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Home >Markets >Mark To Market >Higher land licence fee demand by railways puts Concor in a spot
In an environment of steep volume de-growth, the fixed nature of expense is expected to create margin pressure for Concor, says ICICI Direct Research
In an environment of steep volume de-growth, the fixed nature of expense is expected to create margin pressure for Concor, says ICICI Direct Research

Higher land licence fee demand by railways puts Concor in a spot

The total land licence fee for all terminals put together can be 1,000 cr per year, double Concor’s initial estimate

Land monopoly is the mother of all other forms of monopoly," said Winston Churchill. Container Corporation of India Ltd (Concor), whose terminals are situated on land owned by the ministry of railways, will nod in agreement, having been on the receiving end of licence fee decisions.

In March, the railways ministry revised its land licence fee policy. It said it will charge Concor a proportion of the land value, instead of a proportion of the business volumes it handled on the leased land. Concor had asked the ministry to continue charging land licence fee on the basis of volumes as long as it remains a public sector undertaking.

While the response from the railways was awaited, Concor’s calculations earlier this fiscal pegged the total annual outflow towards land licence fee at 450-480 crore.

But, as it turns out, the railways has demanded a land licence fee of 776.9 crore for just two terminals in Delhi in the current fiscal. Based on the latest demand by the Indian Railways, the total land licence fee for all terminals put together can be as much as 1,000 crore per annum, points out Nomura Research, double Concor’s initial estimate.

Lease pinch
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Lease pinch

It’s little wonder that Concor’s shares fell over 15% in value, resulting in a drop of over 4,000 crore in its market capitalization. This also puts the government’s plans to sell a strategic stake in the company at risk. “With such varying LLR (land lease rentals) estimates, we believe it will be difficult for a potential acquirer to arrive at a fair valuation of the stock. Therefore, unless this overhang on LLR values is resolved, we believe it will emerge as the biggest roadblock for a successful divestment," said Nomura analysts.

The company also negatively surprised the Street with weaker-than-expected results in Q1FY21. Revenue declined 27% from the year-ago quarter on the back of a 21% fall in business volumes. Operating profit fell as much as 60.6%.

Realizations softened 8% from the year-ago quarter. Market participants are extending discounts, exerting pressure on realizations.

“In an environment of steep volume de-growth, the fixed nature of expense is expected to create margin pressure for the company," ICICI Direct Research said in a note.

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