Nomura Cuts Container Corp's Rating And Target Price
Nomura downgraded the rating to 'neutral' from 'buy' and cut the target price to Rs 635 from Rs 838.
A looming uncertainty around Container Corp.'s divestment led Nomura to downgrade its rating and cut its target price.
The brokerage downgraded the rating to 'neutral' from 'buy' and cut the target price to Rs 635 from Rs 838. This implies a potential upside of 1.6%.
The brokerage also removed the divestment premium from the valuation.
"The lack of clarity on a timeline for this trigger and the failure of CCRI's (Container Corp.) management to deliver on its strategy to maintain market share leads us to believe there is a lack of near-term triggers for a stock re-rating," it said in its investor note dated Feb. 8.
Nomura said Adani Ports and Special Economic Zone Ltd., one of the contenders for the stake sale, highlighted "significant" uncertainties in the near term on the stake sale in their quarterly earnings call.
The brokerage has been assigning potential acquisition synergies of Rs 180 per share since a detailed land licence fee policy was announced. However, after the management of Adani Ports suggested uncertainty on the stake sale timeline, the brokerage removed the synergy estimates from Concor's valuations, it said.
Nomura cited further loss of market share as key downside risk, while improved visibility of strategic stake sales will be the key re-rating trigger, it added.
It also trimmed FY24 and FY25 earnings per share estimates by 1% and 3%, respectively, on weak export and import volume outlooks along with uncertainty on market share recovery.
A government official had, in January, said that India will invite expressions of interest in preliminary bids for privatising Container Corp. In November 2019, the cabinet approved the strategic sale of a 30.8% stake, along with management control, in Concor out of the government's equity of 54.80%.
The management of Adani Ports had mentioned that it could buy a potential stake in Concor only if its net debt to Ebitda ratio is maintained at around 2.5 times, Nomura said.
"Under such circumstances, we believe it will be difficult for Adani Ports to offer a bid that incorporates our past calculation of valuation synergies of Rs180 per share," it added. Also, the Adani Group company is no longer maintaining a large cash buffer and is paying down debt, Nomura added.
Thus, a strategic stake sale appears unlikely in the near term, and the stock may not factor into the synergies of a potential acquirer anymore, it added.
Concor shares were trading 0.20% higher compared to a flat Nifty 50 as of 11:23 a.m. The relative strength index stood at 28, indicating that the stock may be oversold.
Of the 30 analysts tracking the stock, 16 maintain 'buy', nine suggest 'hold', while five recommend 'sell', according to Bloomberg data. The implied return potential on the stock is 21.3%.