Transport Corp - ACMIIL

8/8/2019 Transport Corp - ACMIIL

1/15Transport Corporation of India Ltd ACMIIL 1

C O M P A N Y R E P O R TISO 9001:2008 Certified Company

We initiate coverage on Transport Corporation of India (TCI) with a BUY

recommendation with target price of`135. We are valuing the stock at 13.5x FY12E

EPS of`10. An increasing contribution from high margin businesses like express

delivery solutions (XPS) and supply chain solutions (SCS), improving volumes from

the automobile industry with continual and sustainable margin expansion, we believe

TCI will register a growth of 17.9% and 29.5% CAGR in topline and bottomline,

respectively, during FY10-FY12E.

Investment Rationale

Largest integrated logistics service provider

TCI is the largest integrated player, having 15% market share of the organized

logistics industry. Over the years, TCI has built a strong infrastructure network.

It has a branch network of over 1,200 company-owned ofces. It operates

approximately 7,000 trucks on a daily basis, of which 1,200 are owned trucks

and 1,000 attached trucks and trailers. Apart from transportation, the company

has one of the largest warehousing space of about 8.5 mn sq ft. It also has a eet

of six ships with a total capacity of 16000 DWT.

Timely freight revision

TCI operates 65-70% of the business on contractual basis with a fuel cost escalation

clause, where the fuel price hike is passed on immediately to the customers. The

balance portion that is exposed to spot freight rates is further transferred with a

lag effect of 1.5 2 months. Therefore, owing to timely freight revision, TCIs

exposure to fuel price hikes is minimal.

Major beneciary of introduction of GST

Road transportation is a costlier mode of transportation when compared to rail,

seaways or pipelines. Introduction of GST will eliminate multiple taxes presently

charged while carrying goods by road, thereby reducing the overall transportation

cost, making road freight rates more viable. Since GST is expected to standardize

rates across the nation, considerable consolidation is expected in the warehousing

segment, as companies would be able to manage bigger warehouses at few strategic

locations. TCI being a largest integrated logistics service provider, we believe the

company to be a major beneciary

Expansion to trigger growth

TCI is on course to invest ~ ` 1,600 million in FY11E of which it has already

invested ~ ` 460 million in H1FY11. The planned capital expenditure (capex)

would be utilized for acquisition of trucks and containers (~ `655 million), ship

(~ `500 million), warehouses (~ `250 million) and upgrading IT infrastructure

(~ `195 million).

Valuation

At the current price of`111, the stock is trading at 13.9x its FY11E EPS of`8 and

11.1x its FY12E EPS of`10. We value the core standalone business at 13.5x FY12E

EPS to arrive at our target price of `135. Considering the recent price correction,we recommend a BUY rating on the stock.

Transport Corporation of India Ltd

AnalystRajni Ghildiyal

[email protected]

Tel: (022) 2858 3401

10 Jan, 2011

B U Y

Key Data (`)

CMP 111

Target Price 135

Key Data

Bloomberg Code TRPC IN

Reuters Code TCIL.BO

BSE Code 532349

NSE Code TCI

Face Value (`) 2

Market Cap. (`mn) 8,050

52 Week High (`) 165

52 Week Low (`) 77

Avg. Daily Volume (6m) 40,223

Shareholding Pattern

Promoters 68.7

Mutual Funds / Bank/ FI 0.0

Foreign Institutional Investors 6.6

Bodies Corporate/Individuals/others

24.7

Total 100.0

(`mn) FY10 FY11E FY12E

Revenue

(`Mn.)

14,506.6 17,211.5 20,157.5

EBITDA

(`Mn.)

1,100.0 1,325.3 1,612.6

PAT (`Mn.) 434.5 580.5 728.3

E B I T D AMargin (%)

7.6 7.7 8.0

PAT Margin(%)

3.2 3.4 3.6

EPS (`) 6.0 8.0 10.0




Industry Overview

Fragmented market structure

Structure of the road freight transport industry in India is highly fragmented.

The industry broadly consists of players who provide the transportation services,intermediaries (transport contractors / booking agents) who offer haulage services,

brokers supplying equipment, drivers for commission and the consignors constituting

the ultimate demand for the services.

Road transport operators provide point-to-point transportation. These operators are

classied into small eet operators (SFOs), medium eet operators (MFOs) and large

eet operators (LFOs). Over the years, LFOs have witnessed a gradual increase in the

pie of vehicle ownership, while SFOs have been steadily losing share. Further, during

the slowdown, several SFOs exited the industry, owing to hardening interest rates and

reduced freight availability. It was quite difcult for SFOs to bear the capital costs of

their assets. Unlike SFOs, LFOs have their presence in other logistics businesses likewarehousing, supply chain solutions, cold chains etc. LFOs generally have a multi-

regional network or a pan-India network, supported by adequate infrastructure. TCI

is a LFO with pan-India presence operating over 7,000 trucks per day.

Truck ownership pattern

Truck Ownership 1978-79 1993-94 2002-03 2008-09E

Operators own up to 5 trucks (SFOs) 98% 85% 77% 74%

Operators own 6 to 20 trucks (MFOs) 2% 13% 17% 15%

Operators own more than 20 trucks (LFOs) 0% 2% 6% 11%

Source: Crisil Research

Indian national companies are quite skeptical to outsource their logistics operations

owing to safety and security concerns. The complex tax structure prevailing in

India also induces corporates to invest in small warehouses all over the country,

thus handling their logistics operations themselves. Therefore, 46% of the logistics

operations in India are handled by the Corporates themselves through their in-house

logistics department. Unorganized players dominate the balance 54% outsourced

arena. TCI the largest road transport player has ~15% share in the organized logistics

industry i.e. ~8% share in the total outsourced logistics. Undersized market share of

the industry leader demonstrates the extremely fragmented nature of the industry.

Source: Company

Logistics spending structure in the industry

46%

10%

54%44%

In-house logistics Outsourced Organised Unorganised




Trend in road freight rates

Road freight rates are primarily determined on the basis of demand-supply scenario

prevalent at any time in the country. This in turn is driven by economic activity,

existing truck capacities on road and cost factors like diesel prices, which is the primeinput cost for truck operators. Substitutes and industry structure also play a key role

in determining freight rates, in addition to regulations. Road transport attracts the

highest freight rates followed by rail, pipelines and waterways.

Fuel costs typically constitutes more than 50% of the total operating costs of the

transport operator. Hence, any increase in diesel prices may affect their operating

margins. Typically, transport operators pass on the hike in fuel cost to their customers

with a lag effect of ~1.5 2 months. However, transport operators are able to pass on

the increase in cost in the form of higher freight rates only in a scenario of good freight

availability. Therefore, most of the LFOs in the industry have contractual agreements

with clients that cushion them from severe uctuations in freight availability. Almost

all contractual arrangements have an escalation clause, clearly stating that for any

increase in fuel price, the freight rate shall automatically increase to the same extent

or for fuel hikes at X %, freight shall increase automatically at Y %, with effect from

the date of the fuel hike.

However, it should be noted that the costs of delay and uncertainty in transportation,

increases the effective cost to the users signicantly. Thus, there exists tremendous

potential for reduction in indirect costs associated with inefciencies caused by

infrastructure and regulations.

Infrastructure and Regulations

India has the third largest road network in the world stretching 3.32 million kilometer

in length. As per World Bank, national highways aggregating a length of close to

70,748 km, constitutes a mere 2 % of the road network but carries about 40 % of

the total road trafc in India. On the other hand, state roads and major district roads

carry another 40 % of trafc and account for 18 % of the road length. This inevitably

leads to trafc jams.

Source: IOCL, Company, ACMIIL Research

Trend in diesel price v/s road freight rates

Aug09

June09

Sep09

Nov09

Dec09

Feb10

Apr10

June10

Aug10

July09

Oct09

Jan10

Mar10

May10

July10

Sep10

Diesel Price (LHS)

Gap between fuel cost and RFI

Indian Road Freight Index (RHS)

Time taken to pass on the hike

170170.5171171.5172172.5173173.5174174.5175

30

32

34

36

40

42

38

`




To add to this the Indian taxation system is quite complex. In order to avoid multiple

taxation, companies typically have warehousing operations in every state. Thisresults in large number of small warehouses across the country that lack in the latest

warehousing processes and technologies. Lack of adequate infrastructure and complex

taxation and regulations are major obstacles for logistics players in India. Roads

occupy a crucial position in the growth and development of the transportation industry.

Hence, Government has undertaken several projects to expand the road network

nationwide for providing connectivity and mobility in both the rural and urban areas.

Details of NHAI projects as on November 30, 2010

NHDP Component Total Length Completed 4 lane Underimplementation

BalanceLengthfor award

GQ Phase I 5,846 5,809 37 0

Port Connectivity Phase I 380 291 83 6

Other NHs Phase I 1,383 926 437 20

NS-EW Phase II 7,144 5,385 1,332 427

NHDP Phase-III 12,109 1,922 5,207 4,980

NHDP Phase- IV 20,000 0 0 20,000

NHDP Phase-V 6,500 407 1,893 4,200

NHDP Phase-VI 1,000 0 0 1,000

NHDP Phase-VII 700 0 41 659

Total 55,062 14,740 9,030 31,292

Source: NHAI

Despite the limitations, we visualize a strong potential in this sector. Several initiativesand projects are underway to boost development of roads while the complex Central

Sales Tax is to be phased out in coming years to welcome GST. The emergence of India

as a manufacturing hub, growth of the organized retail industry, increased domestic

consumption, and the global best practices of multinationals are all expected to boost

the logistics industry. The key initiatives that could further trigger the growth of the

industry includes, spurring growth in third party logistics (3PL), introduction of GST

and upcoming multi-modal logistics parks. Increasing IT penetration will further improve

the efciency of the players by enabling smooth movement of goods by online tracking,

better cargo management and record maintenance of huge cargo handled on daily basis.

Source: NHAI, ACMIIL Research

Classification of Indias road network

80%14%

4%

2%

NationalHighways State Highways Major DistrictRoadsRural Roads




Industry Analysis using Porters ve force model

Company Background

Transport Corporation of India is Indias leading integrated supply chain and logistics

solutions provider. With expertise developed over ve decades and customer centric

approach, TCI is equipped with an extensive set up of 1200 branch ofces, a large

workforce of 6,500 employees, huge eet of customized vehicles and managed

warehouse space of 8.5 million sq ft. Leveraging on its extensive infrastructure, strong

foundation and skilled manpower TCI offers seamless multi-modal logistics solutions.

TCI formerly started its operations in Calcutta with single truck in 1958 and since then,

the company has expanded its footprints as Indias leading integrated supply chain

solutions provider with a global presence. TCI has been continuously introducing

new and innovative services from multi-modal transportation (road, rail, air, sea)

to express delivery solutions, from freight forwarding and customs clearances to

warehouse management services. TCI is well equipped to take on new challenges

with a host of value added services and has plans to further strengthen its presence in

India and Asia. The company has plans to invest in state of the art, large scale multiuser multi product warehouses, ships, trucks, trailers and technology to establish

itself as a complete supply chain solutions provider.

Business Model

Bargaining power of suppliers

Bargaining power of buyers

Threat of new entrants

Threat of substitutes

Low capital requirement, easy credit availability,low skills / qualification required and ease in

obtaining license

Entry Barriers: Low

Highly fragmented market with lack ofdifferentiation in services

Competition High:

Dominance by few large equipment suppliers,Government controls diesel prices

Suppliers:MediumBig consignors have high bargaining power owingto presence of large number of small operators.However, LFOs experience less pressure ascompared to SFOs / MFOs as they provide valueadded services

Buyers: High

Threat from railways is high whereas from othermode of transport is low. Considering that roadtransport players enjoy higher accessibility /flexibility over other modes of transport, overallthreat remains medium

Substitutes: Medium

Source: ACMIIL Research

Source: Company

Transport Corporation of India(TCI)

TCI Freight TCI XPS TCI Supply Chain TCI Global OthersTCI Seaways

FTL/FCL, LTL &over-dimensional

cargo servicesthroughRoad, Rail & Sea

Express companyengaged in door

to door courierand cargo

A Single-windowsolutions enablerfrom

Conceptualizationto Implementation

Leading player inCoastal Shipping,

NVOCC & Projectcargo

Completes the serviceoffering of the Group

with connectivity &services across the world

Wind power

generation andTrading




Exhibit 8: Segmental contribution to revenue and protability in FY10

Freight Division

TCI is one of Indias premier organized freight services provider with pan India

presence. They operate around 7,000 trucks and trailers, to provide freight movement

services on a daily basis. The freight division handles FTL (Full Truck Load), LTL (Less

Than Truck Load), FCL (Full Container Load), and ODC (Over Dimensional Cargo).

TCIs network of 1,200 company owned ofces makes them closer to the source of

raw material and customers across the country. TCI also has tactical partnership with

Container Corporation of India to provide integrated rail road container haulage.

The company has become quite watchful in this business, owing to existence of large

number of unorganized players shrinking the protability margins. TCI is looking at

creating value addition where margins could be better. Thus, the growth rate in this

segment is expected to be moderate. This is the major division contributing ~50% to

the topline in FY10. We expect the revenue from this segment to grow at 9.5% CAGRduring FY10-12E, while revenue contribution to come down to ~43% in FY12E, owing

to increased focus towards other high margin businesses.

XPS Division

This division provides express door-to-door service for time sensitive and high value

documents and parcels. The company operates through its own eet of 300 dedicated

XPS trucks and delivers to 13,000 locations in India & more than 200 countries

overseas. This division has four sub-segments viz. TCI XPS Surface, TCI XPS Air,

TCI XPS Courier and TCI XPS priority services, classied according to client needs.

This is the second major division contributing ~26% to the topline in FY10. We expect

the revenue from this segment to grow at 20% CAGR during FY10-12E.

Supply Chain Solution (SCS) Division

TCIs SCS division provides inbound / outbound logistics and supply chain solutions

right from conceptualization to implementation. This division operates with a

customized eet of 800 owned trucks. Auto sector currently contributes to 75%

of total SCS revenue. TCI also provides transport solutions for perishable cargo in

pharma, foods & chemicals by reefer vehicles. Going forward, the company is also

targeting some non-auto segment clients from retail, FMCG and telecom sectors to

reduce the dependency on auto sector from current level of 75% to 50% in coming

years. The uniqueness of the TCI-SCS is their domain knowledge, assets (vehicles,

modern warehouses) coupled with footprint of group companies in freight, express

cargo and courier, shipping, freight forwarding & custom clearance.

Revenue contribution from this segment has scaled up to ~17% in FY10 from ~8% in

FY06 and we expect it to further stretch to ~23% in FY12E. We expect the revenue

from this segment to grow at ~37% CAGR during FY10-12E.

Source: Company

PBIT Contribution

18%

34%

3% 4%

9%

32%

50%

26%

Revenue

17%

4%2%1%

TCI Freight

TCI XPS

TCI SupplyChain

TCI Seaways

TCI Global

Others




Seaways Division

This division provides coastal shipping services for transporting container and bulk

cargo along the eastern coast of India. TCI has also formed 50-50 JV called Ann

Soe Scan ApS with Scan Trans worlds sixth largest seaways company to focuson Europe. The company owns and operates 5 domestic ships with capacity of 2500

4500 DWT (deadweight- tonne); including project ships equipped with own cranes

and 1 international ship with Ann Soe Scan ApS. The revenue from this segment

has been quite subdued, owing to lack of new eet addition and 1 ship per quarter

being sent for dry-docking from past few quarters.

Global Division

The Global business division of TCI provides complete logistics & SCS across

boundaries. TCI Global has set up ofces in Brazil, China, Germany, Indonesia,

Hong Kong, Malaysia, Mauritius, Netherlands, Singapore and Thailand. However,

operations have started only at 5 wholly owned subsidiaries in Asia / South East

Asia (Singapore, Hong Kong, Indonesia, Thailand and China). Businesses at other

locations are expected to be operational shortly. It is planning to expand its horizon of

services to other Asian countries and selected centers in Europe as well. TCI Global

offers freight forwarding, customs clearance activities, transportation, warehousing

and courier services. This segment is expected to breakeven by end of FY12E.

Others

Other businesses include wind power generation, where the company has a cumulative

capacity of 11.5 MW. The company is also engaged in fuel trading business, mainly

constituting one fuel station, which contributed about 1% to the topline in FY10 and

had PBIT margin ~1.5%. In FY07, the company sold eight of the then nine outlets.

Going forward, no major growth is expected in this division.

De-merger of Real Estate and Warehousing division

TCI recently de-merged its real estate & warehousing division into TCI Developers

Ltd (TDL) to have greater efciency and synergy in operations. De-merged entity TDL

has plans to develop every individual property on the basis of its size, location and

feasibility as a residential and/or commercial project. Other projects would include

state-of-the-art multi modal logistics parks, truck terminals, free-trade warehousing

zones etc. Post de-merger, every Shareholder of TCI received 1 equity share of `

10/- each in TDL for every 20 equity shares of ` 2/- each held in TCI. The company

is planning to list TDL on stock exchanges in the near term.

SWOT ANALYSIS

Positive Negative

Internal Factors

Strengths

Largest integrated road transport player providing value added services

Strong relationship with clients

IT penetration

Large scale of operation (1,200 company owned branch offices and 1,200 ownedtrucks)

Focus on high margin SCS and XPS business

Weakness

Presence in largely unorganised and fragmentedmarket

Dependence on spot market for truck availability

External Factors

Opportunities

Introduction of GST Improvement in sea freight rates along with planned expansion

Threats

Increasing fuel cost / de-regulation of diesel prices Increase in toll rates

Lower bargaining power with big consignors

Railways getting more aggressive

Source: ACMIIL research




Investment Rationale

Largest integrated logistics service provider

TCI is the largest integrated player, having a 15% market share of the organized logistics

industry. Over the years, TCI has built a strong infrastructure network. It has a branchnetwork of over 1,200 company-owned ofces. It operates approximately 7,000 trucks

on a daily basis, of which 1,200 are owned trucks and 1,000 attached trucks and trailers.

Apart from transportation, the company has one of the largest warehousing space of

about 8.5 mn sq ft. It also has a eet of six ships with a total capacity of 16000 DWT.

Industry Dynamics and Segment Snapshot

TCI Freight TCI XPS TCI Supply Chain TCI Seaways TCI Global

Industry Scenario Mature, Fragmented,Low bar r iers toentry, low cost

Growth, niche, highentry barriers, costefficiency

Nascent, knowledgebased , ve ry h ighbarriers, single window

Growth, high entrybarriers, low cost

Mature, medium entrybarriers, Single windowacross boundaries

Industry Growth 5-10% 15-20% 20-30% 10-15% 10-15%

TCI Guidance on Revenue Growth (FY11E) 10-15% 20-25% 25-40% 20-25% -YoY growth achieved in H1FY11 13.7% 26.1% 76.6% 9.3% 169.5%

Estimated Revenue CAGR during FY11-12E 9.5% 20.0% 37.3% 10.0% 134.5%

% Of Total Revenues (FY 10) 49.9% 26.5% 17.0% 4.3% 0.6%

% Of Total Revenues (FY 12E) 43.1% 27.5% 23.1% 3.8% 2.3%

Trend in TCI EBIDTA Margins 4-5% 10-12% 9-12% 20+% -

TCI PBIT Margins (FY10) 3.9% 7.8% 6.6% 13.1% -

Source: Company, ACMIIL Research

TCI has altered its business model from core low margin trucking service provider

to high margin SCS and express delivery business. The SCS division is expected

to grow rapidly above the industry growth rate owing to increase in outsourcing by

companies looking at re-aligning their supply chains. TCI also provides dedicated

multi modal services through its XPS division. These two segments are expected to

provide higher growth, going forward.


`

Million

(%)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

-30

-25

-20-15

-10

-5

0

5

10

15

20

TCI

Freight

TCIXPS

TCISupply

Chain

TCI

Seaways

TCI

Global

Others

Revenue PBIT Margin

Segmental revenue and profitability in Fy10




Timely freight revision

TCI operates 65-70% of the business on contractual basis with a fuel cost escalation

clause, where the fuel price hike is passed on immediately to the customers. The

balance portion that is exposed to spot freight rates is further transferred with a lag

effect of 1.5 2 months. Therefore, owing to timely freight revision, TCIs exposure

to fuel price hikes is minimal. However, hike in the fuel / freight rates are usually

passed on only when there is freight availability. Therefore, during recession it was

apparent that TCI had to absorb certain small fuel / freight hikes in order to ensure

volumes. As a result, freight expenses as percentage to sales had augmented by 165

bps YoY in FY10. However, going forward, we believe this hike would be gradually

passed on to the customers in coming quarters.

We believe passing on of any further hike in the fuel price would not be a major

concern at this point of time when volumes have picked up at the global and national

level. Revival in freight volumes comforts us with higher possibility of fuel price

hike to be passed on to the customers.

Major beneficiary of introduction of GST

The introduction of Goods and Services Tax (GST) will abolish centre as well as

state level taxes such as sales tax, octroi tax etc and a single tax will be charged when

a good is up for sale. GST would help to bring in more transparency in the system,

as it will solve the problem of cascading taxes that are levied across the goods. The

introduction of GST is a signicant step towards the betterment of the industry.


Trend in freight expenses

% to total operating cost % to total expenditure % to salesXFreight Expenses

`

Mil

lion

FY07 FY08 FY09 FY10 H1FY110

2,000

4,000

6,000

8,000

10,000

12,000

60

65

70

75

80

8583.1 83.382.0 82.2 82.0

66.0

70.469.4

71.5 71.6

65.964.5

66.1 66.261.8

Source: Company

0

200

400

600

800

1,000

1,200

1,400

0%

2%

4%

6%

8%

10%

Revenue

(

Mil

lion

)

`

PBITM

arg

in

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11

Supply Chain XPSSupply Chain XPS

Quarterly trend in revenue & margin contribution from SCS & XPS divisions




Major benefits

Manufacturers would be entitled to input tax credit of all inputs and capital goods

purchased from within the State as well as inter-State, from a registered dealer for

setting off the output tax liability on the sale of their nished products. Similarly,distributors would also be able to pass on the duty burden to their customers.

This would ensure that there is no cascading effect of taxes and would result in

a reduction in the cost of doing business

Road transportation is a costlier mode of transportation when compared to rail,

seaways or pipelines. Introduction of GST will eliminate multiple taxes presently

charged while carrying goods by road, thereby reducing the overall transportation

cost, making road freight rates more viable

Since GST is expected to standardize rates across the nation, considerable

consolidation is expected in the warehousing segment, as companies would be

able to manage bigger warehouses at few strategic locations

TCI being a largest integrated logistics service provider, we believe the company

to be a major beneciary

We believe that industrial productivity and earnings will improve, more investments

will happen and GDP will get a boost. Introduction of GST will encourage foreign

companies to enter the Indian market as they will not have to deal with different

types of taxes to be paid and at the same time it will consolidate the Indian logistics

sector. In the absence of denite information on what would be the combined rate

of CGST and SGST it is difcult to estimate the impact of GST at this point of time.

However, the belief that trade and industry will benet from implementation of GST

is widely accepted.

Expansion to trigger growth

TCI is on course to invest ~ `1,600 million in FY11E of which it has already invested

~`460 million in H1FY11. The planned capital expenditure (capex) would be utilized

for acquisition of trucks and containers (~ ` 655 million), ship (~ ` 500 million),

warehouses (~`250 million) and upgrading IT infrastructure (~ `195 million). Of the

planned capex, the management is uncertain about acquisition of the ship in FY11E

itself. Therefore, we have assumed a capex of `1,100 million for FY11E and the

ship to be acquired in FY12E. We believe, shipping division to register better growth

only after further capacity addition. The investment in trucks, containers, warehouses

and IT infrastructure are incorporated in our estimates of 17.9% and 29.5% CAGR

growth in topline and bottomline, respectively, during FY10-FY12E.




Financials

TCI registered net sales of`14,506.6 million in FY10, growth of 11.8% YoY. EBITDA

margins improved 45 bps YoY to 7.6% during the same period. The company recorded

net prot of`

434.5 million in FY10 against`

283.4 million in FY09, growth of53.3% YoY.

Continual and sustainable improvement in profitability margins and returnratios

Considering the ongoing bend towards the high margin businesses, TCI has been able

to register notable improvement in protability margins over the years and we believe

the same trend to continue going forward in FY11E and FY12E as well.

The company has also registered improvement in the return ratios that indicates

efciency in protability of companys capital investments.


Trend in return ratios

RONW ROCE

FY08 FY09 FY10 FY11E FY12E6

8

10

12

14

16

18

%

10.8

9.9

13.511.5

13.314.0

15.2

16.4

14.6

15.7


Trend in profitability margins

%

0

1

2

3

4

5

6

7

8

9

FY08 FY09 FY10 FY11E FY12E

EBITDA Margins PAT Margins

6.4 7.1

7.6 7.78.0

2.4 2.2

3.0 3.33.5




Income Statement `Million


Net Sales 11,985.2 12,979.5 14,506.6 17,211.5 20,157.5

Total Expenditure 11,221.1 12,054.3 13,406.6 15,886.2 18,544.9

EBIDTA 764.1 925.2 1,100.0 1,325.3 1,612.6

Other Income 43.8 64.7 39.6 43.5 43.5

Depreciation 207.9 259.8 267.6 301.9 359.2

EBIT 600.1 730.1 871.9 1,066.9 1,296.9

Interest 168.3 240.7 195.6 223.6 242.3

PBT 431.8 489.5 676.3 843.3 1,054.6

Taxation 147.1 166.0 212.6 262.8 326.3

PAT 284.7 323.4 463.7 580.5 728.3

Less: Extraordinary item 0.0 40.0 29.3 0.0 0.0

Net Profit 284.7 283.4 434.5 580.5 728.3


Balance Sheet `Million


Sources of funds

Equity Share Capital 145.0 145.0 145.1 145.2 145.3

Reserves & Surplus 2,484.9 2,714.5 3,085.1 3,588.5 4,240.5

Shareholders Funds 2,629.9 2,859.6 3,230.1 3,733.6 4,385.8

Loan Funds 2,290.3 2,329.0 2,716.3 2,980.7 3,230.7

Deferred Tax Liability 282.8 283.0 292.2 330.5 368.6

Total Liability 5,203.1 5,471.6 6,238.7 7,044.8 7,985.1

Application of Funds

Gross Block 3,901.3 4,132.3 4,417.8 4,847.8 5,497.8

Less: Accumulated Depreciation 1,055.6 1,268.8 1,474.3 1,776.3 2,135.4

Net Block 2,845.7 2,863.5 2,943.5 3,071.6 3,362.4

Capital WIP 30.2 119.3 149.4 234.5 261.0

Investments 158.5 185.7 357.1 387.1 417.1

Translation Difference 0.0 10.3 -2.3 0.0 0.0

Net Current Assets 2,168.6 2,292.9 2,791.0 3,351.6 3,944.6

Total Asset 5,203.1 5,471.6 6,238.7 7,044.8 7,985.1


Cash flow Statement `Million


Op Bal Cash & Cash equivalents 154.0 123.5 106.7 205.1 248.7

Profit after Tax 284.7 283.4 434.5 580.5 728.3

Operating profit before working capital changes 583.5 889.8 1,031.7 988.9 1,399.8

Add: Changes In working Capital -421.7 -309.9 -469.9 -413.0 -594.1

Cash generated from operations 161.8 579.9 561.8 575.9 805.7

Cash Flow from Investing activities -585.2 -369.5 -615.5 -545.1 -706.6

Cash from Financing Activities 393.0 -227.3 152.1 12.7 -39.4

Net Cash Inflow / Outflow -30.5 -16.8 98.4 43.6 59.7

Closing Cash/ Cash Equivalent 123.5 106.7 205.1 248.7 308.4





Ratios


EPS (`) 3.9 3.9 6.0 8.0 10.0

Diluted EPS (`) 3.9 3.9 6.0 8.0 10.0

Market Cap (`million) 8,048.1 8,048.1 8,050.6 8,057.6 8,065.6

Debt (`million) 2,290.3 2,329.0 2,716.3 2,980.7 3,230.7

Cash (`million) 123.5 106.7 205.1 248.7 308.4

Enterprise Value (`million) 10,214.9 10,270.4 10,561.9 10,789.6 10,987.9

Book Value per share (`) 36.3 39.4 44.5 51.4 60.4

Price to Book Value (x) 3.1 2.8 2.5 2.2 1.8

EV/Sales (x) 0.9 0.8 0.7 0.6 0.5

EV/EBIDTA (x) 13.4 11.1 9.6 8.1 6.8

Market Cap to sales (x) 0.7 0.6 0.6 0.5 0.4

Operating Margin (%) 6.4 7.1 7.6 7.7 8.0

Net Profit Margin (%) 2.4 2.2 3.2 3.4 3.6

RONW (%) 10.8 9.9 13.5 15.5 16.6

ROCE (%) 11.5 13.3 14.0 15.1 16.2

Debt/ Equity (x) 0.9 0.8 0.8 0.8 0.7

Current Ratio 8.1 7.3 6.4 8.5 8.7

Fixed Assets Turnover Ratio 4.2 4.5 4.9 5.6 6.0


Peer Comparison

Dupont Analysis FY10 TCI Gati Blue Dart Express

Operating Efficiency - Net Profit Margin 3.2 1.0 6.7

Asset Use Efficiency - Asset Turnover Ratio 2.3 1.1 1.6

Financial Leverage - Equity Multiplier 1.9 3.0 1.3

ROE (%) 14.4 3.4 13.5


FY10 TCI Gati Blue Dart Express

EPS 6.0 1.1 25.6

Current Market Price 111 64 1061

PE multiple 18.5 60.6 41.5





Valuation and Recommendation

The revision in road freight rates and subsequent passing on of the same by the

company to its customers will boost the topline and bottomline. With increasing

contribution from high margin businesses like XPS and supply chain, improvingvolumes from the automobile industry and continual and sustainable margin

expansion, we believe TCI will register a growth of 17.9% and 29.5% CAGR in

topline and bottomline, respectively, during FY10-FY12E.

At the current price of`111, the stock is trading at 13.9x its FY11E EPS of`8 and

11.1x its FY12E EPS of`10. We value the core standalone business at 13.5x FY12E

EPS to arrive at our target price of `135. Considering the recent price correction,

we recommend a BUY rating on the stock.


PE Band

Dec-

09

Jan

-10

Fe

b-1

0

Mar-

10

Apr-

10

May

-10

Ju

n-1

0

Ju

l-10

Au

g-1

0

Sep

-10

Oct

-10

Nov

-10

Dec-

10

50

70

90

110

130

150

Sh

are

Price

(

)`

TCI 18x 15x 12x 9x


Stock price movement vis-a-vis Index movement

TCI Sensex

Apr-09 Aug-09 Dec-09 May-10 Sep-100

5,000

10,000

15,000

20,000

0

30

60

90

120

150

180

`


15/15


Disclaimer:

This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or

any of its afliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information

contained in the report. ACMIIL and/or its afliates and/or employees may have interests/positions, nancial or otherwise in the securities mentioned in this report.

To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views

expressed in the report

Disclosure of Interest Transport Corporation of India Ltd

1. Analyst ownership of the stock NO

2. Broking Relationship with the company covered NO

3. Investment Banking relationship with the company covered NO

4. Discretionary Portfolio Management Services NO

This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for

circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.

The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We

may from time to time have positions in and buy and sell securities referred to herein.

SEBI Regn No: BSE INB 010607233 (Cash); INF 010607233 (F&O), NSE INB 230607239 (Cash); INF 230607239 (F&O)

Notes:

Institutional Sales:

Ravindra Nath, Tel: +91 22 2858 3400

Kirti Bagri, Tel: +91 22 2858 3731

K.Subramanyam, Tel: +91 22 2858 3739

Email: [email protected]

Institutional Dealing:

Email:[email protected]

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