Railway land licensing fee policy change a key step towards Concor privatisation, say analysts

The Union Cabinet on Wednesday approved a steep 75 percent reduction in the railway land licencing fee (LLF), along with a much longer lease period, for specified end uses. The change in the LLF policy is a key step towards the privatisation of Container Corporation of India, according to analysts who track the stock.

Shares of Concor had soared on Wednesday after the cabinet cleared the railway land license policy under the PM Gati Shakti program. Under the new policy, the timeframe of leasing railway land has been increased to 35 years from the earlier period of five years while the land licencing fee has been lowered to 1.5 percent from 6 percent for newer entrants.

Analysts believe that the move clears the deck for the government's plan to divest its 30.8 percent stake in Concor. The plan has been held up for over two years due to lack of clarity on this LLF issue.

Here's what some other analysts had to say on the developments:

The brokerage has upgraded Concor to a "buy" rating from its earlier recommendation of "neutral" and also raised its price target to Rs 918 from Rs 775 earlier.

Nomura believes that the impact on land licencing fee quantum for the company still remains uncertain, but is unlikely to rise from the present levels between FY23-25. However, the note adds that if Concor sticks to the existing regime, instead of bidding for the new rates of 1.5 percent, the LLF estimates will not undergo any material change. It expects more clarity on the absolute LLF quantum once the policy is framed within 90 days of the cabinet approval.

The cabinet's decision also enhances visibility on Concor's divestment, according to Nomura. "We believe investors will now start factoring in synergy benefits for an acquirer," the note said.

Among the key downside risks, Nomura highlights delay in the linkage of the Western Dedicated Freight Corridor to major ports, and a loss of market share.

In-line with Nomura's view, Jefferies also believes that the land licencing fee policy is a key step towards Concor's privatisation. It expects volume growth to drive upside for the company over the next 6-8 months.

The brokerage calls Concor a "lucrative asset" as it is the market leader in rail logistics with land and the Dedicated Freight Corridor (DFC). Adding to this is the fact that Concor is a debt free company.

An indefinite delay in the DFC and resurfacing of the land licencing fee issue are some of the key risks highlighted by Jefferies for the stock.

Jefferies maintained its buy rating and a price target of Rs 850 on Concor. The note also said that in case the LLF rate moves to 1.5 percent, it could add another 7-8 percent to its price target and another 2-10 percent to its FY24/25E EPS.

Citi also termed Concor as an "attractive asset," and that the land licencing fee outgo will depend on the policy details, competitive bids and associated timelines.

The brokerage added that Concor will be a major beneficiary once the Dedicated Freight Corridor is fully completed. However, Citi believes that over the medium-term, more progress on the company's privatisation will hold the key.

"Scale and asset base will make the company attractive for potential bidders during privatisation," the note said.

Shares of Container Corporation are trading 1.2 percent higher as of 11 am at Rs 735.05. The stock ended 8 percent higher on Wednesday.