Indian Railways’ Demands Higher Land Licence Fee from CONCOR

In March, Indian Railways revised its land licence fee policy. Container Corporation of India Ltd (Concor), whose terminals are situated on land owned by the ministry of railways, is at the receiving end of licence fee decisions.

Indian Railways 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, double Concor’s initial estimate.

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.

“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.