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Container Corporation’s (CCRI) 2QFY24 revenue rose 11% YoY (+6% 4-year CAGR) to INR 21.9bn (c.3% above JMFe/Consensus). EXIM volume (originating basis) rose 14% YoY, on a low base (+2% 4-yr CAGR), as weak exports were offset by strong imports. On QoQ basis, EXIM volume rose 16% QoQ (Jun’23 cyclone effect), in line with Indian Rail (+16%), implying stable market share QoQ. Revenue/TEU declined 2% YoY (due to introduction of schemes for regaining market share), offsetting the strong volume growth print. CCRI has guided for 12-15% volume growth for FY24 (earlier 10-12%) with strong import momentum, partially offset by weak exports. Land Licence fee (LLF) again surprised, this time positively (INR 857mn, -34% QoQ/30% below JMFe) as it surrenders land parcel/terminals. CCRI is now guiding for LLF of INR 4.5bn or below for FY24 (vs. INR 4.9bn earlier) and 7% escalation thereafter. It is selectively passing on the 10% busy season surcharge recently imposed by Indian Railways. We raise our FY24-25 estimates by 4-9%respectively to reflect lower LLF guidance and roll forward to Dec’24 TP of INR 810 (Jun’24 TP of INR 750 earlier). Key risks to recommendation are a) delayed recovery in EXIM volume, and b) sub-par capital allocation decisions.

* 2QFY24 summary: Revenue rose 11% YoY (+6% 4-year CAGR; +14% QoQ) to INR 21.9bn (3%/4% below JMFe and consensus) as a) EXIM volume (originating basis) rose 15% YoY (flat 4-year CAGR; +16% QoQ; +16% for IR; cyclone impact), with marginal drop in realisation (-5% YoY/ +1% QoQ) on introduction of schemes to regain/stabilise market share and higher mix from Dadri (part of rail haulage savings passed on to customers), and b) domestic volume (originating basis) rose by 6% YoY (+12% 4-year CAGR; +3% QoQ) while realisation grew by 8% YoY/+6% QoQ (+6% 4-year CAGR) on higher lead distance. Rail freight charges increased 70bps YoY to 54.9% (-70bps QoQ) on account of higher imbalances and empties cost. Land Licence fee (LLF) again surprised, this time positively (INR 857mn, -34% QoQ/30% below JMFe) as the company surrenders land parcel/terminals. Employee cost rose 32% YoY/15% QoQ to INR 1.22bn, on account of INR 170mn provision towards one-time incentives to employees. EBITDA rose 8% YoY/+37% QoQ to INR 5.37bn with margin contracting 80bps YoY to 24.5% (1HFY24 at 22.6%). EXIM EBIT margin declined 9% YoY to INR 6,400/TEU (+3% 4-year CAGR) while domestic EBIT margin rose by 12% YoY to INR 6973/TEU on optimisation of circuits. PAT rose 18% YoY (+7% 4-year CAGR) to INR 3.58bn, 21% above JMFe/consensus.

* Imports pull EXIM volume in 2QFY24; export remain weak: EXIM volume (originating basis) rose by a strong 15% YoY/16%QoQ on account of robust import demand and spillover from 1QFY24 due to the cyclone, though it was partially offset by lower export momentum. We estimate Concor has arrested its trend of market share losses in 2QFY24 given Indian Rail’s 16% QoQ print. CCRI, in order to regain market share, has introduced several measures including a) 1+1 scheme that offers free empty repositioning on incremental imports, b) empty repositioning scheme, and c) significant growth from certain ICDs on dedicated time table-based trains. CCRI has guided for 12-15% volume growth for FY24 (earlier 10-12%) with strong import momentum, partially offset by weak exports

* Domestic volume steady: Domestic Revenue/EBIT rose 14%/19% YoY respectively (+9%/+104%QoQ) as the company continues to improve its presence, and optimise circuit routes and customer base. Bulk cement, one of the key categories in this segment, was impacted due to change in IR policy; the company has made representations and hope to see the results soon. Having said that, the company plans to add fast moving consumer goods (FMCG) segment, hitherto untouched, into its fold and has placed orders for 1,000 customised containers of 12ft height (vs. standard TEU height of 8.5ft), having loading scope increased to 8.5t (2.5-3t currently in standard TEU). This would drive twin benefits of a) cost reduction, b) higher volume (as more volume would be viable with reduced per unit costing). Separately, CCRI is developing more circuits in order to reduce empty cost and is confident about maintaining its current 9-10% sustainable margin

* Raise estimates on lower LLF expense guidance; maintain BUY: LLF again surprised, this time positively (INR 857mn, -34% QoQ/30% below JMFe) as the company surrenders land parcel/terminals. CCRI has now guided for LLF of INR 4.5bn or below for FY24 (vs. INR 4.9bn earlier) and 7% escalation thereafter. We raise our FY24-25 estimates by 4-9% respectively to reflect lower LLF guidance and roll forward to Dec’24 TP of INR 810 (June’24 TP of INR 750 earlier). We value a) Concor’s operating business at 16x Dec’25 EV/EBITDA, and b) MMLP at 1.3x investment. We maintain BUY. Key Risks: a) delayed recovery in EXIM volume and b) sub-par capital allocation decisions.

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