Concor share price shoots 10% due to THIS reason - Check all details here

Concor share price: ICICI Securities says that large non cash provisions booked by Container Corporation of India (Concor) in Q4FY21 leads to a miss, reported EBITDA at Rs 1.9bn; EBITDA was down 60% YoY and 50% QoQ. Adjusted for the higher LLF (Land Licence Fee) expense and employee costs, ICICI Securities estimate EBITDA to be flat QoQ – still a miss when compared to peer performance, given the external margin triggers. Rs 5.17 bn of LLF sets up for a prospective FY22.

Valuations have largely shaken off the possibility for higher LLF incidence, while acknowledging higher probability of divestment as well. From here on real progress towards divestment and execution/profitability will drive performance. ICICI Securities downgrade Concor to HOLD from Add with a revised target of Rs 563/share (Rs 510 earlier). In the concall, Management if the company said that they have done the clean up process as they want to disinvestment. 

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ICICI Securities said that even adjusting for non-cash provisions, a flat EBITDA QoQ, given 10% QoQ increase in origination volumes, bears disappointment.

Margin performance for Q4FY21 was constructively shaped given peer performance on the back of:

i)                    reduction in imbalance
ii)                   increase in volumes leading to operating leverage
iii)                 Indian railways offered rebate of 5% and 25% on laden and empty haulage charges

Providing for past disputed expenses, which looks like a plausible reason for muted EBITDA performance can lead to better visibility for divestment. While Q4FY21 has witnessed high incidence related to LLF, as Concor clears out past dues of IR (including service tax demand and LLF demand on empty running), FY21 (core) LLF has been recorded at Rs5.17bn. While we await final communication on LLF from the Ministry of railways, the provision for FY21 shows the possible range of LLF incidence. The relative clarity on LLF removes a key cost overhang, explains ICICI Securities.

As Dedicated Freight Corridors (DFC) commissions, Concor is expected to witness i) Market share gains given the largest network of terminals along DFC without any meaningful incremental investment and ii) get all the tailwinds associated with the increasing rail share ( vis-à-vis road) – glimpses of which hare visible in the pandemic says ICICI Securities.

There are obvious operating benefits for Concor with commissioning of DFC, and perhaps post divestment profitability/market share can be better balanced towards further stakeholder value creation. The valuation overhang involving LLF seems to have cleared. From here on ‘real’ progress towards divestment and execution/profitability will drive stock performance. ICICI Securities downgrade the stock to HOLD from Add with a revised target of Rs 563/share, post the recent outperformance