Container Corporation of India (CCRI.BO, Sell) Growth and returns declining –Goldman Sachs,

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Container Corporation of India (CCRI.BO, Sell)
Growth and returns declining – valuations still not attractive; maintain Sell
 We reiterate our Sell rating on Container Corporation (Concor) due to:
(1) The domestic segment becoming increasingly unattractive due to slower growth and shorter lead
distances.
(2) Intense competition in the Exports-Imports (EXIM) segment, leading to pressure on Concor’s market share
as well as lower price realizations.
(3) Declining margins: We forecast 140bp decline in EBIT margins over FY11-FY12 as we believe it will be
difficult for the company to fully pass on increases in haulage charges and rising fuel costs to customers.
(4) Unattractive valuations: Current 12-month forward P/E is near its 7-year mean, despite FY12E EPS growth
of 6% – lower than FY04-FY11 EPS CAGR of 12%.
 We do not make any changes to our estimates on Concor – our current forecasts are already 5%-6% below
Bloomberg consensus expectations for FY12 and FY13.
Valuation
 Concor currently trades at a 12-month forward P/E of 16.5X – a 13% discount to its 5-year average 12-month
forward P/E of 19X. Concor’s current valuation adequately balances the company’s strong execution track
record for the company with the near-term risks from order inflow delays, in our view.
 We lower our 12-month target price to Rs1,012 (from Rs1,030) based on 14X average FY12E-FY13E EPS (vs.
15X earlier), which is in line with the 5-year median 12-month forward P/E for the company, and our
expectations for a slower growth outlook in the future.
 Although the stock has declined 16% since we added it to our Sell list, and our revised target price now
implies 10% upside potential, Concor still offers one of the lowest upsides in our coverage group and hence
we maintain our Sell rating on the stock.
Key upside risks
 (1) Policy changes to increase the attractiveness of rail freight vs. road freight, and (2) sudden pick-up in
industrial production growth and manufacturing.

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