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All-time high margins lift profitability…

About the stock: TCI is a leading provider of integrated multimodal logistics and supply chain solutions. The company has six+ decades of experience and moves nearly 2.5% of India's GDP by value

* TCI has 9000+ trucks in operation, six owned coastal ships, 12 million square feet warehousing space, 900 offices

* In FY21, freight formed 52% of revenues while SCM and coastal shipping contributed 34% and 14%, respectively.

Q1FY22 Results: TCI reported strong results, beating estimate on all fronts.

* Revenues grew 86% YoY to | 611 crore, led by freight/SCM/shipping revenue growth of 82%, 106%, 68%, respectively

* Absolute EBITDA grew 155% to | 71 crore (EBITDA margins expanded 315 bps to 11.6%

* Subsequently, PAT grew 4x to |48 crore.

What should investors do?

TCI has been continually improving its margin profile by efficiently handling its fleet utilisation and other cost control measures, which has led to a sharp run-up in the stock.

* We remain positive on the stock and maintain our BUY recommendation

Target Price and Valuation: We value the stock at | 520 (SOTP).

Key triggers for future price performance: TCI captures higher wallet share of its customers by providing diversified range of services via a single window. The variety of services also helps TCI to ride over volatile periods

* Higher online purchases leading to shifts in supply chains.

* Strong fundamentals (b/s, CF) together with improvement in margins and higher asset turnover, is expected to push return ratios to 16-17% in FY23.

Alternate Stock Idea: Apart from TCI, we remain positive on Mahindra Logistics.

* Mahindra Logistics is an end to end 3PL logistics solution provider, from performing milk run to in-factory logistics, warehousing to first mile and last mile logistics

* Continued momentum in the non-auto segment of MLL will drive higher contribution from the value added services and thereby improve its margins as well as opportunity to capture higher wallet share of existing customers.

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