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Enters into an agreement to buy two new ships

Capacity addition to boost earnings in this high-margin segment

* Transport Corporation of India (TRPC) has entered into an agreement to buy two new ships of ~7,300 MT each for a consideration of USD34m (~INR 2.7b). TRPC currently has six ships with a total capacity of 77,957 MT. These new ships would add another 14,600 MT to the total capacity.

* The agreement has been jointly entered by TRPC and a consortium of sellers led by Nakanishi Shipbuilding Co. Ltd of Japan. According to the agreement, the seller will construct, launch, equip, finish, and initiate operations for two cellular container vessels with a Dead Weight Capacity (DWT) of ~7,300 MT each. These vessels are slated for delivery on or before 30th Jun’26. The funding would be through internal accruals and debt.

* TRPC has been actively seeking to augment its fleet of ships for nearly a year, given its optimal utilization of the existing ones. This addition will enable the company to increase its shipping capacity and meet the growing demand. The Seaways segment is the highest margin segment for the company, and the additional capacity will contribute to an overall improvement in profitability. As these will be new ships, their lives would be 25-30 years at least, thereby placing the company well to capitalize on the opportunities in this space.

Long-term prospects look bright as capacity addition in the high-margin seaways segment would drive earnings

* TRPC has been attempting to expand its fleet by incorporating an additional ship for over a year. However, due to the unavailability of suitable ships and the elevated costs associated with them, the company had not been able to conclude any purchases.

* With the addition of these new ships, which would add ~20% to the existing capacity, TRPC would be well placed from a long-term perspective. As this segment is the highest margin business for TRPC, the overall earnings would ramp-up once this capacity gets into operations.

Valuation and view

* Capacity addition would help ramp up volumes and cater to the rising demand. The Seaways segment is the highest margin segment, and new capacity here would help improve the overall profitability for TRPC. The company may not require debt for this capex as it would need to incur the cost over the next 2-3 years, and the internal accruals would be sufficient to fund the same.

* While growth in FY25 and FY26 could be muted from this segment, as new ships get delivered only in mid-CY26, we believe this would contribute well to the earnings from FY27 onwards. Hence, this purchase places TRPC well from a long-term perspective. We expect TRPC to achieve a 15%/17%/18% CAGR in revenue/EBITDA/PAT over FY23-FY25. We reiterate our BUY rating on the stock with a revised TP of INR930, based on 16x FY25E EPS. 

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