This PSU railway stock hits all-time high; brokerages see up to 26% upside

Shares of Container Corporation of India (Concor) continued their gaining streak for the fourth consecutive session on Friday and rallied over 5% to hit a fresh all-time high on Friday. The stock got a boost after global brokerages turned bullish on the PSU stock and saw up to a 26% upside as the government cut the railway land licencing fee. The Union Cabinet on September 7 slashed the railways' land licencing fee to 1.5% from 6% earlier, which will pave the way for its strategic divestment of Concor. The revised railways land policy also increased the lease period from five years to 35 years.

The Cabinet's decision of lowering the land lease fee for a larger time period will likely sweeten the divestment deal of Concor for prospective buyers. The government, which holds 54.80% of Concor, is planning to sell around 30.8% stake and cede management control in the PSU. It could retain the remaining 24% share in the state-owned entity.

Boosted by the development, global brokerage firm Nomura upgraded the stock to “buy” from Neutral and gave the most aggressive target price of ₹918 apiece, an upside of 26% from Thursday’s closing price of ₹731.4 on the Bombay Stock Exchange (BSE).

"The rating upgrade was on the land licensing fee (LLF) policy formalisation, however, the final LLF value is still uncertain but unlikely to rise in the near term. Policy formalisation should lead to the incorporation of acquisition synergies," the agency said in its report.

Another leading brokerage, Jefferies has given a “buy” call on Concor, with the target at ₹850 a share, citing that the land licencing fee policy would pave the way for the privatisation process. “Our estimates factor ₹7,500 crore cash outflow for a 35-year land lease for the company at 6% LLF rate,” it said.

"Rate revision to 1.5% could add 7-8% to our target of ₹850 and 2-10% to FY24-25 EPS estimates," it added.

Domestic brokerage JM Financial has also maintained a buy rating on the railway-related stock with a target price of ₹860, citing that the revised policy provides Concor and other players the option to switch to this new regime through a competitive bidding process.

“Although rules/ conditions are yet to be spelt out clearly, as per Gati Shakti Policy Cargo terminal policy if Concor is to take the option of moving to the new regime, it is likely to have to win the terminal back basis revenue share model via a competitive bidding process," it said.

In sharp contrast, Kotak Securities has downgraded the stock to "reduce" from "add", with an unchanged target price, saying that the revised policy is negative. "Concor may not be willing to go for rebidding and risk letting go of key terminals against the prospects of reducing its land licence fee," said the rating firm.

On Friday, Concor's share price opened marginally higher at ₹735, against the previous closing price of ₹731.4 on the BSE. During the session so far, the stock gained as much as 5.47% to touch a fresh record high of ₹771.4, driven by strong volume. The counter saw a surge in buying activities as 2.26 lakh shares changed hands on the BSE against the two-week average volume of 1.3 lakh scrips. The market capitalisation climbed to ₹45,407.7 crore.

The large-cap stock has been gaining for the last four sessions and gained 11.6% during this period. The stock has delivered a muted return of 3.5% in the last year, while it surged more than 29% in the past six months. On a year-to-date basis, the scrip rose 24%, while it added 11.5% in one month.