Container Corporation of India - Divestment can unlock value - ICICI Securities

Increase in container EXIM volume share was the key positive surprise from Container Corporation of India (Concor)'s Q3FY21 commentary. Higher market share is witnessed in EXIM tonnage handled (Q3FY21 was 65.8% against 64.7% in H1FY21). The increase in market share has happened with increase in lead distance. Also, net realisations and EBITDA/teu has firmed up as there have been announced price hikes of 9% in 9MFY21 along with Rs 5000/teu of LLF surcharge levied on containers handled in Tughlakabad (TKD) terminal. Margins have further taken support from cost measures introduced i.e lower security expenses in TKD and handing back of rail terminals on Indian Railway land. Land License fee resolution is awaited. Higher provisioning for 'Post-retirement medical benefits' @ 1% of PBT enroute to divestment was a negative. We downgrade to ADD from BUY with a revised target of Rs 510/share (from Rs 489/share earlier).

- EXIM market share gains witnessed. This was the key positive takeaway for us from the conference call. There has been Rs5000/teu increase on containers handled in TKD (LLF surcharge). Yet, EXIM market share, increase in EXIM leads lower empty running costs (partly helped by Indian railways allowing 15 days of free empty running in Q3FY21) leading to continued resilience of rail freight margins. Disclosed volume (tonnage) data implies, EXIM market share increased from 64.7% in H1FY21 to 65.8% in Q3FY21. Lead distance has also moved up from 680km to 709km QoQ. Market share gains have been witnessed across key ports (Mundra, Pipavav and JNPT)

- The cost tailwinds and overhangs. The hand back of terminals on Indian Railway land while not impacting volumes have improved cost structure and hence profitability. Also, there has been reduction in operating costs (security and other allied costs) in terminals like TKD. However, enroute to divestment, Concor has decided to contribute 1% of PBT into 'Post-retirement medical benefit fund'. This came as a negative surprise. Land License fee (LLF) demand from Ministry of Railways (MoR) stands at Rs13.36bn (for 21 terminals) against Rs12.76bn (for 13 terminals) QoQ. Resolution is awaited as management continues to guide Rs 4.5bn of LLF for FY21E.

- Downgrade to ADD from BUY. Concor is faring better in volume performance against its earlier guidance of 20% YoY decline. Management now expects a -5% to flat YoY volume change. There are obvious operating benefits for Concor with commissioning of DFC, and perhaps post divestment profitability/market share can be better balanced towards further stakeholder value creation. Resolution of the MoR demand on LLF and subsequent divestment remains key upside risks. We downgrade the stock to ADD from BUY with a revised target of Rs 510/share.

Shares of CONTAINER CORPORATION OF INDIA LTD. was last trading in BSE at Rs.502.65 as compared to the previous close of Rs. 466.8. The total number of shares traded during the day was 344692 in over 9957 trades.

The stock hit an intraday high of Rs. 515.3 and intraday low of 466.8. The net turnover during the day was Rs. 173166429.

Source : Equity Bulls

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