Container Corp.’s Shares Trade Near 52-Week High. Here’s Why

Shares of Container Corporation of India Ltd. rose to their highest in almost a year after the company clarified that it has to pay lower land licence fee than the demand received, and on Nomura’s rating upgrade.

Container Corp. has received demand letters from the Ministry of Railways worth Rs 1,336.6, including goods and services tax, as annual LLF for FY21, according to the notes to account for the third-quarter results. The company, however, doesn’t estimate the fee to be higher than Rs 450 crore.

“We always disclose whatever demands we get as our policy of good corporate governance,” V Kalyana Rama, chairman and managing director at the company, said during an analyst call. “These demands are quite unreasonable and not having any basis, but as we received these demands from various divisions of Indian Railways, the total sum of it to calculate and given to us for the LLF demand is around Rs 450 crore and we stand by it and are providing for it in our balance sheets. So that will be resolved very soon.”

To be sure, Moneycontrol on Jan. 25 had reported that the cabinet is likely to take up a new land licensing fee policy for Indian Railways soon. This will be based on a new formula, through which the land lease rates for using railway land for an industrial purpose may be less than 3%, the report said citing a person aware of the development.

That prompted Nomura to lower its land licence fee estimate for Container Corp, but it’s still higher than what the company forecasts. “We now estimate LLF at Rs 700 crore from Rs 1,000 crore earlier,” the research firm said in Feb. 8 note. “A combination of pricing, improving mix and cost optimisation greatly cushions the impact of LLF.”

Nomura upgraded the Container Corp. stock to ‘buy’ from ‘neutral’, and raised its price target to Rs 595 apiece from Rs 438—implying a potential upside of 27% from the current level.

The research firm also expects Container Corp.’s volumes to increase further from first quarter of FY22 with western dedicated freight corridor linkage to Gujarat ports.

Nomura also raised its FY21-23 EPS estimates by 64-71% on the back of lower LLF estimates and factors in an underlying improvement of 150 basis points in the cost structure.

Yet, a higher-than-estimated LLF and a delay in western dedicated freight corridor linkage are some of the key risks, it said.

Shares of Container Corp. rose as much as 7.8% as of 10:30 a.m. on Monday to Rs 503.3 apiece—the highest since March 2020. Of the 37 analysts tracking the company, 20 have a ‘buy’ rating, 13 suggest a ‘hold’ and four recommend a ‘sell’. The stock crossed its Bloomberg consensus 12-month price target of Rs 497.7 on Monday.