Container Corporation Share Price: Jefferies maintain buy rating and raises price target to Rs 700
Jefferies were positively surprised at Tughlakabad (TKD) seeing limited volume loss, despite the 10-12% realisation hike effective 6 Dec 2020. Jefferies interactions with competitors suggest no material volume inflow from TKD, in-line with management’s Q3 commentary. TKD hike implies 5% YoY realisation rise in FY22E vs earlier 3% expectation. Jefferies raised their FY22E-25E realisation CAGR to 4% vs 2% and EPS by 18-19%.
Jefferies were positively surprised at Tughlakabad (TKD) seeing limited volume loss, despite the 10-12% realisation hike effective 6 Dec 2020. Jefferies interactions with competitors suggest no material volume inflow from TKD, in-line with management’s Q3 commentary. TKD hike implies 5% YoY realisation rise in FY22E vs earlier 3% expectation. Jefferies raised their FY22E-25E realisation CAGR to 4% vs 2% and EPS by 18-19%. Privatisation and lower LLF are additional upside. Buy. Container Corporation stock price today is Rs 620, up Rs 41.5 or 7.2%.
TKD hike implies additional Rs 1.4-1.6 bn revenue:
Container Corp (Concor) levied a land usage surcharge of Rs 5000/TEU on loaded import containers. TKD handles approx. 0.4-0.45 mn TEUs with likely 70:30 import-export mix. Rs1,974/TEU is the LLF rise impact to Rs11 bn on FY20 EBITDA/TEU of Rs 3946 (normalised for Rs2 bn LLF). Jefferies assumed gradual EBITDA/TEU normalisation from Rs 2043/TEU in FY21 to Rs 3598/TEU in FY25E with more subdued price hikes.
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TKD pricing power has given us confidence to improve FY25E EBITDA/TEU to Rs 4151, slightly higher than normalised FY20 levels at 2.1x volumes. Jefferies believes their LLF assumptions do leave room for upside if management gives up terminals and retains TKD only (Rs7-8 bn LLF) as the EBITDA earned at other terminals is Rs 2.5 bn at best. However, Jefferies are awaiting clarity on this with Q4 results.
DFC interaction boosts confidence in our volume growth assumptions: Dedicated Freight Corridor (DFC) Director, in a recent investor call organised by us, was extremely positive on rail gaining share from roads. Palanpur-Khatuwas (641 km) was highlighted as a section where volumes could rise 3x given transit time and cost saving. Enquiries have already begun for rail slot bookings, with Concor and other rail operators commencing trial runs on some stretches.
Gujarat ports are on target to be connected in Q1 FY22E. JNPT land issues have been resolved with possession expected in a month. Ministry target for JNPT remains June 2022 vs our expectation of April 2023. Our 22% volume CAGR assumption for Concor in FY21E-25E implies traffic rising 2.2x, which could see a positive surprise based on the call commentary.
Rs 1 bn LLF reduction adds 4-10% to FY22E-25E EPS:
Media reports indicate a new land policy is in discussions which could see LLF rate reducing to 3% of land value from 6%, implying Jefferies Rs 11 bn assumption could be Rs 5.5 bn. This and disinvestment linked upsides will add to their price target. Jefferies looks forward to the DFC commissioning in Q1 and its volume visibility re-rating Concor from current levels. Jefferies price target of Rs 700 (vs Rs 565 previously) factors in revised estimates and is based on 23x EV/EBITDA FY23E – 18% premium to the 10-yr median of 19.5x, and is the implied multiple of our DCF. Premium reflects the higher volume CAGR of 22% in FY21E-25E vs 4.5% in FY10-20.
Container Corporation Downside risks:
1) Indefinite delays in DFC
2) Rail not gaining the share expected
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