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Minor miss on profitability; outlook bright

Transport Corporation of India (TRPC)’s revenue grew 4% YoY to ~INR10b in 3QFY24 (in line). The freight and supply chain division clocked ~1%/16% YoY growth in 3QFY24, while the seaways division posted a decline of ~16% YoY.

EBITDA margin came in at 10% in 3Q (down 190bp YoY/10bp QoQ) vs. our estimate of 10.5%. Overall margin was hit by lower seaways’ margin. EBITDA declined 13% YoY to INR1b, while APAT dipped 7% YoY to INR794m (11% below our estimate).

EBIT margin for freight/supply chain/seaways divisions stood at 3.1%/ 6.5%/22.1% in 3QFY24. EBIT margin for the Freight and Seaways businesses contracted 260bp and 480bp YoY, respectively; while it improved 50bp YoY for the supply chain division.

Given the flattish growth in the 9MFY24 due to general slowdown in the economy and competitive pressure, we have reduced our FY24 and FY25 EPS estimates by ~6% and ~10%, respectively. We have largely retained our estimates for FY26, as demand is likely to improve by then. The increasing proportion of LTL in the freight division is expected to contribute positively. The steady demand in the automotive sector is expected to support the supply chain division. We reiterate our BUY rating with a revised TP of INR1,150 (based on a P/E multiple of 17x FY26E EPS).

Continued growth in supply chain segment; freight and seaways to experience headwinds due to general slowdown

The supply chain division delivered strong growth of ~16% YoY owing to the retention and expansion of business with existing clients and new business acquisitions. The management remains confident of clocking a double-digit growth rate in the supply chain business in FY24.

In the seaways division, revenue declined ~16% YoY due to a fall in freight rates. The company recently signed an agreement to buy two new vessels, which are scheduled to be delivered between Jan’26 and Mar’26.

The share of LTL/FTL businesses in the freight division stood at 37%/63% in 9MFY24. The management is actively working on increasing the share of LTL revenue to 40% by FY25, which will lead to margin improvement.

Highlights from the management commentary

Margins and ROCE in the freight business have experienced a slight decline due to flattish revenue growth. The general economic demand slowdown hit growth in the freight division. TRPC added 30 new branches during 9MFY24 to strengthen the network further.

Revenue in the supply chain segment increased ~16% YoY in 3QFY24. The growth momentum persisted amid upward trends in the automotive sector (contributed ~80% in the supply chain business), coupled with the retention and expansion of business both with existing clients and through new business acquisitions.

Valuation and view

TRPC’s multi-modal capabilities position it well to meet diverse customer needs and endure industry slowdowns. Further, TRPC’s established infrastructure, long-standing customer relationships, and experienced management team are anticipated to aid its position as a preferred 3PL partner.

We expect a CAGR of 13%/15%/18% in revenue/EBITDA/PAT over FY23-FY26 for TRPC. We reiterate our BUY rating with a revised TP of INR1,150 (based on a P/E multiple of 17x FY26E EPS).

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