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EXIM weakness continues; lower LLF aids earnings 

Concor’s QIFY23 PAT grew 14.3%YoY and was above estimate of Rs2.78bn due to lower LLF expenses. Revenue grew by 9.4% YoY to Rs19.8bn (estimate: Rs20.3bn). EBITDA grew by 9% YoY to Rs4.7bn (estimate: Rs4.45bn) while EBITDA margins remained flat YoY at 23.9% (estimate: 22%). Concor has lowered its LLF guidance for FY23E to Rs3.7-3.8bn vs. Rs4.65bn in FY22 as it is now reporting only the LLF paid in cash and not making any provisions. Concor guided for Revenue/PAT growth of 10- 12% in FY23 with potential to do better if EXIM volumes pick-up. We expect this guidance to be comfortably surpassed aided by cut in LLF costs. A potential cut in LLF rate to 2% from 6% (being considered by the government as per media articles) can drive 13% upside to our earnings. Maintain Buy with TP of Rs783.

Earnings beat driven by lower LLF expenses and hence higher margins

LLF for QIFY23 was lower at Rs956m (estimate: Rs1.2bn) vs. Rs1.14bn in QIFY22 as PY numbers included some provisions which are not being made now. Rail freight margins declined to 25.6% from 28% in Q4FY22 and 30% in Q1FY22 led by delay of ~1 month in passing on the impact of increase in haulage charges. The discount of 10% on empty containers is likely to be withdrawn from Nov-22 but Concor confirmed its tariffs are already adjusted for the same w.e.f June-22. Concor also increased terminal handling charges during this period.

EXIM volumes were weak in Q1FY23; domestic volumes remained buoyant

Total originating volumes declined by 1.4% YoY to 603k TEUs (EXIM: 497k TEUs, down 6% YoY; Domestic: 106k TEUs, up 28% YoY). EXIM realizations grew by 6% YoY while EBIT grew 16.7% YoY to Rs6378/TEU (estimate: Rs5708/TEU). Domestic realizations grew by 5.7% YoY and EBIT declined by 2.6% YoY to Rs5511/TEU (estimate: Rs4335/TEU).

Concor’s revised guidance appears conservative; FY23 capex guidance lowered

Concor has guided for revenue/PAT growth of 10-12% in FY23 with potential to do better if EXIM volumes pick-up. Earlier, in Q4FY22 earnings call, Concor had guided for 12-20% revenue/PAT growth for FY23. We expect this new guidance to be comfortably surpassed aided by lower LLF costs. Concor has maintained its medium term capex plans involving addition of high capacity rakes and containers for domestic business, capex in FY23 would be limited to Rs5.5-6bn (Rs6.2bn earlier). Concor remains buoyant on prospects of domestic business aided by strong potential of bulk cement handling.

EXIM outlook improving; Potential cut in LLF rate key trigger; Maintain BUY

Weak EXIM growth YTD FY23 remains a key negative for Concor. However, with Covid led disruptions normalizing and with reduction in Ocean freight rates the outlook for EXIM appears to be improving. While we moderate Concor’s FY23 EXIM volume growth to 4.5% from our previous estimate of 10%, our FY23E/FY24E earnings are upgraded by 3.4%/5.1% due to cut in guidance for LLF expenses. As per media articles, the government is in the process of finalizing a long term LLF policy by way of which Concor’s LLF rate may substantially reduce to 2% of land value from 6% currently. This can drive upside of 13% in our FY24E earnings. Maintain Buy with TP of Rs783 (18x FY24E EBITDA).

Valuations

Weak EXIM growth YTD FY23 remains a key negative for Concor. However, with Covid led disruptions normalizing and with reduction in Ocean freight rates the outlook for EXIM appears to be improving. While we moderate Concor’s FY23 EXIM volume growth to 4.5% from our previous estimate of 10%, our FY23E/FY24E earnings are upgraded by 3.4%/5.1% due to cut in guidance for LLF expenses. As per media articles, the government is in the process of finalizing a long term LLF policy by way of which Concor’s LLF rate may substantially reduce to 2% of land value from 6% currently. This can drive upside of 13% in our FY24E earnings. Maintain Buy with TP of Rs783 (18x FY24E EBITDA).

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