Concor Shares Rise After Government Clears Key Overhang For Divestment
Nomura upgraded Concor stock to ‘buy’ from ‘neutral’, and increased the target price to Rs 918 from Rs 775.
Shares of Container Corporation of India Ltd. continued to gain Thursday as Nomura raised its rating and target price on the stock, betting on potential acquisition synergies for the company after the government lowered the railway land licensing fee.
The stock gained as much as 1.22% to Rs 735.50 apiece on the BSE. It, however, pared the gains from Wednesday when it rose as much as 9%—the most in over three months.
Nomura upgraded the stock to ‘buy’ from ‘neutral’, and increased the target price to Rs 918 from Rs 775—implying a return of 26.35%.
“The cabinet’s decision enhances visibility on divestment, and investors will start factoring in synergy benefits for an acquirer,” the brokerage said in its investor note, citing that it predicts acquisition synergies of up to Rs 140-150 a share for a potential acquirer.
This can integrate Concor’s rail terminal network with west coast port infra to benefit from volume upswing with the commissioning of Western Dedicated Freight Corridor, the note said.
The central government’s plan to divest a 30.8% strategic stake in the company was held back due to vagueness on LLF. “The deck now seems cleared for divestment,” Nomura said.
On Wednesday, the cabinet approved the railway land lease policy allowing the railway ministry to lease its land parcels for cargo-related activities for up to a period of 35 years at 1.5% of the market value of the land.
Kotak Securities Ltd., however, struck out the development as ‘negative’ and said Concor "may have more to lose if it considers rebidding its IR (Indian Railways) terminals in search of lower land license fee".
The brokerage downgraded the stock to 'reduce' from 'add', while keeping the fair value unchanged at Rs 730.
"The emerging details of the revised land licence policy for terminals of Indian Railways suggest likelihood of land license fee for existing terminals of CCRI (Container Corp.) not meaningfully changing from the current 6% of market value formula," Kotak said in its investor note.
Citing the rules for rebidding of terminals, Kotak pointed out that Concor's handling income--proxy to terminal charges levied from Indian Railways--is Rs 910 crore, while the land licence fee is about 40% of the income at Rs 380 crore. The company, Kotak said, may not be keen to go for a rebidding and captivating the risk of losing key terminals in order to reduce its land licence fees.
The target price of Rs 730 yields prospects of time correction over the next one year and factors in the benefit of effective payout to Indian Railways at 3% LLF rate versus 6% at present, Kotak said. The fair value would fall to Rs 690 provided the LLF rate remains unchanged for Concor's existing terminals. Kotak said in the same case, that is if the LLF rate remains the same, Concor's Ebitda estimates will fall by about 9%.
According to the brokerage, land licence fee grows at 7% CAGR, unlinked to volume growth.
Of the 34 analysts tracking the company, 27 maintain a 'buy', four suggest a 'hold' and three recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 7%.