Container Corporation -Volume growth disappoints; Profits decline: Karvy

Volume growth disappoints; Profits decline
CCRI’s 3QFY13 standalone Sales, EBITDA & PAT rose +4%, ‐5% & ‐2% YoY
respectively to Rs10.8bn, Rs2.63bn & Rs2.37bn. PAT came in 5% lower than
our estimates driven by ~10% lower than estimated volumes. For the 9MFY13
period, Sales, EBITDA & PAT rose 6%, ‐2% and 10% YoY.
Revenue growth impacted by ~6% YoY lower volumes during the quarter as
logistics demand failed to pick up thereby impacting volume growth to
remain flat QoQ. For the 9M‐FY13 period, volumes declined 2% YoY.
Realisations across both EXIM & domestic segments improved by 2% QoQ
thereby boosting YoY 10% higher blended realizations which helped revenue
growth of 4% YoY.
Sharp rail in haulage charges; cost pass through a positive but volume
growth would suffer: CCRI and other CTOs have indicated that they have
passed on the first round of the 22% haulage hike fully to their customers
and would also try to pass on the second hike of 9% (wef from 1st feb 2013).
This should negatively impact on CCRI’s volume growth for the next three
four quarters on diminishing rail cost advantage vs road.
EBITDA margins should contract ~500bps in subsequent quarters: The
haulage hike impact should result in ~500bps margin contraction subsequent
quarters vs. ~25% witnessed during the preceding few quarters. This should
be primarily driven by ~500bps surge in rail freight charges as % of net sales.
Downgrade to HOLD: Whilst CCRI continue to remain best placed on both
pricing front and balance sheet strength, sluggish economic activities,
diminishing rail vs road container cost advantage would moderate CCRI’s
PAT growths in FY13E & FY14E. We have factored in ‐2% & +5% YoY
volume growth in FY13‐14E. However, in the long term, implementation of
GST and the increased contribution from the logistics parks should drive
CCRI profit growths. We lower our FY13E & FY14E EPS estimates by 5% &
9% respectively to factor in volume disappointment & haulage charge
increase. We also introduce FY15E estimates. Subsequently, we cut our TP to
Rs1,040 (earlier Rs1,110) valuing CCRI at 13.5x its FY14E EPS. In the absence
of near term growth triggers, we downgrade our recommendation to
“HOLD” from “BUY”.

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