On high ground Container Corporation of India - The Smart Investor

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Container Corporation of India Container Corporation of India: On high ground Page No. Summary ............................................................................................................ 3 Story in charts................................................................................................ 4-5 Set to further expand its inimitable moat ................................................. 6-11 Industry background ................................................................................. 12-14 Multiple medium-to-long-term triggers................................................... 15-22 Leveraging strategic JVs to provide total logistics services ..................... 23-24 Financials robust despite higher competition ......................................... 25-33 Initiating coverage with Buy ..................................................................... 34-39 Financials and valuation ........................................................................... 40-41 15 October 2012 2
BSE SENSEX S&P CNX 18,793 5,705 Bloomberg CCRI IN Equity Shares (m) 130.0 52-Week Range (INR) 1,057/805 1,6,12 Rel. Perf. (%) 3/0/-7 M.Cap. (INR b) 130.9 M.Cap. (USD b) 2.5 Valuation summary (INR b) Y/E March 2012 2013E 2014E Sales 41.0 44.5 49.9 EBITDA 10.2 11.3 13.0 NP 8.7 9.4 10.0 EPS (INR) 66.6 72.4 77.0 EPS Gr. (%) -1.2 8.7 6.3 BV/Sh. (INR) 427.4 480.0 536.1 P/E (x) 14.0 12.9 12.1 P/BV (x) 2.2 1.9 1.7 EV/EBITDA (x) 10.6 10.1 8.8 EV/Sales (x) 2.7 2.6 2.3 RoE (%) 16.5 16.0 15.1 RoCE (%) 22.3 21.0 20.0 Prices as on 11 October 2012 Shareholding pattern (%) As on Jun-12 Mar-12 Jun-11 Promoter 63.09 63.09 63.09 Dom. Inst 7.09 7.31 7.24 Foreign 25.55 25.65 26.51 Others 4.28 3.96 3.16 Stock performance (1 year) Investors are advised to refer through disclosures made at the end of the Research Report. 15 October 2012 15 October 2012 Initiating Coverage | Sector: Logistics Container Corporation of India CMP: INR1,048 TP: INR1,250 Buy On high ground Key beneficiary of GoI’s thrust on Indian Railways to correct freight modal mix / key reforms; competition unable to mimic success • Over FY13-17, CCRI would be a big beneficiary of (1) the government’s focus on Indian Railways to correct freight transport modal mix, (2) infrastructure projects like the DFC and container port capacity expansions, and (3) key reforms such as GST and FDI in retail. • Since 2006, ~15 new players have entered the container train operation (CTO) business. However, none of them have been able to mimic CCRI’s success. • By virtue of its legacy pan India strategic assets, CCRI enjoys an inimitable resource advantage over its peers, which is steadily increasing with time. • While concerns such as high empties cost and muted near-term growth outlook remain, the long-term prospects are favorable for CCRI and outweigh near-term concerns. We initiate coverage with a Buy rating. Set to further expand its inimitable moat By virtue of its legacy low cost pan India strategic assets, Container Corporation of India (CCRI) enjoys an inimitable resource advantage over its peers, which is steadily increasing with time. None of the 15-odd new players that have entered since the container train operation (CTO) industry was opened in FY06 have even achieved minimum economies of scale. CCRI is implementing preemptive capex of INR62b, which will not only further enhance its competitive advantage, but also allow it to position itself as a total logistics player. Multiple medium-to-long-term triggers CCRI is one of the best proxies to play multiple themes such as (1) infrastructure thrust, especially investments aimed at correcting the freight transport modal mix, (2) reforms – GST, FDI in Retail, and (3) ongoing structural trends – containerization, shift from road to rail. Successful execution of proposed infrastructure capex and key reforms could result in container rail traffic growing at 17.6% over FY13-18. As the undisputed leader, CCRI should benefit the most. We expect CCRI’s volumes to grow at a CAGR of 17.1% over FY13-18. Leveraging strategic JVs to provide total logistics services CCRI’s key strength is its ability to provide single window facility for multimodal logistics services. It is able to do so through its strategic JVs with its customers (GDL/Allcargo), port operators (APM/ DPI), road haulers (TCI), air cargo (HALCON/ GVK) and shipping lines (Maersk). Initiating coverage with Buy We believe CCRI’s inimitable pan India network provides it with a significant moat, which coupled with positive long-term industry prospects, will allow it to enjoy a prolonged period of growth. We believe DCF is the best way to capture the intrinsic value of CCRI, given its stable cash flow, consistent payout ratio, robust operational RoCE and low reinvestment requirements. Initiate coverage with a Buy rating and a target price of INR1,250 (upside of 19.3%). 3
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On high ground Container Corporation of India - The Smart Investor

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