Container Corporation of India: Guidance ahead of consensus:: Nomura

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 Action
Container Corp of India’s 2Q FY11 results were ahead of estimates on better EXIM
traffic and margins, despite hiccups due to the JNPT mishap. Management
appeared extremely confident of exceeding 12% volume growth for FY11F, which
the Street is sceptical about, in our view. We revise our estimates and PT slightly to
factor in slower-than-expected recovery, which is still in line with management and
ahead of Street estimates. Our new PT of INR1,575 is 18x Sep 12F EPS. BUY.
 Catalysts
Strength in port traffic, export recovery, early finalisation of bulk cargo entry and
margin improvement in the existing business are likely to be key catalysts.
Anchor themes
A pick-up in industrial activity will likely lead to a turnaround in export / import traffic,
benefiting port entities and container logistics companies.


Guidance ahead of consensus
 EXIM segment does well despite hiccups
Container Corp of India (CCRI) reported 2Q FY11 results ahead of
consensus and Nomura estimates, led by better-than-expected
growth in traffic and margin in the EXIM segment. Notably, this was
achieved despite loss of almost a month’s traffic due to a mishap at
JNPT (Mumbai). The domestic segment, however, disappointed with
slower-than-expected growth and a sharp dip in margins, which was
not explained in the post results conference call.
 FY11 guidance ahead of consensus
Management, however, appeared very confident of delivering >12%
volume growth in FY11F, although 1H FY11 was just 5% y-y. While
we factor in similar growth, consensus is still bearish on the outlook, in
our view.
 2Q FY11 results snapshot
Specifically, EXIM segment revenues declined 5.2% y-y but rose
1.8% q-q, along with a margin rise of 150bps y-y (90bps q-q) to 28.5%.
Domestic segment revenues rose 7.8% q-q and 13.1% y-y, while
segment margins dipped to 9.9% (vs a normal band of 16-17%).
 Tweaking estimates; rolling over PT to Sep 12 estimates
We lower our FY11F and FY12F estimates to factor in lower-thanexpected
traffic recovery at the ports. Compensated by better margins,
though, our earnings estimates decline only by 5.5-6%. We also roll
over our valuation to Sep 12F earnings and, accordingly, revise our
price target to INR1,575, based on 18x P/E (unchanged). Given
22.4% upside, we maintain our BUY rating.