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Lower realization in EXIM and domestic cargo drag performance

* Container Corporation (CCRI) reported a volume growth of 8% YoY in 1QFY24. Revenues declined 3% YoY to INR19.2b in 1QFY24 (16% below our estimate).

* Total volumes increased 8% YoY to 1.09m TEUs with EXIM/Domestic volumes at 0.84m/0.25m TEUs (up 7%/up 10% YoY). Volumes were largely in line with our estimate.

* Blended realization decreased 10% YoY to INR17,550/TEU. EXIM/Domestic realization stood at INR14,631/INR37,305 per TEU (down 12%/down 8% YoY). CCRI offered discounts during the quarter to attract volumes, which led to lower realization.

* EBITDA margin came in at 20.4% (vs. our estimate of 22.2%). Margin was down 350bp YoY. EBITDA declined 17% YoY to INR3.9b (against our estimate of INR5.0b). Land License fee for 1QFY24 stood at INR1.3b (INR1.04b in 4QFY23). Weak operating performance, on account of lower realization, led to a 16% YoY decline in PAT to INR2.4b.

* CCRI expects volumes to improve in the coming quarters and has kept its volumes growth guidance unchanged for FY24. It sees LLF to be at INR5b in FY24.

* We believe there could be some near-term challenges in achieving volume guidance, given a weak macro-economic environment and higher competition. We cut our EPS estimates for FY24/25 by ~9%/12%, factoring in subdued volume growth and lower realizations. We reiterate our BUY rating with a revised TP of INR750.

Highlights from the management commentary

* CCRI’s performance has been volatile during the quarter, resulting in weakness in volumes and margins. Despite gaining momentum in April and May 2023 onwards, the domestic business suffered due to the Orissa train accident in June 2023 on the eastern front. Further, the ban on rice exports is adversely impacting both domestic and EXIM traffic, but demand is now improving.

* The implementation of double stack containers in Dadri is expected to result in savings, which will be passed on to customers without compromising the company's margins. Management remains confident of achieving 10% volume growth in EXIM in FY24.

Valuation and view

* The EXIM volumes are expected to pick up going forward as CCRI is looking at maintaining its discounts in certain routes. The outlook on the domestic demand continues to be robust.

* We expect EBITDA margins to be at ~22% in FY24, while the LLF is expected to be about INR5b and grow at ~7%. The stock trades at 14.9x FY25E EV/EBITDA. We reiterate our BUY rating on CCRI with a DCF-based TP of INR750.

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