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Slowdown in freight segment impacts performance
Transport Corporation of India’s (TCI) Q3FY12 results were marginally lower than
our expectations. Revenue growth was slower across segments and declined in the
freight business due to a slowdown in the manufacturing sector. The operating
margin though up 20bp YoY, was down sequentially to 7.7%, 58bp lower than
8.3% estimated mainly on the back of decline in freight segment’s PBIT margins.
We have lowered our estimates to factor in slower revenue growth and margin
pressure felt mainly by the freight business. However, we continue to maintain our
positive view on TCI on the back of healthy growth in SCS and XPS divisions and
attractive valuations.
�� Q3 results marginally below expectation: Standalone Q3FY12 revenue grew
4.5% YoY to Rs4,644mn, 4.2% lower than estimated. Operating profit increased
7.3% YoY to Rs360mn (10.8% below our estimate of Rs403mn) on the back of
higher-than-expected operating costs in the freight division. However, lower tax
provisioning led adjusted net profit to increase 24.7% YoY to Rs148mn, just 3.2%
below estimate.
�� Pressure in freight segment impacts overall margins: Operating margins
though up 20bp YoY to 7.7%, was 58bp below estimates. This was mainly led
by a 172bp YoY decline in freight division’s EBIT margins to 3.0%. Margins for
other divisions remained stable with express business’ margins improving
14bp YoY to 8.3% and SCS segment’s margins expanding 47bp YoY to 7.6%.
Revenue mix shifting towards high-margin business: 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 freight (transportation)
division declined to 41.3% in Q3FY12 vs. 46.9% in Q3FY11. While the share of
the SCS division has been growing gradually over the quarters to 25.3%
currently that of the XPS division has inched up to 27.2%.
Estimates revised to factor in slower revenue growth: We have lowered our
estimates to factor in the slower than expected revenue growth especially in
the freight division. Revenue is lower by 3.7% and 5.2% to Rs19,206mn and
Rs20980mn for FY12 and FY13 respectively. Net profit is lower by 1.5% to
Rs553mn for FY12E and by 11.7% to Rs582mn for FY13E.
Maintain Buy with a revised target price of Rs96: At the CMP, the stock is
trading at P/E valuations of 8.9x and 5.1x FY13E P/E and EV/EBITDA respectively
and appears attractive. We continue to remain positive on TCI with a buy rating
valuing it at 12x FY13 EPS and revise our target price to Rs96 (earlier Rs109).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Slowdown in freight segment impacts performance
Transport Corporation of India’s (TCI) Q3FY12 results were marginally lower than
our expectations. Revenue growth was slower across segments and declined in the
freight business due to a slowdown in the manufacturing sector. The operating
margin though up 20bp YoY, was down sequentially to 7.7%, 58bp lower than
8.3% estimated mainly on the back of decline in freight segment’s PBIT margins.
We have lowered our estimates to factor in slower revenue growth and margin
pressure felt mainly by the freight business. However, we continue to maintain our
positive view on TCI on the back of healthy growth in SCS and XPS divisions and
attractive valuations.
�� Q3 results marginally below expectation: Standalone Q3FY12 revenue grew
4.5% YoY to Rs4,644mn, 4.2% lower than estimated. Operating profit increased
7.3% YoY to Rs360mn (10.8% below our estimate of Rs403mn) on the back of
higher-than-expected operating costs in the freight division. However, lower tax
provisioning led adjusted net profit to increase 24.7% YoY to Rs148mn, just 3.2%
below estimate.
�� Pressure in freight segment impacts overall margins: Operating margins
though up 20bp YoY to 7.7%, was 58bp below estimates. This was mainly led
by a 172bp YoY decline in freight division’s EBIT margins to 3.0%. Margins for
other divisions remained stable with express business’ margins improving
14bp YoY to 8.3% and SCS segment’s margins expanding 47bp YoY to 7.6%.
Revenue mix shifting towards high-margin business: 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 freight (transportation)
division declined to 41.3% in Q3FY12 vs. 46.9% in Q3FY11. While the share of
the SCS division has been growing gradually over the quarters to 25.3%
currently that of the XPS division has inched up to 27.2%.
Estimates revised to factor in slower revenue growth: We have lowered our
estimates to factor in the slower than expected revenue growth especially in
the freight division. Revenue is lower by 3.7% and 5.2% to Rs19,206mn and
Rs20980mn for FY12 and FY13 respectively. Net profit is lower by 1.5% to
Rs553mn for FY12E and by 11.7% to Rs582mn for FY13E.
Maintain Buy with a revised target price of Rs96: At the CMP, the stock is
trading at P/E valuations of 8.9x and 5.1x FY13E P/E and EV/EBITDA respectively
and appears attractive. We continue to remain positive on TCI with a buy rating
valuing it at 12x FY13 EPS and revise our target price to Rs96 (earlier Rs109).
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