com February 15, 2017 Container Corporation (CONCOR) 1230 Volume growth consistent; earnings to follow Revenues for Q3FY17 sequentially de-grew 3.5% (down 5.3% YoY) to crore (I-direct estimate: crore). The sequential growth was mainly impacted by Exim segment, which de-grew 7% YoY (down 6% QoQ) to 1058 crore. The de-growth was partly moderated by flattish growth (up 9% QOQ) in domestic revenues, which was at 272 crore. Exim now contributes 80% to total revenues (vs. earlier 82%). However, contribution from domestic inched up to 20% of total revenues (vs. earlier 18%) Volumes for the quarter continued to recover for a third consecutive quarter with growth of 9% YoY (vs. our estimate of 7%) to TEUs. Volume growth was mainly contributed by Exim, which grew 10% YoY to TEUs. Domestic volumes grew 5% YoY to TEUs. Lead distances continue to decline due to a shift of traffic to Mundra from JNPT following which growth in volumes did not translate to revenue growth Lower empties on account of volume growth, coupled with benefits of double stacking resulted sequential revival of 300 bps in EBITDA margins to 19.7% (I-direct estimate: 18%). However, administrative & other expenses remained elevated (up 7% YoY). Subsequently, absolute EBITDA grew 14% QoQ (down 5.6% YoY) to crore (Idirect estimate: crore) Higher than expected operational performance and growth in other income (up 3% YoY) were impacted by increase in depreciation (up 9% YoY). Subsequently, PAT de-grew 10% YoY to 186 crore (I-direct estimate: 172 crore) The company has announced bonus of one share for every four shares held. In addition, an interim dividend of 9.6/share was announced Recovery in volumes, lead indicator for earnings revival Concor s container volumes for 9MFY17 grew 5% YoY to 2.29 million TEUs compared to 2.18 million TEUs. With a slew of measures by IR volumes in terms of withdrawal of port congestion surcharge, scheduled freight trains, Concor s overall (Exim + domestic) volumes saw a reversal in FY17. The synergies from Kathuwas have accelerated with terminal handling ~ TEUs in 9MFY17 vs TEUs in 9MFY16. The management targets FY19 volumes from Kathuwas at ~ TEUs. Double stacking at Kathuwas for 9MFY17 was at 541 rakes vs. 301 rakes in same period previous year. Subsequently, the quarter realised more pronounced running in double stacking which contributed in margin improvement. We expect cost efficiencies to bring in better competitive advantage for Concor. Subsequently, we expect revenues, PAT to grow at a CAGR of 8%, 17%, respectively, in E. Phased transition; DPD, DFC, MMLPs; exciting times ahead Concor is evolving with JNPT s push to de-congest implementing direct port delivery (DPD) facility. This enables imports to be delivered directly to pre-approved clients instead of waiting in a container freight station for clearance. In addition to the same, Concor has commenced operations at five out of 15 planned MMLPs. However, phase-1 of all such facilities is expected to contribute in FY18. Expected revenues are likely to scale up in the form of five revenue streams akin to ICD, warehousing, commodity and automotive handling, and private freight terminal (PFTs). GST implementation coupled with DFC commencement would enable its ramp-up. We roll over our EPS estimates to FY19E at We maintain BUY rating with a P/E of 22x & target price of ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY17 Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%) Comments Revenue 1, , , , Lead distance declined to 799 km vs. 901 km in Q3FY16. Shift of traffic to Mundra from JNPT impacting the lead distances Employee Expenses Terminal & other Expenses Administrative Expenses Total Expense 1, , , , EBITDA EBITDA Margin (%) bps bps Lower empties resulted in sequential improvement in margins Depreciation Interest Other Income PBT Total Tax PAT Key Metrics Q3FY17 Q3FY16 YoY(%) Q2FY17 QoQ (%) EXIM Volume (TEUs) 660, , , Exim volumes grew for a third consecutive quarter Domestic Volume (TEUs) 116, , , Domestic added to the overall volume growth Change in estimates FY16 FY17E FY18E FY19E ( Crore) Old New % Change Old New % Change Old New % Change Comments Revenue 5, , , , , , , Re-alinging numbers according to 9MFY17 performance EBITDA 1, , , , , , EBITDA Margin (%) bps bps bps Margins to remain sticky PAT , , EPS ( ) Assumptions Current Earlier Comments Unit FY16 FY17E FY18E FY19E FY17E FY18E FY19E Exim Volume TEUs 2,475,868 2,595,732 2,725,518 2,861,794 2,547,228 2,674,589 2,808,319 Revival in volumes adjusted Domestic Volume TEUs 448, , , , , , ,210 Domestic volumes to grow post implementation of MMLP's Exim Realisation /TEUs 18,729 16,884 17,962 19,110 18,073 19,223 20,446 Realisation to remain subdued Domestic Realisation /TEUs 24,665 24,033 25,938 28,076 24,890 27,759 30,047 Realisation to remain subdued ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Exim volume growth shows traction; consistency remains key Exim volumes form ~85% of Concor s total revenues. Exim volumes grew at ~7% CAGR in FY10-15 with FY15 seeing robust growth of ~12% YoY. However, imposition of port congestion charge and hike in haulage charges resulted in a dampener for Concor s volumes, which de-grew 6% YoY. During the quarter, a variety of Indian rail initiatives like running time tabled freight trains, abolition of port congestion charges resulted in higher rail competitiveness over road. Post four consecutive quarters of de-growth in Exim volumes, Concor s Exim volumes for Q2FY17 grew for a second consecutive quarter by 4% YoY, indicating a reversal. The company s port wise share was at 38% at JNPT, 28.3% at Mundra, 17.6% at Pipavav and 6.3% at other ports. Going ahead, we expect Exim volumes to grow at 4% CAGR in FY16-19E. Newer ports coupled with better efficiency at private ports would support the growth rationale. Exhibit 1: Exim container volume 3,500 3,000 2,500 2,000 1,500 1, Q2FY Q3FY Q4FY Q1FY16 2,136 Q2FY16 2,152 Q3FY16 2,361 Q4FY TEUs 2,640 2,476 2,596 2,726 2,862 Q1FY17 Q2FY17 Q3FY17 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Domestic volumes see steep recovery post subdued FY17... Over FY11-16, domestic cargo volumes had been a laggard and de-grew at a CAGR of 3%. However, H1FY17 volumes comprise the downward trend with de-growth of 3% YoY. We believe that post two consecutive year of de-growth, the revival in domestic volumes would see a sharp recovery. De-congestion of road and promotion of coastal shipping would enable higher movement of containers via rail. In addition to the same, the lower base would result in 10% CAGR in volumes for domestic containers in FY16-19E. The same would be accompanied by improvement in handling and inter port transfers. Exhibit 2: Domestic container volume TEUs Q1FY15 Q2FY15 Q3FY Q4FY Q1FY Q2FY Q3FY Q4FY Q1FY Q2FY Q3FY17 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E ICICI Securities Ltd Retail Equity Research Page 3

4 Dedicated freight corridor FY19 seems to be reality Dedicated freight corridors (DFC) proposed by Indian Railways are expected to bring in a significant improvement in the way freight business is carried out. By modifying basic design features, IR is expected to double its existing carrying capacity by withstanding heavier loads at higher speeds. Furthermore, with enlarged infrastructure, the DFC would optimise productive use with upgraded dimensions of rolling stock, which would enable longer and heavier trains to ply on the same. The total project cost is ~ 81000, out of which crore pertains to land; crore relates to interest during construction (IDC) and crore towards civil and engineering. Exhibit 3: Proposed Concor terminals on Western corridor DFCCIL has accelerated its development around Western and Eastern DFC. It has addressed key issues of land acquisition, especially for western DFC (WDFC). It expects to have full land under control by Q1FY17 (87% now). With the use of automatic track laying machines on dedicated freight corridors, work is expected to get expedited on freight corridors. Subsequently, it aims to lay around 6000 km of tracks using these new machines. Contracts worth crore are already awarded and balance contracts of crore are expected by Q4FY17. ICICI Securities Ltd Retail Equity Research Page 4

5 Revenue visibility concrete post commencement of MMLPs Concor s revenues grew at 8.5% CAGR in FY11-16 as container volumes remained sluggish, except However, going ahead, with an improved market share in private ports such as Mundra and Gujarat Pipavav we expect volumes to improve. Further, we believe the government s Make in India campaign will perk up trade volumes for exports. In turn, we expect Concor revenues to grow at a CAGR of 10% over FY15-19E. On the back of a revival in volumes and higher utilisation levels, operating margins are expected to grow faster by 13% in FY16-19E vis-à-vis CAGR of ~7% in FY As EBITDA margins have remained under pressure over the years due to a steep increase in freight rates by railways, going forward, we believe hikes will pause, thereby allowing the company to stabilise its margins. Also, introduction of double stacking and hub & spoke model for its operations is expected to provide further scope to improve margins (in the range of 20-23%) in future. Further, introduction of PFTs is expected to improve earnings of the company in future. Consequently, PAT is also expected to post a CAGR of 18% in FY16-19E against 6% in FY Exhibit 4: Pan-India presence of 64 terminals; new terminals / MMLPs proposed around (DFC) Source: Company website, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 5

6 Key takeaways from annual report Cargo volumes for Indian Railways in FY16 marginally grew 0.6% YoY to million tonnes (MT) compared to MT in FY15. However, originating containerised cargo transported by rail declined 5.5% YoY to MT compared to MT in FY15. Subsequently, Concor s volumes for FY16 also declined 7% YoY to 33.4 MT (72.3% of the IR containerised freight) vs MT (74.1%). On a TEU basis, the handled volumes for FY16 de-grew 6% YoY to 2.9 million TEUs compared to 3.1 million TEUs in FY15. Domestic volumes led the decline with 8.4% YoY de-growth. However, Exim volumes also declined 5.55% YoY Exim trade was impacted by a subdued international trade scenario leading to heavy import export imbalances. However, domestic trade continued to be impacted by lower agricultural produce and decline in purchase manufacturing index (PMI), which indicates low offering of manufactured goods. However, on the costs side, stiff competition from roads due to a reduction in diesel costs coupled with a rise in rail freight costs impacted the competitiveness of rail. The inland penetration of containers from Ports to hinterland by rails was around 19%, which was quite lower due to various trade related reasons including high haulage costs involved in rail based multimodal transportation Affirming its confidence in the revival of the economy, Concor, in FY16 has incurred a capex of ~ 779 crore, directed towards capital expenditure on creation of new terminals, expansion of existing ones and acquisition of 360 BLC wagons For FY16, Concor s major focus was to diversify the business and develop multi modal logistics parks (MMLPs) to offer multi-modal logistics solutions. Subsequently, it has taken major initiatives for expansion of its infrastructure and development of many MMLPs across India. During FY16, MMLP at Khatuwas (one of the largest) was inaugurated and MMLP at Pantnagar (subsidiary M/s SIDCUL Concor Infra Company Ltd) has commenced operations. These additional investments are expected to augment Concor s handling capacity substantially Concor continue to be the preferred logistics partner for providing end-to-end logistics services. It has formed a number of alliances/jv with government companies, state industrial corporations and newly emerging ports so as to augment the business prospects. The total dividend payment for will be crore compared to crore (excluding dividend tax) for FY15, which is an increase of 0.74% over previous year. The dividend for the year works out to 33.45% of PAT of the company for the year For FY16, Government of India (GoI) divested a 5% stake ( shares) in Concor at 1185/share, which realised ~ 1155 crore for the government. Subsequently, revised shareholding of the government in Concor is now at 56.79% compared to earlier 61.80% Concor s fully owned subsidiary M/s. Fresh & Healthy Enterprises (FHEL), which provides complete cold chain logistics solutions incurred a net loss of 26 crore for FY16 (vs. loss of 14.5 crore in FY15). As on FY16, accumulated losses of the company were at crore. Another subsidiary of Concor, Concor Air Ltd (CAL), earned a profit of 15 crore for FY16 ICICI Securities Ltd Retail Equity Research Page 6

7 Outlook and valuation In , Concor registered robust growth with revenues posting a CAGR of 21% along with EBITDA and PAT also posting CAGR of ~22% over the same period. However, post the financial crisis of 2008, Concor was also severely impacted and has been trying to recover its growth with revenue CAGR of ~7% in EBITDA posted nominal growth of 3% and PAT of 4% CAGR during the same period. The decline in growth rate can be attributed to sluggish economic conditions; growing competition from roadways/new entrants in CTO and incessant fuel price hikes. As a result, the average EBITDA margin declined from 29% in to 25% in with the lowest margin in FY14 of 21.1%. Going ahead, with FDI in rail and projects such as dedicated freight corridor and Goods and Services Tax (GST) on the priority list of the government, we expect Concor s growth and margins to recover more rapidly. Consequently, we envisage revenue CAGR of ~10% in FY16-19E. This is expected to be followed by a gradual restoration of EBITDA margin to 20-23% levels in FY16-19E. Hence, this may lead to EBITDA and PAT growth at a CAGR of 13% and 18%, respectively over FY16-19E. As GST and DFC are expected to roll out in FY17 and FY19, the near term volume growth for Concor is expected to grow at a CAGR of 5% in FY16-19E, thereby leading to revenue CAGR of 10% in the same period. Also, PFTs becoming operational in due course of time are expected to add another revenue line for Concor. Further, any near term risk of adverse freight rate movement is expected to be mitigated by higher Exim volume generation. Accounting for weakness in H1FY17, we have tapered our earnings and margins estimates for FY17. The recovery in volumes is longer than expected. We expect FY19 to witness a marked recovery in earnings. Following its leadership position, we continue to expect positively surprises to our estimates, post which we would further revise our guidance. Given the company s leadership position, debt free status, strong balance sheet and superior cash flow we roll over our estimated to FY19 and assign a P/E multiple of 22x FY19E EPS of 65.2 to arrive at target price of We maintain BUY recommendation on the stock. Exhibit 5: PE trend Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-15 Jun-16 Jan-17 Close -Unit Curr 10.0 X 15.0 X 20.0 X 25.0 X 30.0 X ICICI Securities Ltd Retail Equity Research Page 7

8 Recommendation History vs. consensus estimate ( ) 2,000 1,800 1,600 1,400 1,200 1, (%) Apr-15 Jul-15 Sep-15 Dec-15 Feb-16 Apr-16 Jul-16 Sep-16 Dec Feb-17 Series1 Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Feb-08 Concor NYK to set up JV company May-09 Q3FY12 profit up 13.9 % YoY; forthcoming Rail Budget keeps stock in focus Jan-11 Concor TCI plan to set up JV company Infinite Logistics Solutions Ltd for ocean freight carrier service Jul-11 Concor halves capex plans as Exim business is plagued by cargo imbalance Feb-12 Concor plans to set up three logistics parks in West Bengal and further plans to set up 15 such parks across the country; Q1FY12 result profit up 5% Jul-12 Competition panel absolves Concor of abusing its position in container train operator segment Aug-12 9% hike in haulage charges by railways Jan-13 Cut in rail freight and stabilisation of container volumes; the freight rate cut varies between 5% and 13% after steep 31% increase in February 2013 Apr-13 Concor announces 1:2 bonus issue; Q1FY14 number disappoints Jul-14 Concor promoted to Navratna status from Miniratna Jul-15 Announces Q1FY16 results with lower than expected operating performance Oct-15 Announces Q2FY16 resutls; margins continue to be pressured, topline in-line with expectation May-16 Announces Q4FY16 results with lower than expected operating performance. Domestic volumes recovered; EXIM continue to remain soft Aug-16 Announces Q1FY17 results. EXIM volumes grew (up 3% YoY) post de-growth over four consecutive quarter. Domestic volumes de-grew by 4% Nov-16 Announce Q2FY17 results. EXIM grew for the 2nd consecutive quarter. Domestic volumes flattish. EBITDA margins impacted by land licence fees Feb-17 Total volumes for Q3FY17 grew by 10%. Decline in lead distances continue which led to de-growth of 5% in revenue. Margins stood at 19.6% Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Government of India 7-Oct Matthews International Capital Management, L.L.C. 30-Sep Aberdeen Asset Management (Asia) Ltd. 30-Sep LIC Mutual Fund Asset Management Company Ltd. 30-Sep ICICI Prudential Asset Management Co. Ltd. 30-Sep GIC Private Limited 30-Sep Monetary Authority of Singapore 30-Sep IDFC Asset Management Company Private Limited 31-Dec Tata Asset Management Limited 31-Dec FIL Investment Management (Hong Kong) Limited 31-Oct Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Stewart Investors Aberdeen Asset Management (Asia) Ltd Kotak Mahindra (UK) Ltd T. Rowe Price International (UK) Ltd Canara Robeco Asset Management Company Ltd City National Rochdale, LLC Lloyd George Investment Management (Hong Kong) Ltd DSP BlackRock Investment Managers Pvt. Ltd Amundi Asset Management Singapore Ltd Matthews International Capital Management, L.L.C Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8

9 Financial summary Profit and loss statement Crore (Year-end March) FY16 FY17E FY18E FY19E Revenue 5, , , ,296.3 Growth (%) Terminal/Other Service charge 4, , , ,253.3 Employee Cost Administrative & other exp Op. Expenditure 4, , , ,764.1 EBITDA 1, , ,532.2 Growth (%) Depreciation EBIT ,149.3 Interest Other Income PBT 1, , , ,702.3 Growth (%) Tax Reported PAT ,271.6 Growth (%) Adjustments Adj. Net Profit ,271.6 Cash flow statement Crore (Year-end March) FY16 FY17E FY18E FY19E Profit after Tax ,271.6 Add: Depreciation Add: Others 50.6 (26.5) (1.5) (4.2) Cash Profit 1, , , ,650.3 Increase/(Decrease) in CL (12.3) 72.1 (112.9) (135.8) (Increase)/Decrease in CA (48.5) CF from Operating Activities 1, , , ,525.0 Purchase of Fixed Assets (339.2) (1,637.8) (789.1) (770.1) (Inc)/Dec in Investments (2,046.7) (231.8) Others CF from Investing Activities (2,385.8) (1,012.4) (188.9) (1,001.9) Inc/(Dec) in Loan Funds Inc/(Dec) in Sh. Cap. & Res Others (236.1) (232.7) (271.3) (381.5) CF from financing activities (236.1) (187.9) (264.3) (373.2) Change in cash Eq. (1,480.6) (44.7) Op. Cash and cash Eq. 2, , , ,783.8 Cl. Cash and cash Eq. 1, , , ,933.9 Balance sheet Crore (Year-end March) FY16 FY17E FY18E FY19E Source of Funds Equity Capital Reserves & Surplus 7, , , ,078.6 Shareholder's Fund 8, , , ,273.6 Minority Interest Loan Funds Deferred Tax Liability Provisions Source of Funds 8, , , ,583.4 Application of Funds Gross Block 5, , , ,923.0 Less: Acc. Depreciation 2, , , ,313.1 Net Block 2, , , ,609.8 Capital WIP Total Fixed Assets 3, , , ,066.6 Investments 4, , , ,305.6 Inventories Debtor Cash 1, , , ,933.9 Loan & Advance, Other CA Total Current assets 1, , , ,250.6 Current Liabilities Provisions Total CL and Provisions ,039.5 Net Working Capital , ,211.1 Application of Funds 8, , , ,583.3 Key ratios (Year-end March) FY16 FY17E FY18E FY19E Per share data ( ) Book Value Cash per share EPS Cash EPS DPS Profitability & Operating Ratios EBITDA Margin (%) PAT Margin (%) Fixed Asset Turnover (x) Inventory Turnover (Days) Debtor (Days) Current Liabilities (Days) Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) PE Price to Book Value EV/EBITDA EV/Sales Leverage & Solvency Ratios Debt to equity (x) Interest Coverage (x) NA NA NA NA Debt to EBITDA (x) Current Ratio Quick ratio ICICI Securities Ltd Retail Equity Research Page 9

10 ICICIdirect.com coverage universe (Logistics) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E Container Corporation 1,230 1,460 BUY 23, Transport Corp (TRACOR) Hold 1, BlueDart 4,170 5,500 BUY 9, Gati Ltd BUY 1, Gujarat Pipavav (GPPL) BUY 7, ICICI Securities Ltd Retail Equity Research Page 10

11 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11

12 ANALYST CERTIFICATION We /I, Bharat Chhoda, MBA and Ankit Panchmatia, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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