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MOSL: CONTAINER CORPORATION (Buy)-Healthy margins due to price hikes

Container Corporation: Healthy margins due to price hikes

(CCRI IN, Mkt Cap USD4.2b, CMP INR631, TP INR791, 25% Upside, Buy)

 

• EXIM segment drives margins: Revenue (excluding SIES income) grew 19% YoY to INR17.2b (our estimate was INR16b), led by volume growth of 14% YoY. Realization increased 5% YoY; +9%QoQ due to ~INR 2500/TEU of price hikes. EBITDA margin expanded 1.9pp YoY and 2.1pp QoQ to 23.5% (in line with estimates). EBITDA increased 30% YoY to INR 4.04b (our estimate was INR3.7b). Tax rate for 2QFY19 was 28% (our estimate was 27%), higher than 21% in 2QFY18. Reported PAT grew 47% YoY to INR3.36b (our estimate was INR2.97b).
• 1HFY19 performance: Sales/EBITDA/PAT for 1HFY19 increased by 11%/14%/25%. We expect 2HFY19 to witness 14%/29%/96% increase in sales/EBITDA/PAT.
• Management commentary: (1) Empty running charges stood at INR370m for EXIM and INR270m for domestic, (2) Average lead distance reduced by 15km YoY to 779km in 2QFY19, (3) 2QFY19 witnessed realization gains on account of INR1000/TEU price hike in May 2018 and another INR1500/TEU increase in service charges.
• Valuation and view: CCRI is a direct play on the upcoming large rail infrastructure (DFCC). We expect Concor to witness EBITDA CAGR of 22% over FY18-20 led by healthy volume growth, benefit of double-stacking and recent price hikes. The stock trades at EV/EBITDA of 17.4x/14.3x FY19/FY20E, which we believe is attractive given its market leadership position, sustainable growth in earnings and possible benefits of DFCC post FY20. Our DCF implies a fair value of INR791/share (+25% upside) on which it trades at a P/E of 25x FY20E and EV/EBITDA of 18.5x FY20E EBITDA.