MOSL: CONTAINER CORPORATION (Buy)-Strong volume growth in EXIM-Price hikes to ensure firm margins
Container Corporation: Strong volume growth in EXIM; Price hikes to ensure firm margins
(CCRI IN, Mkt Cap USD4.9b, CMP INR1305, TP INR1553, 19% Upside, Upgrade to Buy)
- Domestic segment drives margins: Revenue increased 12% YoY to INR15.6b (est of INR 15.5b) led by volume growth of 19% YoY while realizations declined 6%YoY due to lower lead distance. Adj. EBITDA margin at 22.2% vs est of 21.3% (+1.8pp YoY/QoQ). Adj. EBITDA increased 21% YoY to INR 3.46b (v/s estimate of INR3.3b) due to higher profitability in domestic segment. Hence Adj. PAT at INR2.36b (+12% YoY) vs est of INR2.11b. Reported PAT at INR2.9b (-13%YoY) as CCRI booked SIES incentives of INR819m for 4QFY18.
- Valuation view: We expect Concor to witness EBITDA CAGR of 25% over FY18-FY20 led by i) Volume CAGR of 12% due to healthy growth in container volumes ii) Margin improvement in EXIM led by benefits of double stacking and impact of tariff increase initiated by Concor due to improving competitive scenario in absence of any cost push in form of haulage price increase iii) Better and improved service levels driving profits in domestic segment. We believe Concor in the last 12 months has initiated multiple steps to sustainably increase its market share resulting in healthy volume growth. We hence upgrade Concor to Buy on back of strong visibility on earnings growth in excess of 20% over FY18-FY20E (without factoring in benefits of upcoming DFCC), improving competitive scenario in EXIM rail logistics resulting in better pricing power and market share gains. The stock trades at EV/EBITDA of 18.5x/14.7x FY19/FY20E which we believe is attractive given market leadership position, sustainable growth in earnings and possible benefits of DFCC post FY20. Our DCF implies a fair value of INR1553/share (+19% upside) on which it trades at P/E of 24x FY20E and EV/EBITDA of 17.5x FY20E EBITDA.
Container Corp. of India is engaged in the transportation of containers by rail, management of ports, air cargo complexes and establishing cold-chain. Though rail is the main stay of Co.'s transportation plan, road services are also provided to cater to the need of door-to-door services, whether in the International or Domestic business. Co. is organized on All-India basis into two major operating divisions which are EXIM and Domestic divisions.
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