Though the stock of Container Corporation of India (Concor) has been rising following the Cabinet’s approval for the long-term leasing policy of railway land to implement PM Gati Shakti, analysts believe a lack of clarity over the new policy may limit further upside on the stock. The scrip soared more than 10% to a fresh all-time high on September 7. On Friday, it closed up 2.68% to Rs 751 on the BSE.
According to the land licence fee (LLF) policy for railway land leasing, the existing terminal operators have been provided with an option to switch to the new regime after competitive and transparent bidding. So, if Concor sticks with the existing regime, LLF estimates may not undergo material changes in the near term.
Till a comprehensive policy is formed, lack of clarity and confusion will remain. According to HSBC Global Research, “While on a headline basis, it appears that Concor’s LLF are set to reduce by 75% (rate of 1.5% as against 6.0%), we think it is not very straightforward. The press release highlights the option for existing entities using railway land to switch to the new policy through a transparent and competitive bidding process, but it does not clarify the bidding parameters.”
If the comprehensive policy document waives competitive bidding for the container train operation industry, it will be a big positive for Concor. But if it adds another bidding parameter such as rate of land licence fees or terminal revenue share with incumbents having the option to match the lowest bidder, it could further complicate the estimates of LLF.
“The Cabinet’s decision enhances visibility on divestment, and we believe investors will start factoring in synergy benefits for an acquirer. We have estimated acquisition synergies of up to Rs 140-150 per share for a potential acquirer, which can integrate the company’s rail terminal network with west coast port infra to benefit from volume upswing with the commissioning of the Western Dedicated Freight Corridor. We have started factoring in potential acquirer synergies in our valuation,” Nomura said in a report.
Concor is the leading container rail logistics company with close to 70% market share. It is among select PSUs that have demonstrated efficiency in operations and profitability, and has maintained a dominant share in the market even after opening up of rail container operations to private players from 2005.