Five reasons why Nomura prefers Container Corp over Pipavav Port

Bets on the company's long-term value play

Financial services company Nomura’s estimated target price for Container Corporation of India (CCRI)is 32 per cent higher than consensus while their target for Gujarat Pipavav Port(GPPV) is 14 per cent lower. In a report entitled ‘Buy Container Corp over Pipavav Port’ dated March 25, Research Analysts Amar Kedia and Vineet Verma explained why.

1) The fourth container terminal at JNPT is likely to be favourable for CCRI and unfavourable for GPPV.

“With the commissioning of the fourth container terminal at JNPT, we see market share risk for GPPV, as Pipavav Port is smaller in size and also closer to JNPT. On the other hand, CCRI will likely gain market share due to higher rail freight share at JNPT vs. Mundra or Pipavav, in our view.”

2) The Dedicated Freight Corridor(DFC) which is likely to come up in a few years will add to the prospects for earnings growth for CCRI.

“...we believe that over the long term, CCRI offers a far superior growth profile on the back of rising visibility of dedicated freight corridor (DFC) coming up by 2018,” said the report.

3)The sops for Pipavav Port have a finite life, ending in 2028. They may then no longer be present or if renewed, could be with a change in terms. CCRI’s business has longer term prospects. “CCRI as a business has an infinite life vs. a finite life of Pipavav Port,” it said.

4) CCRI has spread its eggs across many baskets.

“CCRI has a de-risked business model, as it is dependent on all key ports including JNPT, Pipavav and Mundra Port in the country, while traffic volume at GPPV is dependent on only one port.”

5)CCRI generates better returns on the capital it invests and produces more cash over the long term.

“While both GPPV and CCRI have negligible balance sheet concerns, in our view CCRI offers a much more stable and superior ROIC(Return on Invested Capital) and FCF (Free Cash Flow) yield over the longer term, compared with GPPV."

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