The Directorate General of Foreign Trade said the company was not eligible for benefits worth ₹861 crore under the Service Exports from India Scheme (SEIS). This sent the company’s share price hurtling down 7%.
The multi-modal logistics provider had claimed about ₹1,044 crore as incentives for the FY16-19 period for both its rail and inland container depot businesses under SEIS. As these amounts are accounted on an accrual basis, it shows as current assets in the company’s books.
The logistics provider said it will contest the matter with the respective authorities. But suffice to say that about 82% of its receivables from these incentives may have to be pared if the ruling goes against the state-run company.
“We previously believed that SEIS incentives should not be considered in earnings estimates, hence the news has no impact on our FY20/21 forward estimates. However, we now think old SEIS incentives of INR1044 cr at end-FY19 will likely be written down by INR860 cr (2% of enterprise value)," said Nomura Financial Advisory and Securities India (Pvt.) Ltd in a recent note to clients.
Worth noting is the fact that analysts had not factored in these incentives in their FY21 earnings forecasts, which is a good sign. Therefore, any earnings impact will only be seen this year.
“The disallowance of ₹861 cr would translate into an impact of ₹14 per share (pre-tax). Moreover, there would be a downgrade of 17.5% for FY20 earnings ( ₹300 cr SEIS income estimated for FY20E)," said IDFC Securities in a note to clients.
“This impact, coupled with a weaker 1HFY20 (we estimate FY20F volume growth of 4.2% vs 6% earlier), is more than offset by the positive impact of a reduction in effective tax rate estimates from 28-29% in FY20/21F to 25.17% (in line with the revised corporate tax rates announced by the Ministry of Finance)," pointed out Nomura in its recent note.
The Concor stock has, meanwhile, surged 19% in the past two months following news that the government plans to divest a 30% stake in the logistics company with strategic management control. Analysts have been pencilling in a higher premium for the stock if this happens.
Nevertheless, the one-year forward price-earnings multiple of the stock has already risen to about 30 times. That certainly warrants investors to step on the brakes.
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