Multi Baggers

Sushil Finance

5.30 AM Jan 1st 1970

Transport Corp

BSE ID : 532349 NSE ID : TCI

RECOMMENDED PRICE 53.50

PEAK FROM RECO 858.00 1,503.74%

CURRENT PRICE 850.65 Resource id #18

TCIL has now evolved into a leading multi-modal integrated supply-chain and logistics solutions provider in the global cargo transportation. The company has got a strong distribution network provides access to large and growing aftermarket. In addition, the company has never missed out on dividend payout in last 13 years. For past two years, the company has increased its dividend payout to 50%.

Transport Corporation of India

Company Overview

Founded by Mr. Prabhu Dayal Agarwal in Kolkata during 1958, Transport Corporation of India Ltd. (TCIL) has now evolved into a leading multi-modal (road, rail, air, sea) integrated supply-chain and logistics solutions provider in the global cargo transportation. With continuous and strategic diversification in value added and new areas of logistics, customer centric-approach and extensive infrastructure, TCIL developed an expertise over these five decades. The company now through its more than 1,400 branches operates with a fleet of 7,000 vehicles, 9.75 mn sq.ft. of warehousing space and a skilled work force of 6,500 with 20,000 outsourced positions while covering over 17,000 positions in the country. Moreover, the company has got a strong distribution network provides access to large and growing aftermarket.

The other group companies include TCI Industries and TCI Developers which got demerged and listed during the course of time. The group which achieved a turnover of Rs.10,000 mn in 2006 doubled the turnover over the next five years and reaching a top-line mark of Rs.22,000 mn in 2012.

Emerging trends in the Indian logistics space and shift towards organized logistics

The Indian logistics space is 90% commanded by the unorganized segment. Over the past few years, this sector is experiencing a shift towards the organized segment. It is witnessing the emergence of new concepts in automated warehousing, third party logistics, express cargo and logistics parks. The industrial warehousing is expected to be driven by rising domestic and export-import freight volumes, investments in infrastructure, organized retail, focus towards manufacturing and the anticipated implementation of goods and services tax. Additionally, other aspects such as third party logistics and logistics parks are also gaining significance in the Indian logistics space thereby promising relatively lower costs and smoother connectivity to multiple markets, going forward.

Growing investments in infrastructure and rising attention towards logistics

The Indian logistics sector which is said to have a market size of nearly USD 230 bn, has been growing at 8-10%. According to various agencies, it is expected to grow at approx. 15%, once the capex cycle revives. However, the cost of logistics in the country currently stands at roughly 13% of GDP as compared to the usual 8-9% that prevails in the developed economies. The total consumption expenditure is expected to jump three-folds to $3,600 bn by 2020 largely driven by food, housing and consumer durables. We believe, factors including shift from unorganized to organized, FDI in retail and e-commerce, increasing industrial activities, growing exports and imports, planned expenditure towards infrastructure and rising demand for cost-efficiencies and effective operations by the corporates promises for a consistent evolution of the Indian logistics space.

Investment Thesis

The company currently trades at 5.2x of FY13 EPS (Rs.9.6) and 4.1x of FY15 EPS of Rs.12.1. The debt-equity ratio stands at comfortable 0.71x; we expect the company to register top-line of Rs.25,406 mn in FY15 with 3.5% of net margin that translates into an EPS of Rs.12.1 as against Rs.9.6 in FY13. We believe, the current valuations provide a decent margin of safety and the current investments promises robust growth going forward, thereby, presenting a lucrative investment opportunity at these levels. In addition, the company has never missed out on dividend payout in last 13 years. For past two years, the company has increased its dividend payout to 50%.

Outlook and Valuation

Over the past five years, TCIL's topline has been growing at a CAGR of ~11.4% and the operating profits have grown at a CAGR of ~14.2% during the same period. Currently, in-line with the industry, the company is going through challenging times on account of general economic slowdown that has impacted the top-line growth and profitability. However, the company has significant expansion plans which will benefit the company going forward. We expect several factors such as shift towards organized segment, investments in infrastructure, anticipated economic reforms, implementation of goods and services tax, widening geographical horizons for the distribution of products alongwith rising demand for cost-efficiencies and effective operations by the corporates are likely to play a vital role in the development of Indian logistics space. Moreover, considering the company’s capex plans, comfortable debt levels, diversified business portfolio and focus on high-margin business of supply chain solutions and current valuations indicates a good investment opportunity. At current price of Rs 53.50, the company is trading at 4.1x its FY15 EPS of ` 12.1. By allocating a target multiple of 6.0x to its FY15 EPS, we derive a target price of `73 for the stock.

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