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We recently met the management of Transport Corporation of India Ltd (TCI). Gradual recovery in the domestic economic activity is expected to drive revenue growth across the company’s three key segments viz., Freight, Supply Chain Solutions and Express Cargo. The management has guided for a topline growth of 10-15% in FY15 (4.6% in FY14). The margins are also expected to expand owing to pass through of diesel price increase to customers and increased business volumes across segments. The management indicated that the proposed GST rollout will have a positive impact on the logistics industry, due to increase in large-scale goods movement, though implementation of GST & actual impact of the same may take time. The company is planning an investment of approx. INR 350 cr over FY15-16, of which ~INR 275 cr will be in FY15. The proposed investment will largely be in Supply Chain (for warehouses) and Seaways business, which are expected to support growth over the next 4-5 years. At the current market price of INR 214, the stock is trading at 22x FY14 EPS.
Margin expansion likely in freight business; recovery in volumes still modest
The company’s EBITDA margins in the Freight business (37% of FY14 revenues) had declined from 4.0% in FY12 to 1.8% in FY14. The company was not able to pass on the sharp rise in diesel prices to customers owing to unfavourable market conditions (low business volumes & high competitive intensity). The decrease in volumes from over dimensional cargo (ODC) movement (a relatively high-margin sub-segment) due to infrastructure bottlenecks also impacted the segment’s margins.
The company is now passing on the diesel price increases to customers by renegotiation of rates and the management expects margins to recover to 3.0-3.5% by Q4 FY15. However, it has indicated that recovery in the freight movement and utilisation levels are still modest and will track incremental improvement in GDP growth going forward. The management expects ~5% growth in revenues in the freight business.
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Recovery in Auto industry to drive growth in supply chain business
In the Supply Chain business (31% of FY14 revenues), nearly 70% of the revenues are driven by the Auto sector. The downturn in the industry impacted goods movement in the Supply Chain business, leading to a tepid 3% growth in FY13. Going forward, the company expects recovery in the Auto sector to drive 18-20% growth in the Supply Chain business. It has over 300-350 customers in the Supply Chain segment (including Auto, FMCG and others) and caters to nearly all major Auto OEMs in India.
Express business to benefit from e-commerce in long-term
The customer base (currently 4,000) is increasing at 20% CAGR, which is expected to drive growth in the Express Cargo business (27% of FY14 revenues). Apparels, Pharma and Electronic Goods account for nearly 50% of the segment’s revenues. The management expects this segment to grow at 18-20% CAGR over the next two years. The company currently generates <5 are="" as="" buying="" company="" customer="" drive="" e-commerce="" etc="" expects="" for="" from="" future="" goods="" growing="" growth="" in="" is="" it="" large="" long="" management="" movement="" not="" of="" on="" online="" p="" platform.="" popular="" preference="" present="" refrigerators="" revenues="" s="" segment="" still="" such="" term.="" that="" the="" tvs="" which="" white="" will="">
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