IGI Logo

Unique business model with multimodal capabilities to drive performance

* We released our Logistics thematic report recently, wherein we stressed upon the Logistics sector moving towards formalization. We noted that this would provide strong growth opportunities for some of the established players, such as Transport Corporation (TCI). The share price of TCI has been up ~45% since our initiation, and we believe there is more steam left.

* The unique multimodal capabilities of TCI would drive consistent growth in volumes and earnings across segments over the next few years. With the easing of fuel prices (on account of tax cuts), margins are expected to remain at elevated levels.

* TCI has a well-blended portfolio, with a presence across a) the high-volume Freight segment, b) value-added segments such as Integrated Supply Chain Solutions, and c) niche high-margins segments such as Seaways. We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~17%/25%/33% over FY21–24. We reiterate our Buy rating, with revised TP of INR790/share (16x FY24E EPS).

Volumes improve with robust festive demand in 2Q; margins hit all-time highs, driven by Seaways segment

* The easing of restrictions and robust festive demand has led to a strong pickup in volumes in the last few months.

* TCI reported all-time high margins of ~13% in 2QFY22. While Seaways saw strong margins with increased freight rates, Freight Services margins were driven by cost control and improved efficiency.

Multimodal capabilities to drive sustainable performance for TCI over the long term

* TCI is among the very few players that provide end-to-end logistic solutions with multimodal capabilities across road freight, rail, and coastal shipping.

* Road freight would benefit from the plunge in diesel prices by ~10% from the tax cuts announced in early Nov’21, which would support margins.

* The Supply Chain segment is well-placed to capitalize on the early-mover advantage with its wide service offerings and strong clientele.

* The Seaways segment is expected to grow well with higher volumes and improved realization. The purchase of a new ship in FY23E would help increase the share of the high-margin Seaways segment, aiding earnings growth.

Valuation and view

* We expect the growth momentum to continue with a) the pickup in economic activity, b) the normalization of transportation activity, and c) govt. reforms leading to formalization and market share gains for organized playerssuch as TCI.

* We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~17%/25%/33% over FY21–24E. The stock trades at 14x FY24 EPS. We maintain our Buy rating, with revised TP of INR790/share (16x FY24E EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer