IGI Logo

Lower Land Licence Fee offsets pain

Container Corporation’s (CCRI) 3QFY24 revenue rose 11% YoY (+10% 4-year CAGR; +1% QoQ) to INR 22.1bn (5%/2% below JMFe and consensus). EXIM volume (originating basis) rose 13% YoY (+2% 4-year CAGR; -1% QoQ), with realisation flat YoY (+1% QoQ) as it delayed the pass-through of the 10% busy season surcharge, imposed by Indian Railways since 1st Oct’23; the surcharge is only being passed on selectively. EXIM volume declined 3% QoQ (vs. estimated 1% decline for Indian Railways) due to the high base (2QFY24 had a spillover from 1QFY24 (cyclone affected Mundra and Pipavav Port operations in Jun’23). CCRI guided for 12-15% volume growth for FY24 with strong growth in Exim (from Feb) and Domestic business. Land Licence fee (LLF) again surprised positively (INR 720mn, - 26% YoY/-16% QoQ and 36% below JMFe) as it a) reversed provision of INR 360mn in 3Q (on finalisation of values at certain terminals), and b) surrendered portion of land at a few terminals. CCRI is now guiding for LLF of INR 3.9bn or below for FY24 (vs. INR 4.5bn earlier) and 7% escalation thereafter. We raise our FY24-26 estimates by 4-8% respectively to reflect lower LLF guidance and roll forward to Mar’25 TP of INR 900 (Dec’24 TP of INR 810 earlier). Key risks to recommendation are a) delayed recovery in EXIM volume, and b) sub-par capital allocation decisions. Domestic volume (originating basis) rose 1%YoY, (+12% 4-yr CAGR).

? 3QFY24 summary: Revenue rose 11% YoY (+10% 4-year CAGR; +1% QoQ) to INR 22.1bn (5%/2% below JMFe and consensus). EXIM volume (originating basis) rose 13% YoY (+2% 4-year CAGR; -1% QoQ), with realisation flattish (+1% QoQ). Domestic volume (originating basis) rose by 1% YoY (+12% 4-year CAGR; +3% QoQ) while realisation grew by 6% YoY (+8% 4-year CAGR, flat QoQ) on higher lead distance. Rail freight expenses rose 160bps YoY/380bps QoQ to 58.7% mainly on account of delayed passthrough of the busy season surcharge. Land Licence fee (LLF) again surprised positively (INR 720mn, -16% QoQ/36% below JMFe) as the company reversed old provision of c.INR 360mn for depots where rates are settled (old provision of c.INR 900mn is yet to be settled). EBITDA rose 20% YoY/-5% QoQ to INR 5.12bn. PAT rose 13% YoY (+10% 4-year CAGR) to INR 3.34bn, 1% above JMFe/6% below consensus.

? EXIM volume growth optically strong…: EXIM revenue increased by 13% YoY (-1%QoQ) with volume (originating basis) rising 13% YoY, on a low base (+2% 4-year CAGR), as compared to estimated 16% growth in Indian Railways volumes. Rail Freight margins contracted c.300bps YoY/QoQ to 24% as CCRI delayed pass-through of the busy season surcharge (Indian Railways imposed 15% surcharge w.e.f. from 1st Oct’23) to its customers (selectively passed on from 11th Nov’23) as it chose to maintain/gain market share over margins. Realisation was flat YoY (+2%QoQ) as marginal increase in charges was partially offset by schemes, introduced by CCRI earlier. CCRI has maintained its 12-15% volume growth for FY24. As per the company, India’s EXIM trade is affected due to attacks in the Red Sea, though discussions with various shipping lines suggest that they expect stability from Feb’24 onwards. Double stacking rakes rose 56% YoY in 3QFY24 (+40% YoY in 9MFY24), which partially offset the impact of busy season surcharge.

? Domestic volume growth remains muted: Domestic volume (originating basis) rose by 1% YoY (+12% 4-year CAGR; +3% QoQ) while realisation grew by 6% YoY (+8% 4-year CAGR, flat QoQ) as it has not received extension for the movement of bulk cement in containers. Domestic Revenue/EBIT rose 7%/72% YoY respectively (3%/-1%QoQ).

? More clarity emerges on LLF: CCRI booked INR 719mn as LLF expense in 3QFY24 (INR 2.87bn in 9MFY24), net of old provision of INR 363mn (reversal of provisions for the depots where rates are settled), and it also indicated that additional provision of INR 900mn is yet to be reconciled, which could see reversal in future as the discussions conclude over the next few quarters. The company offered to surrender certain land parcels in Tughlakabad (TKD) in Nov’23, which will bring down LLF cost by ~INR 250mn annually (implying INR 2.5bn LLF annually for TKD alone). Moreover, CCRI has also offered to surrender a small portion of land at its Baroda terminal and will continue to find ways to reduce the LLF expense (and shift volumes to its own terminals). For FY25, it has guided for INR 4.5bn-4.6bn assuming 7% escalation over INR 4.2bn of FY24 (INR 3.9bn, net of provisions). Nonetheless, CCRI will continue to find ways to reduce the LLF expense by shifting the volume to its own terminals. Most importantly, CCRI suggested a) it has 26 leased terminals at present, b) it can renew the terminal for 35 years and continue to pay at 6% of land valuation (with base rate of CY2021 and then 7% (hence, it is not exposed to any further revisions in the ready reckoner rates), and c) capped its LLF expense (at base rate with 7% escalation; for example at INR 4.5bn for FY25).

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784