LLF policy changes fail to lift Concor estimates but stock is still a 'buy'

Shares of Container Corp. of India (Concor) did not see a follow-up rally on Thursday, as a cut in land license fee (LLF) on leasing of railways land for Gati Shakti terminals could not lift analyst earnings estimates for the logistics solutions provider. Analysts seek more clarity on the subject while maintaining a 'buy' rating on the stock.

The stock rose 0.87 per cent to Rs 733 a piece on Thursday after rising 8.6 per cent in the previous session.

Nomura India said that the changes to LLF policy largely clears the deck for the strategic stake sale of Concor, noting a lack of clarity had held up the divestment since November 2019. In 2019, the government had announced its plan to divest a 30.8 per cent strategic stake in Concor.

But despite being a profitable and well-operated entity, the stake sale was held up on the key LLF policy matter. The uncertainty on LLF policy was a key impediment to stake sale, Nomura said.

The new LLF framework approved by the Union Cabinet proposes LLF to be charged for 35 years at 1.5 per cent of the market value of land per annum as against 6 per cent in the existing policy. The bidding mechanism will be carried out for 300 new PM Gati Shakti Cargo terminals that are to be developed over the next five years.

"For existing entities, using railway land for cargo terminals, the switch to the new policy regime is optional. Thus, in the event such a switch is unfavourable for Concor, we can consider that current LLF levels may prevail. Thus, we have estimated no change in LLF at present for FY23-25F," Nomura India said.

In short, as Edelweiss said, Concor’s 6 per cent LLF rate does not change. "The only way this rate changes is if it surrenders its terminals and then an open bidding happens. Concor is unlikely to risk this, and hence its 6 per cent LLF rate will stay," Edelweiss said.

JM Financial said there is no clarity about the recovery of the investments that the incumbent operator has made in the infrastructure at those terminals.

"We keenly await the fine print, expected to be released within the next 90 days. We broadly maintain our estimates at present and will revisit our LLF assumption only post clarity on the policy and Concor’s strategy on renewal of its terminals. We introduce FY25 and roll forward to September 2023 TP of Rs 860 (earlier March 2023 TP of Rs 770). Buy rating stays," JM Financial said.

Edelweiss said the new 1.5 per cent rate is the base rate for future allotment of land only.

"We point out that irrespective of LLF rates, the Western DFC commissioning is a reality and the full DFC rollout in the next couple of years is highly likely, which may trigger a significant volume jump for Concor. Thus, we retain ‘BUY’ on Concor," Edelweiss said.

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