Container Corporation of India Ltd (Concor)’s land licence fee (LLF) dispute may have gotten even worse. The ministry of railways has slapped a higher fee of Rs1,276 crore for 13 terminals against Concor’s estimates of about Rs466 crore. That drove the stock down 6%, despite its better-than-expected Q2 numbers.

                            

While the Concor stock had reacted when the fee first came to light by about 15%, the stock has been moving sideways since. But now the new bill considerably increases the burden on Concor. Analysts at Nomura had earlier pointed out that the LLF demand could be about Rs1,000 crore. But the latest LLF charge is even higher.

Besides, the LLF increase comes at a time when Concor is on the divestment list of the government. This is a huge overhang on the stock as this contingent liability can hit Concor’s balance sheet.

“Unless this wide perception gap on LLF is addressed by a clearly defined policy, it will likely be difficult for an investor to gauge the value of the company properly, in our view. Under such circumstances the proposed divestment of a 30% government stake in Concor would be difficult to achieve," said analysts at Nomura Financial Advisory Services.

That said, the company has picked up momentum in Q2 with revenues looking up sequentially after the lull of Q1. The revenue growth of 26% sequentially is a step ahead of the Street’s expectations, but was still down about 14% y-o-y.

In addition, Concor contained costs further in Q2 which led to a sharp expansion in margins against the expectations. Ebitda margin in Q2 was higher by about 740 basis points sequentially at 20.8%. Ebitda is earnings before interest, tax, depreciation and amortization. The net profit growth of about 204% sequentially also reflects the efforts on costs savings quite well.

The key driver of the better performance has been higher export import freight realizations, which, coupled with the lower costs, drove profitability. Export import realizations came in 3% higher this quarter as discounts have been withdrawn. The reopening of the economy could further see volumes pick up in the coming quarters leading to better operating leverage.

However, as the LLF overhang has increased, it could continue to mount the pressure on the stock. The stock is down about 34% from its pre-covid highs.


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