Hold Transport Corporation of India Ltd For Target Rs.700 - ICICI Direct
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Exceptional performance from seaways lifts Q2…
About the stock: TCI is a leading provider of integrated multimodal logistics and supply chain solutions. The company has over 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
Q2FY22 Results: TCI reported strong results, beating estimate on profitability front.
* Revenues grew 20% YoY to | 737 crore, led by freight, SCM, shipping revenue growth of 22%, 9%, 44%, respectively
* Absolute EBITDA grew 68% to | 99 crore (EBITDA margins expanded 378 bps to 13.4%)
* Subsequently, PAT doubled to | 68 crore
What should investors do? TCI has been delivering exceptional results for a few quarters and has been the beneficiary of rising surface and ocean freight charges. With unlocking of the economy, we expect earnings momentum to continue in the foreseeable future
* Due to recent sharp run-up in the stock and recovery in SCM segment still a few quarters away, we change our recommendation from BUY to HOLD
Target Price and Valuation: We value the stock at | 700 (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, are 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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