Investors are optimistic about the prospect of an ownership change. Last week, the government said it will offload 30% of its 55% stake in Concor and transfer management control to the strategic buyer. At the current market price, a 30% stake sale will fetch the government around ₹10,300 crore.
The largest container train operator in India has much to offer, drawing enough interest from potential investors. Adani Ports and Special Economic Zone Ltd recently told analysts that it will consider buying the government’s stake in Concor, even though it is cheaper to build the business from scratch.
But building facilities of such scale would take 15-20 years. So it makes strategic sense to acquire the company, goes the logic.
Further, the government should be able to realize much better value. “In a strategic sale, since the buyer has strong industry expertise and, therefore, is in a position to extract better value notably through revenue and operating synergies, this makes them offer a higher price," said Sandeep Mathew, analyst at SBICAP Securities Ltd.
What’s more, the ownership change can improve the capital allocation efficiency and pricing flexibility. SBICAP Securities data shows moderation in Concor’s return on capital employed during the past decade.
On the flip side, however, “Concor controls around 70% market share and selling a strategic stake with management control will create a virtual monopoly for the buyer," said Vikram Suryavanshi, vice president (equity) at PhillipCapital (India) Pvt. Ltd.
Concor’s facilities are mostly built on land leased from the government or on land owned by Indian Railways, and sometimes at concessional rates. Also, the company’s senior management is often drawn from the Railways, giving them preferential access.
Untangling these relations and ensuring a level playing field after the ownership change will not be easy. “With a fair access policy, Indian Railways can ensure a level playing field among operators," added Mathew of SBICAP Securities.
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