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Transport Corp of India: Q3FY11 Update: Centrum
Supply chain to lead growth
Transport Corporation of India’s (TCI) Q3FY11 numbers
were a mixed bag. While revenue exceeded estimates,
bottom-line was 11.4% below our expectations on
account of higher depreciation and interest cost. We
maintain our Buy rating on the back of the continued
healthy growth in the Supply Chain Solution (SCS),
Express (XPS) and core freight transportation divisions.
Q3 results mixed: Standalone Q3 revenue grew 16.6%
YoY to Rs4,444mn, 4.6% higher than our estimate of
Rs4,250mn. EBITDA margin at 7.5% offered no surprise.
Net profit was flat YoY at Rs118mn, but down 18.4%
QoQ and 11.4% below our estimate of Rs133mn.
Operating margin stable: Operating margin at 7.5%
improved 30bp YoY but declined 44bp QoQ on
account of dry-docking expenses in the shipping
business. The freight division reported a healthy PBIT
margin of 4.7% (up 128bp YoY and 77bp QoQ). While
margins increased 41bp YoY (50bp QoQ) to 8.1% in the
express division, it increased 105bp YoY to 7.1% SCS
division.
Maintain Buy with a target price of Rs143: We
maintain our positive view on TCI, on back of the
continued strong growth in the supply chain, express
logistics and core freight (transportation) divisions.
Further, the de-merger of the real estate division has
lightened the assets in the logistics business and is
likely to improve return ratios. We maintain Buy with
our target price of Rs143, valuing the stock at 14x oneyear
rolling forward earnings (Dec 2012).
Q3 revenue higher on strong growth in SCS, XPS divisions
TCI’s standalone Q3 revenue grew 16.6% YoY to Rs4,444mn, 4.6% higher than our estimate of
Rs4,250mn on the back of healthy growth in the Supply Chain Solution (SCS), Express (XPS) and core
freight transportation divisions. Strong domestic demand across manufacturing sector, especially
the automobile and consumer durable industry, aided the growth.
The SCS division clocked revenue growth of 43.4% YoY to Rs1,002mn, while the XPS division’s
revenue increased 13.8% to Rs1,162mn. The freight division (transportation) also recorded a healthy
revenue growth of 7.9% YoY to Rs2,092mn while the coastal shipping revenue increased 7.2% YoY
to Rs152mn.
Operating margins stable across core segments
EBITDA grew 21.5% YoY to Rs335mn, 4.8% higher than our estimate of Rs320mn on the back of
higher revenue growth and stable margins across core segments.
Operating margin at 7.5% improved 30bp YoY, but declined 44bp QoQ, on account of dry-docking
expenses in the shipping business. The cost of operations including freight cost and fuel remain
stable during Q3, helping improve freight division’s PBIT margins which increased 128bp YoY and
77bp QoQ to 4.7%. Going forward, we expect TCI’s margins to remain stable at 7.6% for the
consolidated business.
PBIT margin though flat YoY at 5.6% declined 59bp QoQ mainly attributed to the loss in the coastal
shipping business due to the dry docking of three out of five ships. The coastal shippind division
reported a PBIT loss of Rs8.5mn vs a PBIT of Rs20.2mn last year.
Profitability remained healthy in other segments with margin expansion seen in XPS, SCS and
freight divisions. The freight division reported a healthy PBIT margin of 4.7% (up 128bp YoY and
77bp QoQ), while it increased 41bp YoY (50bp QoQ) to 8.1% in the express division. The supply
chain division’s PBIT margin increased 105bp YoY to 7.1%, though witness a decline of 71bp QoQ
Revenue mix shifting towards high-margin businesses
TCI has been focusing on enhancing its value chain deliverables and the results are visible in its
revenue mix. The revenue share from the low-margin transportation division declined to 46.9% in
Q3FY11 from a high of 52.8% in Q1FY10. While the share of the SCS division has been growing
gradually over the quarters to 22.4% currently, the share of the XPS division has remained stable at
26.0%.
Estimates revised marginally
We have marginally raised our revenue estimates, but lowered profitability margins to factor in the
loss in the shipping and power business, and also adjusted for higher interest and depreciation
resulting in lower PAT. EBITDA margin is lower by 5bp and 26bp to 7.7% and 7.6% for FY11 and FY12
respectively. Effectively, our EPS is lower by 3.5% to Rs7.5 for FY11E and by 5.0% to Rs8.9 for FY12E.
Maintain Buy with a target price of Rs143
We maintain our positive view on TCI on the back of continued strong growth in the supply chain,
express logistics and core freight (transportation) divisions. Further, the de-merger of the real estate
division has lightened the assets in the logistics business and is likely to improve return ratios. We
maintain Buy with our target price of Rs143 valuing the stock at 14x one-year rolling forward
earnings (Dec 2012).
The company’s focus on high-margin supply chain and express cargo divisions is yielding results,
and is evident from the increasing contribution of these segments to total revenues. Also the rampup
in the global division has been fairly strong with the company expecting it to break even in the
next financial year.
The de-merger of the real estate division from the logistics business has led to hiving off land assets
of Rs540mn book value, resulting in improvement in return ratios as these assets were not utilized
by the core logistics business any more.
We estimate RoE to increase to 21.1% in FY13E from 16.8% in FY10 and RoCE to improve to 13.5% in
FY13E from 9.6% in FY10. We expect this would lead to better valuations for the company as the
return ratios were depressed on account of these assets on books.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Transport Corp of India: Q3FY11 Update: Centrum
Supply chain to lead growth
Transport Corporation of India’s (TCI) Q3FY11 numbers
were a mixed bag. While revenue exceeded estimates,
bottom-line was 11.4% below our expectations on
account of higher depreciation and interest cost. We
maintain our Buy rating on the back of the continued
healthy growth in the Supply Chain Solution (SCS),
Express (XPS) and core freight transportation divisions.
Q3 results mixed: Standalone Q3 revenue grew 16.6%
YoY to Rs4,444mn, 4.6% higher than our estimate of
Rs4,250mn. EBITDA margin at 7.5% offered no surprise.
Net profit was flat YoY at Rs118mn, but down 18.4%
QoQ and 11.4% below our estimate of Rs133mn.
Operating margin stable: Operating margin at 7.5%
improved 30bp YoY but declined 44bp QoQ on
account of dry-docking expenses in the shipping
business. The freight division reported a healthy PBIT
margin of 4.7% (up 128bp YoY and 77bp QoQ). While
margins increased 41bp YoY (50bp QoQ) to 8.1% in the
express division, it increased 105bp YoY to 7.1% SCS
division.
Maintain Buy with a target price of Rs143: We
maintain our positive view on TCI, on back of the
continued strong growth in the supply chain, express
logistics and core freight (transportation) divisions.
Further, the de-merger of the real estate division has
lightened the assets in the logistics business and is
likely to improve return ratios. We maintain Buy with
our target price of Rs143, valuing the stock at 14x oneyear
rolling forward earnings (Dec 2012).
Q3 revenue higher on strong growth in SCS, XPS divisions
TCI’s standalone Q3 revenue grew 16.6% YoY to Rs4,444mn, 4.6% higher than our estimate of
Rs4,250mn on the back of healthy growth in the Supply Chain Solution (SCS), Express (XPS) and core
freight transportation divisions. Strong domestic demand across manufacturing sector, especially
the automobile and consumer durable industry, aided the growth.
The SCS division clocked revenue growth of 43.4% YoY to Rs1,002mn, while the XPS division’s
revenue increased 13.8% to Rs1,162mn. The freight division (transportation) also recorded a healthy
revenue growth of 7.9% YoY to Rs2,092mn while the coastal shipping revenue increased 7.2% YoY
to Rs152mn.
Operating margins stable across core segments
EBITDA grew 21.5% YoY to Rs335mn, 4.8% higher than our estimate of Rs320mn on the back of
higher revenue growth and stable margins across core segments.
Operating margin at 7.5% improved 30bp YoY, but declined 44bp QoQ, on account of dry-docking
expenses in the shipping business. The cost of operations including freight cost and fuel remain
stable during Q3, helping improve freight division’s PBIT margins which increased 128bp YoY and
77bp QoQ to 4.7%. Going forward, we expect TCI’s margins to remain stable at 7.6% for the
consolidated business.
PBIT margin though flat YoY at 5.6% declined 59bp QoQ mainly attributed to the loss in the coastal
shipping business due to the dry docking of three out of five ships. The coastal shippind division
reported a PBIT loss of Rs8.5mn vs a PBIT of Rs20.2mn last year.
Profitability remained healthy in other segments with margin expansion seen in XPS, SCS and
freight divisions. The freight division reported a healthy PBIT margin of 4.7% (up 128bp YoY and
77bp QoQ), while it increased 41bp YoY (50bp QoQ) to 8.1% in the express division. The supply
chain division’s PBIT margin increased 105bp YoY to 7.1%, though witness a decline of 71bp QoQ
Revenue mix shifting towards high-margin businesses
TCI has been focusing on enhancing its value chain deliverables and the results are visible in its
revenue mix. The revenue share from the low-margin transportation division declined to 46.9% in
Q3FY11 from a high of 52.8% in Q1FY10. While the share of the SCS division has been growing
gradually over the quarters to 22.4% currently, the share of the XPS division has remained stable at
26.0%.
Estimates revised marginally
We have marginally raised our revenue estimates, but lowered profitability margins to factor in the
loss in the shipping and power business, and also adjusted for higher interest and depreciation
resulting in lower PAT. EBITDA margin is lower by 5bp and 26bp to 7.7% and 7.6% for FY11 and FY12
respectively. Effectively, our EPS is lower by 3.5% to Rs7.5 for FY11E and by 5.0% to Rs8.9 for FY12E.
Maintain Buy with a target price of Rs143
We maintain our positive view on TCI on the back of continued strong growth in the supply chain,
express logistics and core freight (transportation) divisions. Further, the de-merger of the real estate
division has lightened the assets in the logistics business and is likely to improve return ratios. We
maintain Buy with our target price of Rs143 valuing the stock at 14x one-year rolling forward
earnings (Dec 2012).
The company’s focus on high-margin supply chain and express cargo divisions is yielding results,
and is evident from the increasing contribution of these segments to total revenues. Also the rampup
in the global division has been fairly strong with the company expecting it to break even in the
next financial year.
The de-merger of the real estate division from the logistics business has led to hiving off land assets
of Rs540mn book value, resulting in improvement in return ratios as these assets were not utilized
by the core logistics business any more.
We estimate RoE to increase to 21.1% in FY13E from 16.8% in FY10 and RoCE to improve to 13.5% in
FY13E from 9.6% in FY10. We expect this would lead to better valuations for the company as the
return ratios were depressed on account of these assets on books.
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