On high ground Container Corporation of India - The Smart Investor

Container Corporation of India
CCRI is undertaking
the capex to position
itself strategically for the
huge opportunity around
FY17-18
Expect PAT CAGR of ~8.3% over FY12-15
CCRI has historically maintained a net margin of ~20% due to its pricing power given
its dominant position in the industry. We do not see any major decline in CCRI’s
pricing power and expect this profitability to sustain. We model ~8.3% CAGR in net
profit over FY12-15. Given new investment would have a 2-3 year gestation period, in
the interim higher depreciation charge and lower other income would exert pressure
on the net profit growth. CCRI is undertaking the capex to position itself strategically
for the huge opportunity around FY17-18, when DFC gets completed. Industry experts
estimate that the completion of the DFC project would result in a jump of 1.7-2x in
CTO trade, with shortening of turnaround time, increased asset turnover due to double
stacking, and improved efficiencies.
Notwithstanding near-term pressure on net profit growth and RoCE due to the high
capex plans, we view this as a key positive, as the preemptive capex would (1) further
increase CCRI’s competitive advantage and allow it to capitalize on the large emerging
opportunity, and (2) correct CCRI’s capital structure by utilizing its surplus cash.
PAT growth to be subdued over FY12-15E (INR m)
Source: Company, MOSL
CCRI’s RoE is
likely to remain subdued
in the near term due to
its high preemptive
capex of INR62b
RoE to remain subdued in the near term due to high capex intensiy
CCRI’s RoE is likely to remain subdued in the near term due to its high preemptive
capex of INR62b. We expect RoE to decline from 16.5% in FY12 to 15.4% in FY15, and
asset turnover ratio to remain flat at 0.8x over FY12-15. The biggest gain for CCRI is
likely to be benefits with regard to asset turnover improvement. We expect CCRI’s
asset turnover to increase from 0.8x in FY12 to ~1.4x in FY18, while EBIT margins are
likely to improve from 21% in FY12 to ~24% by FY18, resulting in RoAE improving from
16.5% in FY12 to 20% in FY18.
RoE to remain under pressure in the near term
15 October 2012 26