Container Corporation, Skeptical about volume growth : REDUCE.::says Kotak Sec,

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Container Corporation (CCRI)
Infrastructure
Skeptical about volume growth despite management confidence. Key takeaways
from the 2Q conference call were (1) volume disappointment attributed solely to
closure of JNPT operations in August; shift to Mundra/Pipavav should have mitigated
volume loss, (2) higher port volume growth implies market share loss for Concor, and
(3) management confidence of 12% exim volume growth in FY11E; we are skeptical
given the trend in 1Q, base effect and high asking rate. Retain REDUCE.


Volume disappointment attributed solely to collision at Mumbai port; potential market share loss
The management attributed disappointment in its results entirely to the closure of JNPT port for a
month following a ship collision—the company pointed out that this led to a month of volume
losses. We believe volumes could have shifted to other ports such as Mundra and Pipavav and
Concor had a reasonable chance of capturing volumes at those ports. Hence, absolute loss could
have been mitigated to some extent. We also note that overall port volumes recorded a growth of
11.5% in 1H versus Concor growth of 4.68%, implying a market share loss.
Guides for FY11 exim growth of 12%; we are skeptical on high base effect, asking rate, sedate 1Q
The management seemed confident of achieving its 12% exim volumes growth guidance for the
full year. However, we are skeptical on three counts: (1) asking rate for 2H is very high at 19% to
achieve 12% full-year growth (we build in 8% full year volume growth), (2) base effect is negative
as recovery had taken share from 3QFY10 last year and (3) 1QFY10, which was unaffected by
events such as Mumbai port collision, had reported a yoy growth of only 8% despite favorable
base effect (traffic dipped by 5% yoy in 1QFY10, recovery had not taken hold by June,09).
Other highlights: decline in realization, profitability on lower lead distances, better empties control
Other key takeaways were (1) decline in average lead distance for exim (by 80 km) and domestic
(by 20 km) led to lower average per TEU realization and profitability in 1HFY11, and (2) a more
balanced export-import mix helped control the empties volume in 1HFY11 likely contributing to
the margin expansion.
Revise estimates; reiterate REDUCE with a target price of Rs1,250/share
We reduce our earnings estimates to Rs68.1 and Rs78.2 from Rs74.3 and Rs85.9 for FY2011E and
FY2012E based on (1) lower exim volume growth, (2) lower lead distance and (3) slightly higher
effective tax rate. Retain REDUCE with a revised TP of Rs1,250 (from Rs1,300) based on (1) lowerthan-
expected traction in volume pick-up, (2) potential further loss of market share to competitors
as they scale up operations affecting volume growth, (3) higher current valuation relative to
historical despite weaker earnings momentum and (4) lack of traction in other initiatives.