Downgrade to ADD on Container Corporation - Awaiting clarity on policy - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities.

Container Corporation (4QFY20): Awaiting clarity on policy. Downgrade to ADD
(TP Rs 445, CMP Rs 434, MCap Rs 264bn)

We downgrade CONCOR to ADD after the sharp ~50% rally from the recent lows. While the logistics company will be a beneficiary of the DFC in the medium term, the stock will be driven by the policy guidelines of the IR ahead of its proposed privatisation, in the near term. There is a proposal to increase the land license fee by ~3x (media reports also suggest that CONCOR will have to purchase the railways land). Further, as the DFC is delayed due to COVID, volumes are expected to decline in double digits in the current fiscal.

4QFY20 Financials: Volumes for the quarter declined 4% YoY to 941k TEUs, which held up relatively well despite the COVID related disruption. Revenue decline of 14% YoY was in-line with our estimates. EBITDA margin surprised as margins expanded to 30.2%. This was due to lower railways charges (25% reduction in empty running charges by railways), lower employee expense as well as a provision write back of Rs 300mn. Reported PAT at Rs 2.94bn declined 16% YoY. Rs 206mn has been provided towards impairment of investment in its subsidiary - Fresh and Healthy. Adj PAT declined 12% YoY to Rs 3.1bn, which was above estimates.

Call & other takeaways: (1) Lower guidance in FY21: The management has provided a weak guidance of 20% YoY drop in volumes in FY21E. This is due to weak demand trends/delays in DFC commissioning. (2) Increased land license fees (LLF): After handing over 15 terminals to the Indian Railways (IR), the LLF on the remaining 29 terminals will be Rs 4.5bn vs. Rs 1.4bn in FY20. The co has written to the IR on the significant increase and has requested moratorium of 3-6 months. Clarity on this is awaited. (3) Empty running: In 4QFY20, empty movement of containers (15% of volumes vs. 13% YoY) was higher owing to lower volumes. However, the railways provided a 25% discount on empty running charges, hence the cost was reduced by 11% YoY. (4) Focus on profitable business: While CONCOR has lost market share by 6% in FY20, it is due to non-participation in less profitable short lead traffic/long lead traffic where competitors are offering deep discounts. The co is focusing on providing last mile connectivity to sustain market share. (5) Scaling back on capex spends: FY21 capex has been reduced to Rs 5bn (Rs 10.5bn in FY20).

Downgrade to ADD: While we are lowering our FY21 volume estimates, it will be partially offset by improved cost management. We set a TP of Rs 445 @ 22x FY22E EPS (in-line with its historic average trading multiple). Key Risks: A sharper than expected economic recovery and policy clarity on the upside, a further delay in the DFC on the downside.

Shares of CONTAINER CORPORATION OF INDIA LTD. was last trading in BSE at Rs.413.1 as compared to the previous close of Rs. 417.8. The total number of shares traded during the day was 64041 in over 2135 trades.

The stock hit an intraday high of Rs. 424 and intraday low of 402.7. The net turnover during the day was Rs. 26193260.

Source : Equity Bulls

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