Great opportunity to accumulate Concor stock: Edelweiss

Gaining traction as pieces fall in place

Container Corporation (Concor) reported in-line revenue (down 7% QoQ), but surprised on margin, thereby beating earnings by 20%. With the Land License Fees (LLF) issue already resolved, further lowering of LLF to INR3.75bn for FY22 is quite positive. Concor’s likely one-time payment to acquire railway land for 35 years at ~INR70bn should lower costs even further. With part of DFC becoming operational, Q2FY22 should see additional volumes kicking in as well.

After a strong rally post-Q4FY21 result, the stock has corrected ~10%, which is a great opportunity to accumulate stock as there is certainty around LLF and likely positive news flow on DFC. We retain ‘BUY’ with a DCF-based TP of INR780 (up from INR760).

LLF deal sweetens; DFC volumes to start kicking in

Post-Q4FY21, the stalemate with Railways on LLFs ended with Concor having the option to pay INR4.5bn annually or a lumpsum of ~INR75bn for 35 years. The fact there has been no going back on this settlement is a positive. In Q1FY22 concall, management highlighted that based on land authority valuation, LLFs for FY22 should be INR3.75bn and one-time payment at INR60–70bn—both better than initial expectations. Our base case assumes Concor exercising the one-time option, resulting in lower costs. With DFC connectivity from Kathuwas to Pipavav/Mundra ports (~1,000km) now operational, DFC volumes should start kicking in from Q2FY22—another positive. Following its rally post-Q4FY21 results, the stock has corrected ~10% over the past month, which is a good opportunity to accumulate it, considering the LLF resolution and positive news flow on DFC.

Margin bounces back; previous guidance now a bare minimum

Q1FY22 top line edged down 7% as volumes slid 6% QoQ—in line with expectations. Margin surprised positively and came in at 24% due to better realisations and lower empty running costs. Overall, Q1FY22 profit jumped 156% QoQ—beating our and Street’s estimates by ~20%. Management not only confirmed the FY22 PAT guidance of INR10bn, but noted this was the bare minimum Concor will achieve.

Outlook and valuation: Prospects brighten; retain ‘BUY’

We anticipate the stock’s re-rating to continue as LLF resolution should fast-track divestment as well as create a higher earnings base. We are revising FY22/23E slightly, which yields a DCF-based TP of INR780 (up from INR760), building in a 20% premium for potential divestment (considering a likely volume-focused new owner).