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Volume growth continues unabated….

Concor reported strong YoY and QoQ improvement in volumes in Q4FY21, while realisations continued to remain healthy (up 10.5% YoY for Exim, flat QoQ). Overall, revenues grew 24% to | 1939 crore, led by volume growth of 13% (10.6 lakh TeUs). While domestic revenues grew 27% YoY to | 556 crore, Exim revenue grew 22% YoY to | 1384 crore. However, margins contracted (down 2050 bps) to 9.7%, led by higher payment of LLF charges (| 290 crore) and higher employee provisioning (~| 70 crore). Subsequently, absolute EBITDA declined 60% to | 189 crore. However, PAT de-grew 96% YoY to | 16 crore, as a weak operational performance was further impacted by an exceptional expense of | 83 crore (one-time write-off related to permanent structures on surrendered railway lands).

Expect clarity on LLF norms in near term

Concor has paid | 520 crore as LLF charges in FY21 on the basis of 6% of the calculated CMP of railway land parcels (it has surrendered 16 terminals to IR). The company further expects to pay | 450 crore as LLF charges for FY22E (lower than FY21), as it intends to surrender two more rail terminals and also rightsizing of existing terminals (including its flagship Tughlakabad terminal). The management is also working on an alternative path with Indian Railway to purchase the 24 terminals it operates on the IR land for 35 years (at 99% of the CMP), which is expected to range at ~| 6000-7000 crore), to be funded by a mix of cash on its books (~| 2500 crore) and external debt. Resolution to LLF overhang would clear the major bottleneck in privatisation of the company.

DFC expected to be operationalised in H2FY22

The company has also been focusing on higher lead distances (Exim: 697 km and domestic: 1378 km in FY21), which drives higher realisation for the company. Roughly, 40% of its volumes flow via North-West Corridor, which is expected to get a major boost, with a shift in road to rail market share and a better pricing power, with the DFC connectivity. The management expects the DFC to get operationalised (connect Northern India to Mundra and Pipavav port) from October onwards, which would lead to better turnaround times and running of time-table bound freight trains.

Valuation & Outlook

On the diversification front, the management expects to resume scaling up its distribution logistics post clarity on divestment. It is also running trials for bulk transportation for FCI (saves time, resources by eliminating the traditional bagging-Debagging process). With easing of uncertainty regarding the LLF issue and rightsizing of its assets, Concor stays a structural growth story that will play a pivotal role in the changing Indian logistics landscape (DFC, cargo containerisation). We maintain BUY recommendation with a target price of | 750 (earlier | 560).

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