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Transport Corporation of India Ltd Research Report - 16th Dec 2015

Logistics | Published on Feb 21st 2015


Top-line growth to accelerate to 15% CAGR over FY2014-17E on economic revival; eventual GST implementation would provide further boost: We expect Transport Corporation of India (TCIL) to report a healthy top-line growth ~15% CAGR over FY2014-17E on the back of revival in the Indian economy. Among TCIL’s four business segments, we expect (a) Express segment to report ~17% CAGR. TCIL is also be well-placed to garner e-commerce business, as bulkier categories like furniture, white goods see more traction in online sales. (b) Supply Chain Solution segment to report ~21% CAGR, owing to recovery in the automobile sector, growth in E-commerce fulfillment hubs, as well `as new customer wins due to increasing outsourcing of supply chain in other sectors like FMCG, chemicals, cold storage, etc. especially once GST kicks in. The other two segments, viz. Seaways and Freight, are also likely to benefit from economic revival and expected to report ~9% CAGR. Stepped-up capex spending in higher margin businesses to aid overall earnings growth trajectory: As the demand environment improves, we expect margins to improve across segments for TCIL. Moreover, we expect the company to increase focus on higher margin businesses like XPS and Supply Chain Solution. As a result, the revenue contribution of these businesses is expected to increase from ~56% in FY2014 to ~62% in FY2017E, with the company having aggressive expansion plans in these businesses (Rs500cr capex over FY2015-17E). As a result, we expect overall margins to improve from 7.6% in FY2014E to 9.0% in FY2017E, driving 25% CAGR in net profits over the same period. Outlook and Valuation: TCIL benefits from its pan-India scale (which gives it competitive advantage in higher margin segments of the logistics industry) as well as from its asset-light business model (which cushions its profitability in cyclical downturns and gives it an attractive ROE profile). The company is well-placed to be a key beneficiary once GST is implemented, when corporates will need reliable pan-india logistics players to manage their hub-and-spoke supply chains. At the CMP, TCIL trades at a P/E of 13.7x FY2017E. We initiate with a Buy and target price of Rs293 (16x FY2017E EPS), indicating an upside of ~17%.

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CMP 250
Target Price 293
Investment Period12 Months

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Shareholding Pattern (%)

Public & Others26.0
Grand Total100.0

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