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EXIM recovery growth driver

Dadri ICD market booming on the back of industrial development

The Dadri market contributed ~21% to total EXIM originating volume for CCRI in FY23. Container Corporation of India’s (CCRI IN) Dadri Inland Container Depot (ICD) near Greater Noida is spread over 110 acres of EXIM multi-modal logistics hub with direct connectivity with dedicated freight corridor (DFC) within 2km. It is developed on railway land in a JV with Star Track Terminals, CMA CGM, Transworld and Allcargo Terminals. Total catchment area is ~50km, which includes more than 4,000 industrial units across industries, such as machinery, auto parts, white goods, frozen meat, scrap, waste paper, handicrafts, artware, textiles, and chemicals. Dadri has a high share of originating volume, which is beneficial for CCRI as it is the largest container train operator with volume of ~400,000 TEU and targets to reach 1.0mn TEU in the medium term. Prior to DFC, the Dadri-Mundra distance on rail took 72 hours, which currently is lessened to 36 hours with the potential to decrease further to 24 hours. Along the same route, CRRI runs on average three trains per day on double stack basis at a cost that is 10% lower than road, leading to ongoing diversion from road to rail. Overall volume from Dadri grew at ~10-12% in the past 3-4 years, but it is expected to grow at ~30%, due to huge industrial development and investments in Uttar Pradesh.

EXIM volume to further get a leg up

After two years of consecutive muted performance in EXIM due to increased competition, which resulted in market share loss, the past two quarters saw average EXIM originating volume growth by ~14% YoY, led by improvement in double stack operations, service quality and transit times. Growth momentum is likely to be supported in catchment territory as the Uttar Pradesh State Industrial Development Authority (UPSIDA) is developing industrial areas with INR 2.5tn investment via eAuction of 84 projects. Moreover, 16 projects worth INR 10bn have been sanctioned to build warehouses, dry ports and logistics parks. On the tariff side, levy of busy season surcharge by Indian Railways is expected to cease from 31 March 2024.

Outlook: reiterate Accumulate with a higher TP of INR 1,073

With EXIM market share stable at 55-60%, we believe focus will be on ramping up volume through competitive pricing by passing on economics of scale benefits to customers. New initiatives, such as the MoU with Germany-based global logistics firm DB Schenker to provide end-to-end services in the EXIM segment also would lift performance. Management is confident of 10% volume growth in EXIM in FY24 vs 7% in 9MFY24 and higher next year. Segment EBIT margin remains healthy at 20%+. DFC connectivity with JNPT by 2025 would be incrementally positive. We increase our earnings estimates by ~8% each for FY25 and FY26. We reiterate Accumulate with a higher TP of INR 1,073 from INR 940 based on 35x (from 33x) FY26E P/E.

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