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Domestic segment to drive growth

Lines up a huge capex plan to build on its infra network

* Container Corporation (CCRI) reported a weak operational performance in 4QFY22 with margin contracting to 20.2% (v/s our est. of 23.8%) due to higher provisions made towards employee costs and higher other expenses. Volumes and revenue were in line with our estimates.

* With Rewari to Palanpur being connected to DFC, CCRI is witnessing strong improvement in terms of faster turnaround time and improved efficiency. Further benefits are expected once the DFC is connected to Dadri and JNPT.

* CCRI is planning for a capex of INR80b over the next 3-4 years to be executed through internal accruals. This investment would largely be towards infrastructure, rolling stock, containers and equipment and would be much higher than the INR32b capex over FY19-22.

* We lower our EPS for FY23E/24E by 8%/14% as the margins are likely to be lower than estimated earlier. We maintain our BUY rating on the stock with a DCF-based TP of INR710, implying 24% potential upside.

Weak operational performance in 4QFY22

* CCRI’s revenue grew 5% YoY and 6% QoQ to ~INR20.4b in 4QFY22 (in line).

* Total volumes remained flat YoY at 1.07m TEUs with EXIM/Domestic volumes at 0.8m/0.2m TEUs (-3%/+18% YoY), respectively.

* Blended realization improved 4% YoY to INR19,116/TEU. EXIM/Domestic realizations stood at INR16,327/INR28,965 per TEU, up +1%/+4% YoY, respectively.

* EBITDA/PAT declined 9%/10% QoQ to INR4.1b/INR2.6b and was 18%/17% below our estimates, respectively. LLF for FY22 stood at INR4.7b.

Highlights from the management commentary

* Withdrawal of haulage rebates by Indian Railways has no impact on CCRI as it was completely passed on to the customers.

* CCRI offered 50% discount for moving empty containers from ports to hinterland that led to a dip in rail freight margins. However, the volumes increased 3x during FY22 due to this scheme resulting in an increase of INR800m to the profit level.

* The management targets 12-15% YoY volume growth in EXIM and 25% YoY volume growth in domestic, taking the total volumes to ~5m TEUs in FY23E. Domestic segment is expected to grow faster and reach ~25mT by FY25.

Valuation and view

* We expect volumes to pick up with commissioning of DFCs, thereby leading to 19% revenue CAGR during FY22-24. With the pick-up in domestic volumes and efficiency improvements from DFCs, CCRI’s EBITDA margin is likely to be stable at ~23%, resulting in 20% EBITDA CAGR over FY21-24E.

* The stock trades at 14x FY24E EV/EBITDA. We maintain our BUY rating on the stock with a DCF-based TP of INR710, implying 24% potential upside.

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