Global brokerage Morgan Stanley has downgraded the rating of Container Corporation of India shares to Equivalent at a more favorable risk reward. Its upgrade is driven by rail to gain medium term share on higher diesel prices, more reasonable valuations, expansion of domestic container tams.
The brokerage has a similar rating with the target price of PSU Rail stock 628. Container Corporation of India Limited is owned by? Indian RailAnd the stock is down about 2% so far in 2022 (YTD).
“Higher diesel prices should help rail gain share in the medium term; More fair assessment as 1-year FWD consensus P/E has corrected from 39x in May-21 to 27.7x in May-22; and the expansion of the domestic container TAM (foodgrain, cement from F23),” said Morgan Stanley on the rationale behind the upgrade.
However, the brokerage sees downside risk to EBITDA and PAT CAGRs in excess of F22-24e of 28% and 31% and Land License Fee (LLF) is yet to be resolved issue and is critical for government disinvestment and fresh bidding. The impersonator will need clarity.
“We value the Container Corporation using probability-weighted DCF and continue to provide 75%/20%/5% probability weights for Base, Bull and Bear Case. Our revised price target is 628 (from above 606). CCRI is currently trading at 27.1x 1-Year FWD P/E (corresponding to the average since F12),” the note added.
The bull case waiting of the brokerage indicates the possibility of lower prices being charged by the Indian Railways after the commissioning of DFC, thereby achieving higher market share for the Railways and also lowering the Land License Fee (LLF) position.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.