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Well placed to capitalize from the DFC opportunity

* CCRI witnessed a robust performance over FY22, with 12% volume growth and robust margin improvement. Growth was driven by Domestic volumes, which grew 32% in FY22 as against an 8% growth in EXIM volumes.

* Going forward, CCRI is very well placed to capitalize on the DFC opportunity. While it is already benefiting from the partial commissioning of the Rewari-to-Palanpur section of WDFC (with a faster turnaround time and improved efficiency), additional benefits are expected to flow through once JNPT and Dadri are connected to the DFC. It aims to handle ~5m TEUs in FY23E.

* The company is looking to enter into a long-term lease arrangement for its terminals owned by the Indian Railways and expects a development on that front soon. With decent volume growth and margin, we expect CCRI to clock a revenue/EBITDA/PAT CAGR of ~19%/20%/21% over FY22-24. The stock trades at 13x FY24E EV/EBITDA. We maintain our Buy rating on the stock with a DCF-based TP of INR750, implying a potential upside of 20%.

Commissioning of the DFC to drive sustainable volumes and earnings performance for CCRI

* CCRI is witnessing the benefits emanating from the recent commissioning of the Rewari-to-Palanpur DFC stretch. There has been a significant gain in terms of faster turnaround time and improved efficiency. Further benefits are expected once the DFC is connected to Dadri and JNPT. While DFC construction has been slow due to the COVID-19 pandemic and land availability issues, the same is expected to be ramped up.

* The company is targeting an EXIM/domestic volume growth of 12- 15%/25% YoY, taking total volumes to ~5m TEUs in FY23E. The domestic segment is expected to grow faster than EXIM and reach ~25mt by FY25.

* Being the market leader in Rail container transportation, CCRI will be one of the biggest beneficiaries of the DFC. Along with an improvement in volumes (due to shift in volumes from Road to Rail), it will also lead to improved efficiency and margin enhancement.

CCRI is targeting new growth areas to enhance volumes; focus is on boosting network Infra, with a huge capex plan over the next few years

* CCRI started bulk cement commercial operations in FY22. The company sees extremely strong potential in cement transportation and is looking to handle volumes of ~12mt over the next three years. Trial runs have also been conducted for transporting food grains in containers.

* It is also witnessing strong interest for 3PL logistics and distribution logistics services. It is working with OEM equipment manufacturers for first mile last mile operations. These new business lines can provide strong support to growth in the long term.

* CCRI is planning a capex of INR80b over the next three-to-four years to be executed through internal accruals. This investment will largely be towards infrastructure, rolling stock, containers, and equipment

Valuation and view

*  We expect CCRI to witness a robust volume pick-up, driven by the commissioning of the DFC, thereby leading to 19% revenue CAGR over FY22-24. With a pick-up in domestic volumes and efficiency improvements from DFCs, EBITDA margin for CCRI is likely to remain stable ~23%, resulting in 20% EBITDA CAGR over FY22-24.

* The stock trades at 13x FY24E EV/EBITDA. We maintain our Buy rating on the stock with a DCF-based TP of INR750, implying a potential upside of 20%.

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