The latest data from the government highlights that India’s rail container volumes fell by 7.5% y/y in June 2016 after having recovered in April (+4.0% y/y) and May (+5.9% y/y). Domestic volumes during June fell by 16% y/y, while EXIM volumes fell by 5% y/y. Volume growth in FY16 was down 5.4% as well. Overall volumes in Q 1FY17 were up only 0.7% y/y, of which domestic volumes (17% share) were down 18% y/y, while EXIM volumes were up 6% y/y.
Lead distance for the rail container segment fell 5% y/y to 964 km in Q 1FY17. EXIM lead distance was down 5% y/y to 876km, while domestic lead grew by 2% to 1397km. Lead distance for the EXIM business is now down c20% from peak in Jan 2011. JNPT’s market share loss to Gujarat-based ports has been the primary reason for the weakness in EXIM lead distance. This is likely to be reflected in lower realisations for rail container players like CCRI
We continue to value CCRI using a DCF model and an unchanged WACC of 12.8%. CCRI is currently trading at a 25.5x Sept 2017e PE, while our TP implies an 18.9x PE. Our unchanged target price implies downside of c26% to the current price and we retain our ‘reduce’ rating on the stock. A faster-than-expected macro recovery and improved visibility on the Dedicated Freight Corridor’s completion timeline.