15 October 2012 Initiating Coverage | Sector: Logistics

Container Corporation of India

On high ground
Siddharth Bothra (Siddharth.Bothra@MotilalOswal.com); +91 22 3029 5127

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

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15 October 2012 Initiating Coverage | Sector: Logistics

Container Corporation of India
BSE SENSEX S&P CNX

18,793

5,705

CMP: INR1,048 On high ground

TP: INR1,250

Buy

Key beneficiary of GoI’s thrust on Indian Railways to correct freight modal mix / key reforms; competition unable to mimic success
Bloomberg Equity Shares (m) 1,6,12 Rel. Perf. (%) M.Cap. (INR b) M.Cap. (USD b) CCRI IN 130.0 3/0/-7 130.9 2.5
   

52-Week Range (INR) 1,057/805

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

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.

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)

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%).
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Investors are advised to refer through disclosures made at the end of the Research Report. 15 October 2012

Container Corporation of India

Story in charts Key beneficiary of thrust to correct freight modal mix
 Unfavorable transport modal mix with high reliance
on roadways hinders India's GDP growth by ~2%.

 The share of container trade is steadily
increasing, but is still significantly lower than world average

 There is now a concentrated effort to correct this
imbalance, which is reflected in the sharp increase in allocation for the transport sector in the successive five-year plans.  Concentrated effort to correct India's modal mix (%)
Rail transport is cheaper over longer distances (cost)

 The share of Indian Railways in container traffic
will increase sharply post the implementation of the Dedicated Freight Corridor.

Air Water Rail

<1 6 36

Air Water Rail

<1 5 25

Air Water Rail

<1 6

46

69 Road 57 Road Road 47

(Kilometers)

FY10

From current trajectory…

… to balanced modal mix

Source: KPMG, McKinsey, IPA, MOSL

Proposed allocation for infrastructure/ transport sector in the 12th Plan to help correct freight modal mix
Twelfth Planned expenditure on transport infrastructure is expected to be about INR13,750b. Assuming the split remains similar to the 11th Five-year Plan, it would amount to INR7,013b in roads, INR4,813b in railways, INR963b in ports and INR963b in airports

Source: Indian Planning Commission, KPMG

 Share of container trade steadily increasing (%)

 Share of Indian Railways in container traffic low

Source: IPA, IR, MOSL 15 October 2012 4

1 0.0 0.1 Others 90 3 0. which is aimed at increasing its competitive advantage in the CTO industry and establishing itself as a total multimodal logistics player.8 7 24. which should lead to sharp improvement in its payout ratio.6 Total 387 70 3 1 3 Concor's Share (%) 65 90 76 70 75 # Net of cash. ~15 new players have entered the CTO business. MOSL 15 October 2012 5 . its OCF and FCF have grown at a CAGR of 12% and 17%.7 19.Container Corporation of India Story in charts CCRI best placed to benefit from emerging opportunities  Since 2006. none of them have been able to mimic CCRI's success.2 11.  Over FY13-17 CCRI is undertaking preemptive capex of ~INR62b over FY13-17.5 0.4 1. MOSL Core RoCE to bottom in FY15  FCF to increase sharply from FY16 Source: Company. Post the completion of its preemptive capex by FY16-17.6 17 43 Source: Company.2 Arshiya International** 20 1 0.4 RoC (%) Concor 253 63 2.7 16. MOSL  Preemptive capex plans for FY13 and FY13-17 to further increase its competitive moat (INR b) FY13 FY13-17 Source: Company.9 5 6.5 2. *Faridabad to start in 3QFY13.9 7.  Over FY02-12.3 0.3 82 EBIT Capital Emp (%) (INR b) 22.3 0. However.) Volumes (m TEU’s) Total EXIM Domestic (m TEU’s) Value (INR b) 41 5 3 10 58 70 EBIT (INR b) 9.1 0. **Khurja to start in 3QFY13 28.  Competitors unable to mimic CCRI's success Rakes Terminals (Nos.  Core RoCE would be under some pressure due to major preemptive capex.2 0.0 0.6# 33 6.3 5 66. we expect CCRI to enter a sweet spot of sustainable and robust FCF.) (Nos.6 Gateway Rail* 24 3 0.4 11. but should bottom FY15.

they have failed to capture a proportionate share of volumes or industry profits. when private operators were permitted and licensed to enter the container rail business. 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. Till 2006. which is steadily increasing with time. 18 are pure EXIM terminals. CCRI enjoys an inimitable resource advantage over its peers. none of the competitors are likely to have the network presence to pose any major challenge to CCRI's dominance in the medium term. CCRI’s first mover advantage and legacy low cost strategic rail assets give it inimitable resource advantages over its peers. they have been unable to mimic CCRI's financial success. emerging as a total logistics player    By virtue of its legacy low cost pan India strategic assets. Setting up a rail terminal is not only capex intensive but also involves the arduous task of (a) acquiring large contiguous land in close proximity to the railway track for inland container depots (ICDs) and near ports for container freight stations (CFSs). Enjoys inimitable resource advantages Incorporated in 1988 as a state-owned entity under the Ministry of Railways. which will not only further enhance its competitive advantage.Container Corporation of India Set to further expand its inimitable moat Competitive intensity abating. 15 October 2012 6 . Even six years after 15 private CTOs entered the business. and (b) procuring regulatory approvals from the central government and linkages from Indian Railways. 33 are combined terminals and 12 are pure domestic terminals. which are steadily increasing with time. it was the monopoly player. Key success factors for a container train operator (CTO)  Extensive pan India asset network of rail terminals / container freight stations (CFSs) / inland container depots (ICDs) at strategic trade locations  Relationships with major international shipping lines  Ability to offer multi-modal services Has the largest rail terminal network in India The nature of the CTO business is such that higher volumes can be captured only if a player has access to a wide network to handle and consolidate freight The nature of the CTO business is such that higher volumes can be captured only if a player has access to a wide network to handle and consolidate freight. but also allow it to position itself as a total logistics player. that are slated to get operational by 3QFY13 and another 12-15 terminals at planning/ implementation stage by various other CTO players. Rail terminal yards allow consolidation of cargo and enable implementation of the hub and spoke model. Though its competitors have added ~134 rakes. Of these. While there are two key terminals in the NCR region by GDL (at Faridabad) / Arshiya (at Khurja). CCRI is implementing preemptive capex of INR62b. CCRI has ~63 rail terminals at strategic locations across the country. ~55% of CCRI's rake capacity of ~253 rakes. they have cumulatively set up only ~7 terminals. Thus. They also enable value addition and drive cost efficiencies. CCRI had the benefit of obtaining Indian Railways’ surplus land at strategic locations at very attractive long-term lease rates.

Trucking Fertilizers Ludhiana/ Mumbai/ Faridabad India Infra. surcharges and taxes 15%. it will not be in a position to pass through the frequent increases in haulage charges. and (3) pan India rail terminal network owners. Indian Railways has increased haulage charges by ~23%. (2) Indian Railways. etc) or a third-party logistics provider (3PL). CTO Shipping/ Freight Forwarding Container shipping. it is likely to get squeezed and fail to appropriate the value created on a sustained basis. Indian Railways: Indian Railways is the sole owner of the rail network and the sole haulage service provider in India. 2. infra CFS. **Boxtrans (India) Logistics 98 2 100 10 90 100 5 95 Khurja 4 96 76 24 76 70 Services. MOSL Favorably placed with respect to power centers in the industry The importer or exporter typically appoints a shipping company (like Maersk. Unless. Mediterranean Shipping. 7 15 October 2012 . etc. Singapore 15 Total 387 69 Concor Share (%) 65 91 *Container RAIL Road Services. and others ~12%. ~75% of the global cargo capacity is controlled by 12-15 international shipping lines/ alliances. which in turn engages ancillary service providers such as CTOs. Unless a CTO has a wide network and large scale. Container terminals. International shipping lines/alliances: According to industry estimates. CTO.Container Corporation of India CTOs in India . 12 TransRail Logistics 2 Arshiya Rail Infra. destination delivery 15%. Container terminal Warehousing. The hypothetical cost break-up of a typical container movement between India and US is: ocean freight 58%. They use their power to squeeze counterparty prices.a snapshot Name Adani Logistics Concor CRRS* CWC ETA Star Group Gateway Rail Freight Hind Terminals Group Adani IR# DPW PSU Dubai GDL MSC Rakes 6 253 8 11 21 14 Rail Terminals 2 63 3 Exim Domestic Locations (%) (%) 33 80 100 100 80 84 100 67 20 20 16 Gurgaon/ Kishangarh Pan India Other Activities Ports. when private sector companies were allowed to enter the CTO industry. #IR: Indian Railway Source: Industry. According to industry estimates. switch between rail/road. The three key power centers in the CTO value chain are: (1) international shipping lines/alliances. CFS Multi modal operator Ports. 20 1 KRIL 8 Inlogistics NOL. a player has some inimitable advantage with respect to one or more of these power centers. CFS Shipping and port services CFS. Since 2006. ~75% of the global cargo capacity is controlled by 12-15 international shipping lines/alliances 1. which constitutes ~75% of the CTO market and is significantly more profitable. The CTO accounts for a small proportion of an exporter/importer’s overall logistics costs. it will be unable to capture the EXIM business. container terminal Container terminal. APL 9 SICAL Logistics 8 Boxtrans (India)** JM Baxi & Co. CFS. Haulage charges constitute 70-75% of a CTO’s overall costs and unless a player has reasonable pricing power.

The minimum economies of scale (volume) needed to break even are high. CCRI is in a position to play the game strategically. which lowers RoCE and increases the gestation period. By virtue of its first mover and low cost resource advantages.Container Corporation of India 3. operational excellence and low cost advantage (establishment cost for CCRI is just 2% of sales). Success primarily depends on achieving economies of scale. 15 October 2012 8 . Since there is limited scope to create variance in service offerings. given that the product is homogeneous and demand exogenous Setting up rail terminals is capital intensive. and (2) pass through the increases in Indian Railways’ haulage charges. This allows it to retain the value created on a sustainable basis and enjoy attractive returns on its capital employed. there is risk of price-based competition. given that the product is homogeneous and demand exogenous. The size of most sub-markets is limited and setting up a terminal close to an existing one divides the traffic. Understanding the CTO value chain Sourcing & Intermediation Exporter / Producer Outbound Cargo Handling & Domestic Receipt Air Cargo Centre Central Warehouse ICD (Container Cargo) CFS (Container Cargo) Customs House Agent Outgoing Port Shipping Line Legend: Transport Mode: Road Rail Air Sea Intermediary Type: Service Providers Infrastructure Points End Users Source: KPMG Analytics Transit Airport Local Warehouse / Pick Up Point Consumer Bulk / Break Bulk Cargo Inbound Cargo Handling & International Receipt International Airport Central Warehouse Customs House Agent CFS / ICD Importer Local Warehouse / Pick up point Express Cargo Agent Freight Forwarder Local Factory Yard / Storage Trucking Company 3PL / 4PL Agent Key Activities:  Sourcing and Intermediation  LTL / FTL Management  NVOCC Management  Arranging / Broking  Tracking (GPS / IT)  Insurance Key Activities:  Unloading  Inspection  Sorting  Storage  Consolidating / Bulk Breaking  Stuffing / Destuffing  Customs Handling / Clearing  Documentation  Loading Incoming Port In a position to play the game strategically The MES (volume) needed to break even are high. Pan India rail terminal network owners: A pan India rail terminal network owner like CCRI is able to (1) withstand the bargaining power of international shipping lines/alliances.

This is because of a confluence of factors such as: (1) shrinking EXIM business due to global economic turmoil.5 2. and (d) strategic JVs to provide end-to-end logistics solutions. 15 October 2012 9 .1 0. with few non-compete clauses.8 7 24.6# 33 6.0 0. *Faridabad to start in 3QFY13. rebates. the returns are likely to remain under pressure in the medium term.9 5 6.) (Nos. (c) introduction of incentive schemes (volume discounts.Container Corporation of India Competition unable to mimic CCRI's success Since 2006. (b) reduction in rates on selected routes.3 0. ~15 new players have entered.2 0. Comparative performance of key players Rakes Terminals (Nos. These players were largely attracted by: (1) robust financials of the incumbent (PAT margin of 20%.) Volumes (m TEU’s) Total EXIM Domestic (m TEU’s) 2.2 0.3 5 66. Most of the new entrants are not making reasonable returns on capital employed and a few are highly leveraged Most of the new entrants are not making reasonable returns on capital employed and a few are highly leveraged. and longer free time for clearing loaded containers). Since FY11. (3) confidence in their ability to create variance in service offerings.1 0. MOSL Initially.0 0.4 RoC (%) Concor 253 63 Gateway Rail* 24 3 Arshiya International** 20 1 Others 90 3 Total 387 70 Concor's Share (%) 65 90 # Net of cash. CCRI took several strategic measures to protect its market share: (a) reduction in tariffs for FEU (forty foot equivalent unit) containers. CCRI alone intends to induct ~30 rakes during the year. when private operators were permitted into the CTO business.3 82 EBIT Capital Emp (%) (INR b) 22. nevertheless. and (4) underestimation of minimum economies of scale.5 3 76 Khurja to 0. since competitors still far away from reaching MES. and (4) contraction of domestic market growth (trade shift to roadways) due to sharp ~22% increase in haulage charges by Indian Railways.6 17 43 Source: Company. ** 28. Though one of the reasons for the low returns is the fact that investments are front loaded. Most of these players have been unable to mimic CCRI’s success and have been forced to curtail their expansion plans. As such. CCRI’s market share has stabilized at ~75%.7 16. the financial situation of CCRI remains robust (net cash of INR30b + operating cash flow of INR10b). most of these players were able to expand the market by entering new and under-serviced routes and concentrating on the neglected domestic market.7 19. bulk discounts. (2) growth potential of the CTO industry.6 1 3 70 75 start in 3QFY13 Value (INR b) 41 5 3 10 58 70 EBIT (INR b) 9.4 11.4 1. operational RoCE of ~40%).1 0.6 0. On the other hand.9 7. lower rates for moving empty containers. the competition does not pose a major challenge to CCRI in the near term. Faced with intense competition.3 0.2 11. (2) poor economic returns on capital employed. Almost 10 of these players had initially tied up with CCRI to use its rail terminal network. While its competitors plan to cumulatively add ~18-20 rakes in FY13. (3) difficulty in land acquisition for setting up rail terminals.

 New entrants seem to have underestimated minimum economies of scale: The new entrants seem to have underestimated minimum economies of scale.1 9.1 0.5 2. Based on our industry interaction.7 84 21 7.9 5.7 21.2 1.8 0.7 16.5 18. MOSL.5 -6.7 36.5 43.9 14.9 20.6 20 21 Source: Company.5 2.0 37.4 2.1 10. only 2-3 players (like GDL.6 CAGR (FY10-12) 7.3 9.9 88.3 7.9 4.3 20.3 -6.3 -2.3 6. This implies minimum investment of ~INR13b (terminals: INR1.9 116 22 26.6 1.9 4. We expect this trend to sustain and CCRI’s market share to become more resilient with competitive intensity abating.6 15.7 0.2 -3.7 4.Container Corporation of India Volume comparison over FY07-12 (Industry v/s CCRI) FY07 Indian Railways (m tons) EXIM Domestic Total % Change EXIM Domestic Total Concor (m TEU's) EXIM Domestic Total % Change EXIM Domestic Total Container Traffic by Ports Railway Share of EXIM (%) FY08 FY9 FY10 FY11 FY12 CAGR (%) (FY07-12) 10. Indian Railways CCRI EXIM growth has stabalized (YoY) Domestic growth under pressure (YoY) Source: Company.6 1.6 11.4 1. MOSL Competitive intensity declining CCRI’s market share has declined from 85% in FY08 to ~74% in 1QFY13.4 3.9 0.5 3.3 17.4 9.4 2.3 7. we estimate the minimum economies of scale at ~45 rakes and 6-7 terminals spread across the country.1 28.1 30.6 29.5 15.6 35. Arshiya and Boxtrans) have been able to achieve any credible scale and none of the new entrants have achieved minimum economies of scale.9 -13.7 105 22 25.5 2.2b1.4 2. 10 The new entrants seem to have underestimated MES 15 October 2012 .6 2. However.2 38.1 -0. with a high concentration in the North-West.0 8.8 17.8 3.2 5.6 132 142 11. Also.9 0.2 4.3 103 17 4.3 33. the incremental loss of market share for CCRI (gap between growth rates for industry and CCRI) has reduced sharply over FY11-12.6 4.5 2.0 0.6 -5.6 -16.0 13.1 23.8 1.1 1.9 26.9 0.5 2.5b each and rakes: INR120m each).0 2.

AP Palanpur. it admonished Indian Railways for frequently changing its haulage charges. etc) service provider has an edge over a standalone operator CCRI is implementing a preemptive capex of INR62b. forwarders. road haulers. To achieve a high degree of customization. etc) service provider has an edge over a standalone operator. Arshiya had moved the Commission alleging that Indian Railways and CCRI work as a group and indulge in exclusionary price discrimination and unfair trade practices. which will not only further enhance its inimitable competitive advantage. MOSL Khodiyar. Uttarakhand Visakhapatnam. Punjab Sriperumbuthur. Planned MMLP’s         Setting up 12 MMLPs across the proposed DFC alignment CCRI is at an advanced stage to finalize INR7b-8b of land acquisitions in FY13 for setting up 12 multimodal logistics parks (MMLPs) at strategic points across the proposed Dedicated Freight Corridor (DFC) alignment. gateway port. The Commission ruled that there was no abuse of dominant position by the two entities. CCRI aims to provide a unique value proposition by offering a multi-modal single window facility. Ahmedabad Khatuwas. Odisha Budhapank. AP Krishnapatnam. coordinating with various agencies and services involved in the containerized cargo trade. railways. It also works as an interlinking point for all modes of transport at one specific place. However. rail. New growth opportunities for CCRI SCM/ 3PL New Opportunities Cold Chain (agriculture products) Source: Company. but also allow it to position itself as a total logistics player. custom house agents and shipping lines. Odisha Pantnagar & Haridwar. Chennai Kalinganagar. air. A multimodal logistics park (MMLP) is a centralized place for all types of transportation activities and value-added services required by exporters and local traders for shipment of goods. CCRI plans to offer packages designed to provide the most cost effective combination. Gujarat    PFT/ Bulk Cargo Air/ Ocean Freight 15 October 2012 11 . which is currently not being captured in our estimates. Rajasthan Jharsuguda. rail. MMLP's would open up several new business opportunities for CCRI in areas such as PFT/ SFTO. A multi-modal (sea. Odisha Quila Raipur. due to lack of details. air.Container Corporation of India  CCI ruling brings increased clarity: The recent ruling by Competition Commission of India (CCI) on a case between Arshiya International and CCRI has increased clarity on the rights of private players to use its rail infrastructure. Emerging as a total logistics player A multi-modal (sea. consolidators. These include customers.

when Indian Railways carved out its CTO operations. To satisfy the requirement of access to terminals.  The new CTOs were able to compete with CCRI.7m tons in FY07 to 947m tons in FY12. CCRI’s market share declined from 85% in FY08 to ~75% in FY12. leading to the creation of Container Corporation of India (CCRI).  On 5 January 2006. it was provided with land by Indian Railways at strategic locations where trade originates The domestic CTO industry was first liberalized in 1988. ~15 new players (13 private and two state-owned) have entered the industry. it was provided with land by Indian Railways at strategic locations where trade originates.  The north western part of India accounts for ~70% of the EXIM trade. with a view to attract a greater share of container traffic for Indian Railways and to introduce competition in rail freight services.4% from 504. During this period. etc. and (3) turnaround time for the domestic segment is high. To carry out these services effectively. etc.  The traffic-handling capacity of major ports has increased at a CAGR of 13. by offering value-added services.Container Corporation of India Industry background Size of the industry The size of India’s rail container transport operation (CTO) industry is ~38m tons in volume terms and ~INR58b in value terms.  Liberalization of the industry To carry out these services effectively. CCRI was established with the objective of facilitating primarily EXIM container movement and providing other logistics services like one-window customs clearing. clearance. private sector companies were permitted to enter the industry. Industry segmentation The CTO industry can be divided into two segments – EXIM and domestic. The EXIM segment accounts for ~75% of the market while the domestic segment accounts for ~25% of the market. with JNPT alone handling ~41% of the container port traffic. The key reasons for this variance are: (1) the EXIM segment enjoys higher terminal handling revenue due to customs. most major ports operated at a capacity of over 90%. 10 of the 15 new CTOs initially signed MoUs with CCRI. (2) the EXIM trade has more balanced up and down loads. Indian Railways remains the sole owner of the rail network and the sole haulage service provider in India. ICD/CFS.  Since 2006. a monopoly service provider for nearly 17 years.  EBIT margins in the EXIM segment are high at 21-25% compared with 9-12% in the domestic segment. leading to lower empties cost.  Indian Logistics industry structure Indian Logistics Market Container Logistics Market Road Freight Express Logistics Liquid Logistics CTO ICD/ CFS MTO Source: Industry/MOSL 15 October 2012 12 .

the market could witness 'winner takes it all' kind of stuation. e. which are close substitutes and.g. thus. MOSL 15 October 2012 13 . If competitors are weak. particularly for shorter distances Price Value received by firms in the industry Cost Value received by supplier Opportunity Cost Rivalry amongst firms . road transport.High  Buyers consolidated  Availability of possible substitutes increases buyer power  Switching cost low for buyers Entry Barriers .Container Corporation of India Industry structure: Homogeneous oligopoly market Homogeneous Oligopoly Market Top 4 players control >80% of the market Nature of demand Product homogenous  Demand exogenous  Nature of firm interaction  High interdependence amongst firms  Oligopolies can retain abnormal profits in the long run.High  Minimum economies of scale (MES) high  High exit barriers due to high capex intensity  Regulatory requirements  Access to favorable locations Supplier Power .Medium  Multiple wagon manufacturers  Many competing suppliers products standardized Willingness to Pay Value received by customer Substitutes . Source: Company. Firms need to rely on operational excellence and low cost advantage to distinguish themselves and retain high returns. price sensitive. competition is price based. because barriers to entry prevent sideline firms from entering market to capture excess profits Potential to differentiate  Firms sell similar goods and services.High  Alternatives to railways exist.  Ability to create service variance limited  Coordination in industry capacity so as to avoid gluts Competitive analysis for the CTO industry Buyer Power .High Given homogenous product and exogenous demand.

7% FY02-12 CAGR .0% India Export Break-up India Import Break-up Major vs Non Major share (%) Port traffic mix (MT)* *Report of Working Group for Port Sector for the 12th five year plan.14% Container Traffic vs Port Traffic (%) Container Traffic vs Concor Exim Traffic (%) FY02-12 CAGR . Company.9. MOSL 14 . Ministry of Shipping 15 October 2012 Source: IPA.4% FY02-12 CAGR .23.9.Container Corporation of India Container Traffic Growth with GDP EXIM with Container Traffic Growth FY02-12 CAGR .

traffic flows where rail transport is structurally cheaper than road transport account for around two-thirds of the total traffic The route network of Indian Railways has expanded very slowly. Assuming the split remains similar to the 11th Five-year Plan. In 1947. supported by government funding and increase in PPP.099km. INR4. infrastructure constraints across transport modes. We expect CCRI's volumes to grow at a CAGR of 17. FDI in Retail. Infrastructure thrust.013b in roads. Proposed allocation for infrastructure/ transport sector in the 12th Plan Twelfth Planned expenditure on transport infrastructure is expected to be about INR13. rail and waterways are cheaper for longer distances. reforms. Given that CCRI is the undisputed leader in the industry. and an unfavorable modal mix. traffic flows where rail transport is structurally cheaper than road transport account for around two-thirds of the total traffic. which is reflected in the sharp increase in allocation for the transport sector in the successive five-year plans. which stood at ~64. 15 15 October 2012 .750b. Indian Railways inherited 53.785b Planned spend on Transport Infrastructure 100% = INR2. There is now a concentrated effort to correct this imbalance.813b in railways. especially investments aimed at correcting the freight transport modal mix.996km of rail network. sharp increase in allocation to transport It is estimated that India’s transportation and logistics bottlenecks hinder its GDP growth by ~2% It is estimated that India’s transportation and logistics bottlenecks hinder its GDP growth by ~2%.Container Corporation of India Multiple medium-to-long-term triggers Infrastructure thrust.6% over FY13-18. an increase of 10. While road transport is the least expensive for distances up to 400km. and (3) ongoing structural trends – containerization. it would amount to INR7. structural trends    CCRI is one of the best proxies to play multiple themes such as (1) infrastructure thrust. shift from road to rail.000km of new lines by 2020. with very high reliance on roadways. it should benefit the most. Successful execution of proposed infrastructure capex plans and implementation of key reforms could result in container traffic increasing by 17.568b Source: Indian Planning Commission. INR963b in ports and INR963b in airports 100% = INR5.1% over FY13-18. (2) reforms – GST. Indian Railways’ Vision 2020 proposes to add 25. Currently. KPMG Indian Railways’ Vision 2020 aims to correct the modal mix Currently.000km over 62 years (FY10). This is primarily due to the fragmented nature of the industry.

16 15 October 2012 . and terminate at Dankuni in West Bengal.6x volume growth in the EXIM/ domestic/ total segments. Mumbai. IPA. over FY08-10. The surging power needs requiring heavy coal movement.122km carries more than 55% of Indian Railways’ revenue-earning freight traffic. Gujarat and Maharashtra.  Opening up of CTO industry in 2006 alone had led to industry witnessing a 2.300km in the first phase – the Western DFC and the Eastern DFC.Container Corporation of India Category-wise modal share (%) Rail transport is cheaper over longer distances (cost) Concentrated effort to correct India's modal mix (%) Air Water Rail 69 Road 57 Road Road 47 <1 6 36 Air Water Rail <1 5 25 Air Water Rail <1 6 46 (KM's) FY10 From current Trajectory… … to balanced modal mix Source: KPMG. The Eastern DFC. MOSL The Dedicated Freight Corridor (DFC) is one of the largest infrastructure projects undertaken by the Indian Railways since independence Dedicated Freight Corridor (DFC) project to transform CTO The Dedicated Freight Corridor (DFC) is one of the largest infrastructure projects undertaken by the Indian Railways since independence. and its two diagonals (Delhi-Chennai and Mumbai-Howrah). Rajasthan. The Indian Railways’ quadrilateral linking the four metropolitan cities of Delhi. adding up to a total route length of 10. The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated. Uttar Pradesh. starting from Ludhiana in Punjab will pass through the states of Haryana.5x/ 1. is constructing two corridors spanning ~3. a special purpose vehicle (SPV) set up under the administrative control of the Ministry of Railways. The Western DFC will traverse the distance from Dadri to Mumbai.5x/ 1. McKinsey. line capacity utilization varying between 115% and 150%. booming infrastructure construction and growing international trade has led to the conception of the DFCs. Haryana. Bihar. passing through the states of Delhi. commonly known as the Golden Quadrilateral. Dedicated Freight Corridor Corporation of India (DFCCIL). Chennai and Kolkata.

CTOs will be able to lower cost through increased efficiencies (higher asset turnover and faster turnaround time) and become a reliable/preferred mode for longer haul freight movement. carrying capacity increasing from 90 containers to 400 (by double stacking).000 tons to ~15.Container Corporation of India Objectives of DFC project Reduce unit cost of transportation by speeding up freight train operations and higher productivity Increase rail share in freight market by providing customized logistic services Segregate freight infrastructure for focused approach on both passenger and freight business of Railways OBJECTIVES Create additional rail infrastructure to cater to high levels of transport demand Introduction of high end technology and IT packing of Freight Services Introduction of time tabled freight services and guaranteed transit time Source: DFCCIL DFCCIL envisages long haul operations. with trailing loads increasing from ~4. maximum speed from 75/kmph to 100/kmph and station spacing 7-10Km to 40Km.000 tons. DFCs will increase efficiencies and lower cost for CTOs Will increase asset turnover and lower turnaround time sharply Source: DFCCIL 15 October 2012 17 .

860 20A kms Area (Ha) 274 1.550 1. Of this.Mugal Sarai (125 Kms) 2009-2016 2010-2017 2010-2017 2009-2016 2010-2016 2011-2016 2011-2016 2010-2016 Source: Company.780 5. Thus. Phase-wise project details Western Corridor Phase I Phase II Phase III Eastern Corridor Phase I-APL1 Phase II-APL2 Phase III-APL3 Phase IV (Funding through PPP) Phase Ia* *Funding by Ministry of Railways Year Rewari.860 20E kms Area (Ha) 274 1.3 73 44 59.2 3.370 18 Jaipur Ajmer Ahmedabad Vadodara Dadri Total Phase 1 Mumbai Surat Vadodara Dadri Total Phase 2 Grand Total 15 October 2012 . The Western DFC is likely to be commissioned by FY16/17. and Rewari to Dadri (140km).7 3. The signaling/electrical contract is likely to be taken up for bidding by mid-FY14.2 3. issues in terms of land acquisition in Mumbai/Thane and 10-12 villages in Gujarat have also been sorted out during 2QFY13. DFCCIL requires funding of INR680b – debt of INR420b (JICA: INR280b and WB: INR140b) and equity of INR260b.499 5.444 64. While land acquisition for the Vadodara-Rewari section has been completed to the extent of 83%.3 820 130 69. JNPT to Vadodara (430km). INR100b of Sonnagar-Dankuni (Eastern DFC) will be funded on PPP basis – IDC: INR60b.960 1.Sonnagar (550 Kms) Sonnagar . Project awards to commence in FY13: The final bids for project awards for the Western DFC of 300-350km each are expected to be awarded by October 2012. We believe that the DFC project will provide a ‘multiplier effect’ for India in many ways. For the Eastern DFC.400 34.064 339 924 78 411 73 386 776 2.499 5.1 7.450 770 45. including land cost of INR70b. Bridges: INR60b.290 4.608 202 460 118 239 108 612 141 942 569 2252 1.886 1. with ~11 bidders being shortlisted.Container Corporation of India Update on DFC progress We expect substantial part of the project awards to be completed in FY13/14.252 1.205 59 77 95 148 108 446 52 307 464 1718 1.5 1.780 Progress Compensation (INR M) (%) Award Disbursed 100.JNPT(430Kms) Rewari – Dadri(140 Kms) Khurja . Western Dedicated Freight Corridor: Land acquisition status Total Scope kms Area (Ha) 274 1.Mughalsarai (390 Kms) Khurja-Ludhiana (397 Kms) Dankuni . Issues in terms of land acquisition in Mumbai/ Thane and 10-12 villages in Gujarat have also been sorted out during 2QFY13 Land acquisition: The Western DFC is being contemplated in three phases: Vadodara to Rewari (920km).998 4 3 108 362 143 782 919 3.Kanpur (343 Kms) Kanpur .064 359 958 196 907 75 558 27 122 930 3.280 83.608 202 460 118 239 108 612 141 942 569 2. while work is expected to commence from 1QCY13.064 359 958 144 721 75 552 27 122 930 3.064 339 924 80 459 75 412 23 82 826 3.663 3.923 20F kms Area (Ha) 274 1.550 3. MOSL Project cost and funding: The total project cost is INR930b.Vadodara (920 Kms) Vadodara. The net requirement for the DFC project is INR880b.590 3.0 1. bidding for 345km began in 2QFY13.370 96.5 22.

As such. Consequently. primarily due to absence of reefer container linkages and high power cost. will obviate the need to have multiple warehouses. giving a boost to players like CCRI Implementation of GST: The implementation of the Goods and Services Tax (GST) could be a significant positive for the logistics industry. for which it has constituted a 100% subsidiary. Currently. due to multiple and differential state-level taxes. Implementation of the GST. only 10-15% of the players in the cold storage business have such capabilities. which aims at leveling these taxes. to minimize inter-state movement and associated taxes. companies would be able to function effectively with fewer strategically located warehouses across the country and adopt the hub and spoke model to reduce inventory requirements and lower carrying cost. Currently. transport requirement would shift from shorter haul ‘warehouse to warehouse’ to longer haul ‘factory to factory’. CCRI has strategically positioned itself to capitalize on these opportunites once they become available. giving a boost to players like CCRI that can effectively handle the entire chain. and (2) FDI in multi-brand retail. Fresh and Healthy Enterprises.Container Corporation of India Key reforms that could revolutionize the logistics sector The CTO industry could get a major fillip from few key reforms such as (1) the implementation of GST. 15 October 2012 19 . Approval of FDI in retail is likely to attract established MNC giants. who could potentially become captive customers for CCRI. GST impact: Factory to factory transfer Source: KPMG Analysis FDI in multi-brand retail: CCRI has been setting up cold chains to provide transportation of perishable products from the source to the end user. most companies are forced to set up multiple warehouses across the country. CCRI has big plans to tap the agriculture business opportunity through this route. transport requirement would shift from shorter haul ‘warehouse to warehouse’ to longer haul ‘factory to factory’. As such. particularly for multimodal players like CCRI.

leading to a shift in trade from raw materials to finished goods. compared to port traffic growth of ~9. etc).  Removal of current infrastructure bottlenecks (ports in particular) and development of other modes of transport (coastal shipping. Share of container trade steadily increasing Growth of container freight Source: IPA/MOSL 20 15 October 2012 .4% in FY08 to 38% in FY12. the share of container freight in India has been steadily increasing over the years (10% in 2000 to ~15% in FY12). Maritime Agenda 2020 estimates that container trade in India would grow at a CAGR of 15% over FY10-20. aided by the development of new rail freight terminals/ ICDs/PFTs and logistics hubs.  Economic development. requiring containerization. which would make it amenable to rail movement.4%. Growth has been boosted by increasing contribution of non-major ports from 28. which is currently moving piecemeal in bulk form to ports for containerization The structural trend towards increased containerization in India is driven by:  The need to aggregate cargo.3% over FY02-12. Structural move towards containerization Currently. Container traffic in India has grown at a CAGR of ~14.Container Corporation of India Ongoing structural trends that portend well for CTOs Ongoing structural trends towards increasing containerization and rail transport of containers bode well for CTOs in general and CCRI in particular. the share of container traffic in India is very low (~15% of total traffic) compared to developed countries (~70% of traffic).  The need to aggregate cargo. Nonetheless. which is currently moving piecemeal in bulk form to ports for containerization.

negatively impacting rail transport (%) Top seven key routes account for ~50% of the freight traffic in India Source: Industry. Four ports account for bulk of container rail traffic % container handling as % of total capacity 90 26 28 70 % of total container industry trade 42 22 11 12 87 % traffic transported by Rail 25-30 5 20-25 30-35 Total Rails deployed /Day ~20* ~2 ~10 ~9 Trains deployed by Concor 12 ~2 5 4 Export/ Import Mix 50% /50% 49% /51% 54% / 46% 50% /50% Source: Company. JNPT alone accounts for 41% of the container trade in India. freight and passenger traffic has grown at a CAGR of ~52%. There has been little investment in track infrastructure since independence. Consequently. with a lion’s share of the container rail traffic across the four major ports of India. MOSL JNPT Chennai Mundra Pipavav Total *27 trains possible 15 October 2012 21 . the share of volumes from JNPT has been steadily declining for CCRI (~75% in FY08 to ~55% in 1QFY13). Increasing share of non-major ports in container traffic and infrastructure development around these ports should aid development of new routes and result in lower pressure on existing high density traffic routes.Container Corporation of India The share of rail transport in overall freight movement has been declining steadily from ~89% in FY51 to 53% in FY87 to ~28% currently Move towards ‘rail transport of containers’ The share of rail transport in overall freight movement has been declining steadily from ~89% in FY51 to 53% in FY87 to ~28% currently. While route kilometers have grown at a CAGR of just 3%. CCRI has been following the shift in trade and has steadily been increasing operations around these new ports. Top seven key routes account for ~50% of the freight traffic in India.  Key routes are congested. This has led to most high density corridors becoming oversaturated. negatively impacting CTO industry demand. MOSL The top-4 ports in India currently account for ~87% of container demand CCRI key player across key EXIM markets CCRI is the key player across key EXIM markets. New private ports such as Mundra and Pipavav are growing faster than the major ports and have been steadily increasing their market share. The top-4 ports in India currently account for ~87% of container demand.

623 % Change -1.257 30.8b in FY12.962 19.837 19.409 26.3 Source: Industry. Ministry of Shipping Source: IPA. MOSL CCRI's EXIM distribution port-wise FY11 FY12 Source: Company Changes in haulage charges by Indian Railways for key categories (INR/ TEU for 1.138 33.0 20.240 28.395 18. Company. MOSL 15 October 2012 22 .907 % Change 20.0 20.778 Mar-11 23.580 20.603 24.837 20.0 97.809 30.1 -5.7 -1.8 -1. empties cost in 1QFY13 stood at INR420m 7.174 27.2 15.6 15. which stood at INR1.168 287 17.257 31.179 20.897 Dec-10 23.0 20.0 Trade re-alignment and pressure on domestic rail segment has resulted in increasing empties cost for CCRI.0 20.257 18.240 -22.8 Apr-12 28.023 33.973 28.8 20.674 22.8 -1.8 -1.907 37.778 27.685 28.488 32.757 31.240 -19.000Km) Oct-10 Notified List Cement Bricks and stones Pig Iron and sponge iron Iron and steel POL Fly Ash Fire Bricks/ rods Coal/ Bitumen Kerosene oil Others outside notified list Sugar/ Oil cakes Foodgrains 23.547 15.Container Corporation of India Share of JNPT in overall container traffic* Share of Indian Railways in container traffic *Report of Working Group for Port Sector for the 12th five year plan. IR.0 20.8 -1.

Gurgaon Allcargo Logistics Park JV with Allcargo Global for setting up and running CFS at Dadri CONYK Cartrac JV with NYK Auto Logistics for setting up & dealing in CBU vehicle logistics Total *Dadri 18 1 -1 4. APM.894m tons of apples.Container Corporation of India Leveraging strategic JVs to provide total logistics services Gaining an edge over standalone operators    CCRI's key strength is its ability to provide single window facility for multimodal logistics services. and local players like Gateway Rail. (DPI) for setting up and managing Container Terminals at Cochin Hind CONCOR Terminals* JV with Hind Terminals for CFS at Dadri.724 17 7 2 1. Nasik India Gateway Terminal JV with Dubai Port Int. MOSL Targeting the huge growth opportunity in cold chain industry CCRI has a 100% subsidiary. Its clients include Walmart. It aims to provide complete cold chain logistics solutions to organized retailers.858 3. U. Big Bazzar. U. The company could unlock significant value from these ventures in the future. air cargo service providers (HALCON) and shipping lines (Maersk). etc. It leverages these JVs to provide total logistics services. Bangalore and Maharashtra. Strategic JVs across the CTO chain CCRI has ~12 strategic JVs with leading MNCs like Maersk.755 85 25 33 1. More. etc. port operators (APM). Fresh and Healthy Enterprises (FHEL). CCRI has several strategic JVs with leading MNC and local players (INR m) Particulars Star Track Terminals #Albatross Inland Ports Gateway Terminals India CMA-CGM Logistics Park* Himalayan Terminals Type (%) Holding 49 49 26 49 40 50 15 49 49 49 49 50 Assets Liabilities 114 233 2.476 7 1 112 25 116 1. Mother Dairy.262 1 0 83 PBT 9 47 85 17 3 -1 -170 -2 -8 JV with Maersk India for CFS at Dadri. 80-90% of its off-season sales were at fixed rates. etc. JV with Transworld Group for CFS at Dadri. 15 October 2012 23 . U.239 2. UP JV with Nepalese Ent & Transworld for management and operation of rail CTO at Birgunj (Nepal) HALCON A arrangement with Hindustan Aeronautics for operating air cargo complex & ICD at Ozar airport.P.P. Chennai. In FY12. Big Apple. which is engaged in cold chain management. by coordinating with various agencies and services involved in the containerized cargo trade.P. DPI. Allcargo.727 Source: Company. Infinite Logistics Solutions JV with TCI Ltd. across the value chain – from ports to terminals. road haulers (TCI). Mumbai JV with Ameya Logistics for CFS at Dadri.to establish logistics freight terminals and provide integrated logistics services Container Gateway JV with Gateway Rail for operations of existing rail/ road container terminal at Garhi Harsaru. JV with APM Terminals for third berth at JN Port. most of which were sold in markets like Delhi. CCRI also has a fully-owned subsidiary engaged in cold chain management. FHEL procured 6. It is able to do so through its strategic JVs with its customers (GDL/Allcargo). through which it aims to provide complete cold chain logistics solutions to organized retailers.

inventory /warehouse management. Penetration of 3PL in key countries Source: KPMG. The introduction of GST will lead to increased requirement of total logistics solutions such as 3PL/4PL. Indian customers are yet to witness endto-end management of transport & logistics services by 3PLs. Almost the entire chain is currently composed of unorganized players. Growth of 3PLs will increase demand for multimodal players like CCRI. Unlike their global counterparts. 3PL at a nascent stage in India The role of third-party logistics service (3PL) providers is at an early stage of evolution in India. The fruit and vegetable business in India is almost entirely in the unorganized sector and is worth an estimated ~INR200b. MOSL 15 October 2012 24 . Farm sizes are small and farmers sell their produce at nearby markets/ mandis. Almost 35% of the fruits and vegetables produced perish due to lack of cold chain and distribution infrastructure. contract logistics services and knowledge support services.Container Corporation of India Almost 35% of the fruits and vegetables produced perish due to lack of cold chain and distribution infrastructure Cold chain management in India offers huge growth opportunity. Trade is carried on primarily on credit.

4% in FY12 to 9.7% in FY16    We expect CCRI’s revenue to grow at a CAGR of 11% and PAT to grow at a CAGR of ~8% over FY12-15. which is currently ~30%.2% in FY12 to 22. to bottom out at ~22. This would be primarily led by the EXIM business and higher contribution from other value-added segments. We expect EBIT margins in the EXIM business to expand from 26. Revenue and growth over FY12-15E Source: Company. Expect revenue CAGR of ~11% over FY12-15 We expect CCRI’s revenue to grow at a CAGR of 11% over FY12-15 from INR44.2b We expect CCRI’s revenue to grow at a CAGR of 11% over FY12-15 from INR44. while EBIT margins in the domestic business are likely to expand from 8. We expect core RoCE.7% by FY15. Net margin should sustain at ~20%. RoE is likely to remain subdued in the near term due to its high preemptive capex of INR60b.4% in FY12 to 26. Overall EBIT margins are likely to expand from 21.3% by FY15.7% by FY15 Improvement in domestic segment. We expect RoE to decline from 16.6b to INR56.2b. MOSL EBIT margins to expand We expect EBIT margins in the EXIM business to expand from 26.Container Corporation of India Financials robust despite higher competition Core RoCE at ~30%. MOSL 15 October 2012 25 . The revenue mix between EXIM and domestic is likely to move from 82%:18% to 84%:16%.3% by FY15. lower empties cost and operating efficiencies result in EBIT margin expansion over FY12-15. to remain under pressure over the next ~4 years and bottom at ~22.9% in FY15.7% in FY16.4% in FY12 to 26. EBIT and EBIT margins over FY12-15E Source: Company.5% in FY12 to 14.6b to INR56.

8x over FY12-15. and (2) correct CCRI’s capital structure by utilizing its surplus cash. we view this as a key positive. and asset turnover ratio to remain flat at 0. Notwithstanding near-term pressure on net profit growth and RoCE due to the high capex plans.4x in FY18.7-2x in CTO trade. We do not see any major decline in CCRI’s pricing power and expect this profitability to sustain. with shortening of turnaround time.5% in FY12 to 20% in FY18. PAT growth to be subdued over FY12-15E (INR m) Source: Company. as the preemptive capex would (1) further increase CCRI’s competitive advantage and allow it to capitalize on the large emerging opportunity.5% in FY12 to 15.Container Corporation of India Expect PAT CAGR of ~8. and improved efficiencies. CCRI is undertaking the capex to position itself strategically for the huge opportunity around FY17-18. while EBIT margins are likely to improve from 21% in FY12 to ~24% by FY18. resulting in RoAE improving from 16. increased asset turnover due to double stacking. Industry experts estimate that the completion of the DFC project would result in a jump of 1. when DFC gets completed. RoE to remain under pressure in the near term 15 October 2012 26 . We expect RoE to decline from 16. We model ~8. Given new investment would have a 2-3 year gestation period. MOSL 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 CCRI’s RoE is likely to remain subdued in the near term due to its high preemptive capex of INR62b. We expect CCRI’s asset turnover to increase from 0.4% in FY15.3% over FY12-15 CCRI is undertaking the capex to position itself strategically for the huge opportunity around FY17-18 CCRI has historically maintained a net margin of ~20% due to its pricing power given its dominant position in the industry.3% CAGR in net profit over FY12-15. in the interim higher depreciation charge and lower other income would exert pressure on the net profit growth.8x in FY12 to ~1. The biggest gain for CCRI is likely to be benefits with regard to asset turnover improvement.

INR5b for strategic JV's and INR20b for equipment and others. CCRI had ~INR27b cash (49% of capital employed. implying sharp improvement in RoCE.7% for FY12. ~INR3. This will allow companies to significantly increase their utilization rates. CCRI’s overall RoCE was just 16. Its core RoCE. The break-up of the capex is as follows: ~INR20b for new wagons. For FY13 alone. MOSL 15 October 2012 27 . which is aimed at increasing its competitive advantage in the CTO industry CCRI is undertaking preemptive capex of ~INR62b over FY13-17. Consequently. RoCE to bottom in FY16 Source: Company. yielding low RoCE of ~9%.5b for wagons and ~INR5b for equipments. INR212/share) As at FY12. it has capex plans of ~INR16. invested primarily in fixed income securities. INR12b for land. which is aimed at increasing its competitive advantage in the CTO industry and establishing itself as a total multimodal player. which include ~INR7b in land for setting up ~12 MMLPs. which is currently not being captured in our estimates. Capex plans for FY13 and FY13-17 (INR b) FY13 FY13-17 Source: Company. as the company is undertaking a major preemptive capex of INR62b over FY13-17. DFC will enable CTO players to enjoy double stacking of containers.5b. due to lack of details. These investment would open up several new business opportunities for CCRI in new areas.2%. which has been under pressure post the privatization of the CTO industry and has been steadily declining from 47% in FY08. while also reducing the turnaround time significantly. stood at 30.Container Corporation of India Core RoCE remains attractive As at FY12.7% in FY15. MOSL Preemptive capex of INR62b over FY13-17 CCRI is undertaking preemptive capex of ~INR62b over FY13-17. We expect core RoCE to remain under pressure over the next ~4 years and bottom at ~23. INR212/share). while also improving their EBIT margins. CCRI had ~INR27b of cash (49% of capital employed.

over FY06-FY15E Post the completion of its preemptive capex by FY16-17. due to low reinvestment requirements. OCF & FCF generation over FY06-FY15E Dividend payout ratio has been stable between 25-30%. It has historically maintained a dividend payout ratio of 25-30%. which should lead to sharp improvement in its payout ratio Source: Company.Container Corporation of India Has steady and sustainable free cash flows Over FY02-12. we expect CCRI to enter a sweet spot of sustainable and robust FCF. which should lead to sharp improvement in its payout ratio. This is against net profit CAGR of 13%. respectively. we expect CCRI to enter a sweet spot of sustainable and robust FCF. Over FY02-12. Despite CCRI’s INR62b capex initiative over FY13-17. we expect it to maintain 24-25% payout ratio during this period. respectively CCRI is a debt-free company (net cash of INR27b as at March 2012) and enjoys steady OCF and FCF. its OCF and FCF have grown at a CAGR of 12% and 17%. MOSL 15 October 2012 28 . its OCF and FCF have grown at a CAGR of 12% and 17%. Post the completion of its preemptive capex by FY16-17.

307 -2.0 4.650 2.068 0.6 26.3 16.6 12.5 8.2 4.238 1.3 16.8 12.6 41 6.9 0.0 17.0 10.2 2.1 8.694 -12. MOSL EXIM volumes (in m TEU and INR b) Domestic volumes (in m TEU and INR b) Source: Company.7 14.7 7.8 50 12.1 26.0 12.147 -16.1 44 9.2 8. MOSL 15 October 2012 29 .9 22.0 10.2 26.6 2.1 10.7 9.6 2.104 3.4 4.5 15.5 27.0 7.2 3.8 15.3 4.3 35.3 9.9 15.895 -2.8 27.0 4.2 0.4 Source: Company.4 11.9 16.357 2.583 6.2 17.899 1.1 2.7 -17.0 15.7 12.7 1.6 8.0 8.5 9.3 13.5 8.4 12.385 -6.5 15.720 4.0 -6.9 12.6 15.5 8.618 10.3 2.9 1.498 11.6 0.8 9.5 20.2 44.6 4.0 13.5 0.1 26.413 14.390 -3.1 2.4 3.1 1.0 16.2 8.040 -1.7 0.8 7.9 -6.7 9.8 2.2 4.6 2.0 6.8 29.4 3.5 15.940 -2.6 -6.5 10.7 0.384 3.2 14.9 1.3 7.8 9.5 17.0 5.8 -38.3 11.176 1.0 13.7 1.6 -0.360 18.3 3.6 11.2 1.9 4.293 3.4 16.5 26.6 14.1 8.8 0.0 -0.3 3.3 6.6 5.6 1.5 -3.6 2.9 7.420 -3.0 17.2 56 11.977 -1.939 2.788 8.9 2.3 33 10.4 1.4 9.5 -13.9 37 8.597 4.6 2.2 8.032 -22.005 2.9 7.017 -7.6 16.5 18.1 5.5 16.0 18.1 3.4 2.8 16.0 7.7 0.0 0.7 8.3 36.367 1.1 1.8 1.6 13.8 13.6 15.8 13.3 39.4 8.387 2.2 32.5 14.5 2.665 2.7 9.5 3.3 8.1 4.9 6.4 0.7 -3.9 -1.383 -0.1 3.3 0.6 1.9 14.2 14.1 15.1 13.2 3.0 -4.1 9.7 10.6 2.9 1.300 2.0 14.2 13.9 11.820 -3.3 11.7 34 2.693 9.305 3.1 3.103 2.4 1.675 -5.3 14.3 9.4 14.399 4.8 11.2 26.3 2.1 0.4 0.1 2.474 -38.257 4.4 9.7 5.7 2.983 10.Container Corporation of India Key Assumptions FY08 EXIM Volumes (m TEU) % Change Realization* % Change Value (INR b) % Change EBIT/ TEU % Change EBIT (INR b) % Change % of Sales Domestic Volumes (m TEU) % Change Realization* % Change Value (INR b) % Change EBIT/ TEU % Change EBIT (INR b) % Change % of Sales Total Volumes (m TEU) % Change Value (INR b) % Change Realization* % Change EBIT/ TEU % Change EBIT (INR b) % Change *Realization: INR/TEU FY09 FY10 FY11 FY12 FY13E FY14E FY15E CAGR (FY12-15) 8.5 1.6 27.4 3.8 29.6 0.2 3.583 2.5 8.8 11.2 3.8 38 3.465 3.1 15.9 3.1 8.9 2.2 13.0 1.2 4.4 9.3 -5.7 29.1 17.0 3.645 2.

1 3.7 14. %) Historical FY09-12 FY08-12 FY04-12 FY13-15 FY13-18 FY13-20 1.1 3. %) Historical FY09-12 FY08-12 FY04-12 FY13-15 FY13-18 FY13-20 5.2 3.6 12.0 15.8 3.7 Estimates 11. MOSL 15 October 2012 30 .9 Estimates 8.5 EXIM Volumes over FY03-15 EXIM Value (CAGR.0 EXIM Value over FY03-15 Domestic Volumes (CAGR.0 17.8 Domestic Volumes over FY03-15 Domestic Value (CAGR.1 15.3 15.2 Estimates 11. %) Historical FY09-12 FY08-12 FY04-12 FY13-15 FY13-18 FY13-20 6.7 6.1 Estimates 13. %) Historical FY09-12 FY08-12 FY04-12 FY13-15 FY13-18 FY13-20 4.1 13.Container Corporation of India EXIM Volumes (CAGR.6 13.0 7.0 5.1 16.0 Domestic Value over FY03-15 Source: Company.

9 123.6 17.4 77.983 0.391 1.722 5.4 13.Value-wise Share of EXIM .293 2.6% over FY12-18.1 17.560 6.4 14.5x/ 1.8 111 3.2 115. Realizations are likely to be under pressure.3 23.5 66.3 3.0 14.9 11.4 102.6 28.5% in the EXIM business and 3% in the domestic business.0 13.0 15.8 40.4 87.1 16.9 69 18.Volume-wise FY12 Base Case FY17-18 CAGR (6 Yrs %) 1.0 15.8 13.4 2.5 13.3 70.5% for both EXIM and domestic segments over FY12-17.1% over FY12-18 15 October 2012 .3 1.6 0.0 1.6 74.6 18. given lower pricing in case of double-stacking and declining lead distances.9 79.2 14.0 20. DOMESTIC Industry CTO Volumes (MT) Concor Market Share (%) Realizations (INR/ TEU) Volumes TEU's (m TEU) Value (INR m) Multiple (x) TOTAL (1+2) Industry CTO Volume (MT) 3.4 0.8 82.7 1.5 -0.8 4.6 1. 2.6 Opening up of CTO industry in 2006 alone had led to industry witnessing a 2.5x/ 1. Container port freight traffic: We have used the estimates of the Maritime Agenda 2020 and the Planning Commission of India.9 2. CCRI should be in a position to capture a significant proportion of this opportunity.238 388 738 388 17.6 80.6 13.4 2. IR share of container traffic to increase from 21% in FY12 to 25% by FY18 971 142 268 142 15 53 29.02 18.8 Bear Case FY20 CAGR (8 Yrs %) 2.1 19.9 16.Container Corporation of India Estimating long-term demand for containerized rail transport If some of the expected triggers play out.2 2.3 -0. Being the dominant player in the industry.5 13.8 96 3.5 26.9 25 72 16.Volumes (%) Realizations (INR/ TEU) TEU's ('000) Value (INR m) Multiple (x) 2.6 14. 4.4 18.4 134.2 -0.3 52.1 74.1 2.5 1.758 325 566 325 18 57 81.3 25 74 16.1 -0.5 80. Share of rail in overall container port traffic: The Indian Railway Vision 2020 estimates container haulage at ~200mt for FY20. EXIM Total Port Freight in FY12 (MT) Total Container Traffic (MT) Total Container + Other Traffic (MT) Container Freight by all Ports (MT) % Share % of Container + Other traffic Industry CTO volumes (MT) Share of Railways (%) Concor Market Share. Workings for estimating CTO demand and Concor share by FY17/18 Container Road Traffic 1.2 38. We expect the share of rail transport in overall container freight movement to increase from 21% in FY12 to 25% in FY18.6 3.4 70 16. Key assumptions 1. on the back of increased efficiencies.1 33 9.5 18. CONCOR Total Volumes (MT) Total Value (INR m) Multiple (x) % Market Share Share Share of EXIM . Realizations: We expect realizations to grow at a CAGR of 1.9 15. the CTO industry could witness a volume CAGR of 17.6 16.570 1.7 10.2 21 76 15.6 96.0 19.7 83.8 72. over FY08-10.8 -0. EBIT margins: We expect EBIT margins to expand at a CAGR of 2.3 14.6x volume growth in the EXIM/ domestic/ total segments.4 31 CCRI's total volumes to increase at CAGR of 17.47 8. 3.2 -0.0 13.

0 12.7 1. Kandla and Port Blair 12 37 10 19 109 49 236 89 325 3. from earlier page) Container Road Traffic EBIT/ TEU EXIM (INR/ TEU) Domestic (INR/ TEU) Concor .6 Non Major Ports 13.8 35.4 Expect operating PAT to increase by 2.8 11.7 9.3 21.7 10.8 35.6 12.6 1.8 2.8 2.0 100.1 13.0 13.2 3.EBIT (INR b) EXIM Domestic Total Multiple (x) Tax Operational PAT (INR b) Multiple (x) FY12 Base Case FY17-18 CAGR (6 Yrs %) 4. MOSL Port-wise Container Traffic Assumptions (FY12-18) FY12 FY13E FY14E FY15E FY16E FY17E FY18E % CAGR (FY12-18) 9.0 6.6 26.5 4.0 1.0 23.8 13.040 1.3 Other Major Ports* 9.798 5.2 3.6 18.375 1.6 11.2 17.6 27.0 100.0 2.2 72. Ennore.8 27.2 3.2 2.6 6.8x over FY12-18 24.0 1.7 3.8 5.686 1.8 14.3 21.0 100.3 2. Morgumao.5 2. Visakapatpam.695 5.0 100.8 15.8 10. Paradip.3 14.7 27.Volumes (TEU's) EXIM Domestic Total Multiple (x) Concor .4 28.0 4.0 6.4 Tuticorin 6.0 15 October 2012 32 .0 100.0 1.Container Corporation of India Workings for estimating CTO demand and Concor share by FY17/18 (Cont.9 1.4 25.5 15.7 10.7 9.4 3.6 27.7 28.3 3.8 2.8 1.6 8.6 80.4 100.0 76.5 3.3 21.9 14.0 3.9 10.4 3.4 7.0 17.0 * Includes Haldia.7 74.6 20.3 20.3 Bear Case FY20 CAGR (8 Yrs %) 4.9 Chennai 21. New Mangalore.9 17.4 7.9 17.1 5.1 0.6 0.1 3.0 8.4 20.1 13.1 2.3 25.3 Cochin 3.0 JNPT 41.7 10.4 73.4 13.1 8.6 3.7 Source: MOSL Major Ports (m tons) Kolkata 7 8 8 9 10 12 Chennai 30 27 27 30 32 32 Tuticorin 9 7 7 9 9 10 Cochin 5 12 15 17 18 19 JNPT 58 58 76 92 105 105 Other Major Ports* 14 14 17 33 45 45 Total Major Ports 123 125 150 189 219 223 Non Major Ports 19 31 46 67 76 84 Total Major and Non-Major Ports 142 156 197 256 295 307 Major Ports (%) Kolkata 4.2 26.7 11.5 18.1 72.9 2.1 37.4 28.8 10.4 25.9 9.3 7.2 20.6 6.0 18.7 Total Major Ports 86.9 1.3 38.8 33.0 7.1 13.7 9.4 Source: Company.1 4.420 2.4 Total Major and Non-Major Ports 100.7 34.

0 6.0 8.6 48 70 1.460 1.228 1.7 5.2 2.7 33 108 3.0 15.3 14.0 13.8 26 75 2.333 1.0 13.0 7.Container Corporation of India Lead distance under pressure in EXIM (kms) Lead distance has been under pressure in the Exim segment.0 7.2 39 48 1.5 43 50 1.0 11.6 93 150 1.5 10.280 1.0 Source: Indian Railway Vision 2020 15 October 2012 33 .6 5.513 1.9 12.2 9.1 69 150 2.380 1.2 38 210 5.850 2.325 1.0 6.183 1.276 1.0 922 1.551 Pipavav (Kms) 1.0 18.590 Closer to Mundra by (Kms) 237 197 232 344 Closer to Pipavav by (Kms) 180 55 180 305 Source: Industry Maritime Agenda 2010-20 growth assumptions (%) Cargo Volumes Coal POL Iron-ore Containers Others Total CAGR (FY10-17) CAGR (FY10-20) 23.0 19.0 Source: Maritime Agenda 2010-20 Summary of Projected Freight Loading by IR by 2020 (M tons) 2011 Coal RM for steel plants Pig Iron & Finished Steel Cement Iron Ore (Exports) Iron Ore (Imports) Food grains Ferilizers POL Containers Others Total 2020 Increase CAGR (x) (FY11-20) 420 700 1.2 99 250 2.5 4.0 15.895 Mundra (Kms) 1.2 1.8 13 39 2.6 21.9 12. while it has increased in the domestic segment Source: Indian Railways Distance Between North India ICDs and Ports (kms) Increasing share of Mundra and Pipavav leading to shorter lead distance for EXIM segment Nhava Sheva (Kms) TKD Loni Dadri Ludhiana 1.

5% over FY13-32. We value CCRI using DCF methodology. given its stable cash flow. We model CCRI to register a revenue CAGR of 11.Container Corporation of India Initiating coverage with Buy Target price of INR1.5% over terminal cost of capital Source: MOSL 15 October 2012 34 .4%.5% over its terminal period cost of capital at 12.5 11. Using the DCF methodology. high operating RoCE and stable payout ratio.4 Comments RBI 10 year G-sec Bond Yield 5/10/2012 Bloomberg 1 year average Raw Regression Beta Implied India Risk Premium based on Sensex CAPM RBI 10 year G-sec Bond Yield Assuming long term Beta will trend towards 1x Implied India Risk Premium based on Sensex CAPM Based on S&P Bond Default spread of 2% based on India’s BBB+ rating Real Risk free rate in India ROCE spread of 2.0 0.9%.0 5. CCRI's inimitable pan India network provides it with significant entry barriers.3% in FY21 towards its terminal growth assumption of 5.0 6.40 7. Our terminal growth rate assumption is based on RoCE spread of 2. post which we have assumed its growth rate to move from 9. driven a high growth period between FY13-20. we arrive at a value of INR1.250. Key assumptions Valuation Inputs Growth Period Risk free Rate (Rf) Levered Raw Beta (B) Market Risk Premium (Rmp) Cost of Equity: Rf+B(Rmp) Stable Period Risk free Rate (Rf) Levered Raw Beta (B) Market Risk Premium (Rmp) Cost of Equity: Rf+B(Rmp) India country Default Spread Adjusted Risk free Rate (Rf) Terminal Growth rate (Tg) (%) 8.9 2.250 (19% upside). consistent payout ratio. the best way to value it is through DCF.250 We believe DCF is the best way to capture the intrinsic value of CCRI. Given CCRI’s strong FCF generation capability. will allow it to enjoy a prolonged period of growth.250 implies 19% upside    While concerns such as high empties cost and muted near term growth outlook in particular remain.65 7. DCF based target price of INR1. While our DCF value is INR1. robust ROCE and low re-investment requirements. the long-term prospects are favorable for CCRI and outweigh near term concerns.5 12.0 8. which coupled with positive industry growth outlook.0 0.

0 72.0 11.4 23.133 1.2 15.8 28.4 9.281 1.297 14.163 1.5 11.0 49.9 11.39 5.15 1.550 12.7 6.70 0.0 15.0 38.5 2.9 254.3 21.0 34.4 3.4 5.0 Total Capital Invested 56 68 Reinvestment Rate 0.283 1.4 12.6 22.4 0.6 56.3 10.1 13.19 1.0 5.1 6.1 298.250 1.3 9.74 0.265 1.9 1.7 23.0 9.4 + Depreciation 1.74 0.622 1.58 4.420 1.0 21.3 73.5 53.163 1.85 7.2 Return on Capital (Ex Cash) 27.6 11.64 4.7 18.7 23.3 27.Value of Outstanding Debt Value of Equity Value of Equity per share Upside (%) = 81.0 3.2 3.4 5.4 Revenues (INR b) 41.6 141.9 15.0 35.1 167.65 0.5 8.2 119.97 15.3 46.3 8.3 28.1 11.05 5.2 36.5 6.6 1.6 23.1 4.9 8.7 5.2 11.2 Present Value Calculations Cumulative WACC 1.0 80.0 28.76 2.5 22.0 5.201 1.3 11.4 36.7 -5.7 3.73 0.138 1.6 29.0 21.8 3.5 Taxes 2.3 29.17 6.084 1.616 = 162.3 11.2 9.5 9.5 22.684 = 234 = 162.5 10.0 99 0.4 6.3 8.4 COE (%) 9 10 1.30 6.0 18.7 17.0 45.70 2.9 1.60 2.450 = 1.8 22.2 0.0 381.9 8.1 11.9 182.4 35.3 5.5 13.3 32.40 1.18 3.440 1.2 320.7 11. (%) The Valuation PV of FCFF during high growth phase PV of Terminal Value Value of Operating Assets of the firm Value of Cash & Non-operating assets Value of Firm .0 82 0.9 4.6 21.3 33.8 24.420 1.65 20.9 276.5 30.5 9.2 11.7 11.5 0.6 8.2 21.4 14.2 19.9 30.75 16.6 16.00 PV of FCFF -5.1 14.6 9.6 2.4 0.4 23.5 35.2 7.091 1.8 Revenue Growth (%) 5.6 FCF (INR b) 4.401 12 1.472 1.3 7.5 11.75 0.6 10.057 1.9 108 116 124 133 142 152 163 175 188 203 218 235 253 271 285 0.558 11 1.4 6.1 1.250 19% 3.Chg WC 0.1 30.7 8.75 0.4 4.5 16.4 COE (%) 10.0 3.1 23.1 30.4 94.90 Return on Capital 15.2 3.5 11.52 5.98 3.39 3.94 15.0 29.7 3.6 3.7 2.8 23.8 5.4 27.80 15.5 .1 23.Capital Exp 2.2 28.5 33.6 11.150 1.3 10.144 Terminal Gr.0 13.42 5.108 1.5 35.6 29.7 24.3 22.08 6.7 9.6 63.174 1.73 0.92 5.0 1.0 11.3 68.7 198.3 EBIT (INR b) 8.2 58.0 7.5 EBIT Margin (%) 21.8 16.2 23.8 28.9 42.8 1.2 8.8 16.8 Terminal Value Cost of Capital 11.6 25.9 21.3 10.264 13 965 994 1.8 216.6 21.235 1.7 25.01 6.2 0.87 5.3 11.6 50.71 0.237 = 135.3 4.0 11.738 1.4 14.4 4.3 33.72 0.3 8.0 50.4 7.3 49.7 35.2 15.3 76.1 33.86 5.3 7.2 13.0 154.0 44.1 23.74 1.221 Container Corporation of India 35 .7 21.6 34.2 234.9 1.2 11.41 Terminal Growth and COE in growth period Terminal Growth and COE in terminal period 3.0 11.1 27.5 26.73 0.9 9.1 343.4 10.9 1.327 1.73 53 DCF Valuation Base 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Terminal CAGR period (%) 12.8 28.19 1.8 22.031 1.0 30. (%) 15 October 2012 13.3 25.9 7.2 23.314 1.0 EBIT(1-t) 5.1 48.5 35.7 15.9 22.56 6.4 7.9 4.0 91 0.384 1.9 .8 6.4 32.6 11.4 4.5 4.331 1.2 23.2 11.7 8.9 12.1 38.9 25.2 35.1 63.4 5.2 30.60 2.0 76 0.73 0.5 6.2 21.79 PV of Terminal Value 1.9 54.9 42.8 8.2 12.1 3.85 6.5 407 11.401 13.20 6.068 = 27.73 0.0 17.7 5.348 1.1 7.0 12.537 1.8 8.8 23.5 28.74 0.7 12.2 8.9 18.8 36.2 19.5 11.3 28.5 2.23 1.36 5.6 9.314 1.2 8.0 11.457 1.1 10.4 7.188 1.78 11.7 13.1 22.77 4.188 1.0 21.6 362.8 29.0 22.9 8.3 11.573 1.250 1.69 3.831 = 53.4 11.120 1.4 5.73 0.1 30.782 1.0 24.079 1.3 13.Terminal Gr.6 10.4 12.9 4.11 0.3 76.0 9.2 0.8 3.6 36.52 1.4 26.215 1.9 12.201 1.3 8.37 0.9 9.8 18.

6 0.6 8.5 MOSL Concor 1.7 2.9 29.0 9.1 2.7 13.1 24.3 7.4 1.8 10.7 20.3x P/B below historical average of 2.1 9.3 14.1 2. (%) FY13 FY14 8.3 20.4 P/BV (x) EV/ EBITDA (x) RoE (%) FY13 FY14 FY13 FY14 FY13 FY14 2.6 5.2 18.2 6.1 16.3 14.9 39.9 146.Container Corporation of India Comparative Valuations Company Name Mkt Cap CMP (USD b) 2.1 16.5 14.5 2.8 0.1 12.048 Gateway Distripark 142 Allcargo 130 Arshiya International 134 Guangshen Railway 3 China Railway Tielong 6 Union Pacific Corp 121 Canadian Pacific Railway 86 CSX Corp.1 0.1 EPS Gr.8 11.9 536.6 P/E (x) FY13 FY14 14.0 21.8 1.9 6.4 3.3 16.7 3.9 6.0 29.6 8.8 3.8 1.4 5.7 15.7 1.7 14.7 10. Company.9 24.3 0.0 BV (INR) FY13 FY14 480.6 12.8 200.7 14.3 16.0 0.6 11.7 15.6 13.3 57.3 4.5 6.6 0.5 6.2 8.6 0.2 3.0 -6.6 1.7 22.5 18.6x EV/ Sales below historical average of 3.2 1.4 9.7 46.2 9.9 9.6 2.3 51.7 23.5 5.5 10. 21 Prices as on 11 October 2012 PE below historical average of 15.3 0. 15.6 11.5 5.6 34.3 15.5 12.5x 15 October 2012 36 .9 5.7 4.3 131.5 10.2 12.0 90.7 2.2 Source: Bloomberg.9 18.7 48.7 7.6 167.1x EV/ EBITDA below historical average of 10.7 3.8 2.4 14.2 22.2 5.8 5.3 7.0 6.1 97.4 6.2 12.7 4.0 1.8 15.7 15.

Tariff Authority for Major Ports (TAMP) related issues: In February 2012.2b in FY12 and INR423m in 1QFY13. and cold chain management. the empties cost of CCRI has been steadily increasing. Unfavorable EXIM trade mix leading to high empties cost: Due to the mismatch between exports and imports in trade. Nonetheless. which stood at INR1. The port authorities are in the process of inviting fresh bids. the operators will attempt to lower their throughput to just the minimum guaranteed. While this would transform CCRI into a total logistics player.Container Corporation of India Risks and concerns Execution risk / possible delays in DFC implementation: Successful execution of the DFC project has the potential to increase container rail traffic by 1.7-2x. particularly at some of the new ports and in domestic operations. Challenges with regard to JNPT expansion plans: With regard to JNPT expansion for terminal-4. respectively. which is highly correlated with GDP growth. due to which turnaround time increases and rail traffic gets negatively impacted. TAMP ordered Nhava Sheva International Container Terminal (NSICT) and Gateway Terminal (GTICT) to lower tariffs by 27. Rail transport of the overall container traffic is low at 20-30%. 15 October 2012 37 . which could delay the planned capacity additions. The tariff cut was largely because these ports were operating at 117%/135% capacity utilization (based on the minimum guaranteed throughput). Given its critical nature and the possible upside from its implementation. air cargo. as the revenue share (paid to JNPT) is not allowed as cost while fixing the tariff. Overdependence on single rail corridor: Another key risk holding back growth of CTO players is single rail corridor at key ports like Mundra and Pipavav. the erstwhile bidders withdrew in August 2012.28%. Unbalanced trade at key ports could further increase empties cost. ports. funding requirements and execution risks. the project has been able to garner considerable support from both the central and state governments. Risks related with economic slowdown: Bulk of the container rail transport in India is for EXIM trade. Any slowdown in economic growth would have a negative impact on EXIM trade. Hence. Any delays in project execution would mean delayed upsides and lower our estimated valuations for CCRI. and in turn on the growth outlook for CTOs like CCRI. it would also present significant execution challenges.85% and 44. the project faces considerable challenges in the form of pending land acquisitions. This tantamounts to punishing efficiency. Forays into new segments: CCRI is foraying into new segments such as warehousing.

Company Organizational structure Managing Director Director (International Marketing & Operation (Exim. It was set up with the intent to develop multimodal transport and logistics support for domestic and international containerized cargo. Indian Railways’ container freight service is being handled by CONCOR through yearly MoUs. Bloomberg Code: CCRI) is a state-owned company incorporated in March 1988. Post the commencement of its operations. Operation. Company 15 October 2012 38 . Engineering Technical & MIS (Finance.Container Corporation of India Company background Container Corporation of India (CONCOR. Marketing Air Cargo) Director (P&S) Director (Finance) Director (Domestic) Projects. Commercial. Secretarial & Internal Audit) HRD (Domestic Operation. Common Marketing) Region-wise break-up Top terminal contributors (% of total) Source: MOSL. Accounts. Revenue break-up (FY12) EBIT break-up (FY12) Source: MOSL.

Container Corporation of India CCRI's Pan-India terminal network Source: Company 39 15 October 2012 .

588 1.0 (INR Million) 2015E 56.438 543 274 72. Loans&Adv.406 4.848 1.822 2.2 11.003 226 24.135 11. and Finance Charges Other Income .552 2.289 396 311 22.621 8.447 259 25.300 54.673 35. Deprn.865 1.452 496 394 23.156 26.029 26.151 2.2 10.581 49.662 Provisions 1.993 7.667 49 1.614 22.151 2.2 2.2 21.746 7. * Adjusted for treasury stocks 15 October 2012 40 .0 19.693 2.152 Gross Block 33.752 26. Assets.2 2014E 49.530 5.151 2.057 5.204 442 350 22. 5. 9.5 1.020 1.710 6.963 6.989 360 303 27.808 211 24.388 2.356 43.540 26.6 14.152 67.510 21.0 1.217 31.552 12.300 61.406 8.300 48.807 32 2. 28.581 (INR Million) 2014E 1.543 14.110 1.457 13.556 15.151 2.940 2015E 1.447 3.0 8.009 5.095 62.759 65.447 4.475 Curr.667 E: MOSL Estimates.647 179 17.7 22.447 3.992 4.222 10.147 72.667 2012 1.939 12.5 2012 41.023 Current Liabilities 3.908 49.683 Less: Accum.4 10.0 1.867 9.613 54 3.2 8.489 8.971 10.361 Net Current Assets 23.438 598 294 81.523 77.4 11.583 58.1 2.300 76.207 Appl.447 4.995 29.5 10.992 12.763 12.268 24.469 8.673 2013E 1.300 68. Liability & Prov.331 25.464 29 2.221 1.1 2013E 44. PBT after EO Exp.443 1.940 58.853 23.961 Capital WIP 1.438 494 254 65.002 10.004 6.232 3.420 5.616 4. Current Tax Deferred Tax Tax Rate (%) Reported PAT Change (%) Margin (%) 2011 38.252 55.588 1.234 25.709 3.656 -1.088 49.956 Other Assets 2.395 2.336 6.961 Loans and Advances 4.200 34 2.230 Inventory 125 Account Receivables 296 Cash and Bank Balance 22.885 152 26.6 Balance Sheet Y/E March Equity Share Capital Total Reserves Net Worth Deferred Liabilities Other Liabilities Total Loans Capital Employed 2011 1.848 Curr.856 11.3 20.3 9.200 1.7 21.816 6.903 32.489 81.685 2.069 Total Investments 1.Rec.220 12.002 28.288 695 296 52.438 449 234 58.756 17.385 69.426 2.722 Net Fixed Assets 23.246 5.356 13.135 36.Container Corporation of India Financials and Valuation Income Statement Y/E March Net Sales Change (%) EBITDA Margin (%) Depreciation EBIT Int. of Funds 52.3 13.

710 -13.816 41 15 October 2012 .7 4.7 4.932 -9.9 0.0 1.793 5.7 2.246 22.7 4.714 0 -2.1 58.867 3.7 10.200 0 2.961 27.6 0.6 10.613 1.345 179 -2.9 19.8 1.0 9.7 1.464 1. Activity Inc/Dec of Cash Add: Beginning Bal Closing Balance 2011 8.4 86.6 2.0 94.743 20 32 2.1 341 3.7 49.200 0 2.0 26.5 12.616 22.3 323 4.0 14.457 -6.543 -6.2 0.489 1.0 15.095 -34 1.9 358 Cash Flow Statement Y/E March EBIT Depreciation Direct Taxes Paid (Inc)/Dec in WC CF from Operations (inc)/dec in FA (Pur)/Sale of Investments Investment Income CF from investments (Inc)/Dec in Debt Interest Paid Dividend Paid (Inc)/Dec in Deff Tax Liab CF from Fin.222 3.825 -2.246 (INR Million) 2014E 10.0 11.726 174 22.9 19.0 21.420 2015E 12.572 -5.616 2013E 9.1 2.6 79.7 4.925 22.200 2.500 0 2.1 536.0 22.6 5.135 312 -62 54 2.3 8.5 57.707 -113 10.537 -2.552 3.8 2013E 72.1 9.020 -601 7.6 104.3 16.667 1.4 0.7 22.7 62.3 598.370 27.6 2.0 7.7 480.4 32.Container Corporation of India Financials and Valuation Ratios Y/E March Basic (INR) * Consol EPS Cash EPS BV/Share DPS Payout (%) Valuation (x) * P/E Cash P/E P/BV EV/Sales EV/EBITDA Dividend Yield (%) FCF per share Return Ratios (%) RoE RoCE Working Capital Ratios Asset Turnover (x) Inventory (Days) Debtor (Days) Creditor (Days) Leverage Ratio (x) Current Ratio Interest Cover Ratio 2011 67.655 22.8 2012 66.331 -491 3.5 59.035 19.508 20 29 2.8 2.4 78.420 23.396 22.0 19.2 2014E 77.992 -10.7 2.037 -395 6.5 57.344 3.0 26.9 1.6 2.5 22.0 18.865 0 -2.643 -9.9 2.1 2015E 84.2 28.9 380.1 20.4 19.2 2.2 22.8 2.9 16.7 27.879 1.6 2.1 160 4.9 27.1 -21.807 2.5 12.7 2.621 3.4 0.7 2.9 10.971 -159 -128 49 2.493 150 -2.0 14.1 427.657 20 34 2.960 2012 8.6 177 5.229 -158 9.7 2.1 20.801 -2.3 11.459 4.563 0 -2.

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