Stock Review: CONTAINER CORPORATION

Container Corporation of India (Concor), the largest player in the domestic container rail freight segment, benefited from strong demand conditions due to an upturn in the country's external trade in the March 2011 quarter. However, in its smaller domestic operations, Concor's overall topline growth was curtailed as more commodities were transported by alternative means after railways hiked the freight charges.

As a result, the company's operating profit margin was broadly flat at 23.4% in the fourth quarter on a year-on-year basis, while net sales rose 4.7% to . 995.4 crore. At first glance, the fourth-quarter sales growth appears modest, but it was faster than in the first half of the financial year ended March 2011. A fall in tax expenses also helped Concor's net profit improve by 16.3% Y-o-Y to . 201.4 crore in the fourth quarter. Going forward, the company's management has forecast a 10% Y-o-Y growth in its sales and net profit for the year ended March 2012, which will be higher than in the four earlier financial years.

Analysts are, however, cautious about the company's growth prospects over the next few quarters. The global economy is grappling with several unfavourable macro-factors, like rising crude oil prices, and their potential impact on the country's external trade, going forward, is unclear.

This, in turn, could make it difficult for Concor to achieve its growth targets, going forward. In addition, intense competition from alternative means of transport, like road, could impact Concor's numbers in the short term. Meanwhile, in its key EXIM segment, the volume of goods transported increased 5.6% Yo-Y to 5.18 lakh TEU (twenty foot equivalent) in the fourth quarter, while realisations improved nearly 1.9% per TEU.

The quarterly results were declared after the close of Tuesday's trade. On Wednesday, the stock dipped 4.4% to . 1,207.4, in contrast to the bullish sentiment on the Street.

Concor trades at a P/E of 18.9 times on a trailing four-quarter basis. We are neutral on the stock.