Buy Transport Corporation of India Ltd For Target Rs. 1,330 by Motilal Oswal Financial Services Ltd
Resilient amid industry headwinds
Strong multimodal presence to drive expansion
* The logistics industry faced a tough demand environment due to high inflation and geopolitical tensions that adversely impacted EXIM trade, coupled with a continued slowdown in consumption, particularly in rural areas. Despite these challenges, the Transport Corporation of India (TRPC) has demonstrated resilience, with each business segment growing ~14% YoY.
* TRPC’s multimodal capabilities have provided a hedge against downturns in individual segments, helping it maintain a stable growth trajectory.
* The services sector continues to expand faster than manufacturing, with TRPC strategically targeting high-growth industries. While the MSME sector remains sluggish, the chemical sector has shown signs of recovery.
* TRPC’s diversified logistics network—including road, rail, and sea—remains strong, supporting renewable sector clients and offering comprehensive logistics solutions.
* Further, the performance also remained healthy in the company’s 49% JV, Transystem Logistics International Private Limited (TLI), which recorded revenues of INR9.9b during FY24 (INR8.7b in 9MFY25). TRPC has been regularly receiving dividend income from the JV’s profit, and the same is likely to increase to ~ INR600m in FY25 (vs. INR530m in FY24). TRPC is catering to the supply chain needs of Japanese automobile players and has posted a CAGR of ~14% over the past five years.
* TRPC's revenue is set to grow steadily, driven by increasing LTL share in freight, customized solutions, expansion in new-age sectors, and fleet addition in the seaway segment. The company plans to add three ships—two under construction (due by mid-2026) and one second-hand purchase.
* We expect TRPC to achieve a 15% revenue CAGR over FY24-27, led by continued growth in the supply chain division, a rising proportion of LTL shipments within the freight division, and a presence across the multi-modal logistics value chain (including a JV with Container Corporation for rail transportation). We reiterate our BUY rating with a revised TP of INR1,330 (based on 18x FY27E EPS).
Supply chain to be the key growth segment
* During FY21-24, TRPC’s supply chain business grew at a 16% revenue CAGR, driven by strong automotive demand. In 9MFY25, it grew ~14% YoY despite mixed sector trends. The division capitalized on sector-specific demand, particularly in warehousing and multimodal logistics, supported by an expanding hub-and-spoke network for efficient automotive distribution.
* The business operates with a strong asset base, including ownership and lease of modern warehouse facilities totaling 15m sq. ft. Additionally, the company has a customized fleet of over 5,500 trucks and trailers, stainless steel tank containers, and other physical assets.
* We anticipate the supply chain business to clock a revenue CAGR of 15% over FY24-27
Higher capacity utilization and addition of new ship(s) to boost growth
* In the Seaways division, revenue rose ~14% YoY in 9MFY25, with EBIT margin improving ~1,300bp YoY to 30.9%. This improvement can primarily be attributed to higher freight rates and the availability of all six ships during 9MFY25.
* The company is in the process of acquiring two new ships, with delivery expected in 2.0-2.5 years. It is also open to purchasing second-hand ships in the near term, though this seems less likely given the current circumstances.
* We expect the seaways business to post a 15% revenue CAGR over FY24-27.
* Over the long term, management aims to increase the capacity of this business by 50% and expects a sustainable EBITDA margin of 30%.
High proportion of LTL and branch networks to aid growth in the freight business
* Freight division growth has been moderate due to weakness in infrastructure, capital goods, and MSME underperformance, alongside a shift toward LTL. However, a higher LTL contribution (40% by FY26E vs. 36% in Dec’24), a shift from the unorganized sector, and multimodal logistics traction should drive a 14% revenue CAGR over FY24-27. TRPC operates 4,600+ trucks and 25 hubs, enhancing distribution and cargo reliability. It plans to open 75 new freight branches in FY25 (64 added in 9MFY25) after adding 30 in FY24.
* TRPC reported a 14% YoY growth in its freight services in 9MFY25, driven by network expansion.
* The freight division is likely to benefit from a higher LTL contribution (40% by FY26E vs. 36% in Dec’24), a shift from the unorganized sector, and traction in multimodal logistics. We expect a revenue CAGR of 14% over FY24-27.
Valuation and view
* TRPC is well-positioned for stable growth, supported by increasing LTL share in freight, customized customer solutions, deeper penetration into new-age sectors in the supply chain, and fleet expansion in seaways. We expect a 15% revenue CAGR over FY24-27, driven by continued growth in the supply chain, higher LTL contribution in freight, and a strong presence across the multimodal logistics value chain, including its JV with Container Corporation for rail transportation.
* It is the only player in the domestic logistics industry that offers services across road, rail, and sea. We expect TRPC to deliver a CAGR of 17% in PAT over FY24- 27. We reiterate our BUY rating on the stock with a revised TP of INR1,330, premised on 18x FY27E EPS
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
