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In search of EXIM volume trigger

Container Corporation of India (CCRI) performance missed revenue / EBITDA and PAT estimates by 10%/23%/18%. Domestic witnessed strong volume uptick of 23.8% while EXIM reported muted volume. CCRI market share has shrunk in a) Mundra – import front and b) Pipavav – export front.  In order to recover the share, new discount policy has been introduced, the results of which were witnessed in Dec’22 with pickup in EXIM volumes. EBIT margins were impacted on account of higher empty running cost (due to removal of 25% rebate by Indian railways) and import?export imbalance. On the capex front, the company is facing resource constraint due to geopolitical issues leading to slow down in addition of containers and rakes however management expects the same to normalize from Q4.

We are positive on CCRI’s prospects and believe that it is best positioned to capitalize on favorable infrastructure?related tailwinds. We remain positive on the structural growth story considering 1) continual market share gains in domestic segment 2) strong volume growth and 3) new strategic initiatives. With continued pressure on EXIM on account of geopolitical issues we have trimmed our FY24E / FY25E EXIM volume growth estimates from 12% to 8%. At CMP, the stock trades at a P/E of 28.8x/25.3x FY23E/FY24E earnings and at an EV of 17.5x/15.5x FY23E/FY24E EBITDA. We have an ADD rating with a revised TP of Rs806 (earlier Rs850) valuing the company at a PE multiple of 27x of FY25E EPS which is implying an upside of 18%

Result Highlights

* For Q3FY23, CCRI’s revenues grew 3.6% YoY to Rs19.9bn (below our / consensus estimate of Rs22.1bn / 21.8bn), driven by growth in blended realizations to Rs18,324/TEUs (down 1.5% YoY).

* CCRI recorded volume growth of 5.2% YoY to 10,85,154 TEUs in Q3FY23, primarily due to steady jump in domestic volumes of 23.8% to 251,358 TEUs. EXIM volumes reported muted growth with volumes at 833,796 TEUs.

* EBITDA de?grew 6.4% YoY to ~Rs4.3bn (below our estimate of ~Rs5.5bn) with EBITDAM witnessing contraction of 229bps YoY to 21.4% (below our estimates of 25%). Margins contracted on account of higher rail freight expense.

* Consequently, Adj PAT grew 3.5% YoY to Rs3bn (below our estimate of Rs3.6bn) on account of lower operating margins.  

* At the CMP, the stock trades at a P/E of 28.8x and 25.3x its FY23E & FY24E earnings.

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