MOSL: CONTAINER CORPORATION (Buy)-Volumes dip for both EXIM and domestic-Incremental revenue from coastal shipping in FY20
Container Corporation: Volumes dip for both EXIM and domestic; Incremental revenue from coastal shipping in FY20
(CCRI IN, Mkt Cap USD4.5b, CMP INR515, TP INR625, 21% Upside, Buy)
- Volumes dip; profitability improves led by realization: Revenues grew 9% YoY to INR16.4b (v/s our est. INR17.6b). Volumes dip 1% YoY. Realizations increased 10%YoY. EBITDA margins came in at 24.6%, while EBITDA stood at INR4.03b. Subsequent to the implementation of IND-AS116 during the quarter, operating/other expenses declined, while depreciation/finance cost increased. While depreciation has increased by ~INR150m, the impact on finance cost is almost negligible. Thus, EBIT/TEU for EXIM was at INR3,720 (+32%YoY) while that for domestic stood at INR1,342 (+19%YoY) in 1QFY20. Blended EBIT/TEU stood at INR 3,360 (+31%YoY). PAT declined 10% YoY to INR2.27b (v/s our est. INR3b).
- Management commentary: (1) Company started its first distribution logistics center in Chennai and is in the process of setting up operations there; it is also planning to open four more such centers in FY20. (2) The company booked revenue of INR380m from coastal shipping under the domestic business. It is targeting revenues of INR1.5b for FY20. (3) Empty running charges stood at INR282m for EXIM and INR207m for domestic. (4)Concor has not recognized any SIES income in 1QFY19. (5) Concor's market share in EXIM is 68% and in domestic, it is 64.8%. The market share in EXIM has reduced by 3pp YoY. This is due to the company's decision to not go for low margin volumes.
- Valuation and view: CCRI is a direct play on the upcoming large rail infrastructure (DFCC) in the country. We expect Concor to witness EBITDA CAGR of 18% over FY19-21, led by healthy volume growth, benefit of double-stacking and the recent price hikes. The stock trades at EV/EBITDA of 17x/15x FY20/FY21E. Our DCF methodology implies a fair value of INR625/share (+21% upside).
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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