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Revenues in line; high operating expenses drag earnings

Container Corporation (CCRI) reported subdued operational performance with 5% volume growth in 4QFY23. Revenue grew 6% YoY (in line) to INR21.6b during the quarter.

* CCRI’s EBITDA grew 8% YoY (13% below our estimate). PAT increased 8% YoY, 20% below our estimate. EBITDA margin stood at 20.5% (up 30bp YoY) in 4QFY23.

* Total volumes in FY23 grew 7.1% YoY to 4.4m TEUs with EXIM/Domestic volumes at 3.4m/0.95m TEUs (up 4.2%/18.7% YoY).

* For FY23, revenue increased 6.7% YoY to INR 81b, EBITDA margin stood at 22.7% (flat YoY), and Adj. PAT stood at INR 11.7b (up 10% YoY).

* Land License fee for 4QFY23 stood at INR1.04b (INR3.92b for FY23). This was below the management’s guidance of INR 4.45b for FY23.

* CCRI has incurred a capex of INR5.6b in FY23 and expects to incur a capex of INR6b in FY24. The majority of the capex in FY24 would be toward rolling stock and handling equipment.

* We cut our EPS estimates for FY24/25 by 9%/3%, factoring in subdued outlook on EXIM volumes in the near to medium term. We reiterate our BUY rating with a revised DCF-based TP of INR710.

Highlights from the management commentary

EXIM trade has been soft in the last few months. Loads of Merchandise and Handicrafts are lesser than usual.

* CCRI continues to expect 10% volume growth in EXIM in FY24. Additionally, CCRI is looking to regain lost market share in the EXIM sector. The domestic market is strong and commodities such as cement are seeing decent traction.

* With high growth expected in domestic volumes, the mix of EXIM and domestic volumes is likely to be at 60:40 (currently at 70:30).

* ‘Other expenses’ jumped QoQ, due to one-time expenses at certain terminals such as repairs and the disposal of hazardous materials. LLF for FY24 is pegged at INR4.3b.

Valuation and view

* While growth in domestic volumes is robust, the EXIM market is slow. The EXIM volumes are expected to improve and CCRI is aiming to regain some market share, which it had lost over the years. The focus continues to be on providing the first mile to last mile connectivity across terminals. Once DFC gets fully operational, CCRI is looking at strong volume pickup.

* We expect EBITDA margin to range between 22% and 24% in FY24, while the LLF is expected to be about INR4.3b and grow at ~7%. The stock trades at 11.9x FY25E EV/EBITDA. We reiterate our BUY rating on CCRI with a DCFbased TP of INR710.

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