Container Corporation of India

Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Company Update Container Corporation of India Buy Stacked for success CONCOR has all its key triggers in place. DFC continues to be the most important longterm trigger as apart from boosting volumes, it will aid margins. With its planned ICD expansion and focus on addressing last mile connectivity issues, it is primed to become a 3PL player in the medium term. It continues to remain our pick in the logistics space and we reiterate our BUY with an enhanced TP of ` 1690. DFC remains the key longterm growth driver The Dedicated Freight Corridor (DFC), expected in 2020 is the most important long term trigger for CONCOR. The operationalization of DFC will improve its operations as it will help cut lead times. Double stacking, the benefits of which are already visible, will further aid margins. DFC, where the USP would be reduction of haulage costs by 5 as compared to the current rail network, is also likely to price itself competitively against road. The share of rail is expected to go up from current 2 to ~354 on DFC is in place. We believe the biggest incremental market share is likely to go to CONCOR given its scale and presence across multiple locations. Building blocks for 3PL in place. CONCOR plans a capex of ` 60bn over the next five years as it takes its CFS/ICDs to 100 from the current 74. The company has commenced 5 out of the 15 planned modal logistics parks (MMLPs) in and targets to add locations by end of FY18. It is also taking adequate measures to address issues of first and last mile connectivity. This will enable it to provide third party logistics (3PL) and warehousing services, which it plans to build a hybrid model by end of FY18. This segment will help to add another revenue stream apart from its current EXIM/domestic business providing ICD, warehousing, commodity and automotive handling services at its terminals. All triggers in place; Reiterate BUY We retain our Buy rating valuing the company using DCF methodology with a price target of ` 1,690 (WACC:9%; TGR:4%). Completion of dedicated freight corridor (DFC) in 2HFY19 will be the most important trigger for CONCOR. The nearterm concerns of shift in traffic to surface transport post implementation of GST has not played out as shown by rail freight data in Q1FY18 and July (up 8.2% YoY, at 4.2mn tonnes) and August (up 25% YoY, at 4.7mn tonnes) has increased. FINANCIALS (` mn) Particulars Net Sales 59,217 56,061 63,484 71,920 % Growth (0.4) (5.3) 13.2 13.3 EBITDA 13,384 12,468 13,966 15,822 OPM (%) 22.6 22.2 22.0 22.0 Net Profit 9,508 8,580 10,026 11,425 % Growth (32.4) (9.8) 16.9 13.9 EPS (`) 39.0 35.2 41.1 46.9 % Growth (45.9) (9.8) 16.9 13.9 PER (x) 36.0 39.9 34.2 30.0 ROANW (%) 11.9 10.0 11.0 11.7 ROACE (%) 15.8 13.3 14.4 15.4 September 12, 2017 CMP ` 1,404 Target / Upside `1,690/2 BSE Sensex 31.882 NSE Nifty 10,057 Scrip Details Equity / FV Market Cap 52week High/Low `2,437mn/10/ ` 342bn USD 5.3bn `1,410/844 Avg. Volume (no) 2,382,831 NSE Symbol Bloomberg Code CONCOR Shareholding Pattern Jun 17(%) CCRI IN Promoters 54.8 MF/Banks/FIs 14.9 FIIs 26.5 Public / Others 3.7 CONCOR Relative to Sensex 115 110 105 100 95 90 85 80 75 70 Concor BSE Sensex Sr. Analyst: Vinod Chari Tel: +9122 4096 9776 Email: vinodc@dolatcapital.com Associate: Jayakanth Kasthuri Tel: +9122 4096 9771 Email: jayakanthk@dolatcapital.com

FY03 FY04 FY03 FY04 mn TEUs mn TEUs Focus on expanding infrastructure gives a competitive edge With the largest rail network of 68 ICDs/CFS of which 12 are exportimport container depots, and 17 are exclusive domestic container depots; 39 terminals perform the combined role of domestic as well as international terminals. It has a market share of 76% in the container train operator market (CTO). The management aims to scale this reach to 100 locations by 2020. The management has guided an annual capex spend of ` 10bn for FY18. The commencement of Kathuwas terminal has been a success for the company. Kathuwas is now the largest container handling terminal for managing 25,000 TEUs per month and has a capability to handle a monthly volume of 250000300000 TEUs. Also, volumes for Vizag and Pantnagar terminals are expected to gradually improve in FY18 which would further strengthen its positioning, enabling revenue, volume CAGR of 13%, 1, respectively, in 19E. 10 8 6. EXIM Domestics Revenue Mix (%) 3.0 2.5 2.0 1.5 EXIMDomestic Revenue Trend 4 1.0 2 0.5 0.0 EXIM DOMESTIC EXIM (in Mn TEUs) DOMESTIC (in Mn TEUs) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 EXIM Volumes & Realization/TEUs 22,000 19,500 17,000 14,500 12,000 9,500 7,000 4,500 2,000 (500) 0.6 0.5 0.4 0.3 0.2 0.1 Domestic Volumes & Realization/TEUs 30,000 25,000 20,000 15,000 5,000 Volumes LHS Realization (`/TEUs) RHS Volumes LHS Realization (`/TEUs) RHS Building blocks in place for 3PL With a capex of ` 60bn over the next five years as it takes its CFS/ICDs to 100 from the current 74. The company has commenced 5 out of the 15 planned modal logistics parks (MMLPs) in and targets to add locations by end of FY18. It is also taking adequate measures to address issues of first and last mile connectivity. This will enable it to provide third party logistics (3PL) and warehousing services, which it plans to build a hybrid model by end of FY18. This segment will help to add another revenue stream apart from its current EXIM/domestic business providing ICD, warehousing, commodity and automotive handling services at its terminals. Five out of 15 planned multimodal logistics parks (MMLPs) are operational. It aims to add another seven MMLPs by FY18 September 12, 2017 32

` mn ` mn ` mn 80,000 70,000 60,000 50,000 40,000 30,000 20,000 Revenue & Revenue Growth (%) YoY 3 25% 2 15% 1 5% 5% 1 20,000 15,000 5,000 EBITDA & EBITDA Margin (%) YoY 35% 3 25% 2 15% 1 5% Revenue Revenue growth (%) EBITDA EBITDA Margin (%) 16,000 14,000 12,000 8,000 6,000 4,000 2,000 Net profit & Net Profit Margin (%) YoY 35% 3 25% 2 15% 1 5% Net Profit NP Margin (%) September 12, 2017 33

Income Statement (` mn) Net Sales 59,217 56,061 63,484 71,920 Total Expenditure 45,834 43,593 49,517 56,097 Operating Expenses 41,984 39,523 45,073 51,063 Employee Expenses 1,568 1,869 1,905 2,158 Selling & Adm. Expenses 2,281 2,202 2,539 2,877 Other Income 3,175 2,892 3,492 3,956 EBIDTA (Excl. OI) 13,384 12,468 13,966 15,822 EBIDTA (Incl. OI) 16,559 15,360 17,458 19,778 Gross Profit 16,557 15,324 17,458 19,778 Depreciation 3,478 3,518 3,918 4,350 Profit Before Tax 16,557 15,324 17,458 19,778 Tax 3,571 3,226 3,514 4,004 Net Profit 9,508 8,580 10,026 11,425 Balance Sheet (` mn) Sources of Funds Equity Capital 1,950 1,950 2,437 2,437 Other Reserves 81,507 86,512 91,979 98,765 Net Worth 83,457 88,462 94,417 101,202 Secured Loans 447 250 0 0 Loan Funds 447 250 0 0 Deferred Tax Liability 3,264 2,402 2,402 2,402 Total Capital Employed 87,167 91,114 96,818 103,604 Applications of Funds Gross Block 50,977 60,193 69,714 79,331 Less: Accumulated Depreciation 26,495 26,495 30,533 34,883 Net Block 24,482 33,698 39,181 44,448 Capital Work in Progress 5,133 5,071 5,122 5,173 Investments 47,754 48,375 51,754 53,754 Current Assets, Loans & Advances Inventories 177 225 244 277 Sundry Debtors 493 425 435 493 Cash and Bank Balance 7,999 4,145 2,796 2,533 Loans and Advances 7,868 7,294 5,698 6,455 sub total 16,536 12,089 9,173 9,758 Less: Current Liabilities & Provisions Current Liabilities 6,738 8,120 8,411 9,529 sub total 6,738 8,120 8,411 9,529 Net Current Assets 9,799 3,969 761 229 Total Assets 87,167 91,114 96,818 103,604 E Estimates Cash Flow (` mn) Profit before tax 13,080 11,806 13,540 15,428 Depreciation & w.o. 3,478 3,518 3,918 4,350 Direct taxes paid (3,571) (3,226) (3,514) (4,004) Change in W.C (NonCash) 7,310 1,976 1,859 270 (A) CF from Opt. Activities 20,298 14,110 15,803 16,044 Capex (1,245) (9,155) (9,572) (9,668) Free Cash Flow to Firm 19,052 4,955 6,231 6,377 Inc./ (Dec.) in Investments (36,206) (621) (3,379) (2,000) (B) CF from Invt. Activities (37,452) (9,776) (12,951) (11,668) Inc./(Dec.) in Debt 447 (197) (250) 0 Dividend Paid (Incl. Tax) (2,965) (2,777) (4,046) (4,611) (C) CF from Financing (2,520) (3,011) (3,809) (4,611) Net Change in Cash (17,881) (3,854) (1,349) (262) Opening Cash balances 25,879 7,999 4,145 2,796 Closing Cash balances 7,999 4,145 2,796 2,533 Important Ratios (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 22.6 22.2 22.0 22.0 EBIDTA Margin (incl. O.I.) 28.0 27.4 27.5 27.5 Gross Profit Margin 28.0 27.3 27.5 27.5 Tax/PBT 27.3 27.3 25.9 26.0 Net Profit Margin 16.1 15.3 15.8 15.9 (B) As Percentage of Net Sales Operating Expenses 70.9 70.5 71.0 71.0 Employee Expenses 2.6 3.3 3.0 3.0 Administrative Expenses 3.9 3.9 4.0 4.0 (C) Measures of Financial Status Interest Coverage (x) 0.0 0.0 0.0 0.0 Debtors Period (days) 3.0 2.8 2.5 2.5 Closing stock (days) 1.1 1.5 1.4 1.4 Invent. Turnover Ratio (x) 335 249 260 260 Fixed Assets Turnover (x) 1.2 0.9 0.9 0.9 W.C Turnover (x) 6.0 14.1 83.4 314.6 NonCash W.C (` Mn) 1,800 (176) (2,034) (2,305) (D) Measures of Investment EPS (`) (excl. EO) 39.0 35.2 41.1 46.9 EPS (`) 39.0 35.2 41.1 46.9 CEPS (`) 53.3 49.6 57.2 64.7 DPS (`) 13.0 12.2 14.2 16.2 Dividend Payout (%) 33.3 34.6 34.5 34.5 Profit Ploughback (%) 66.7 65.4 65.5 65.5 Book Value (`) 342.4 363.0 387.4 415.3 RoANW (%) 11.9 10.0 11.0 11.7 RoACE (%) 15.8 13.3 14.4 15.4 RoAIC (%) 19.9 14.3 15.0 15.8 (E) Valuation Ratios CMP (`) 1,406 1,406 1,406 1,406 P/E (x) 36.0 39.9 34.2 30.0 Market Cap. (` mn) 342,660 342,660 342,660 342,660 MCap/ Sales (x) 5.8 6.1 5.4 4.8 EV (` mn) 335,108 338,765 339,864 340,127 EV/Sales (x) 5.7 6.0 5.4 4.7 EV/EBDITA (x) 25.0 27.2 24.3 21.5 P/BV (x) 4.1 3.9 3.6 3.4 FCFE/Yield (%) 5.7 1.4 1.7 1.9 Dividend Yield (%) 0.9 0.9 1.0 1.2 E Estimates September 12, 2017 34

DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2 Accumulate 10 to 2 Reduce 0 to 1 Sell < DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745 CONTACT DETAILS Equity Sales Designation Email Direct Lines Kishor Bagri, CFA VP Equity Sales kishorb@dolatcapital.com +9122 4096 9746 Kartik Sadagopan VP Equity Sales kartiks@dolatcapital.com +9122 4096 9762 Kapil Yadav VP Equity Sales kapil@dolatcapital.com +9122 4096 9735 Yomika Agarwal VP FII Sales yomika@dolatcapital.com +9122 4096 9773 Derivatives Strategist Designation Email Bhavin Mehta VP Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705 Equity Trading Designation Email P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728 Chandrakant Ware AVP Equity Sales Trading chandrakant@dolatcapital.com +9122 4096 9707 Derivatives Trading Designation Email Shirish Thakkar AVP Derivatives shirisht@dolatcapital.com +9122 4096 9702 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 4096 9748 Dolat Capital Market Pvt. Ltd. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai 400 001

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