Concor Rating – Buy: LLF resolution key re-rating trigger

We improve our FY23E EPS by 19% and retain Purchase with a revised PT of Rs 850 (from Rs 700).

We imagine Land Licence Charges (LLF) decision is a key re-rating set off for Concor. This autumn Ebitda was 7% beneath expectations, adj. for Rs 5.2-bn LLF vs Rs 11 bn factored in for FY21. Administration was clear that railways has agreed to the association and Rs 4.5 bn will likely be payable in FY22E. Finally, land will likely be leased for 35 years with an upfront cost and no annual outflow. We improve our FY23E EPS by 19% and retain Purchase with a revised PT of Rs 850 (from Rs 700).

Kitchen sinking in This autumn for privatisation: Q4FY21 quarter one-offs included (i) Rs 1.3 bn prior interval LLF; (ii) Rs 177 mn medical profit contribution for workers. Normalised Ebitda is Rs 3.3 bn, which is able to see a further Rs 0.2-bn profit from FY22e as LLF drops to Rs 4.5 bn. Giving up 2 terminals of 26 and rightsizing present ones will cut back FY22E LLF. Tughlakabad (TKD) Dec. 2020 hike affect just isn’t totally reflecting, indicating quantity motion to Concor’s different terminals or some rebates given.

Rs 75 bn is implied land worth on Rs 4.5-bn LLF (6%): Mgmt talked about they’d finally pay railways 99% of the land worth upfront in return for a 35-year lease with no annual LLF cost. This takes away coverage change uncertainty on land worth and the annual 7% escalation. Our FY23e assumptions consider Rs 45-bn mortgage, Rs 25-bn money on books and inner accruals mixed financing the `75-bn potential outflow. Internet D:E will likely be 0.4x in FY23e and with operational money flows the mortgage must be comfortably repaid by FY25e-26e.

Lease lends certainty however takes away cost-saving profit: We assume the lease deal is efficient from FY23e. Our FY23e estimates consider no LLF outflow, Rs 3.6-bn curiosity outflow on mortgage taken and Rs 2.1-bn incremental amortisation for the land. Our FY23e EPS will rise 20% if Concor pays LLF vs upfront land worth. 35-year lease may make privatisation bidders extra snug with their assumptions for Concor’s valuations.

Devoted Freight Hall (DFC) linked 22% quantity CAGR and 38% revenue CAGR in FY21-25e to drive upside: Mgmt guided for 10-12% y-o-y quantity development in FY22E, excluding DFC affect. DFC commissioning to Gujarat ports is delayed to Oct 2021 from Apr 2021. We decrease our FY22e quantity assumption to 18% y-o-y development at 4.4 mn TEU vs 4.7 earlier. Sharp FY22e Ebitda/EPS improve is pushed by Rs 4.5-bn LLF vs our Rs 11 bn assumption. Disinvestment is a further upside for Concor. Our revised PT of Rs 850 values it at 20.5x EV/Ebitda FY23e – according to the 7-yr common, reflecting the interval when DFC upside was being factored in.