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Evolving growth levers

Focus on growth as well as profitability

Container Corporation of India (CCRI IN) EXIM segment, which resumed healthy originating volume from Q2, has again reported growth of 13% YoY in Q3FY24. Segment realization and margin were stable despite a 40-day lag in passing the busy season surcharge (BSS) levied by Indian Railways. This was aided by a 56% jump in double-stacking trains to 1,376. It has retained its market share at 55-60% by providing better services while letting go of less-profitable cargo. The domestic segment revenue was up 7% YoY on rise in realization as increased haulage charges were passed on. Muted volume in Q3 was a one-off and robust demand continues. Efforts are underway to improve services via incentive schemes and price benefits. Continued optimization of Land License Fee (LLF) charges would improve profit by surrendering unused railway land parcels without dragging volume. For FY24, CCRI has set a LLF target of INR 3.9-4.0bn from INR 4.5-4.7bn and INR 4.5-4.6bn for FY25.

Management announces new strategic initiatives

CCRI is increasing first-mile last-mile (FMLM) services and targets 80-85% of volume throughput for the next two years vs 30-35% currently. Also, it has executed MOU with Indraprastha Gas, NTPC Vidhyut Vyapar Nigam to develop LNG stations at terminals and solar energy projects. To expand EXIM presence, CCRI has executed MOU with a Germany-based freight firm, DB Schenker, and is in talks with shipping lines to service cargo. Infra investment continues with YTD capex at a new high of INR 4.7bn on containers & rakes and is on track to hit FY24 guidance of INR 6.0bn.

Valuation: upgrade to Accumulate with a higher TP of INR 940

Management expects trade to normalize by February despite geopolitical tensions; hence, it has retained EXIM volume at 10% for FY24. WDFC likely connectivity with JNPT by CY24, benefits from increased rail coefficient from 18% to 30% and higher double-stacking should ensure continued growth. Market share loss seems to have been arrested with improved services. Domestic volume is set to return to normalcy. We raise our PAT by ~6% for FY26E with a revenue CAGR of 12%, an EBITDA CAGR of 15% and a PAT CAGR of 14% during FY23-26E. Hence, we upgrade to Accumulate from Reduce with a higher TP of INR 940 from INR 724 on target P/E to 10-year historical one-year forward average P/E of 33x (from 27x) FY26E P/E. The change is to account for long-term prospects of DFC connectivity, road-to-rail shift in cargo, and cost benefits from double-stacking.

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