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…CCRI will be the key beneficiary

* Container Corporation (CCRI) will be a key beneficiary of the Dedicated Freight Corridor (DFC), which is likely to result in volume growth driven by a modal shift and enhanced operating efficiencies. The DFC connecting Dadri to Mundra became operational in May’23. CCRI is operating a timetable of trains on this route, and this development has led to a significant shift in the proportion of its business from road to rail.

* Further, we anticipate that CCRI would benefit from the shift in northern hinterland volumes from Gujarat ports to JNPT after the entire DFC commissioning, which is likely to be completed in FY26. CCRI’s strong positioning at JNPT (~55% market share in 9MFY24) could result in tailwinds from operating efficiencies stemming from DFC and the ability to offer full-fledged scheduled services.

* Domestic container volumes for CCRI grew 11% YoY in 9MFY24, while EXIM volumes rose 6% YoY during the same period. Weak trade volumes due to the geopolitical headwinds hit EXIM volumes. We expect domestic operations to scale up (35% contribution in 9MFY24) due to the addition of new services/ commodities for multiple sectors, and a strong network of terminals. Further, strategic initiatives such as addition of FMCG-led cargo, deployment of LNG trucks, partnerships for solar energy products, etc., are likely to result in higher double-digit growth for domestic cargo.

* With DFC commissioning and a continuous ramp-up in the number of doublestacked trains, we expect blended volumes to report 10% CAGR during FY24-26. Further, with clarity on LLF provisioning, we project the EBITDA margin to be 23- 25% over FY24-26. The stock trades at 16.9x FY26E EV/EBITDA. Reiterate BUY with a TP of INR1,120 (based on 22x EV/EBITDA on FY26E).

Reduction in LLF provisions to expand margins

* Land License Fee (LLF) for 9MFY24 stood at INR2.9b. CCRI has reversed INR360m of LLF provisions for previous years; hence, LLF provisioning is likely to be ~INR4.0b for FY24 (net of reversals).

* An additional INR900m provision is pending reconciliation, possibly reversing in the future as discussions are underway.

* CCRI has surrendered certain land parcels in Tughlakabad in Nov’23 that are anticipated to reduce the annual LLF cost by ~INR250m. CCRI has also offered to surrender a portion of land at its Vadodara terminal and plans to reduce LLF expenses by shifting volumes to its terminals.

* Management has guided LLF expenses at ~INR4.5b in FY25, assuming a 7% escalation over FY24. CCRI aims to further reduce LLF expenses by shifting volumes to its terminals.

Valuation and view

* With DFC commissioning and a continuous ramp-up in the number of doublestacked trains, we expect blended volumes to report 10% CAGR during FY24-26.

* Further, with clarity on LLF provisioning, we project the EBITDA margin to be 23- 25% over FY24-26. The stock trades at 16.9x FY26E EV/EBITDA.

* Reiterate BUY with a TP of INR1,120 (based on 22x EV/EBITDA on FY26E).

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