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Container Corporation of India (Concor) has reported better than expected Q1FY23 EBITDA margin at 23.9% (EBITDA up 9% YoY and 14.4% QoQ). Q1 is typically a provision-lite quarter for Concor. Q1FY23 witnessed a lower incidence of land license fee (LLF) at Rs956mn (Rs1138mn YoY) and normalised employee and other expenses. Unlike competition, Concor is yet to witness any impact of increased rail haulage charges on margins. Domestic volumes continue to witness impressive growth along with margin expansion, thereby, supporting earnings. Concor has also been able to run a Hapag Lloyd train containerising export shipment of TVS Motor. Given Q1FY23 run-rate (down 3.7% YoY), EXIM volumes are set to miss management guidance for FY23. We maintain HOLD on the stock with a revised TP of Rs647/share (DCF based; Rs628 earlier).

* Operating performance managed to surprise. Concor reported higher than expected Q1FY23 EBITDA margin at 23.9% (up ~370bps QoQ). Land license fee for Q1FY23 was Rs956mn (vis-a-vis guided run-rate of Rs4.5bn p.a.). Employee costs and other expenses also normalised QoQ. Q1 is a provision-lite quarter for Concor, and doesn’t reflect full year run-rate, in our view. EXIM volumes have been disappointing, after WDFC phase – I commissioning (down 3.7% YoY), while domestic volumes continue to witness impressive growth (up 29% YoY). However, given the EXIM run-rate of Q1FY23, and the impending trade weakness given the global uncertainty, there is a high probability of guided EXIM volumes for FY23 to not materialise. Impressive margins though ward off any immediate concern on earnings downgrade.

* Key events and observations. Indian Railways, effective 1st May’22, has removed the 5% discount on haulage of loaded containers and effective 1st Sep’22 will remove the 25% discount on haulage of empty customers. Concor has previously extended the scheme of up to 100% rebate for repositioning of empty containers for use in exports until Mar’23 – hopefully, FY23E can lead to further improvement in empty running costs on account of the same. Q1FY23 didn’t witness any meaningful margin impact (unlike competition) and EBITDA surprised. Concor has been able to get TVS Motor export cargo on containers. Inaugural dedicated train of Hapag Lloyd carrying TVS Motor export container cargo moved from ICD Whitefield to JN Port. This is a big event if more exports (two wheelers) can be containerised and export can be moved through rails. TVS Motor had exported ~1mn two wheelers in FY22.

* DFC commissioning to be disproportionately beneficial for Concor. As DFC commissions, we expect Concor to witness i) market share gains given the largest network of terminals along DFC without any meaningful incremental investment and ii) get all the tailwinds associated with the increasing rail share (vis-à-vis road).

* Maintain HOLD. Perhaps, post divestment, profitability/market share can be better balanced towards further stakeholder value creation. The valuation overhang involving LLF seems to have cleared. Hereon, ‘real’ progress towards divestment and execution/profitability will drive stock performance, in our view.

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