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EXIM segment sees strong traction

* CCRI reported an inline operational performance, with 17% volume growth. Revenue grew 8% YoY to INR19.7b, 6% lower than our estimate. EXIM/ domestic volumes grew 18%/10% YoY to 0.94m/0.21m TEUs.

* Blended realization declined by 7% YoY to INR17,228/TEU. EXIM/domestic realization stood at INR14,073/INR31,511 per TEU (-14%/+12% YoY)

* EBITDA margin grew 190bp YoY and 140bp QoQ to 25.3%. EBITDA/PAT grew 17%/15% YoY to INR4.9b/INR3b (inline).

* Land license fee stood at INR0.95b/INR1.91b in 2Q/1HFY23

* As against the last few quarters, 2QFY23 saw a sharp jump in EXIM volumes handled, resulting in an improvement in its market share. The management expects volume momentum to be strong in both EXIM and domestic segments. While the LLF policy guideline is yet to be released by the Railway Ministry, CCRI doesn’t see a significant rise in LLF. The latter is pegged at INR4.5b in FY23, with annual escalations of 7%. The management’s focus remains on providing end-to-end solutions and to capture a higher market share from road Logistics operators.

* We marginally raise our FY24 EPS estimate by 3%, factoring in an improved outlook on margin. We maintain our Buy rating on the stock with a revised TP of INR880, based on DCF valuation.

Highlights from the management commentary

* Details of the LLF policy are yet to be released by the Railway Ministry. CCRI is following the existing policy of 6% land value, with a 7% annual increase.

* CCRI is on track to achieve a domestic volume growth of 30%, with the launch of new services and use of high capacity containers

* The company has been transporting bulk Cement for a South Indian player and has handled five rakes. Cement volumes are currently low, but are picking up fast.

* With high growth expected in domestic volumes, the mix of EXIM and domestic volumes is pegged at 60:40 (from 70:30 at present).

* Incurred capex of INR 1.4b in 1HFY23 towards rolling stock, containers and handling equipment. CCRI has retained capex guidance of INR5.5-6b in FY23 which will be utilized in procurement of rolling stock, containers and rakes.

Valuation and view

* With the phase-wise commissioning of DFCs, volumes are expected to shift to rail from road Logistics, thereby resulting in an 18% revenue CAGR over FY22-24E.

* With strong volume growth and an improved margin outlook, we expect CCRI to clock a revenue/EBITDA CAGR of 18%/24% over FY22-24.

* The stock trades at 15.5x FY24E EV/EBITDA. We maintain our Buy rating on the stock with a DCF-based TP of INR880.

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