Q4 Ebitda 7% below estimates; FY23e EPS up 19%; TP raised to Rs 850; ‘Buy’ maintained
We believe Land Licence Fees (LLF) resolution is a key re-rating trigger for Concor. Q4 Ebitda was 7% below expectations, adj. for Rs 5.2-bn LLF vs Rs 11 bn factored in for FY21. Management was clear that railways has agreed to the arrangement and Rs 4.5 bn will be payable in FY22E. Eventually, land will be leased for 35 years with an upfront payment and no annual outflow. We upgrade our FY23E EPS by 19% and retain Buy with a revised PT of Rs 850 (from Rs 700).
Kitchen sinking in Q4 for privatisation: Q4FY21 quarter one-offs included (i) Rs 1.3 bn prior period LLF; (ii) Rs 177 mn medical benefit contribution for employees. Normalised Ebitda is Rs 3.3 bn, which will see an additional Rs 0.2-bn benefit from FY22e as LLF drops to Rs 4.5 bn. Giving up 2 terminals of 26 and rightsizing existing ones will reduce FY22E LLF. Tughlakabad (TKD) Dec. 2020 hike impact is not fully reflecting, indicating volume movement to Concor’s other terminals or some rebates given.
Rs 75 bn is implied land value on Rs 4.5-bn LLF (6%): Mgmt mentioned they would eventually pay railways 99% of the land value upfront in return for a 35-year lease with no annual LLF payment. This takes away policy change uncertainty on land value and the annual 7% escalation. Our FY23e assumptions factor in Rs 45-bn loan, Rs 25-bn cash on books and internal accruals combined financing the `75-bn potential outflow. Net D:E will be 0.4x in FY23e and with operational cash flows the loan should be comfortably repaid by FY25e-26e.
Lease lends certainty but takes away cost-saving benefit: We assume the lease deal is effective from FY23e. Our FY23e estimates factor in no LLF outflow, Rs 3.6-bn interest outflow on loan taken and Rs 2.1-bn incremental amortisation for the land. Our FY23e EPS will rise 20% if Concor pays LLF vs upfront land value. 35-year lease could make privatisation bidders more comfortable with their assumptions for Concor’s valuations.
Dedicated Freight Corridor (DFC) linked 22% volume CAGR and 38% profit CAGR in FY21-25e to drive upside: Mgmt guided for 10-12% y-o-y volume growth in FY22E, excluding DFC impact. DFC commissioning to Gujarat ports is delayed to Oct 2021 from Apr 2021. We lower our FY22e volume assumption to 18% y-o-y growth at 4.4 mn TEU vs 4.7 earlier. Sharp FY22e Ebitda/EPS upgrade is driven by Rs 4.5-bn LLF vs our Rs 11 bn assumption. Disinvestment is an additional upside for Concor. Our revised PT of Rs 850 values it at 20.5x EV/Ebitda FY23e – in line with the 7-yr average, reflecting the period when DFC upside was being factored in.