Navkar Corporation - 1QFY18 Result Update - Limited DPD Impact:BUY

Navkar Corporation - 1QFY18 Result Update - Limited DPD Impact; Upgrade to BUY 

Navkar Corporation (NCL) has delivered a decent performance in 1QFY18. Surpassing volume growth, its consolidated revenue grew by 9.6% YoY (flat on QoQ basis) to Rs988mn. Volume grew by 4.7% YoY (4.4% QoQ) to 86,073 TEUs, while realisation grew by 4.6%YoY (-4.5% QoQ) to Rs11,482/TEU. Realisation growth was aided by higher contribution from Vapi ICD and improved revenue-mix and lower share of empty cargoes, which stood at 4,524 in 1QFY18 compared to 5,300 in 1QFY17. EBITDA increased by 10% YoY and 11.6% QoQ to Rs390mn partly due to certain one-off expenses relating to: (1) loss on sale of asset; (2) employee bonus accounting post IND-AS; (3) higher operating and employee cost relating to Greenfield project at Vapi in both 1QFY17 as well as 4QFY17. However, NCL’s adjusted PAT declined by 7.7% YoY (+7.3% QoQ) to Rs217mn largely due to higher tax outgo. Looking ahead, we expect limited impact from Direct Port Delivery (DPD) due to favourable exports-mix, while ramp-up at Vapi ICD is expected to start meaningfully contributing to NCL’s overall sales in ensuing quarters. Hence, we upgrade our recommendation on the stock to BUY from HOLD with an unrevised Target Price of Rs229. 

Capacity Ramp-up at Vapi ICD to Boost Volumes 

Container volumes handled by NCL – including 5,780TEUs from Vapi ICD – stood at 86,073 TEUs in 1QFY18, which translates into almost 100% capacity utilization at Panvel. Notably, excluding Vapi ICD, NCL’s volume at Panvel fell by 2% YoY. Operations started at Vapi (Road + CFS) from 1QFY17 with attractive pricing of ~Rs23,000/TEU (blended package for CFS + Transportation) compared to ongoing rate of ~Rs35,000/TEU. At Vapi ICD, NCL handled 5,780TEUs in 1QFY18 compared to 2,886TEUs in 4QFY17 and 325TEUs in 1QFY17, respectively. Looking ahead, NCL’s management pegs volume from Vapi at ~100,000TEUs in FY18 considering steady ramp-up by the local companies. However, we believe this is most unlikely to achieve considering a required run-rate of ~31,400TEUs/quarter for the balance three quarters. Though NCL has received all requisite approvals for the railway siding at Vapi ICD, inspection by GM (Railways) is only pending due to incessant rains, which is expected to commence only by mid Aug’17. 

Outlook & Valuation

We believe that NCL continues to remain well-placed to cash in the expected rise in EXIM trade on the back of several initiatives undertaken by the Government. Further, the threat of new entrants in CFS & ICD (Inland Container Depots) industry is moderate as limited land availability at strategic locations would discourage the competitors. We expect limited impact from Direct Port Delivery (DPD) due to favourable exports-mix, while Vapi ICD ramp up is expected to start meaningfully contributing to NCL’s overall sales in ensuing quarters. Hence, we upgrade our recommendation on the stock to BUY from HOLD with an unrevised Target Price of Rs229.