Container Corporation - Volume growth disappoints; Profits decline - Karvy

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".

Source : Equity Bulls

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