During the post-results call, CCRI spoke of another possible price increase by Indian railways in July 2010, even as the company is still passing on the price hike imposed earlier in January. We believe unless exports pick up, this move by Indian railways will be incrementally negative for CCRI. Moreover, a rise in empty runs due to the EXIM traffic imbalance could put further pressure on margins.
Based on data released by the Indian Ports Association, container traffic at the 12 major Indian ports was up 21.3% y-y and 3% m-m in May 2010. The healthy trend in y-y comon is aided by a low base effect in prior-period numbers that we find will continue until November 2010.
Trading at P/Es of 17x for FY11F and 14.5x for FY12F, CCRI appears fairly valued given its historical average trading multiple of about 15x one-year forward earnings, although we expect downside to our current numbers.
