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Well placed with multi-modal Logistics capabilities

* TCI has developed robust capabilities in multimodal Logistics via its presence across major transportation modes. The company has well-diversified service offerings from Road freight, integrated Supply Chain solutions, Sea freight, to a JV with CONCOR for Rail freight.

* These capabilities would be a key enabler for consistent growth in volumes and earnings for TCI over the next few years. With an improving share of the Seaways segment, margin is expected to remain at elevated levels.

* The company has contracts in place with customers for passing on the increase in diesel prices. With strong volumes, a rise in freight rates may be seamless. The impact of a diesel price increase on margin is also expected to be minimal.

* TCI is a long-term play, backed by: a) a diversified clientele base, b) improving share in the high-margin Less than Truck Load (LTL) business in the Road Freight division, c) strong presence in the high growth 3PL segment, and d) rising contribution from the high margin Seaways segment. We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~18/28%/36% over FY21-24E. We reiterate our Buy rating on the stock with a TP of INR880.

Robust pick up in freight volumes over the last few quarters; clocks record high margin led by the Seaways segment

* Easing of restrictions led to a strong pick-up in volumes from the start of 2QFY22. The same is expected to remain strong in 4QFY22, as reflected in the decent improvement in e-way bills generated during the quarter.

* TCI reported record high margin of ~13% each in 2Q and 3QFY22. The Seaways segment saw a strong margin, with increased freight rates and high value return load from Myanmar. Margin in the Freight segment improved with cost control and improved efficiency.

Robust industry outlook brightens TCI’s growth prospects

* Road freight will benefit from: a) impact of reforms like GST and e-way bill, which will result in a shift in market share towards organized players, and b) improved road connectivity, reducing the turnaround time.

* The Supply Chain segment is expected to grow well as issues related to the Auto sector stabilize. The increasing penetration of supply chain offerings into other sectors will aid growth.

* The Seaways segment is expected to grow well, with higher volumes and improved realization. The purchase of a new ship in FY23 will help boost the share of the high margin Seaways segment, which will aid earnings growth.

Valuation and view

* We expect the growth momentum to continue, with: a) a pickup in economic activity, b) normalization in transportation activity, and c) government reforms leading to formalization and market share gains for organized players like TCI.

* We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~18%/28%/36% over FY21-24E. The stock trades at 12x FY24E EPS. We maintain our Buy rating, with a revised TP of INR880/share (17x FY24E EPS).

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