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Container Corporation of India Limited (CONCOR) Q2 FY23 Earnings Concall Transcript

CONCOR Earnings Concall - Final Transcript

Container Corporation of India Limited (NSE: CONCOR) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

V. Kalyana Rama — Chairman and Managing Director

Manoj Kumar Dubey — Director Finance

Analysts:

Atul Tiwari — Citigroup — Analyst

Bhoomika Nair — DAM Capital Advisors Limited — Analyst

Siddharth Shah — SBI Mutual Fund — Analyst

Achal Lohade — JM Financial — Analyst

Mukesh Saraf — Spark Capital — Analyst

Amit Dixit — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Container Corporation of India Limited Q2 FY ’23 Earnings Conference Call hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited. Thank you, and over to you, ma’am.

Bhoomika Nair — DAM Capital Advisors Limited — Analyst

Thanks. Good morning, everyone. Welcome to the Q2 FY ’23 Earnings Call of Container Corporation. I have with us today the management, Mr. V. Kalyana Rama, Chairman and Managing Director. I’ll hand over the floor to him for his opening remarks, and post which we can open up the floor for Q&A. Over to you, sir.

V. Kalyana Rama — Chairman and Managing Director

Thank you, Bhoomika, and good morning, everyone. So we are happy to come out with again, good financial results. I am now today having with my Director, Operations, Mr. Sanjay Swarup; and Director, Finance, Mr. Manoj Dubey with me.

Overall the growth is good. Domestic, we are doing very well. In fact, the domestic growth of 30% plus, we are able to maintain and that is because of the new products what we launched. They are giving us good headway. And also the earlier system improvements what we have taken of introducing high capacity rates and high capacity containers is really giving us good business from the West Coast to East Coast and to the South side and also we are able to pick up now volumes on the South side as well. So that’s a good scenario. The empty running is coming down, and good circuits are getting built up in domestic. And on EXIM side, we had good handling volumes, but overall EXIM scenario little subdued, because of the existing conditions in the world markets and the talks about recession in Western countries and US, but now the global news what we are hearing that the inflation is easing up in US and the things are looking up, and there is also — there may be a better scenario on the Ukrainian — Russian-Ukrainian conflict front. So these things may be good in the going forward, the stakeholders, with whom we are having discussions are also hopeful to have a better next five months. So we are keeping our fingers crossed particularly on the EXIMs side because it’s totally dependent on the export, import scenarios.

Otherwise, the guidance given on the revenue side 10% to 12% growth on both top line and bottom line, we are confident of achieving that.

So with that, the first half yearly results are in line with that, achieving the top line and bottom line growth. And we are able to declare good dividend for both the quarters as well, already, we declared 100% dividend on the share, combined for the Q1 and Q2. We have come up with good schemes during the quarter. There is a new VDS scheme announced, new round trip scheme announced for DPD containers and recently we’ve come up with an additional scheme wherein empty container movement free with the loaded container on the increased volumes and all these schemes, we are hopeful that they will give us good volumes as our scheme of empty rebate what we announced here that gave us very good volumes last year and continuously giving us volumes this year as well.

Land license fees front, that will be one question every analyst would like to ask us. So let me clarify that. Now, it is very, very clarified, the new lease policies announced and as per the new lease policy, the land license fee for the 26 terminals, which we are operating on Indian Railways land is 6% of the market value of the land and market value is the industrial price announced by the revenue authorities at the respective place. So there is absolutely no doubt in this. So for this year, we are paying at present at the rate of INR380 crores to INR390 crores. In the first half year, we made a payment of around INR190 crores as the land license fee. Even though we have given an estimate, for the total year the land license fee will be INR450 crores, that additional INR60 crores INR70 crores is towards the adjustments, which we may have done because the land rates are adjusted by revenue authorities once in six months.

So to cater to these exigencies, we have given — we have taken the estimate as INR450 crores. So now we are very clear and confident that the land license payment for the railway land will be not more than INR450 crores. And the double-stack running is very good and Kathuwas is doing very well, our major hub and the other hub has also started operating as I mentioned to you in the last quarter itself, and it is also doing very well. The total number of double-stack trains has gone up in the last quarter, but the transit times have come down with the operations of DFC even though we are doing double hubbing, the transit times have come down substantially. Almost half between the Delhi Capital region and the NCR and Western Uttar Pradesh, Punjab regions to Mundra and Pipavav, that’s helping us in getting good volumes and [Indecipherable] And also the margins, as I mentioned the operating margins on the originating basis in this quarter in EXIM has gone up, they are better than the last quarter.

So this is the overall brief. So now I will open up the conference for the question-and-answer session. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Atul Tiwari from Citigroup. Please go ahead.

Atul Tiwari — Citigroup — Analyst

Yeah, thanks a lot sir. Sir just a couple of follow-up questions on land license fee policy. Just wanted to get some more information. So is there a provision of escalating this at a certain rate so like say 6% or 7% of this amount of INR450 crore or INR390 crore? Or every year depending on what is the price of the land 6% of that will be recalculated and you will have to pay?

V. Kalyana Rama — Chairman and Managing Director

No, Atul, it is like this. This escalation is — clause of the policy. So what CMD spoke about is the value of the land is to be taken on industrial rate as on 1/4/2020. And based on that, every year 7% escalation is taking place in the existing policy, which we are following, right? And what you mentioned is that even if the notification from the land revenue of — for the base rate of the land even if that is complete, the total payout will not be crossing INR450 crores, this is what company feels and this is what we told you right now.

Atul Tiwari — Citigroup — Analyst

Okay, sir. Okay. So I mean I got that point that the total will not be more than INR450 crore, but say, like thinking it slightly longer in terms. If I take a period of five years, we should be building in 7% escalation on whatever amount you actually pay this.

V. Kalyana Rama — Chairman and Managing Director

Absolutely. In the existing policy that we are following right now.

Atul Tiwari — Citigroup — Analyst

Okay. And, sir, the LLF policy, which has been approved by the government, there is a provision that existing players can move to say paying 1.5% of price of land from 6%. So is there any plan on the part of CONCOR to take advantage of that or you will continue to pay 6% as you are paying right now?

V. Kalyana Rama — Chairman and Managing Director

So the first clarification is this 1.5% is not the right substitution. That 1.5% is only the fixed part of what they have been doing in that policy. There is another part that is the variable part, that is TAC charges, traffic access charges. So the total will come out of that 1.5% fixed, plus the TAC charges, which railway fixes, and owners rely on railways to revise it as and when they wish to. So that’s a very catchy situation. Right now, the policy details has to come up and the company is looking into it and we will take a considered call at a later date.

Atul Tiwari — Citigroup — Analyst

Okay. But is this understanding right that if you want to move to this 1.5% plus TAC, then you will have to go through a competitive bidding process or you can move to this 1.5%?

V. Kalyana Rama — Chairman and Managing Director

You’re right. The only clause is that the company has the right of — first right of refusal.

Atul Tiwari — Citigroup — Analyst

Okay. So essentially, you will have to decide terminal by terminal, whether you want to move.

V. Kalyana Rama — Chairman and Managing Director

Absolutely. You are right.

Atul Tiwari — Citigroup — Analyst

Okay, sir. Okay, thanks a lot sir. And sir, just one bookkeeping question. If you could share the originating volumes on EXIM and domestic front?

Manoj Kumar Dubey — Director Finance

Yes, EXIM it was for half year, it was 968,478 TEU and domestic 207,393 TEUs. Total 1,175,871 TEUs.

Atul Tiwari — Citigroup — Analyst

Okay, sir. Thank you. Thanks a lot.

Operator

Thank you. The next question is from the line of Siddharth Shah from SBI Mutual Fund. Please go ahead.

Siddharth Shah — SBI Mutual Fund — Analyst

Hello?

Operator

Sir, please go ahead with your question.

Siddharth Shah — SBI Mutual Fund — Analyst

Yeah. This is Siddharth, actually, I’m from SBI Pension fund. Sir, I just wanted to ask one question regarding November — sorry September update on September 9, that you have gotten some ratings for raising of close to INR9,000 crores from ICRA. So if you could share your insights as to, are there any plans to raise debt on the books and have any further CapEx plans or something? So if you could just throw some light on that.

V. Kalyana Rama — Chairman and Managing Director

We could not get you. Where from you got? You’ve got the information that we are raising that?

Siddharth Shah — SBI Mutual Fund — Analyst

No, no. So there is a Bombay Stock Exchange filing that you have gotten our AA+ plus rating for…

V. Kalyana Rama — Chairman and Managing Director

Yes, yes. We do take ratings from these agencies because that’s only — that’s a regular process, yearly process. We do the rating and keep them ready and we have no plans of raising any debt as of now.

Siddharth Shah — SBI Mutual Fund — Analyst

Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial — Analyst

Yeah. Good morning, sir. Thank you for the opportunity. Sir, if you could help us understand in terms of the realization if you see on a handling basis, the realizations are down 15% in the EXIM segment compared to first quarter? So if you could help us understand what is driving this?

Manoj Kumar Dubey — Director Finance

Yes. As CMD has already explained that for doing last mile first mile logistics, the volumes that — this service we have started a few months back, and these volumes have been added, which are not very — giving very high margins to us. But they’re services to our customer that help us to bring more volumes to us. So because of this partly margin is subdued. But otherwise EXIM has —

V. Kalyana Rama — Chairman and Managing Director

Originating is fine. Yes, originating is fine. And per TEU EXIM originating in fact has — is quite high, which is 27,980 per TEU, which is more than the first quarter.

Achal Lohade — JM Financial — Analyst

Okay. So if I see the realization on the originating basis, it’s showing an increase of 7%.

Manoj Kumar Dubey — Director Finance

Yes, yes. If you see the realization actually, you should see on originating basis only, then it is showing an increase.

Achal Lohade — JM Financial — Analyst

Understood. And if you could help us understand the volume growth of 12% on originating basis or 18% on handling basis, any particular port sector which is driving this volume growth and outlook on the same?

V. Kalyana Rama — Chairman and Managing Director

Actually the originating growth is not 18%, the 18% what we reported to the stock exchange is the handling volume growth in EXIM. In originating as I said, the subdued margin rate is going on the export and import front. As of now, it’s originating volumes growth is very less, in fact I think there is little contraction in the originating volumes similarly in this quarter.

Achal Lohade — JM Financial — Analyst

Understood. Sir, In terms of the employee cost, if you could clarify Q-o-Q, it is down, how do we look at the employee cost going forward, is this a run rate, which we..

V. Kalyana Rama — Chairman and Managing Director

It’s not the same. I think there is not any increase — little bit increase…

Manoj Kumar Dubey — Director Finance

Decrease.

V. Kalyana Rama — Chairman and Managing Director

Decrease is because of attrition. Our employee strength is coming down, because we are digitized now completely, 98% employees those who were added we are not recruiting fresh faces to that fill up those vacancies. So the employee cost is slightly has come down, or otherwise it is at the same level last year.

Achal Lohade — JM Financial — Analyst

Understood. And sir, if I may ask just the contribution of the Northwest in the entire EXIM cargo would it be…

V. Kalyana Rama — Chairman and Managing Director

We don’t give that breakup for this conference call.

Achal Lohade — JM Financial — Analyst

Got it, sir. Thank you. I’ll come back in the queue, sir. Thank you.

Operator

Thank you. The next question is from the line of Mukesh Saraf from Spark Capital. Please go ahead.

Mukesh Saraf — Spark Capital — Analyst

Yes, sir. Thank you for the opportunity. Sir, in your opening remarks, you had mentioned that the turnaround times have come off significantly in some cases by half. So in your experience, have you seen any shift of market share from rope to rail because of this? And have you started offering more and more timetable trains, scheduled trains now helping that market share growth?

Manoj Kumar Dubey — Director Finance

As CMD has mentioned in his opening remarks, the response of timetable trains has been very good for us and we have been able to shift sizable road traffic to rail traffic. In fact, we have started a train called retail express from Dadri to Mundra via Kathuwas, which is run by CONCOR with [Indecipherable], which is a very big hit for the customers and all live cargo what used to go by road has come to rail. So this is — really has been very, very beneficial for our company and we have been able to ship sizable amount of traffic from the roads today.

Mukesh Saraf — Spark Capital — Analyst

And now that we have already seen this kind of improvement. Is there more scope of this market share to move from road to rail? Are there things that we have already kind of got a substantial portion of say what was possible?

Manoj Kumar Dubey — Director Finance

Already, a lot of market — we have seen lot of movement from road to rail. Now next big shift will come, when Dadri also comes on DFC and DFC goes to Nhava Sheva. Nhava Sheva comes on DFC, then we will get a sizable shift from road to rail.

Mukesh Saraf — Spark Capital — Analyst

So when is Dadri expected to come on DFC, sir? Any timeframe?

V. Kalyana Rama — Chairman and Managing Director

We [Indecipherable] or management.

Mukesh Saraf — Spark Capital — Analyst

Sure, sir. Sure. And just one last thing, I think last year you had also mentioned there is a possibility of paying this land license fees upfront, say, for 30-year period or for a longer term. Is that still there on the cards or that’s no longer a possibility?

V. Kalyana Rama — Chairman and Managing Director

Now that is still — we are waiting, as mentioned by my colleague in the earlier answer, we’re working for the policy guidelines to come out from Ministry of Railways. Still that the things are waiting for that. As of now, there is no clarity on that and we are seeing every quarter at 6% of the market values.

Mukesh Saraf — Spark Capital — Analyst

Sure. All right. Sir, thank you. That’s it from my side. I’ll get back in the queue.

Operator

Thank you. [Operator Instructions] The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.

Amit Dixit — ICICI Securities — Analyst

Yeah, hi. Good morning, everyone. Thanks for the opportunity.

Operator

Dixit, the audio is not clear from your line. Please use the handset mode.

Amit Dixit — ICICI Securities — Analyst

Is it better now?

Operator

Yes.

V. Kalyana Rama — Chairman and Managing Director

Yes.

Amit Dixit — ICICI Securities — Analyst

Yes, okay. I have a couple of questions. The first one is on essentially you have mentioned that the new schemes have been announced and there is like double-stack trains are going up, et cetera. So what kind of margin…

V. Kalyana Rama — Chairman and Managing Director

You are not audible. You have to say clearly into your phone. Otherwise, we are not able to hear you.

Amit Dixit — ICICI Securities — Analyst

Just a minute. Am I audible now?

V. Kalyana Rama — Chairman and Managing Director

Yes, when you are doing the check, you are audible. But when you are asking question, you’re not audible.

Amit Dixit — ICICI Securities — Analyst

No problem. So the first question is on basically [Ends Abruptly]

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