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Margins continue to expand…

TCI reported a strong set of Q4FY21 numbers. Revenues grew a strong 27% YoY (11% QoQ) to | 797 crore. Seaways segment reported strong growth both sequentially (up 25%) and YoY (up 24%), followed by the freight division (up 18% QoQ, 20% YoY) and SCM division (flat QoQ, up 41% YoY, due to low base in Q4FY20). EBITDA margins expanded 147 bps YoY to 10.7%, mainly due to a combination of higher gross margins (19.5% vs. 19% in Q4FY20), lower employee to sales ratio (5.3% vs 6% in Q4FY20) and lower other expense ratio. The resultant EBITDA grew 48% YoY to | 86 crore. Further, PAT grew 69% YoY to | 53 crore (exceptional expense of | 3.5 crore due to impairment in wind power plant and investment in a subsidiary, impacted profitability to certain extent).

Higher online purchases leading to shifts in supply chains

FY21 heralded a shift in consumer behaviour, with increased social distancing norms and intermittent statewide lockdowns, the end-user adopting delayed gratification via online purchases vs. pre-pandemic instant gratification via purchases in stores. The shift has put pressure on supply chains across segments, which increasingly require agile networks that ensure higher inventory (requirement of larger warehouses), lower wastage (cold chains), multi-modal connectivity (can fine-tune costs and speed of delivery), higher tech integration (for providing real-time movement of goods), automation (for efficient handling of large number of SKUs), etc. From planning to execution, TCI with its 900 IT enabled owned offices, 9000 trucks and trailers, six coastal ships, multiple rakes and 12 mn sq feet of warehousing space, brings in integrated solutions for its customers.

Planned capex to augment strong revenue growth

The management expects pickup in surface freight activity from H2 onwards (near festive season). Seaways division has been beneficiary of ongoing higher ocean freight realisation and better fleet utilisation. TCI saw growth in the e-commerce, FMCG sector along with demand revival in the automotive sector (~80% of SCM). The management expects to add another ship in Q4FY22 (| 80 crore) and also purchase containers, rakes and few trucks (| 120-140 crore) in FY22.

Valuation and Outlook

On the balance sheet front, TCI reduced its gross debt by | 130 crore in FY21, while generating | 300 crore of CFO (by keeping a tight leash on working capital). Going forward also, we expect the healthy CFO generation to continue with a net-debt free b/s. The management expects an improvement in margins by 50-100 bps (via better product mix, tech integration and cost control measures), which together with higher asset turnover is expected to achieve return ratios of 16-17% (in the medium to long term). We value the stock at | 490/share (SOTP basis) (earlier | 320) and maintain BUY rating.

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