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Modest Q2...outlook intact

Transport Corporation of India Ltd. (TCI) is one of the largest integrated players in the organised logistics industry. Key business segments include freight, supply chain, warehousing solutions, & shipping services.

• Revenue grew by a modest 7% YoY, supported by healthy volume from supply chain businesses, but was marginally below our expectations.

• EBITDA grew by a modest 5% YoY, and margins dipped by 20bps YoY to 10.1%. This was on account of an increase in employee costs and a lower contribution from seaway businesses.

• Looking forward, we anticipate stable volumes in freight, Ecommerce, and supply chain businesses, while seaway business is expected to improve with the addition of a new ship.

• We expect PAT to grow at a 16% CAGR over FY23-25E, with stable margins of ~11.4% supported by lower fuel prices.

• We value TCI at a P/E of 17x on FY25E, given healthy earnings and return ratios; hence, we maintain an Accumulate rating on the stock with a target price of Rs.938.

Revenue growth stable...

In Q2FY24, TCI achieved 7% YoY revenue growth, primarily driven by 9% YoY growth in the supply chain business and seaway business. The supply chain business was driven by strong automotive sector volumes. Good traction of multimodal services: 500+ rake placements Vs 400+ last year during the quarter. The seaway segment witnessed a modest revival as ship utilization picked up post-drydocking. But freight rates remained lower, and higher-margin cargo volumes remained muted. TCI signed for two ship orders worth $34 million, expected to be ready by FY206. During FY24, seaway business is expected to witness flat YoY growth due to operational constraints, while an uptick in seaway business is starting in FY25E. Whereas the freight business exhibited modest growth of 2.7% YoY, influenced by seasonal factors and softness in demand ahead of festive. In the freight segment, LTL business (less truck load) is gaining traction, and TCI plans to further enhance the network. The long-term growth prospects for the sector remain positive, fuelled by increased government infrastructure spending and e-commerce penetration. Capex plans stand at ~Rs.272cr. Going ahead, a gradual improvement in consumer sentiment is expected as inflation moderates. We anticipate revenue growth to pick up from H2FY24E, coinciding with the festive season, and assume a 13% CAGR in revenue for FY23-FY25E.

Margins to remain stable at ~11.5%

In Q2FY24, EBITDA grew by a modest 5% on account of a lower share of seaways business and modest topline growth. Margins declined by 20bps to 10.1% due to higher employee expenses. PAT grew by a healthy 20% YoY, led by higher other income and share of profit from JV. We expect PAT to grow at a 15% CAGR over FY23-25E.

Valuations

TCI has well-diversified service offerings, a multi-sectoral presence, and a healthy balance sheet. The long-term outlook for the sector is improving, given strong economic growth prospects, increasing penetration of ecommerce, and GST & e-way bills. We value TCI at a P/E of 17x on FY25E and maintain an Accumulate rating, with a target price of Rs.938.

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