Sector Update | 19 March 2017
Logistics
EXIM rail container volumes maintain their healthy uptrend
Robust tonnage growth may ease margins pressure for CCRI
EXIM originating container rail volumes maintained the double-digit growth trend of
the last seven months. Originating container rail volumes in tonnage terms increased
21% YoY over Jan-Feb 2018.
In our view, with ~73% market share in container rail movement, Container
Corporation of India (CCRI) is likely to track growth rates of the underlying market.
We, however, note that, in Feb-18, lead distance for EXIM declined by ~30km MoM
and by ~46km from 4QFY17 levels. This, in our view, should have repercussions on
margins.
This apart, price hikes on key routes in 4QFY18 could impact margins. Healthy volume
growth, though, could partly offset the impact.
Domestic originating container rail volumes in tonnage terms declined by 1% YoY over
Jan-Feb-2018. We had assumed 10% YoY growth for CCRI for 4QFY18. Thus, the decline
in domestic volumes could impact our estimates for CCRI, but the extent of revision
may be limited as domestic is not a major segment for CCRI.
EXIM container rail data suggest strong growth over Jan-Feb 2018
EXIM originating container rail volumes in tonnage terms grew by a robust 21%
YoY over Jan-Feb 2018. Notably, growth has consistently been in double-digits
for seven months now, translating into 15% YoY growth in container rail
volumes for 2QFY18/3QFY18. With ~73% market share in container rail
movement, CCRI reported EXIM originating volume growth of 8% YoY (TEU
terms) for 2QFY18/3QFY18.
Lead distance reduction hurting realizations
Lead distance for the rail segment has been declining consistently due to the
increasing proportion of volumes from Mundra/Pipavav ports (which have a
lesser lead distance to the north hinterland). This, in turn, has been adversely
affecting realizations, and thus, margins. Lead distance for EXIM rail
transportation declined by 30km MoM in February, which may impact margins
in 4QFY18.
We also note that, for CCRI, the lead distance in the EXIM segment had declined
by ~70km YoY in 3QFY18 (according to management, a 70km decline in the lead
distance corresponds to ~INR800/TEU decline in realizations). The impact,
though, was partly offset by price hikes by CCRI in 2QFY18/3QFY18. A higher
proportion of double-stacking volumes in 3QFY18 also helped improve margins.
Volume growth to offset realization miss
CCRI may see some impact of a reduction in EXIM rail lead distance in Feb-18,
particularly in the absence of meaningful price hikes in key routes. We have
assumed QoQ margin improvement of INR51/TEU for CCRI’s EXIM segment.
However, we see upside risk to our volumes estimate from better-than-
estimated volume growth.
8 August 2016
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Abhishek Ghosh
– Research analyst
(Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436
Pradnya Ganar
– Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 3980 4322

Logistic
Domestic originating volume growth subdued
The domestic segment had witnessed sharp margin erosion in 3QFY18 due to an
increase in trade imbalance. Domestic originating container rail volumes
declined 1% YoY (in tonnage terms) over Jan-Feb-2018. We had assumed 10%
YoY growth for CCRI for 4QFY18. Thus, the decline in domestic volumes could
impact our estimates for CCRI, but the extent of revision may be limited as
domestic is not a major segment for CCRI (less than 10% of overall EBIT).
Valuation and view
For CCRI, we expect EBITDA CAGR of 23% over FY18-20, led by 14% volumes
CAGR and 2.6pp margins improvement. We acknowledge that the environment
for container rail logistics is likely to improve markedly in the absence of cost
push, but see limited stock price upside from current levels after factoring in
most positives into CCRI’s earnings. At an EV of 18x FY19E and 14x FY20E
EBITDA, valuations are expensive, in our view. Maintain
Neutral
with a target
price of INR1,330.
19 March 2018
2

Logistic
Story in charts
Exhibit 1: EXIM container rail tonnage grew by 24%YoY in Feb 2018
EXIM Tonnes originating (millions)
7 10 4
3
10 13
(6) (9)
(4) (4)
(12)
(4) (2) (2) (2)
(5)
3
EXIM tonnes originating (mn)
6
(6) (8)
6
4
10
2
(0)
% Change (YoY)
24
20 19 18 16
18
17
13
7
(1)
(2)
0
Source: MOSL, Company
Exhibit 2: EXIM container rail tonnage grew by 15%YoY in 3QFY18
EXIM Tonnes originating (millions)
16.9
5.3
(4.0)
6.5
1.2
23.6
21.2
9.3
1.8
(6.4)
(6.4)
EXIM tonnes originating (mn)
5.5
% Change (YoY)
15.1
(1.8)
1.0
(1.7)
4.6
6.0
15.3
7.7
8.1
8.2
8.5
9.0
10.1
9.9
9.3
9.2
9.4
9.3
9.2
9.7
9.5
9.1
9.6
10.3
10.9
10.5
Source: MOSL, Company
Exhibit 3: CCRI’s EXIM originating volumes increased 8% YoY in 3QFY18
EXIM originating volume (TEU)
-5%
2%
-15%
-5%
0%
0%
7%
YoY growth(%)
9%
5%
7%
8%
446,412
475,959
432,716
442,198
445,810
475,299
464,255
464,084
483,776
509,406
502,227
Source: MOSL, Company
19 March 2018
3

Logistic
Exhibit 4: Domestic rail tonnage declined by 1.1% YoY in Feb 2018
Tonnes originating (millions)
Domestic tonnes originating (mn)
25
(13) (19)(16)
(22)
(5)
(6)
(9) (6)
(15)(18)(17)(11)(20)(11)(10)
(18)(20)(14)
6 4
14 9
27
21
28
46 45
28
8
% Change (YoY)
16 16
(4)
20 18
(1) (1)
Source: MOSL, Company
Exhibit 5: Domestic rail tonnage increased 10.5% YoY in 3QFY18
Domestic Tonnes originating (millions)
29.1
21.8
9.4
16.9
Domestic tonnes originating (mn)
% Change (YoY)
39.4
25.4
16.0
0.9
(17.5)
2.0
2.2
2.5
2.9
2.8
2.5
2.7
5.7
1.1
13.5
10.5
(7.5)
(17.4) (13.4) (16.9) (13.8)
2.5
2.4
2.2
2.1
(7.9)
2.6
2.6
2.7
3.1
2.8
2.7
2.5
2.3
Source: MOSL, Company
Exhibit 6: CCRI’s domestic originating volumes increased 14% YoY in 3QFY18
Domestic originating volumes (TEU)
7%
YoY growth(%)
30%
10%
11%
14%
-20%
53,281
-9%
-23%
51,571
54,441
3%
-7%
2%
61,397
49,691
52,448
58,013
67,514
64,506
58,133
65,949
Source: MOSL, Company
19 March 2018
4

Logistic
Exhibit 7: Rail’s average lead distance for domestic reduced by 1% YoY, while it reduced by 5% YoY for EXIM in Feb 2018
Average lead (kms)
Domestic
EXIM
Source: MOSL, Company
Exhibit 8: Rail’s average lead distance for domestic reduced by 1% YoY while for EXIM reduced by 5%YoY in 3QFY18
Average lead (kms)
Domestic
EXIM
Source: MOSL, Company
Exhibit 9: Concor’s lead distance declined by 9% YoY in 3QFY18
Lead distance (kms)
920
929
901
900
850
818
799
770
743
730
729
Source: MOSL, Company
19 March 2018
5

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Logistic
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19 March 2018
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