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Overall miss, recovery efforts underway

Container Corporation of India’s (CCRI IN) muted performance continued in Q3, which may likely lead to FY25 being the third year of subdued revenue growth (led by a drop in growth rate of both EXIM and domestic segments along with pressure on pricing). However, EBITDA margin was maintained, led by sustained market share in the long lead distance cargo segment. Although FY25 guidance is likely a miss, the management is confident of a recovery from Q4. Hence, it raised its capex guidance for the near term. We remain cautious given the challenging macro environment. We cut FY25E/26E/27E estimates by 8%/13%/15% respectively and thus, pare TP to INR 839 (from INR 1,087) on lower P/E of 32x (from 35x) given curtailed growth outlook. So, we revise CCRI to Accumulate from Buy.

Weak margins, lower depreciation supported PAT:

Revenue stood flat YoY at INR 22bn, 9% lower than our estimates, led by flat blended originating volumes and realizations. EBITDA declined 10% YoY to INR 4.5bn, 19% below our estimates, with margin at 20.8% against 23.6% estimated due to lower utilization. However, due to a 47% reduction in depreciation to INR 810mn (adjusting INR 793mn in Q3 retrospectively for 9MFY25) given the change in useful life of wagons to 30 years from 15 years, PAT was up 3% YoY to INR 3.5bn. Henceforth, the management expects depreciation cost saving at ~INR 250-300mn (on change in life of assets).

9M EXIM performance flat YoY; efforts required to scale up:

Against a guidance of double-digit volume growth for FY25, originating EXIM volumes for CCRI grew 2% with flat realization due to geopolitical concerns and a drop in rail coefficient at ports (could be due to a shift of traffic to roads). During the same period, volume for major ports container rose by 9% YoY and a large competitor also reported 10% growth due to capacity expansion in rakes, terminals and trucks. The management is hopeful of a pick-up in Q4, led by a pick-up in rice exports, strategic partnerships with large corporates and stable global trade. We remain watchful for FY25 (assuming a 2% growth) and factor in 5% volume expansion in the next two years.

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Source: Bloomberg

Domestic growth healthy; capex guidance raised:

Originating domestic volume through 9MFY25 grew 17% YoY, with realization down 8% due to pass-on of efficiency gains to the customers and stiff competition from roads. In anticipation of continued double-digit growth aided by transportation of bulk-cement in containers, the management has raised its FY25 capex guidance to INR 8.5bn from INR 6.1bn for building incremental capacities in rakes, containers and terminals. The elevated capex is targeted to continue in the medium term.

Revise to Accumulate; TP pared to INR 839:

We factor in FY24-27E revenue and earnings CAGRs of 9% each. In anticipation of slower growth, we cut FY25E/26E/27E estimates by 8%/13%/15% respectively and thus, pare our TP to INR 839 (from INR 1,087) on lower P/E of 32x (from 35x) given challenging macro outlook. So, we revise CCRI to Accumulate from Buy.

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