Q3FY24 Review: Container Corp: Inducing efficiency, growing volumes!

29 Jan 2024 , 12:22 PM

Analysts of IIFL Capital Services upgrade Concor’s (CCRI) FY24-26ii PAT by 8-11%, so as to reflect management’s optimism on growing volumes and margins through pricing and efficiency. At 13% YoY, Q3FY24 PAT growth was ahead of estimates, on the back of better realisations (up 5% YoY), gross margin/TEU (up 13% YoY) and lower LLF (down 26% YoY). CCRI is well placed to benefit from the eventual completion of Western DFC (Q4CY24) in the long run. Valuations are not cheap; one can await a better entry point for a meaningful upside. 

Lower LLF leads to beat: 

CCRI’s Q3FY24 PAT grew 13% YoY — ahead of estimates — as it paid 26% YoY lower LLF (past provision write-backs: net Rs720mn), combined with an improved gross margin/TEU (up 7% YoY), at a time when volumes grew 6% YoY. Higher gross margins reflect its strategy to focus on high yield traffic and opportunistic pricing strategy. Consequently, EXIM volumes were up 8% YoY, domestic was down 1% YoY. Blended realisations / Ebitda per TEU were up 5%/13% YoY. EXIM/ domestic ratio was at 78/22% vs 77%/23% YoY. 

Focus on efficiency: 

CCRI CMD Sanjay Swarup stated: 1) In Q4FY24, EXIM volumes are affected due to the situation in Red Sea and should get normalised soon; 2) WDFC completion by Q4FY25, which should materially benefit the container movement by rail. Rail coefficient at JNPT should improve from 18% to 25% by FY27. 3) Focus is to optimise the available railway terminal land vs LLF, and yet grow the throughput. It has identified few land parcels, including a section of Tughlakabad (largest facility by volume) that can be surrendered to the railways, which if fructifies, can lower LLF; 4) It continues to explore pricing changes that can balance volume growth and margins (eg: peak period surcharge is passed on selectively if critical to volumes). 5) As such, growth visibility over the medium term remains strong, given the various initiatives planned including MMLPs, first and last mile connectivity, etc. 6) It will invest Rs6bn p.a., in FY24/FY25 for network expansion, containers, wagons, IT infra, etc. 

Upgrade earnings:

Analysts of IIFL Capital Services upgrade their FY24/25/26 EPS estimates by 10%/ 8%/11% to reflect management’s optimism on margins. the 18% p.a. PAT growth through FY26 has upside, if the 11% p.a. volume growth surprises. Valuations at ~30x FY26 P/E are not cheap, but its strategy to grow volume and expand margins through efficiency may support multiples. Analysts of IIFL Capital Services think investors can await a better entry point for a meaningful upside.