Navkar Corporation Ltd Initiating Coverage Research Report By Angel Broking

Navkar Corporation (NCL) is one of the largest container freight station (CFS) at JNPT and also one of the three CFS with rail connectivity that provides it an edge over its peers. The current capacity stands at 310,000 TEUs and it has amongst the highest market share at JNPT mainly owing to this rail advantage. Post the IPO, the company is in a massive expansion mode and will be increasing its capacity at Somathane CFS by 252,889 TEUs to 472,889 TEUs and is also coming up with an inland container depot (ICD) at Vapi with capacity of ~474,000 TEUs and an adjacent Logistics Park. Upcoming ICD to provide an edge: The Vapi region has a huge market potential as it is a well developed industrial area. As per the Management and industry sources, the Vapi region accounts for close to 27% of container volumes at JNPT. We believe that ICD (with rail connectivity) will enable the NCL to garner a good portion of the business from the region. At present, imports headed for the region have to get custom cleared at CFS/ICD at JNPT and are then transported via road. With rail transport being a more economical option compared to road, the imports should head directly to Vapi ICD. As for exports from Vapi region, a large portion (~60%) is stuffed at factory and transported to JNPT. However, the balance 40% or ~170,000 TEUs (less-thancontainer load [LCL]) which is being transported via road and consolidated at JNPT, can be consolidated at the ICD. Once the scale advantages kick in and given its rail advantage, the company can also cater to some portion of bulkier factory stuffed cargo. Capacity enhancement at Somathane to aid revenue growth: The company has managed to outgrow its peers in the region by attracting volumes on the back of its rail advantage. NCL has been facing capacity constraints at JNPT and is forced to reject certain bulk commodities like PTA, Fiber, Scrap, Marble, etc. Although the current South Gujarat volume of NCL (~70,000 TEUs) is expected to shift to the Vapi ICD, the company will now be able to handle these bulk commodities and effectively utilize its extended capacity. NCL will now also be handling domestic traffic, which it had been rejecting earlier, thus aiding growth. Logistics park at Vapi to be an additional revenue driver: The logistics park will be a one-stop solution for importers and exporters, providing a host of warehousing and other value added services. Its close proximity to one of the largest industrial clusters in India augurs well for NCL. Outlook and Valuation: We estimate NCL to post a revenue CAGR of ~26% and PAT CAGR of ~31% over FY2015-18E. We have factored in lower utilisation levels of 33.2% and 42.2% for FY2017E and FY2018E respectively. At current levels, the stock is trading at 18.0x its FY2018E earnings. Historically, NCL has consistently grown at JNPT and increased its utilisation from 68% in FY2012 to 87% in FY2015 by leveraging on its rail advantage during periods where JNPT posted flattish volume growth. Going forward, we expect NCL’s utilizations to increase; we expect NCL to be able to garner a good chunk of business over the next three to four years due to its rail advantage at both JNPT and Vapi. Moreover, the capacity addition at JNPT port serves as an additional long-term trigger for the stock. We initiate coverage on the stock with a Buy recommendation and target price of Rs. 265 (23.0x FY2018E EPS), indicating an upside of ~27% in the stock price from the present levels.