Brokerage firm Kotak Securities has downgraded the stock of Container Corporation of India (Concor) to a 'reduce' from and 'add' with a target price of ₹730.
"We downgrade Concor to a 'reduce' from an 'add' with an unchanged fair value (target price)– the stock price has appreciated by 26% since our upgrade in May 2022," Kotak said.
"We build in land license fee to come down to 3% of the market value of land from the current 6% levels. Depending on which of its existing terminals Concor rebids, the effective land license fee will fall from 6%. In the scenario that Concor does not see any change in land license fee, our EBITDA estimates will fall by nearly 9% and our fair value would fall by 6% to ₹690 – note that land license fee grows at 7% CAGR, unlinked to volume growth," the brokerage firm added.
The stock of this logistics solutions provider hit its fresh 52-week high of ₹766.30 on BSE in the previous session on September 7.
Kotak said the emerging details of the revised land license policy for terminals of Indian Railways suggest the likelihood of land license fees for existing terminals of Concor not meaningfully changing from the current 6% of market value formula.
Kotak said Concor’s financials, its handling income (proxy to terminal charges levied from IR) is ₹9.1 billion and land license fee (based on the current Q1FY23 run-rate) is about 40% of such income at ₹3.8 billion.
Kotak said that Concor may not be willing to go for rebidding and risk letting go of crucial terminals against the prospects of reducing its land license fee.
Kotak believes clarity on LLF would be an enabler for the privatization of Concor.
The Gati Shakti policy for multi-modal cargo terminals released in December 2021 clarifies the prospects of private sector operators bidding for leasing the railway.
The endgame of land license fee being proudly unchanged would also augur well for competition continuing to get a level playing field against Concor, said the brokerage firm.
"While acknowledging the privatization of Concor being closer to reality, we find it difficult to ascribe value to such an event. Concor has already ceded less worthy terminals to Indian Railways and is reflecting margin movement in its financials," said Kotak.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.