IGI Logo

Capex target ambitious; growth outlook buoyant

Concor’s Q4FY22 PAT at Rs2.6bn missed estimate of Rs3.1bn due to higher employee related provisions and additional provision of ~Rs150m for LLF. Steep capex guidance of Rs80bn over next 4 years came as a negative surprise vis-à-vis Q1FY22 commentary of Rs5-8bn pa for next few years (FY22: Rs6bn). Large part of this capex (~Rs55bn of Rs80bn) can be mapped to targeted additions in rolling stock and domestic containers but in our view these additions are unlikely over a four-year period. FY23 capex guidance is just Rs6.2bn. In view of the impending divestment of Concor we believe it is too early to factor this elevated level of capex and we build capex of Rs6.2bn/10bn in FY23/FY24. Management expects robust outlook for the domestic business led by bulk cement handling and has guided for 25% growth in FY23 (10-12% growth for EXIM). Maintain Buy with TP of Rs750 (18x FY24E EBITDA).

EXIM volumes weak; EBITDA impacted due to higher employee/rail freight expenses

Total originating volumes declined 0.6% YoY to 648k TEUs (EXIM: 534k TEUs, down 3.7% YoY; Domestic: 113k TEUs, up 17% YoY). EXIM realizations grew 5% QoQ led by lower empty container handling. Revenue grew by 5.3% YoY to Rs20.4bn (in-line) and EBITDA grew 118% YoY to Rs4.1bn (estimate: Rs4.9bn). EBIT declined 1% QoQ to Rs5573/TEU (estimate: Rs6195/TEU). Domestic realizations declined 1% QoQ and EBIT declined sharply by 35% QoQ to Rs2730/TEU due to higher empty running charges (Rs60m higher QoQ). Concor has guided for revenue/PAT growth of 12-20% and expects handling volumes of 5m TEUs (growth of 10-12% in EXIM and 25% in Domestic) in FY23E.

Capex plan of Rs80bn over next 4 years appears ambitious

Concor has given capex outlook of ~Rs80bn over next 4 years to be spent on rolling stock, infrastructure, containers and equipments. Average annual capex over last 5 years was Rs8.3bn. Large part of the Rs80bn capex (~Rs55bn for 246 rakes and 50k containers) can be reconciled. However, with 12-15% overall growth outlook, higher double-stacking and improved turnaround times due to DFC, the actual pace of asset addition is likely to be slower (guidance implies 60 rakes pa vs. 24 added in FY22). Lastly, with the impending divestment we believe it is too early to build in this level of capex (factored capex of Rs6.2bn in FY23 (as guided) and Rs10bn in FY24).

Strong push on domestic volumes led by bulk cement movement

Concor’s domestic business is on a strong footing and has a potential to add 12mt of incremental cement volume (FY22 total domestic cargo: 12mt), implying strong growth ahead. For FY23E, Concor has guided for 25% domestic volume growth. To support this growth, Concor is adding high payload rakes and increasing ownership of containers.

Improved growth outlook; positive commentary on finalization of LLF policy; BUY

A structural and positive change in Indian Railways’ approach towards freight, DFC-led growth resurgence for rail movement of containers and robust outlook for domestic business support the stock’s premium valuations. Commentary on finalization of LLF policy (post divestment) was positive and improves visibility on divestment. We value Concor at 18x FY24E EBITDA and arrive at TP of Rs750. Maintain Buy

o Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer