Brokerage firm Kotak Institutional Equities has downgraded Container Corporation of India Ltd to "reduce" from "add" saying that the revised railway land license policy is negative versus its expectations.
The stock fell 0.6% to Rs 722 on BSE at 9.20am on Thursday. So far this year it gained over 18%.
"CCRI may have more to lose if it considers rebidding its Indian railway (IR) terminals in search of lower land license fee (LLF). Our unchanged FV for now at Rs730 yields prospects of time correction over the next one year. It also bakes in the benefit of effective payout to IR at 3% LLF rate versus 6% at present and thus is prone to downside risks – face value would fall to Rs690 if there is no change in LLF rate for Concor’s existing terminals", Kotak Institutional Equities said in a report to its investors.
The Union Cabinet announced on September 7 that it has approved the policy on long-term leasing of Indian Railways' land and has cut the land licence fees from 6 percent to 1.5 percent. The lease period has also been increased from five years to 35 years.
As per Concor’s financials, its handling income (proxy to terminal charges levied from IR) is Rs910 crore and land license fee (based on current 1QFY23 run-rate) is 40% of such income at Rs380 crore. Kotak said Concor may not be willing to go for rebidding and risk letting go of key terminals against the prospects of reducing its land license fee.
"We build in land license fees to come down to 3% of market value of land from current 6% levels. Depending on which of its existing terminals Concor rebids, the effective land license fee will fall from 6%. In the scenario that CCRI does not see any change in land license fee, our EBITDA estimates will fall by 9% and target price would fall by 6% to Rs690 – note that land license fee grows at 7% CAGR, unlinked to volume growth", Kotak report said.
The proposed changes will pave the way for the privatisation of Concor because it will help strategic buyers pay much less amounts as land rentals to railways for a longer period. This was one of the key suggestions put forward by the investment advisors of Concor.
"While acknowledging privatization of CCRI being closer to a reality, we find it difficult to ascribe value to such an event. CCRI has already ceded less worthy terminals to Indian Railways and is reflecting margin movement in its financials", Kotak report added.
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