Concor shares are in demand as disinvestment outlook improves

From its January 2021 low of Rs396 on the National Stock Exchange, the Concor stock has risen nearly 50% to Rs590.Premium
From its January 2021 low of Rs396 on the National Stock Exchange, the Concor stock has risen nearly 50% to Rs590.
 2 min read . Updated: 11 Apr 2021, 09:30 PM IST Harsha Jethmalani

A cut in land licensing fee is expected to make the process of finding a strategic investor for Concor easy

The Container Corporation of India (Concor) stock has been on fire lately. From its January 2021 low of ₹396 on the National Stock Exchange (NSE), the stock has rallied by around 50%. This compares with a mere 6% rise in the benchmark index Nifty in the same period.

Hopes of a faster disinvestment process have helped fuel the rally and there is also hope of a resolution to the contentious issue of land licensing fee (LLF) being levied by the ministry of railways, according to analysts.

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The Railways’ demand now stands at only ₹600 crore for FY21, much lower than the earlier demand of around ₹1,300 crore, according to a media report.

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Based on this development, research house Macquarie has upgraded the stock to outperform from neutral, raising its target price to ₹685. The stock ended Friday’s session at ₹587 on the NSE.

“The ministry of railways has sent a revised LLF policy to the cabinet committee for approval (LLF at 3% of industrial value vs 6% earlier), but this is yet to be approved by the cabinet," analysts at JM Financial Institutional Securities said in a 5 April note.

Unless this is formally approved by the cabinet, the issue is likely to remain an overhang over the stock, they said.

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The LLF has been a key worry for Concor investors in the past year.

The government had revised the LLF for the company from 1 April 2020 to a fixed charge linked to the market value of land, from a variable fee linked to volumes.

Since then, the LLF has been a roadblock in privatizing the state-run company. A cut in LLF to 3% will also make it easier for the government to find a strategic investor, adding to the excitement around the stock.

The company’s shares are now 20% higher than in last August, before news of a 6% LFF levy had caused a sharp correction in the stock to the ₹360 level.

Meanwhile, operating performance has been strong. The company’s export volumes grew 11% year-on-year (y-o-y) in the March quarter, while domestic volumes rose 21%.

In a report dated 8 April, analysts at Nomura Inc. said Concor’s domestic volume growth was around 12% ahead of its estimates.

Further, Concor’s FY21 volumes fell 3% y-o-y, which is better than the management’s guidance of a 5% decline.

The company is also seen as a key beneficiary of the upcoming Western Dedicated Freight Corridor, analysts added.

Analysts estimate the company to report a 26% y-o-y increase in revenues in the March quarter earnings.

On a sequential basis, Concor’s operating margins could take a hit of around 500 basis points (bps), taking into account the full-year outgo of land licensing fees. One basis point is one-hundredth of a percentage point.

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