Money & Banking

Q2 Comment | CONCOR: Weak volume growth is a concern

Keerthi Sanagasetti BL Research Bureau | Updated on November 01, 2019 Published on November 01, 2019

File photo   -  Kamal Narang

The management downsized its guidance for FY20 volume growth to almost nil.

Container Corporation (CONCOR) reported a net loss of Rs 322 crore during the quarter ended September 2019, thanks to an exceptional loss of Rs 861 crore. This was essentially the write back of an ineligible claim of the company for duty drawback under the Service Exports from India Scheme (SEIS). But for this one-time write back, the company would have reported profits. However, all is not well as volume growth has become a concern. The company has been operating at 83 terminals out of which 75 are its own terminals. Volumes originating at own terminals, termed as originating volumes dropped by 1.4 per cent in the first half of FY20, while overall volumes dropped by 6 per cent during the same period.

In the post –results earnings call, the management downsized its guidance for FY20’s volume growth to almost nil. In the June quarter’s earnings call, the company had indicated that it would record volume growth of 10-12 pe cent if the economy grew by 6.5-7 per cent in FY20. With drop in GDP numbers, and mediocre performance in 1HFY20, the management expects the volume growth to be flat in FY20.

Logistics volumes generally represent the economic condition in the economy. But the company’s low volumes cannot entirely be attributed to the economic slowdown in the country. CONCOR has also lost market share in the port volumes in the first half of this fiscal. CONCOR’s share fell to 61.4 per cent from 73.1 per cent in 1HFY19. The drop of 11.7 percentage points in market share was largely due to volume share lost to Railways in Mumbai and Mundra ports.

What went well?

Despite the huge drop in volumes, revenue for the quarter declined by only 5 per cent y-o-y to Rs 1,739 crore. This can predominantly be attributed to a 5 per cent increase in its freight charges being levied from its customers from April this year.

This coupled with increase in their average lead distance- from 773 km in 2QFY19 to 786 km in 2QFY20, lead to margin expansion. The EBITDA margin from EXIM division- that contributes 78 per cent of revenues- inched up to 23 per cent in 2QFY20 from 22.4 per cent in 2QFY19.

The Centre’s announcement on corporate tax cut, also came in as a blessing to the company. By adopting the flat rate of 22 per cent, CONCOR saved almost one third of its cash flows on taxes paid. While the tax paid in Q2FY20 was Rs 33 crore, the same was Rs 92 crore in the year ago period.

Published on November 01, 2019
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