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Realization boost drives earnings surprise

DFC commissioning to drive sharp growth in earnings

* CCRI’s 3QFY21 earnings surprised positively, with realization growing 7% QoQ, driving a 17% beat on EBITDA. We expect volume growth to remain strong in the near/longer term from a recovery in EXIM trade/Dedicated Freight Corridor (DFC) project.

* We have raised our FY21E/FY22E EBITDA by 19%/13% and TP by 22% to INR555 per share on higher realization. Maintain Buy on expected volume and margin benefits from DFC. Clarity on land licensing fee (LLF) would aid re-rating of the stock.

Higher realizations drives EBITDA beat

* Revenue/EBITDA/PAT grew 15%/nil/9% YoY to INR17.5b/INR3.7b/INR2.4b and was 11%/17%/32% above our estimate on higher realization (+8% YoY) at INR18,155/TEU. EXIM/domestic realization stood at INR16,140/INR28,197 per TEU, up 6%/14% YoY.

* Total volumes rose 6% YoY to 966,015 TEUs (in line), with EXIM/domestic volumes at 804,557/161,458 per TEUs (+5%/+12% YoY).

* EBITDA margin was lower at 21.2% v/s 24.3% in 3QFY20 due to higher LLF at INR1.2b and a one-time provision of INR0.5b towards post-retirement medical expenses of retired employees. Adjusted for that, EBITDA stood at INR4.21b (+13% YoY) and EBITDA margin at 24%.

* 9MFY21 revenue/EBITDA/PAT stood at INR44.5b/INR8.4b/INR4.9b and was down 9%/30%/31% YoY due to ~8% decline in volumes and increase in land licensing fees (INR3.5b in 9MFY21 v/s ~INR1.4b in FY20).

Highlights from the management commentary

* Realization improved on account of higher loads, increase in lead distance, and free empty container movement allowed by railways during the 15-day window in 3QFY21.

* The management has provided ~INR 4.5b in FY21 for LLF, based on 6% of land value. The Ministry of Railways has, however, demanded a higher amount (INR13.4b, including GST) and clarity is expected by FY21-end.

* The management has guided for a 5% YoY drop in total volumes (in FY21) as against its previous guidance of an 8% decline.

* The benefit of DFC should be realized in FY22 as the route is undergoing trial runs. It will enhance the pricing power of the company, led by a faster turnaround time, more double stacking, and timetabled trains on the route.

Valuation and view

* CCRI is a direct play on the upcoming large rail freight infrastructure (DFC).

* We expect a 19% EBITDA CAGR over FY21-23E, led by healthy volume growth from DFC and margin improvement on operating leverage benefits.

* Clarity on the final land license fee (LLF) to be charged by the railways remains key for the near-term stock performance.

* The stock trades at 15.3x FY22E EV/EBITDA. We derive a DCF-based target price of INR555/share based on a WACC of 12%.

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