PSU stock: LIC upped stake in this Navratna; should you buy shares after 25% slide?

A Navratna CPSE, Container Corporation of India Ltd (Concor) earlier this month suggested that Life Insurance Corporation of India (LIC) increased its holding in the logistics PSU to 7.78 per cent. LIC, a long term investor, held 3,70,04,722 shares or 6.07 per cent stake in Concor at the end of June quarter. The buying was seen, as PSU stock is up a mere 3 per cent in 2024 so far, after falling 25 per cent from June 4 high of Rs 1,193.95. This is against a strong 35 per cent rise in the BSE PSU index year-to-date.

That said, a couple of brokerages maintained their 'Reduce' or 'Sell' rating on the stock for now, as they believe near-term concerns over tepid demand imply unfavourable risk-reward, even as the long-term growth prospects remain reasonably strong for Concor. 

Industry data for rail transportation rates from October 1 suggests static pricing for the key rail container routes. The same suggests weak demand trends continuing in contrast to Concor's expectation of sharp volume recovery from Q2, said Kotak Institutional Equities.

Declining crude may be an add-on negative for rail operators versus road operators, the brokerage said. 

"Given the current scenario and Q1FY25 performance, we believe Concor’s 15 per cent volume growth guidance for EXIM in FY25 would be difficult to achieve (implies 21– 22 per cent YoY growth for the Jul-Mar’25 period)," Nuvama Institutional Equities said.   

Nuvama said Concor is looking to consider allowing empty containers to be stored for 90 days in the yard at the JNPA free of cost; and reducing loading and handling charges. While Concor is yet to announce the specifics of the measures, the storage income at port terminals is negligible for CTOs, in general. Nuvama believes these measures, even if effected, are unlikely to have any material impact on Concor’s financials.

"We read less into the recent handling and storage charges, assuming the same to impact a small proportion of volumes and potentially being a temporary one. The aggregate set up is not encouraging at 22X one-year forward trading EV/Ebitda after the recent correction. SELL stays with an unchanged fair value of Rs 710," it said.

Concor has been re-iterating its EXIM growth guidance of 15 per cent in FY25, which implies 20 per cent growth in balance 9MFY25, which Nuvama said looks difficult to achieve. It trimmed EXIM growth estimates by 1–3 per cent for FY25/26 and are now assuming 7 per cent/12 per cent growth for FY25/FY26.

"Concor posted 20 per cent YoY volume growth in Q1FY25 in the domestic segment and guided for 25 per cent growth in FY25, which we think is only at a modest risk of a cut. The company is taking several measures including i) identifying circuits for return cargo; and ii) expanding ties with conglomerates such as Vedanta, Jindal, and Tata for the domestic segment. We are pencilling in 25 per cent/20 per cent growth for FY25/FY26 (domestic constitutes 21–22% of total originating volume for Concor)," it said.