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Robust outlook ‐ BUY

Conference call takeaways

* TCI Freight business: Revenue grew by 11% yoy on consolidated basis to Rs 4.1 bn. EBIT grew by 36% yoy to Rs.173 mn while EBIT margin stood at 4.2% vs 3.4% yoy/3.3% qoq. The company was able to ramp up operations to 85‐90% amid increased movement of goods pent up demand and restocking due to festive season. The margins improved on the back of better cost management. Freight rates have increased due to fuel hikes and they have been able to pass on to large extent. The LTL mix which dropped marginally during the lockdown is improving and will be back to ~1/3 of the total mix. The farmers' protest had a very nominal impact on the business as the transportation of goods was done via alternative routes. Business was normal in the North with some difficulty.

* Supply Chain business: Revenues grew by 24% yoy to Rs 3 bn amid automotive demand revival and Growth in E‐commerce & FMCG. Margins have been robust with better revenue realization and cost optimization measures. EBIT grew 52% yoy to Rs.200 mn. EBIT margins came higher at 6.7% vs 5.4% yoy/6.5% qoq. The Auto segment saw a good demand pickup along with FMCG and consumer durables segments. Heavy Machinery segment (Capital Goods) have dipped but it will revive once the capex cycle begins. Further infra support will also boost the demand. General consumption cargo is also seen good traction. The company is also into Yard management which has seen traction in recent times. The company owns 2 automotive rakes and it remains positive on the segment with growth coming in the auto segment. It does mix loading (2‐3 customer coming together, and company gets larger business) in this vertical.

* Seaways business: Revenue grew by 5% yoy to Rs 1 bn with operations ramped up back to Pre‐COVID levels amid high cargo volumes at ports. The EBIT margin stood at 22.6% vs 22.9% yoy/16.6% qoq. Margins compressed marginally due to higher depreciation on account of dry‐dock amortization. The decision to sell a ship is due to 1) The ship that was sold had 400 TEU capacity and consumed fuel of an 800 TEU capacity vessel  2) the selling price of this ship has doubled 3) Dry dock for this ship will come in Sept‐21 amounting Rs100 mn.  

* JV revenues during 9M FY21 stood as follows: a) TCI Concor (Rs.2.4 bn) b) TCI ColdChain (Rs241 mn) c) Transystem (Rs.2.2 bn).

Other details

* Capex: The company has spent Rs 870 mn till 9M FY21 and targets for Rs 1.5 Bn for FY21. The company is still looking for the right type of ship at right price. The capex of Rs400‐500mn towards purchase of new ship may get delayed (FY22).

* Dividend of Rs1.2/sh has been announced.

* Vaccine: The company is in talks with one of the large manufacturing company for the last mile delivery. Don’t foresee much long haul opportunity. When the vaccine programme will be available for the common public, that time may get some mid and last mile delivery. Overall opportunity is small as the vails are small in size and large volumes could be transported with lesser trips.

* DFCC: The company remains positive on the benefits that would accrue from commissioning of DFC. The Company’s presence across verticals would help capitalize on the benefits of DFC.

* Multi modal helps the company in providing end to end service. It forms ~45‐50% of the revenue.

* Warehousing: Overall good demand in the warehousing side. The investments have increased in past few months. The demand has been able to match the growth of supply. May see double digit growth in coming year.

* Customers: The company has seen customer addition during the quarter and are in talks with few under different categories.  

* Scrapping policy: The management is of the view that the voluntary scrapping of vehicles will be effective only if higher incentives are given.  

* IT system: Many IT practices have been implemented at company level and at customer level for digitization of the process. However, as per the management, the customers are still asking for physical copy despite government rule of e‐invoice.   

Our view: Demand for logistics is likely to continue with the pickup in the economy and improving outlook. The pickup in the automotive will drive the demand in the supply chain segment while double digit growth is seen by the management in the warehousing segment. The Multi Modal operations catering to the end to end service will supplement the business post the commissioning of DFC. We maintain our FY21/FY22 earnings estimates and roll over to FY23 with revised target of Rs.329 and maintain our BUY rating.

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