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Sell
Container Corporation of India (CCRI.BO)
Return Potential: (8%) Equity Research
Declining growth and returns, unfavorable valuations; down to Sell
Source of opportunity
We downgrade Concor to Sell on 1) Domestic segment becoming
increasingly unattractive due to rising interest rates and slower
manufacturing and IP growth 2) Intense competition in the EXIM
segment, leading to pressure on Concor’s market share as well as price
realizations, 3) Declining margins – we expect 140bps decline in EBIT
margins over FY11-12E on failure to pass on increase in haulage charges
fully and rising fuel costs, 4) Unattractive valuations: current 12m fwd
P/E at 11% premium to 7-yr mean, despite FY12E EPS growth of 6% - lower
than FY04-11E EPS CAGR of 12%.
Catalyst
1) Continued slowdown in manufacturing and IP growth, negatively
impacting domestic volumes, 2) Further hike in fuel prices, taking freight
costs higher and negatively impacting margins, 3) Intensifying competition
in the EXIM segment as the private players re-position their rakes.
Valuation
We have reduced our FY11E EPS by 8%, adjusting for the lower volumes
and margins seen in Q4FY11 stand-alone company results. Our FY12E-13E
EPS estimates are lower by 15-17% as we lower our expectations on
volume growth (domestic segment) and margins (EXIM segment). We
forecast 6% earnings growth over next 12-m against company’s
guidance of 10% and I/B/E/S consensus estimate of 12%.
Our new 12-m TP of Rs1007 (vs. Rs 1088 earlier) is based on 15X FY12E P/E
– inline with the 7-yr mean 12m fwd P/E for the company (vs. DCF based
earlier, as valuations are likely to correspond more to how Concor delivers
in the next 12 months, in our view).
Key risks
1) Policy changes to increase the attractiveness of rail freight vs. road
freight, 2) Sudden pick up in lP growth and manufacturing.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sell
Container Corporation of India (CCRI.BO)
Return Potential: (8%) Equity Research
Declining growth and returns, unfavorable valuations; down to Sell
Source of opportunity
We downgrade Concor to Sell on 1) Domestic segment becoming
increasingly unattractive due to rising interest rates and slower
manufacturing and IP growth 2) Intense competition in the EXIM
segment, leading to pressure on Concor’s market share as well as price
realizations, 3) Declining margins – we expect 140bps decline in EBIT
margins over FY11-12E on failure to pass on increase in haulage charges
fully and rising fuel costs, 4) Unattractive valuations: current 12m fwd
P/E at 11% premium to 7-yr mean, despite FY12E EPS growth of 6% - lower
than FY04-11E EPS CAGR of 12%.
Catalyst
1) Continued slowdown in manufacturing and IP growth, negatively
impacting domestic volumes, 2) Further hike in fuel prices, taking freight
costs higher and negatively impacting margins, 3) Intensifying competition
in the EXIM segment as the private players re-position their rakes.
Valuation
We have reduced our FY11E EPS by 8%, adjusting for the lower volumes
and margins seen in Q4FY11 stand-alone company results. Our FY12E-13E
EPS estimates are lower by 15-17% as we lower our expectations on
volume growth (domestic segment) and margins (EXIM segment). We
forecast 6% earnings growth over next 12-m against company’s
guidance of 10% and I/B/E/S consensus estimate of 12%.
Our new 12-m TP of Rs1007 (vs. Rs 1088 earlier) is based on 15X FY12E P/E
– inline with the 7-yr mean 12m fwd P/E for the company (vs. DCF based
earlier, as valuations are likely to correspond more to how Concor delivers
in the next 12 months, in our view).
Key risks
1) Policy changes to increase the attractiveness of rail freight vs. road
freight, 2) Sudden pick up in lP growth and manufacturing.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell List
Coverage View: Neutral
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