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MOSL: CONTAINER CORPORATION (Buy)-Disallowed SEIS benefit drives post-tax loss

CONTAINER CORPORATION: Disallowed SEIS benefit drives post-tax loss

(CCRI IN, Mkt Cap USD5.1b, CMP INR589, TP INR680, 15% Upside, Buy)

• Volumes disappoint, PBT in-line: Volumes were down 2% YoY in 2QFY20. However, revenue grew 1% YoY to INR17.4b (in-line), led by a 3% YoY improvement in realization. EBITDA increased 5% YoY to INR4.3b (in-line), with the margin at 24.5% (+1pp YoY). PBT of INR3.5b (-25% YoY; +9% QoQ) too was in line with our estimate. There was an exceptional expense of INR8.6b as part of Service Export from India Scheme (SEIS) income recognized for prior years was disallowed by the DGFT. CCRI is in the process of filing an appeal in the matter. Post-tax loss thus stood at INR3.2b versus a profit of INR3.4b in 2QFY19. The company has opted for the new tax rate of 25.17% and adjusted its deferred tax liabilities accordingly.
• 1HFY20 performance: Sales/EBITDA increased 5%/14% YoY, while PAT declined 14% YoY. For 2HFY20, sales/EBITDA are estimated to grow 8%/21% YoY and PAT to decline by 14% YoY.
• Operating cash flows turn positive: OCF increased sharply by 8x to INR32.8b in 1HFY20, driven by the adjustment of INR30b payment to the Indian Railways in 4QFY19 as advance freight for FY20. CCRI also repaid INR7b of debt in 1HFY20 which it had raised last year to pay advance freight.