Higher realisations, market share gains drive Container Corporation stock

The resolution of land licence fee however remains the key trigger

The Container Corporation stock has gained about 6.4 per cent in trade on Thursday on expectations of increased realisations, higher volume growth and lower land licence fee (LLF). What could further sustain the gains and valuations is progress on divestment of the company. The government owns 54.8 per cent in the country’s largest container train operator and is looking at offloading 30 per cent stake and management control.

In a recent report, Jefferies has highlighted that there has been limited volume loss despite the hike in realisations at Tughlakabad inland container depot, the largest dry port in the country.

The company had levied a Rs 5,000 per twenty foot equivalent or teu in December as land licence fee surcharge for containers handled in the terminal. In fact net realisation and operating profit per teu had improved in the third quarter given the surcharge and a price hike of 9 per cent in the first nine months of FY21.

Jefferies believes that there would be a 5 per cent increase in realisations in FY22 as compared to a 3 per cent increase estimated earlier. This has increased the realisations over FY22-25 by 4 per cent and earnings in the period by 18-19 per cent.

Market share gains are expected to be another trigger. Company’s volume share increased both at Mundra in Gujarat as well as JNPT in Maharashtra in Q3. The commissioning of the western dedicated freight corridor is expected to improve its share. For FY21, rising Exim trade has helped the company do better than earlier guidance of a dip in volumes by 20 per cent. The company now expects volume decline to be restricted to 5 per cent y-o-y.

The main issue which remains the biggest overhang is land licence fee. Even as it has guided the Street for a Rs 450 crore LLF for FY21, the railways ministry’s  demand stands at Rs 1,336 crore for 21 terminals. The company leases the land from the railways and analysts say the 6 per cent LLF would hit the operating performance. However, a resolution which could bring down the LLF to 3 per cent would be a major relief.  Given the lack of clarity on the same and uncertainty over the divestment, investors should await progress on either before considering the stock.