Q1FY24 Review: Container Corp: Poor performance; hoping for recovery

14 Aug 2023 , 01:52 PM

Concor’s (CCRI) Q1FY24 PAT was down 16% YoY, despite 8% growth in volumes and higher treasury income due to fall in Ebitda margins (down ~350bps YoY). In Q1, operations were subdued, given the adverse weather conditions. CCRI hopes to regain its lost market share (lost >5% since FY22) through better pricing and services. Analysts of IIFL Capital Services cut their FY24/FY25 PAT estimates by 14%/9%, to reflect the pressure on margins, and see further risks if margins continues to deteriorate. They await a better entry point; downgrade to ADD. 

Poor performance: 

CCRI’s Q1FY24 PAT fell 16% YoY on lower Ebitda margins at 20.4% (vs 23.9% YoY); partially set off by higher Other income (up 30% YoY). While EXIM/ domestic volumes grew 7%/10%, it came at the cost of lower realisations/ TEU. Consequently, blended realisations/ gross margins/ Ebitda per TEU declined by 10%/19%/23% YoY respectively. For Q1FY24, EXIM/ domestic volume ratio stands at 77%/23% and is flat YoY. Land license fee (LLF) paid to Railways stood at Rs1.3bn for Q1 vs Rs1bn YoY. 

Hoping for recovery: 

During the post-earnings call, CMD CCRI stated: 1) Extreme weather conditions (unseasonal rains, cyclone, etc.) had impacted operations, leading to lower revenues in Q1. 2) CCRI plans on regaining the market share that it has lost to competitors through better pricing and services from Q2. 3) Based on the discussion with Railway authorities, LLF has been revised to ~Rs5bn for FY24 (Rs3.9bn for FY23). 4) Capex target for FY24 has been set at Rs6bn towards investment in containers, new terminals, etc. 5) CCRI has not received any update from the government on its plans for disinvestment. 

Cut estimates, downgrade to ADD: 

Analysts of IIFL Capital Services cut their FY24/FY25 earnings estimates by 14%/9% respectively, to reflect the pressure on margins (competition etc.). As such, they forecast earnings growth of 9% p.a., through FY23-25, led by volume growth of 11% p.a., and normalisation of margins in FY25. If margins show no signs of recovery, there is further risk to their estimates; as such, Rs500/TEU change in gross margin swings PAT by ~14%. At CMP, the stock trades expensively at 29.9x FY25 P/E and 17.2x FY25 EV/Ebitda, and is at a significant premium to other PSUs. Analysts of IIFL Capital Services await a better entry point for a meaningful upside on the stock.