Container Corporation Report - LLF resolution paves the way for privatisation - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

While CONCOR's 4QFY21 APAT at INR 779mn was impacted by several one- offs, the long-pending LLF (land license fees) issue is now resolved as the revised charges are significantly lower than expected at INR 4.5bn (vs. expectations of INR 6bn+). This resolution has ended the policy overhang and paved the way for the company's privatisation. We increase our FY23E EPS by 4% and set a revised target price of INR 690 at 28x on FY23E earnings (22x earlier; 10% premium to average PE multiple).

4QFY21 financials: Volumes at 1.05mn TEUs grew 13/10% YoY/QoQ (as economic activity improved) and revenue came in at INR 19.39bn (+24/11%). EBITDA margin at 9.7% (vs 30.2/21.2%) was impacted by an 80% QoQ increase in the 'other expenses' (owing to INR 2.92bn LLF being paid in the quarter). There was an additional charge of INR 700mn for one-time payment towards employee welfare expenses. CONCOR had an exceptional loss of INR 834mn on the write-down of assets (as the company has surrendered terminals). APAT declined 75/67% to INR 779mn.

Key takeaways: (1) Resolution of LLF issue: The revised charges for LLF in FY22 are significantly lower than expected at INR 4.5bn (vs. expectation of INR 6bn+) as CONCOR is surrendering two additional terminals as well as excess land at its existing ICDs (including TKD). With this, CONCOR will now operate on only 24 IR owned terminals (vs 41 earlier). (2) Advance payment for LLF charges: The management has decided to pay INR 60-65bn to the IR to facilitate the use of the terminals for 35 years. With this payout, the company will avoid incurring an annual escalation charge of 7% (the amount would have inflated considerably over the years). It will use its surplus cash of INR 25bn and take a loan of INR 35bn to fund the payment. As the company is a Navratna PSU, it will be able to secure the funds at competitive rates. (3) DFC: Rewari-Palanpur phase is expected to start from Oct-21. CONCOR expects an additional 10-12% of volumes post the commissioning of DFC along with market share gains/improved profitability, given higher double-stacked volumes, enhanced turnaround times and timetabled trains.

Shares of CONTAINER CORPORATION OF INDIA LTD. was last trading in BSE at Rs.666.3 as compared to the previous close of Rs. 666.85. The total number of shares traded during the day was 326147 in over 7989 trades.

The stock hit an intraday high of Rs. 681.05 and intraday low of 656.2. The net turnover during the day was Rs. 218191795.

Source : Equity Bulls

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