Q4FY23 Review: Container Corp: Weak performance; macro challenges ahead

22 May 2023 , 12:04 PM

Concor (CCRI) Q4FY23 PAT grew 8% YoY, on the back of 38% YoY increase in Treasury income, as overall volume growth was muted at 5% YoY. High-margin EXIM segment was sluggish; volume growth was led by low-margin Domestic segment (up 14% YoY). In FY24, CCRI hopes to regain market share (lost 5% in FY23) on the back of pricing. The 14% p.a. PAT growth is sensitive to margins and to that extent, valuations are hopeful. Analysts of IIFL Capital Services await a better entry point.

Weak performance: 

CCRI’s Q4FY23 PAT growth of 8% was driven by 38% YoY growth in Other income. Even otherwise, growth belied consensus estimates, reflecting the challenging macro landscape. Overall volumes were up 5%, largely led by low-margin Domestic segment (up 14% YoY); remunerative EXIM trade was up 2% YoY. The EXIM: domestic sales mix was 61:39 vs 67:33 YoY. Blended realisation/gross/ Ebitda per TEU was up 1%/5%/3% YoY, due to competitive intensity and change in revenue mix. In Q4, CCRI paid Rs1bn LLF, aggregating to Rs3.9bn for FY23. Q4 had ~Rs0.4bn non-recurring (but operational) expenses towards FCD taxes, R&M, etc.

Hoping to regain market share: 

CCRI CMD during the conference call stated: 1) Macro landscape for FY24 is challenging, as the EXIM trade growth is uncertain. Domestic segment offers good growth visibility; overall volume growth could be ~11%. 2) In EXIM, target is to regain market share (58% in FY23 vs 63% in FY22) by offering better pricing and services. Loss in market share was due to rapid growth in Infra by competition and aggressive pricing thereof; uncertainty arising from divestment, container availability etc. 3) CCRI plans to step up double-stack trains (4,100 in FY23 vs 3,750 in FY22) and route some domestic cargo on it. Such initiatives shall help maintain margins. 4) In FY23, Rs5.6bn investment has been made towards rakes, wagons, containers — with plans to hold this steady in FY24.

Await better entry point: 

Analysts of IIFL Capital Services FY23-25 PAT growth of 14% p.a. is based on 11% p.a. volume growth and unchanged gross margins. In case macro landscape worsens, margin/TEU will dilute. Rs500/TEU change in gross margin swings PAT by 14%. Completion of DFCC will benefit CCRI in medium- to-long run but near term remains uncertain. At ~11% cost of equity and 4% terminal growth, the stock prices in 20% cashflow growth through FY32 – reflecting secular growth despite cyclical nature of the business. Meanwhile, divestment news will induce volatility in stock price.