Indian Railways has taken a sharp increase in its haulage charges to container train operators (CTOs) effective from December 5 which Container Corporation (CCRI) has mostly passed on to end customers The company has also passed on the 10% import congestion surcharge at ports imposed by the Indian Railways. Indian Railways increased its rates by 25-27% across various categories, which is high in our view. This is the first rate adjustment by the Indian Railways in the past 20 months.
We believe that the price increase taken by CCRI protects its margins (23% EBITDA margin in 1HFY15). However, it erodes competitive advantage vis-à-vis road transport which has further benefitted from the recent correction in diesel prices.
We highlight that 73% container traffic in India is driven on roads, thus any pricing advantage is likely to further benefit road operators.
Historically, price increases taken by CCRI have mostly remained in line with the road freight rates in India which has maintained its competitiveness, however we believe this recent tariff increase may impact this equilibrium in the near term. We retain our overweight rating on Container Corporation.