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FY24 begins on weak note, Exim headwinds continue

About the stock: Concor is the dominant player in the CTO business (58% market share) with ~60 terminals.

* Revenue from rail transportation comprised 75% of total revenues (rest 4% by road, 13% via handling income, 2% warehousing and 4% others)

* Total volumes handled in FY21 were 3.6 million TeU, of which Exim volumes were at 83% of the mix with the rest contributed by domestic containers

Q4FY23 Results: Performance improves QoQ.

* Revenues grew 6% YoY to | 2166 crore, aided by the strong performance of the domestic segment, which grew 23% YoY to | 842 crore

* EBITDA margins expanded 33 bps to 20.5%. Absolute EBITDA grew 8% YoY to | 445 crore but was below I-direct estimate of | 466 crore

* Consequently, PAT grew 8% YoY to | 279 crore

What should investors do? Headwinds in global supply chain together with the company’s inability to procure equipment such as containers, axle, wheels, etc, and uncertainty over divestment has negatively impacted the fundamentals in the form of weak volume growth on the Exim side. While the management intends to counter the headwinds by launching various schemes, margin would remain under pressure.

* We continue to maintain our HOLD recommendation on the stock

Target Price and Valuation: We value the stock at | 680 i.e. 27x P/E on FY25E EPS

Key triggers for future price performance: Higher double stacking (46% jump in FY22 to 3757 trains), running rakes with higher axle loads, targeting 1 mn TeUs container run rate at Khatuwas (MMLPs), DFC connectivity to Dadri, JNPT, diversification into other logistics verticals.

* Clarity on land policy by GoI is expected to facilitate Concor’s privatisation

* Higher movement of bulk commodities to improve domestic volume share (has a dominant market share in India) in consolidated revenues

Alternate Stock Idea: Apart from Concor, we remain positive on TCI Express.

* TCI Express is a leading asset light B2B (95% of revenues) express logistics company with 28 sorting centres, 800+ owned pan-India centres covering 40000 pick-up and delivery points

* We value the stock at | 2195 i.e. 41x P/E on FY24E EPS

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