ICRA has re-affirmed the rating of the company's non-fund based limits - long term of Rs 462 crore and that of the proposed term loan of Rs 9,000 crore at “[ICRA]AA+”.

The ratings, however, continue to be on watch with developing implications, the agency stated.

Offering the rating rationale, ICRA said that the rating factors in the dominant position of Container Corporation of India (CONCOR) in the containerised rail freight business, supported by a large, pan-India infrastructure and an established track record of healthy operational performance.

The rating also considers the financial profile of the entity, characterised by healthy profitability and cash accruals. Owing to its strategically located terminal network, the company is well poised to gain from the commissioning of the dedicated freight corridor (DFC), particularly the western leg, as several industrial clusters are located along the western DFC.

The rating also factors in the GoI's ownership, which benefitted CONCOR in the early stages of establishing its network, a source of competitive advantage for the company.

ICRA notes that the GoI is looking to divest a 30.8% stake in the company along with ceding of management control to a strategic investor. While the company has always benefitted from its close ties with the Ministry of Railways, following the change in management control too, it is expected to continue to benefit from its pan-India, strategically located infrastructure.

Nevertheless, once there is more clarity on the divestment, ICRA will review the rating to assess the implications on the credit profile of the entity.

The rating is constrained by the annual land licence fee (LLF) paid by the company which is now being charged on the basis of land value. While LLF charges are decreasing as a few terminals have been surrendered, the company expects an outgo of Rs. 390 crore as LLF in FY2023.

Further, the GoI has been exploring the possibility of giving railway land to CONCOR on a 35-year lease, with the company making an upfront lease payment for the same. In this scenario, there will be an upfront cash outflow and an adverse impact on the credit metrics.

Currently, the company estimates a cash outflow in the range of Rs. 6,500-7,500 crore, which will be funded through a mix of term debt and internal accruals. CONCOR's board has already approved raising term loans worth Rs. 3,500 crore. However, ICRA notes that only one of the above options will be implemented finally.

Further, ICRA also takes note of the recent decision by Union Cabinet to revise the Railway's land policy and reduce the land lease rate to approximately 1.5% of land value (as against 6% being considered currently). However, further clarity on the impact of revised land policy on CONCOR's lease payment options is awaited and the developments on this front remain a key monitorable.

The rating is also constrained by the susceptibility of the entity's performance to the revision in haulage rates by the Indian Railways and rising competition from private container train operators (CTOs) and road freight operators.

The rating has been placed on watch with developing implications, given the GoI's plan to offload a 30.8% stake in CONCOR along with ceding management control to the incoming investor, together with lack of clarity on the total cash outflow for the upfront lease payment. The credit profile of the incoming investor will remain a key monitorable.

"The performance of the company remains vulnerable to the overall macroeconomic activity and global trade,” ICRA said in a statement.

Container Corporation of India (CONCOR) operates 59 terminals across the country along with two strategic tie-ups. The company's primary operation is to provide inland transportation of containers from ports using rail wagons. The company also manages cold storage chains and warehouses. The GOI, through the Ministry of Railways, continues to hold a majority stake of 54.8% in the company at the end of June 2022.

On a consolidated basis, the company's net profit rose 14.60% to Rs 297.08 crore on 9.56% increase in net sales to Rs 1993.99 crore in Q1 June 2022 over Q1 June 2021.

The scrip advanced 2.92% to end at Rs 752.75 on the BSE yesterday.