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TRANSPORT CORPORATION OF INDIA
Better times ahead
Top line, PAT below estimates due to one time hit on shipping segment
Transport Corporation of India (TCI) reported a top line of INR 4,444 mn in
Q3FY11, below our estimate of INR 4,685 mn; it grew at 16.6% Y-o-Y and 0.5%
Q-o-Q against our expectation of 22.9% Y-o-Y and 6% Q-o-Q. Revenue was lower
primarily due to dry docking of three vessels in the shipping segment which also
translated into a loss of profit of approximately INR 30 mn-40 mn. The company
stated that some of the dry docking expenses will be booked in the next quarter
as well.
SCS and XPS to drive margins going ahead
The company posted an EBIDTA margin of 7.5% for Q3FY11 against 7.2% in
Q3FY10 and 8% in Q2FY11. Its margins expanded in transport, SCS, and XPS
divisions owing to better freight rates due to higher traction from the auto
segment and also due to no increase in fuel (diesel) prices during the quarter. The
company added around 170 trucks in 9mFY11, taking its total capacity to 1,250–
1,300 trucks. TCI incurred capex of around INR 600 mn for 9mFY11, of which INR
400 mn has been utilised for buying new trucks. Management has guided that
going ahead margins will be in the 7.8-8.0% range and any increase in fuel prices
will be passed on to end users. With increase in contribution from high-margin
businesses like SCS and XPS, we expect EBIDTA margins to expand going ahead.
Listing of real estate subsidiary soon
TCI had already announced demerger of the company’s real estate and warehouse
divisions with effect from April 1, 2010. As per the scheme, existing TCI
shareholders will get one equity share of face value INR 10 of the new company
TCI Developers for every 20 shares with face value of INR 2 of TCI held by them.
The company plans to build five large warehouses and the balance will be prime
residential and commercial properties. It has already received approval from the
high court and is expected to list on the stock exchanges in the next 15 days.
Outlook and valuations: Attractively poised; maintain ‘BUY’
TCI, being the largest domestic road transporter, is attractively placed to ride the
next upcycle in freight rates. On our EPS estimate of INR 7.1 for FY11 and INR 8.4
for FY12, the stock is trading at 15.2x FY11E and 12.9x FY12E earnings. We value
the company at 16x FY12E earnings and arrive at a fair price of INR 134 for the
stock. We maintain ‘BUY’ recommendation on the stock.
Company Description
Incorporated in 1958, TCI is the largest supply chain management company in India,
providing solutions ranging from supply chain management, transport management,
warehousing, inventory and supply-chain management, to customer clearance. It has the
largest network of strategically located 1000 company-owned branches across India. It
operates through a mammoth fleet comprising over 3000 trucks and manages cargo
worth more than INR 350 bn every year.
Investment Theme
TCI is aggressively focusing on growing its high margin logistics and XPS divisions. The
logistics division is expected to grow rapidly with increase in outsourcing by companies
looking at re-aligning their supply chains. TCI also provides dedicated multi modal
services through its XPS division. These two segments are expected to provide higher
growth, going forward. TCI is also planning to add significant capacity in its shipping
division, to cater to the growth in coastal cargo movement.
Key Risks
TCI is heavily dependent on its trucking business that is very fragmented, hence, any
price war from the regional players could lead to lower profitability in this segment and
(b) any impediments to the planned expansion in the shipping and warehousing
divisions, in terms of land acquisition or vessel acquisition, could thwart growth (c)
Higher interest rates.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
TRANSPORT CORPORATION OF INDIA
Better times ahead
Top line, PAT below estimates due to one time hit on shipping segment
Transport Corporation of India (TCI) reported a top line of INR 4,444 mn in
Q3FY11, below our estimate of INR 4,685 mn; it grew at 16.6% Y-o-Y and 0.5%
Q-o-Q against our expectation of 22.9% Y-o-Y and 6% Q-o-Q. Revenue was lower
primarily due to dry docking of three vessels in the shipping segment which also
translated into a loss of profit of approximately INR 30 mn-40 mn. The company
stated that some of the dry docking expenses will be booked in the next quarter
as well.
SCS and XPS to drive margins going ahead
The company posted an EBIDTA margin of 7.5% for Q3FY11 against 7.2% in
Q3FY10 and 8% in Q2FY11. Its margins expanded in transport, SCS, and XPS
divisions owing to better freight rates due to higher traction from the auto
segment and also due to no increase in fuel (diesel) prices during the quarter. The
company added around 170 trucks in 9mFY11, taking its total capacity to 1,250–
1,300 trucks. TCI incurred capex of around INR 600 mn for 9mFY11, of which INR
400 mn has been utilised for buying new trucks. Management has guided that
going ahead margins will be in the 7.8-8.0% range and any increase in fuel prices
will be passed on to end users. With increase in contribution from high-margin
businesses like SCS and XPS, we expect EBIDTA margins to expand going ahead.
Listing of real estate subsidiary soon
TCI had already announced demerger of the company’s real estate and warehouse
divisions with effect from April 1, 2010. As per the scheme, existing TCI
shareholders will get one equity share of face value INR 10 of the new company
TCI Developers for every 20 shares with face value of INR 2 of TCI held by them.
The company plans to build five large warehouses and the balance will be prime
residential and commercial properties. It has already received approval from the
high court and is expected to list on the stock exchanges in the next 15 days.
Outlook and valuations: Attractively poised; maintain ‘BUY’
TCI, being the largest domestic road transporter, is attractively placed to ride the
next upcycle in freight rates. On our EPS estimate of INR 7.1 for FY11 and INR 8.4
for FY12, the stock is trading at 15.2x FY11E and 12.9x FY12E earnings. We value
the company at 16x FY12E earnings and arrive at a fair price of INR 134 for the
stock. We maintain ‘BUY’ recommendation on the stock.
Company Description
Incorporated in 1958, TCI is the largest supply chain management company in India,
providing solutions ranging from supply chain management, transport management,
warehousing, inventory and supply-chain management, to customer clearance. It has the
largest network of strategically located 1000 company-owned branches across India. It
operates through a mammoth fleet comprising over 3000 trucks and manages cargo
worth more than INR 350 bn every year.
Investment Theme
TCI is aggressively focusing on growing its high margin logistics and XPS divisions. The
logistics division is expected to grow rapidly with increase in outsourcing by companies
looking at re-aligning their supply chains. TCI also provides dedicated multi modal
services through its XPS division. These two segments are expected to provide higher
growth, going forward. TCI is also planning to add significant capacity in its shipping
division, to cater to the growth in coastal cargo movement.
Key Risks
TCI is heavily dependent on its trucking business that is very fragmented, hence, any
price war from the regional players could lead to lower profitability in this segment and
(b) any impediments to the planned expansion in the shipping and warehousing
divisions, in terms of land acquisition or vessel acquisition, could thwart growth (c)
Higher interest rates.
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