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Awaiting resolution on LLF

The uncertainty on the Land License Fees (LLF) continues, as CONCOR has provided for Rs 4.5bn vs. the Indian Railway’s (IR) revised demand of Rs 12.8bn. IR has based its calculation on the extant policy (6% of land value, which will be further increased 7% annually). As CONCOR has represented to the IR, management is confident of its stance. While the onground demand trends are improving, we believe that until clarity on LLF emerges, the stock price will be driven by news flow around the same. We maintain ADD with a revised target price of Rs 415 at 22x Sep-22E EPS (our estimates are largely unchanged). Key risks: any reduction on revised LLF charges on the upside and further delay in the DFC on the downside.

* 2QFY21 financials: Volumes have recovered +21% QoQ (-9% YoY) to 885k TEUs. As blended realisations declined 5% YoY (+5% QoQ) to Rs 16.9k/TEU, revenue came in at Rs 15bn (+26% QoQ, -14% YoY). EBITDA margin at 20.8% recovered from COVID lows (+750bps QoQ). Other operating expenses include Rs 700mn of additional LLF charges as compared to last year. Adjusted PAT came in at Rs 1.87bn (vs. Rs 617mn QoQ).

* Concall and other takeaways: (1) Uncertainty around LLF continues: CONCOR is currently operating 28 terminals on the railway land. As per IR’s demand notice, for FY21, CONCOR has to pay Rs 12.75bn for its 13 terminals based on the extant policy of IR (at 6% of land value). However, CONCOR’s assessment is Rs 4.5bn, and it has represented to IR for the same. Media reports suggest that the GoI is contemplating to reduce the LLF fees to 3% of land value (2) Demand picking up: In Sep-20, EXIM volumes were higher YoY. Given an improving scenario, management has raised guidance– it expects to end FY21 with a volume decline of 10% YoY vs. the earlier guidance of a 20% decline. (3) DFC: As Phase-I of DFC, Rewari to Palanpur (650kms) is expected to be commissioned by FY21, CONCOR expects market share gains from higher double-stacking/running of timetabled trains. The new rakes of CONCOR have higher payload as they are DFC compliant. The rail coefficient at JNPT has risen to 23% (from 17% earlier) due to faster train movement (turnaround times have reduced to 24-36 hours).

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