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Published on 17/10/2020 12:12:16 PM | Source: HDFC Securities Ltd

Add Container Corporation Ltd For Target Rs.400 - HDFC Securities

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Policy headwinds to the forefront

Along with a weak 1QFY21 performance (PAT down 73% YoY), CONCOR’s outlook is impacted by the enforcement of the revised land licences fees (LLF) policy. The annualised payout will now be significantly higher at between 3x7x from current levels (payout of Rs 1.4bn in FY20). While CONCOR is factoring in an increased amount of ~Rs 5bn, the Ministry of Railways has raised a demand for Rs 7.7bn. We lower our estimates by ~20% over FY21-23 to factor in the above. The stock reacted adversely (-15%) on this announcement. We maintain ADD with a revised target price of Rs 400 @ 22x Jun-22E EPS. Key risks: any reduction on revised LLF charges on the upside, further delay in the DFC on the downside.

* 1QFY21 financials: Volumes declined 21% YoY to 732k TEUs, impacted by COVID lockdown, leading to a revenue decline of 27% YoY (CONCOR’s market share has fallen to 64% from 68% YoY). EBITDA margin at 13.4% was significantly below estimates owing to increased LLF (Rs 1.2bn) and higher employee cost (6.7% of revenue vs. 4.9/3.8% YoY/QoQ) due to incentives related payout. Reported PAT at Rs 617mn declined 73% YoY.

* LLF amount to be increased manifold: The company has received an intimation from IR to pay a substantially higher LLF of Rs 7.7bn for just two terminals (Tughlakabad and Okhla) based on the revised policy (total LLF paid in FY20 was Rs 1.4bn). However, CONCOR is estimating a lower LLF amount of ~Rs 5bn for the entire railway land, based on its estimates.

* Will CONCOR surrender more terminals? CONCOR has already given up 15 terminals, before this policy change. While the management highlighted that no more terminals will be surrendered as of now, the revised charges will impact business dynamics. CONCOR had been paying LLF based on number of TEUs handled. However, the ministry has revised the terms stating that LLF shall be charged as per the extant policy of Railways, i.e. at 6% of the value of land, which will be further increased to 7% annually.

 

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