Q2FY24 Review: Container Corp: Higher treasury + lower LLF support PAT

6 Nov 2023 , 01:39 PM

Concor’s (CCRI’s) Q2FY24 PAT grew 18% YoY on the back of lower LLF, higher treasury, and spill-over of Q1 volumes. It aims to grow volumes at 12-15% p.a. driven by the domestic segment and hopes for a recovery in EXIM volumes. CCRI is yet to pass on the surcharge levied on containerised rail cargo and delays can adversely affect its margins. Analysts of IIFL Capital Services FY24-26 earnings forecasts build a 12% p.a. volume growth with a recovery in margins, and have risks. At 32x FY25 P/E, the stock is expensive and analysts of IIFL Capital Services await a better entry point. 

Lower LLF and higher treasury support earnings: 

CCRI’s Q2FY24 PAT grew 18% YoY and was ahead of estimates on the back of lower land license fee (LLF) and higher treasury (up 97% YoY). EXIM / Domestic volumes grew 4%/26% YoY. While EXIM realisation was up 6% YoY, domestic realisation was down 9% YoY (to support the volume growth). Consequently, the blended realisations/gross spreads/ Ebitda per TEU were up 3%/4%/1% YoY. EXIM/ Domestic ratio stands at 79/21% vs 82%/18% YoY. LLF paid during the quarter is Rs850mn vs Rs950mn/Rs1.3bn YoY/QoQ. 

Domestic strong, hoping for a recovery in EXIM: 

During the postearnings call, CCRI stated: 1) It aims to grow volumes at 12-15% p.a. primarily driven by the domestic segment where demand is strong; EXIM segment continues to face challenges given the uncertain macro. 2) Q2 volumes were supported by a spill-over from Q1 which was impacted by adverse weather. 3) CCRI is scaling up its multi-modal logistics business (warehousing + first/last mile). 4) LLF for FY24 is revised to Rs4.5bn (vs Rs5bn earlier) as CCRI rationalises its footprint. 5) Focus is on growing volumes while maintaining its margin profile rather than preserving market share. 6) Government has imposed a 10% peak season surcharge on containerised rail cargo w.e.f. Oct 1; CCRI is yet to pass it on to customers and plans to do it on a case-by-case basis, risking margins in H2FY24. 

Await a better entry point: 

Analysts of IIFL Capital Services maintain their FY24-26 growth forecast of 17% p.a. on the back of 12% p.a. volume growth and a sequential recovery in margins. Further, if the company is unable to pass on the surcharge levied, there is a risk to their FY24 estimates; as such a Rs500/TEU change in gross margins swings PAT by ~15%. At CMP, the stock expensively trades at 32x FY25 P/E and 18x FY25 EV/Ebitda and to that extent, analysts of IIFL Capital Services await a better entry point.