Buy Transport Corporation of India Ltd For Target Rs.520 - ICICI Direct
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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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