Concor stock derails on changes in land licence fee payable to Railways

Topics Concor | Concor shares | Q1 results

File photo: Container boxes are seen at a port (Photo: Reuters)
The Container Corporation (Concor) stock fell over 15 per cent on Monday over weak June quarter results and revision of annual land licence fee (LLF), to be paid by the company to the Railways. While Concor was paying LLF, it was on the basis of volumes and, thus, a variable cost. But now, it has to pay a fixed percentage, which is based on the market value of land. 

This has led to a sharp uptick in payment for 25 terminals, which Concor operates on Railways’ land, from Rs 140 crore paid in FY20 to Rs 450 crore in FY21. The higher figure is based on a fixed charge of 6 per cent of the market value of the piece of land. 

The change in accounting for land leased by Concor comes on the back of moves to privatise the container freight operator and undue benefit it will likely get as compared to other operators in the older system of licence fee. 

While the Street was working on certain assumptions, what came as a surprise to the markets was higher demand by the Railways. 
Concor has been asked to pay Rs 776.89 crore as LLF for FY21 for Okhla and Tughlakabad terminals. Given that the fee is related to just two of the 25 terminals, the licence fee is expected to be much higher for all the terminals; Concor is working with an assumption of Rs 450 crore for all the terminals. Estimates for FY22 will also include an annual escalation of 7 per cent. 

Analysts at Nomura believe the Railways may have been working at land valuations, which are different from the prevailing circle rates, leading to a wide variation in fee estimates. Given the valuation for the two terminals, they expect that the overall licence fee could rise to Rs 1,000 crore for all the terminals. The variance in valuation could delay the divestment and make it difficult for investors to peg a fair value.

 

 
The company took a Rs 120 crore charge in the quarter related to LLF, which coupled with a weak volume performance, dented its operating performance. Due to this, the operating profit margin fell 11 percentage points to 13.4 per cent in the quarter. 
Lack of operating leverage was also reflected on revenues, which fell 27 per cent YoY on account of Covid-related disruptions and the lockdown. 

Export-import volumes fell 20 per cent, while realisations dipped 10 per cent YoY.   

 
Analysts at ICICI Securities believe in an environment of steep volume contraction, the fixed nature of expense is expected to create margin pressure for the company. 

The other worry for the Street is intensifying competition as road container operators vie for volumes with Concor and, in the process, offer steep discounts. 

While the company expects things to stabilise over the next couple of quarters in terms of volumes, in the near term, there can be some pressure on pricing impacting realisations and margin. 

While there are long-term triggers, such as a dedicated freight corridor, which would help increase volumes in FY22, the near term could see volume pressures and further erosion in the margin. 

Despite the sharp fall, the stock is trading over 40 times its revised FY22 estimates.


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