Container Corporation of India - Land license fee concerns return - ICICI Securities

We downgrade Container Corporation of India (Concor) to HOLD from Buy, with a revised target price of Rs458/share (previously: Rs500). Q1FY21 performance was a miss given that: i) previously disclosed volumes held up well in a weak EXIM environment, and ii) strong revenue and margin surprise was witnessed in Gateway Distripark's rail freight segment results. Demand of Rs7.8bn from Indian Railways as revised land licence fee (LLF) for the two Delhi terminals of Tughlakabad and Okhla were a dampener. While Concor has provisioned for Rs1.2bn as the land license fee for Q1FY21, the higher demand: i) increases uncertainty on future profitability, and ii) is much more than initially expected. Also, such demands are out of sync with the current expectations of divestment of GoI's stake in Concor and may potentially delay the same. We increase our LLF assumptions to Rs6.5bn p.a. (earlier: Rs4.5bn) from FY22E.

- LLF demand negatively surprised. LLF demand of Rs7.8bn from Indian Railways (IR) for Tughlakabad and Okhla terminals was the key negative surprise from Q1FY21 result. This is against Rs4.5bn p.a. of 'entire' LLF fee as guided by the management in Q4FY20 conference call. Resolution of the issue is necessary, else it will continue to cloud earnings visibility and divestment probability. The difference in Concor's assessment and IR's demand implies a big gap in land valuation estimates, as the revised calculation of LLF is a straightforward 6% on the land value.

- Q1FY21 numbers disappoint. EBITDA margins dropped to 13.4% from 25.9% QoQ and 24.6% YoY and were lower than our expectations. Revenues fell 27% YoY along expected lines. However, cost performance was below estimate. There were negative surprises in 'other expenses' which, as a percentage of revenues, increased 300bps YoY. Other operating expenses as a percentage of revenues rose 640bps - 140bps / 150bps higher than estimated.

- Realisation and EBITDA performance of rail EXIM fell short of expectations. It appears that Concor has not been able to enjoy any benefit of storage income from its terminals, which has buoyed the rail freight income of peers like Gateway. Hence, the impact of higher land license fee and a subdued topline has reduced EXIM EBIT/teu to Rs1,227/teu, down ~67% YoY.

- Downgrade to HOLD. Increasing rail share in EXIM traffic, approaching DFC commissioning and serious stress to road transporters, all augur well for Concor's market share and volumes. Also, we witness significant investment in the freight carrying corridor of Indian Railways, which would also help decongest existing infrastructure whenever passenger freight returns. The LLF issue needs to be resolved. We reduce our DCF-based target price to Rs458/share (previously: Rs500).

Shares of CONTAINER CORPORATION OF INDIA LTD. was last trading in BSE at Rs.377.25 as compared to the previous close of Rs. 386.35. The total number of shares traded during the day was 223135 in over 9595 trades.

The stock hit an intraday high of Rs. 394.95 and intraday low of 376.2. The net turnover during the day was Rs. 85232540.

Source : Equity Bulls

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