Container Corporation of India Limited (CONCOR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the CONCOR Q1 FY '23 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisor Limited. Thank you, and over to you.

Thanks. Good morning, everyone, and a warm welcome to the Q1 FY '23 earnings call of Container Corporation of India. We have the management being represented by Mr. V. Kalyana Rama, Chairman and Managing Director and his entire team. I'll hand over this call now to Mr. Rama for his initial remarks. Post which, we'll open up the floor for questions. Over to you, sir.

Thank you, Bhoomika. Good morning to all of you. I'm sorry, today, I'm not having a -- I have little sore throat. So please kindly listen carefully because I cannot speak more louder than this. We had good set of numbers on the Q1. We had very good growth in domestic sector. We had almost 30% growth. And compared to the last corresponding quarter, I think it's more than 85% growth. However in EXIM trade, which is more dependent on the exporting Board of India, there's a slight dip in numbers. Still the imports has not yet picked up. And exports, of course, doing very well. So a lot of MT repositioning is happening. And our scheme which we have given last year to bringing in MTs into the inter land is working very well. This year, we -- and we note that -- and in the beginning itself, we announced it for the entire year, and all the stakeholders, shipping lines, exporters, importers, particularly the exporters, are taking good advantage of it. A lot of empty containers are coming into CONCOR SCDs and exports are taking place. There are a lot of geopolitical factors as I think in the business. All of us know these geopolitical factors, which are affecting our business. However, now I think the things are looking up. From July onwards we are seeing some good headwinds. And hopefully, the situation will improve. The domestic market is definitely very good within India. Even with all the commentaries we are hearing on day-to-day basis from across the globe. Indian story is good. The growth story of India is good. So the domestic demand, we are not seeing any problem in that. We are very sure about domestic segment growth. And EXIM segment also, we are hopeful that we will be able to achieve growth in that until the end of the year. On the revenue side, we are definitely getting growth. And our margins are also able to maintain, and our profit in absolute numbers were increasing because we did some price increase at the beginning of this year in the -- particularly in the handling income. That is giving more revenue to us. And the handling has got a good margin. On freight rates, there is increase in when the rail haulage by the Indian Railways, we just passed on that. Take some time to pass on. So there were some effects in the first quarter numbers, but that will not be there in the subsequent quarter because that is already passed on to the customers. We are working on particularly 2, 3 trains because all of us know that we work with good margins, and we try to maintain these margins. Of course, there's competition. So competition is working at very low margins. Sometimes may be negative margins, and then they do some breakeven analysis and breakeven margins they work on. So to withstand this competition to maintain our share and to improve our numbers, we are working on a different strategy, which we adopted 2, 3 years back. And we are going ahead with that, and we are now almost adding new things to it. And we are sure that this will be a reward to us. One is the digitization -- more of digitization and some improvement as well as the company, including customer value creation in the forefront. So in that almost we are there 95%. This year, we'll be adding the artificial intelligence-based system on a trial basis at Tughlakabad very soon, which will be giving the customer a real-time experience of the cargo handling and cargo movement at ICD on both export/import side and the domestic side. So this very soon, we are starting. And replicating that will be very fast at all the reports. This will be giving a completely different dimensions towards customer experience. Second, we are looking at asset utilization -- improving asset utilization. With regards to the geopolitical factors, the addition of new assets is a challenge now. So we are working on asset utilization assets. Improve upon the movement of the containers raise in our depots and the [indiscernible]. Now we are introducing shunting locos, all our major terminals in the first phase and all the terminals in the second phase. And these phases fronts will be completed within a year's time, both the terminals. Every depot will have its own shunting unit, which will reduce the detention in the depot to a large extent. That includes the asset utilization. And we understand the asset utilization improvement will increase the margin to a very -- great extent. The same asset, we will be able to handle more of that. And third aspect, which we are working now for the last 2 years and we are continuously doing it right now also, is the addition of high-capacity rigs and high-capacity containers in domestic. This is going on -- ongoing process. And in high capacity rigs, as of now, we already introduced 31 rigs. And the total addition in this will be, as I mentioned to you earlier, 270 rigs out of the 31 already done. And in this year, we are aiming to introduce -- we thought of introducing more rigs, but there are certain issues with the Railway level -- least availability in India because there's only one government factory producing wheels. Now the government has legalized the scheme. So we are now going for import of these railway usage. We will be adding continuously, and this will be there. This is the whole demand forecast given -- based on that, we have gone from this program. Container procurement, again, we are developing the container manufacturing in India. Very positive steps are taken. And very soon, we will start getting the containers manufactured in India. Maybe by the month of October, November, we start adding new containers to our equity. And the total others, we are already leased approximately 8,000 containers, and we are going to release another 10,000 containers in this year. And also, we got further program to release this -- the confidence we have on the growth prospects in domestic sector. And also, if required, we'll utilize these containers for the short sea transport in the EXIM sector on a point-to-point basis, which we already did last year for sending rice to Iraq, which we did very successfully with very good margins in that. And we could get that -- all the containers back. So it was a very successful trend. So we would like to look at these in future also. For that also we need containers. So this is -- the asset utilization side and new quality assets, which we are introducing into the company. And the infrastructure addition is a continuous process that it is going on, and more depots are under construction. They will be starting very soon. Public Multimodal Logistic Park first phase, which is already the rail connectivity is completed, then it will start working very soon. At Kalinganagar, very soon we will be commissioning. And the other places where we are working on, the work is progressing. And those things will be continuously getting added to the infrastructure space. Other thing, which we were -- I was discussing and there was a break in that because of the COVID situation, that is the distribution logistics. Now, again, that is taking traction. And we are hopeful in this financial year, we will be able to start the distribution logistics business in the PPP mode and to start with maybe -- there will be -- 2 places we will be starting this business. This is how the scenario is. And as I had given the forecast in the beginning of the year, we'll be looking at 10% to 12% growth, both in volumes as well as in top line, bottom line. And I'm sure that we are on track towards that. Thank you.

[Operator Instructions] The first question comes from the line of Mukesh Saraf from Spark Capital.

First question is on pricing actions, sir, that you might have taken. Could you give some sense on, especially with the empty container discounts now reduced further timing delay to 10%. What kind of pricing actions you have taken in the past quarter? And in this current quarter, what can we expect?

Yes. Railway has actually recently reduced the compression from 15% to 10%. So we have -- while revising our tariff for empty containers during the last quarter, as our CMD has already mentioned, we have already taken care of that. And we revised the tariff taking into account no discount from railways. So in the future also they will reduce from 10% to 0%. Already, it has been taken care of.

Okay. This price revision is already reflecting in our numbers, or it takes some time for these contracts -- when they come up for renewal, this will start taking effect, sir?

This price actually we had effected from 1st of June. So for the -- for this quarter -- first quarter, 1 month we had the -- we can see the effect of this price increase.

Okay. So all customers it's come into effect immediately from the date you put in that increase?

Sorry?

No, sir, in the past, what we had understood was that it takes time for it to take effect because all customers -- it doesn't immediately reflect in their prices. It takes time. Some customers come up for renewal...

It has been taken -- done.

Okay. Okay. Okay. What was the rail freight margins, sir, this quarter?

So rail freight margin has come down a little bit because of legal side doesn't want -- by the way it is 25.60% for this quarter.

25.6%.

6-0. Great set margin.

And -- right, sir. Right, sir. Understood. And my second question is regarding the...

Go ahead. Go ahead.

Sir, on the DFC, we have seen this year partial operations in effect, and we have seen benefits for CONCOR and general container train operators with respect to turnaround time, et cetera. So would you have a sense on what percentage or what proportion of volumes would have already moved from road to rail based on what we have seen so far. And say, in the coming year, FY '23, FY '24, what more we can see on that?

We'll review that flavor a little later because still DFC operations are settling down. Feeder lines are still not giving the desired transits. So we will work on that once we get used to all of these things.

Right. But this year we expect that feeder lines et cetera to come into play, sir, come in to effect?

It is already there, but there are certain issues, which needs to be addressed. So it will take time. So then we will settle down.

Next question comes from the line of Gaurav Birmiwal from Credit Suisse.

Sir, can you throw some light on why the LLF amount that you provided has come down in the quarter? It's INR 95.6 crores this quarter versus last year 1Q given INR 113.8 crores -- you provided for this last year.

So if you recall, last year, in the beginning, we had told that we'll be aiming in -- providing for INR 450 crores because last year was the first year when we started having the rates from all the stake for lands in the different parts. So in last year's INR 450 crore, we have around INR 70 crores of provision there. This year because things have settled down, we are not making any provisions. We are booking on the actual basis. So what we have booked this year is the actual that we pay to the railway, meaning thereby we are not keeping any provisions in this year apart from what we have actually paid to them. I hope I answered.

Yes, sir. That's quite helpful. Sir, can you just share the rail cohesion number and your market share?

Rail cohesion, the LNPT for the first quarter was 18.48%, and our share was 60%. So if we take out the short lead movement done by PCT, our share become 78%. Mundra Port rail commission was 26.45%. Our share was 42%. Pipavav is about 71%. Our share was 49%.

The next question comes from the line of Vasudeva Parekh, an Individual Investor.

My question is regarding the triple stack dwarf containers, which was carried out in January, actually. Would you like to throw some light regarding this, sir?

We are not using any dwarf container, and we have no intention of going for dwarf containers.

Okay. Sir, my second question is regarding the bus transport of cement. As we are transporting the cement of Bharathi Cement, are we in touch with some other big players of this industry also?

Yes. We are in touch with all the cement players, and everybody will come into this. They are just going to set their ecosystems to adopt this factory. So very soon, another manufacturer in South is going to start. This month itself we will start. And big players also are working on their ecosystems to start this. This is going to be a game changer. Nobody is not -- will be out of this. Everybody will get adapted this.

[Operator Instructions] Next question comes from the line of Lokesh from Prosperity Wealth.

Congratulations on a good set of numbers. I have 2 quick questions. We would like to know the update on strategic divestment. What would be the expected timing for the divestment to play out? Let's say, 12 months, 24 months? Any time line on that?

So the official line is only that, yes, it is on core. But regarding time lines, we are not in line to give any confirmation because the move can come only from DFAM or the western railway.

Okay. Good. My second question is on the land pricing scheme. Earlier CONCOR had planned for going long-term lease arrangement with single payment. Could you provide us any updates on that front?

So those discussions are already there. The movement any change in the tariff rate or any kind of new policy comes down from Cabinet approval and from Ministry of Railways, yes, the company is looking forward to it that many of the land partners or all the land partners can be taken. And it will give us a clarity also. And we have got into fund that CMD already discussed in the last concall that we have got our own reserves and getting financed also. So that offer is there, but it will require only when some clarity comes from the ministry.

From the ministry, okay, sir. Could you provide any time lines on it, like 2 years, maybe maximum, something like that?

Time line, you have to ask Ministry of Railways and government.

Next question comes from the line of Deepika Mundra from JPMorgan.

Sir, just a couple of things. Sir, what is the double stack volume during the quarter? And what was the share of cement in the domestic sector?

Yes. We'll track -- actually, we moved on 1,145 -- 1,145 double-stack trains total, which is a growth of 42% as compared to the corresponding quarter of last financial year.

Yes. Basically, in the cement, what we are aiming now for the bulk cement, which is just a commercial started, which is sharing not much. Other than that, we run some cement also, which share will be not much, but we run on both piecemeal as well as on the full rig basis, but that is not much now.

Next question comes from the line of Ashish Shah from Centrum Broking.

Sir, could you help us with the originating volumes for this quarter for EXIM and domestic?

Yes. Originating volume for EXIM for this quarter were 197,222 BU, and domestic 106,271 BU.

106,271. Right. Sir, second is, could you help us with the empty running cost for the quarter?

Empty running cost for EXIM was INR 50.40 crores. And domestic...

Sorry, I missed the number. Sorry, sorry. You got cut, sir. Please?

INR 50.4 crores, domestic, INR 63.84 crores.

Sure. Sir, just to clarify, on the analyst provision, you said that out of INR 450 crores, you had -- I mean you had INR 70 crores of provision. So just to simplify this, can you give us a number for LLF that you expect for '23?

It should be around INR 370 crores as of now that we have planned. But as you know, the last question you heard that there is a long wave going about regarding refixing of the rate, and they are all kind of talk. So that gives an indication that we are not also stepping any clear up in this, and numbers may go down also. As I mentioned, we have put the figures on the actual basis what we paid for Q1. Like last year where we paid -- we played very safe, and we kept some cushion also. That cushion unnecessarily we are not keeping this year. If you take the numbers, yes -- if you take the numbers, then somewhere we'll be landing up around INR 370 crores, INR 380 crores.

Next question comes from the line of [indiscernible] from JPMorgan.

Sir, just want to understand, you had retained your guidance of 10%, 12% on EXIM as well. But given the weakness that we have seen in 1Q, and also you could speak about some headwinds on the -- in July as well, so just trying to understand where are we seeing some grindge where are we optimistic about?

There is no change in guidance. Guidance will remain the same.

Yes, sir. I get that. I'm just trying to understand if there is a possibility or -- because you did speak about weakness in July as well. So just trying to understand what are the reasons why we are a little optimistic on that trend?

As of now, as at Indian growth story is intact. So we are not revising any guidelines. But yes, there are commentaries like shipping line, Varanasi shipping line is that they are seeing the weakness across the globe. So if those wins will affect the Indian business as well, there may be a little effect. So that's why we wait and see. As of now, we are sure that we'll be able to meet our financial targets very well because of the upward revisions, what we have taken. So we'll be able to do that 10% -- in the top line 10%, in the bottom line, what guidance we have given, we are very sure of that. If numbers improve, then these things will improve.

Is that 10% volume as well on EXIM volumes as well?

That is what we have given guidance. And that is the win -- that wins are not favorable, so even then we are very sure of meeting our financial targets.

Understood, sir. And sir, secondly, on the pricing front, you did speak about passing on the [indiscernible] taken off. So is there any other pricing action that's being take out planned at the moment?

I already told you there are 2 things we did. One is we passed on the rail freight increase driven by the Indian railway. And secondly is that we increased our terminal service -- terminal charges like handling and other charges at terminals, which is giving us additional revenue with good margins.

Sir, is it possible to quantify this?

We don't do that. But it is -- that you can see from the numbers that we have given for the quarter.

Next question comes from the line of Aditya Mongia from Kotak Securities.

My question is related more to domestic segment. Would we be able to provide us with a broad breakup across commodities of your domestic business? The add-on question that I had was on cement and food grains. While you have spoken about cement, is the bulk loading of food grains as big an opportunity? If you could give us some color, that will be very useful.

See, we are basically going through all the commodities traditionally [ good cherry ]. So we don't give the breakup of the quality wise what are the commodity we'll carry on that. But as far as bulk cement is concerned, demand is concerned, that we just started commercial has been successful, and we're seeing very good growth in the bulk cement in the coming days. As far as food grain is concerned, we are moving forward, now mostly on the big food grain. The bulk also, we have made a trial, and we are offering that. And we -- though the volume is not much, but still people are interested to go for this bulk movement and which already is on the process.

Okay, sir. The second question that I had, which was again related to it was that railways. Let's say on the decent amount of money on these 2 commodities, if my numbers are right, close to about INR 18,000 crores every year, now how much can we get out of this portfolio, let's say, over a 3-year perspective?

See, we are not looking at what we are taking out of the railway portfolio. It is we are looking, which is going today by road, how can we divert from road to the centralized import. That is what we are looking for. The bulk cement today is mostly moving by road, that we are trying to convert to the container rail. But what is rail fare, we are not looking for to divert from rail fare to the container.

Next question comes from the line of Ketan Gandhi from CapGrow.

My question was regarding the length of the rake. So basically, prior to DFC, it was told that 700 meters length would be there. And like post DFC, like the length of the length -- the length would be twice. So is there any update on this?

That is what I was answering earlier question about DFC advantages. Still there are some -- with sums to be certain and DFC running has started. We are getting some benefits, not the full benefits. So the length of the train is one such thing, which is not as implemented. We are only doing the normal length of the train, but full length trains, the infant trains was not implemented on the regular track.

The next question comes from the line of Rakesh Sethia from HDFC Mutual Fund.

Sir, just wanted to follow up a question on the LLF. Last year, our LLF booked in the profit and loss account was about INR 465 crores. And if I take out the INR 70 crores of provision, that gives me an LLF of INR 395 crore, which probably you would have paid to the Indian Railway. There was an escalation close of 7% also. If I take that into account, this year's LLF should be about INR 420 crores versus roughly about INR 370 crores, INR 380 crores guided. So I'm just trying to understand, has anything else also changed in this match or I'm missing something?

You are very good at analysis and doing all the numbers, then don't worry too much about and amount. So when my CFO is giving you some numbers, there are certain things, which we will not be sharing with you. We are doing some calculations. We are in discussion with railway. Everything will not be put in their rationale with plus or minus and multiply and divided margin.

Okay, sir. Sir, second question on CapEx. If you could help us understand, what are the CapEx we should be building in for this year and maybe next year?

CapEx is -- program is on -- the CapEx program, as I mentioned in my last call, we are on with that program because that CapEx is towards procurement of the rolling stock and container. So that program is on. Other than that, the distribution stakes, we are going in an asset-light model with PPP mode where we will increase return on capital. So in this CapEx program, there are certain geopolitical issues like we can't procure now containers, so we are developing the container industry in India. CONCOR is doing that, and there is -- for the headwinds from that. So this is what I was discussing. And the rate -- in rate production, the railway sets, there was an issue, and now government has allowed us to import the railways. So we are going ahead with that. So all these actions will take some time, thanks to these actions. We can't do this like switch on, switch off, we can't do this. These things -- with all these things now taking shape, the CapEx will continue. The available CapEx, the spending will be less during this financial year. We are expecting to do around INR 550 crores, INR 600 crores in this year. But the CapEx program for the rolling stock is on core, then it will continue. If not this year, next year, we will get the rakes and we'll get the container.

[Operator Instructions] Next question comes from the line of Abhijit Mitra from ICICI Securities.

I have 2 questions. First of all, in terms of domestic volume accretion, and it's a very impressive accretion quarter-after-quarter. Are there any specific catchment areas which are contributing to this? Or the growth is broad-based? And second is on the EXIM side, we have seen recently train being carried from Whitefield to JNPT [indiscernible] as far as TVS Xtreme Carbide is concerned. So is there a big opportunity which is shaping up for us incrementally? Those are the 2 questions I have.

Yes. Your first question, domestic, it is broad-based. The Indian cargo flows in India are very well-set. Major cargo flow take from east -- west to east, and north to south and some from south to east. So these cargo flows are continuing, and it's a broad-based growth we are getting except that bulk cement what we are talking of. It's a new cargo line. And that we are developing. It will take time. So the infrastructure from our side, we are ramping up. And all the ecosystem on the cement company side, they are working on that. Yes, EXIM is a new trend that the cargo is moving from east to west coast for exports. That's giving us very good lead. And this -- as of now, it looks like that it will continue, but that is not the right thing for the country to be done. So I can't comment on that. But yes, as far as companies concerned, then the leads are concerned, yes, we are getting the business, and we are seeing that, that will continue for this financial year.

[Operator Instructions] Next question comes from the line of Aditya Mongia from Kotak Securities.

In your opening remarks, you did mention about this short sea opportunity linking Iran, and we know of the train that has carried cargo from Russia to India. So just trying to get a sense of the opportunity size that can open up because of the said development.

Aditya, there is a lot of opportunity in this. When we gave the -- like even today, there is demand from the trade asking for containers for the export of rice into Iran and Central Asian countries. And a lot of exports to Bangladesh. So we are rationing that because we got our own equipment program. We got containers. The domestic growth is very high, as we mentioned, 35% growth. So the equipment, we don't want to waste into the circles because domestic is better turnround and better paying proposition as well as compared to this. So we are working on procuring more containers. There are geopolitical issues, as I mentioned. Now we -- unless the container industry develop in India, we can't get containers, that is -- the process is on, and it will take some time. Once we get that, we definitely get into these segments in more [Technical Difficulty] for exports to Bangladesh and Iran and Central Asian countries and also some point-to-point destination. So wherever the opportunity comes, we will be doing those things.

Got that. And all the very best for this opportunity and others. The other question that I had was more linked to the land license fee. Should I assume that in the numbers that are actual, the 6% number, which is on the base, whatever number you have to give, a 7% inflation are all intact when you are thinking through INR 370 crores of LLF for the full year?

I think I sufficiently explained while answering your colleague earlier. We will not be giving you the entire amount of discussions what we are having and what the proposals are going on. So we are giving you some forecast. There are not be much here and there swings that you have to go by the road.

[Operator Instructions] Next question comes from the line of Ashish Shah from Centrum Broking.

Sir, we had in our earlier discussions talked about transit assure operations going up. So could you give us an indication on where we are and how we would have moved over the last 1 year or so in terms of these operations?

Transit assurance has been very well taken by the trade. And in cooperation with the Indian Railways, we are running timetable trains from our depots from Dadri, Katwa, et cetera, to Mundra and Pipavav. And we have been able to diverse sizable number of traffic from road to rail. So -- and even from Chennai -- between Chennai and Bangalore depot also, we are running timetable trains. So this has been well received by trade and help them increase the business for the company.

Right. Sir, could you leave us with any percentage of, let's say, how much percentage of our operations would be on such transit assurance, both on the import and export side?

We keep the number with us, but it will be difficult to share it with you right now.

The next question comes from the line of Bhoomika.

Yes, sir, just a bookkeeping question. If you can just tell us the lead distance for both EXIM and domestic and also the port-wise breakup that you typically give.

Lead for this quarter for EXIM was 674 kilometers. For domestic, it is 1,320 kilometers.

Sure, sir. And the port-wise volume breakup, sir?

Port-wise volume, it is JNPT, 35%; Mundra port, 37.5%; Pipavav, 11%; Vizag, 5%; Chennai, 5%; Tuticorin, 2%; Cochin, 2%. These are the main ports that have the presence of CONCOR.

Sure, sir. That's quite useful. Sir, just to clarify, on the haulage rate, the discounts which have withdrawn from effective 1st August, we have also withdrawn it past account to our clients from 1st August? Or is there some lag that is there for us?

As I already explained that haulage rate for MTs, they were withdrawn from 1st May from just -- to 15% -- from 25% to 15%. At that time itself, we have revised our rail freight as if the haulage rates are withdrawn from 25% to 0. So we have factored in everything. So now they have made from 15% to 10%. And gradually, they will make from 10% to 0. Already we have factored from 1st of June, and we took the revision.

Okay, okay. And on the 5% laden also, we did it immediately at that point in time, sir.

From 1st of June, that has been taken care of already.

Okay, okay. Sir, just last clarification on this LLF. Last year, when we did the INR 465 crore provision for the LLF charge, does that include some higher provision than what was actually paid off and which is why this year there is a decline. That is the way to think about it?

Bhoomika, provision means that only. Provision means you pay something in actual, and you keep something additional on that sale -- always looking for some other factors. So obviously, I have mentioned around INR 75 crores or INR 75 crore is just provided for -- it is line with my balance sheet. It is not paid right now. Last year, we had -- we were not quite deal with many things about the rates from all the states as I mentioned in the first question earlier. Now that we have got all the rates with us, and as CMD mentioned, there are other negotiations also going on with the ministry. So we have taken all the factors. What I mentioned to you that whatever actual we have paid, we have already booked into Q1. So there's no additional provision that we have made this quarter. This is what I clarified.

Understood, sir. Understood. Great. That's it, sir. And I think there are no further questions in the queue. So we can end the call. And I would just like to thank you for giving us an opportunity to host the call every time and also to the participants for being on the call. Thank you very much.

Thank you, Bhoomika.

Thank you. On behalf of DAM Capital Advisors, that concludes this conference. Thank you for joining us. You may now disconnect your lines.