Transport Corporation of India Ltd - Karvy Online

Aug 27, 2015 Transport CorporationAug of India Ltd 27, 2015

Industrials - Transportation & Logistics

Transport Corporation of India Ltd Bloomberg Code: TRPC IN

BUY

India Research - Stock Broking

Set to Take Advantage of Indian Logistics Boom

Recommendation (Rs.)

Company’s wide spread infrastructure and revival in the economy to boost revenue growth

Target Price

The company has strong pan india presence with 1400 branches covering 17000 locations both in India and abroad. It has 9000 trucks/trailers and rail connectivity through JV with India’s leading container logistics company Concor. As per the World bank estimates, India’s GDP is expected to grow around 8% in FY16E and FY17E and this would directly benefit the logistics industry which is expected to grow at 1.5 to 2 times of the GDP growth.

Supply Chain Solutions (SCS) and Express Services to drive revenue and profit growth In the next two years, the top-line of the company is expected to grow at a CAGR of 15% on the back of 20% growth in TCI-SCS and 17% growth in TCI-XPS business. In the last eight years, the company has made capital expenditure of ~Rs.7385mn in expanding its market reach by setting up warehouses, hubs and increasing its fleets in the TCI-SCS for strategic purposes. Key growth driver for the TCI-XPS would be the fast growing e-commerce business in india. E-commerce industry is growing at CAGR of 34% since 2009 to $16 bn in 2014 and is expected to reach $22Bn by 2015. Meanwhile, the overall economic growth and revival in the automobile industry are expected to drive growth of TCI-SCS.

Valuation and Outlook

CMP (as on Aug, 26, 2015)

225 300

Upside (%)

33

Stock Information Mkt Cap (Rs.mn/US$ mn)

17858 / 268

3M Avg. daily volume (mn)

0.1

52-wk High/Low (Rs.) Beta (x)

Sensex/Nifty

322 / 188

1.3

26032 / 7881

O/S Shares(mn)

76.1

Face Value (Rs.)

2.0

Shareholding Pattern (%) Promoters

66.9

FIIs

2.8

DIIs

5.7

Others

24.7

Stock Performance (%) Absolute

Relative to Sensex

1M

3M

6M

12M

(11)

(2)

(5)

13

(2)

6

7

16

Source: Bloomberg

At CMP of Rs. 225, the stock is trading at P/Ex of 18.0x and 14.9x of FY16E and FY17E earnings. We thus recommend to “BUY” the stock with a price target of Rs. 300, with an upside potential of 33%.

Relative Performance* 160 140

Key Risks

120

yyChange in crude oil prices.

100

yySlow down in the economic growth.

80 Aug-14

yyPricing pressure due to the fragmented logistic market.

yyThird party risk as most of the assets, trucks and warehouses, are on lease.

Nov-14

Feb-15

TCI

May-15

Aug-15

Sensex

Source: Bloomberg; *Index 100

Exhibit 1: Valuation Summary (Rs. Mn) YE Mar (Rs. Mn) Net Sales EBITDA

EBITDA Margin (%)

FY13

FY14

FY15

FY16E

FY17E

21305

22265

24167

27887

32413

8.2

7.5

8.0

8.7

9.4

1737

1680

Adj. Net Profit

695

716

RoE (%)

17.1

15.4

EPS (Rs.)

9.5

1932

814

2434

947

1144

14.3

15.3

9.8

10.8

12.5

22.9

20.9

18.0

14.6

3041

15.1 14.9

Analyst Contact

For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY, Thomson Publishers & Reuters

040 - 3321 6271

PE (x)

23.6

Source: Company, Karvy Research

Ajay Lakra

[email protected]

1

Aug 27, 2015 Transport Corporation of India Ltd

Company Background

Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15E

FY16E

FY17E

Net sales

24167

27887

32413

EBITDA

1932

2434

3041

Optg. Exp (Adj for OI) Depreciation

22236

545

Interest

25453

715

333

Other Income

91

PBT Tax

870

421

602

60

70

1144

1357

1639

814

947

1144

8.0

8.7

9.4

20.9

18.0

14.9

0.7

0.8

0.8

326

Adj. PAT

29371

407

492

Profit & Loss Ratios EBITDA margin (%) Net margin (%)

3.4

P/E (x)

EV/EBITDA (x)

2.4

Dividend yield (%)

3.4

3.5

2.6

2.5

Transport Corporation of India (TCI) is an integrated and multimodal supply chain and logistics provider. Currently, the company is operating in four business verticals with over 9000 trucks and 10.5 Mn. Sq. Feet of warehousing space and four cargo ships. It has pan india presence with over 1400 branches spread across 17000 locations. TCI Freight offers total multimodal transportation solutions ranging from full truck load, less than truck load, small and Over Dimentional Cargo (ODC) through Road & Rail. TCI-XPS is a door-to-door Express Distribution Specialist. TCI-SCS is a Single Window enabler of Logistics and Supply Chain solutions. It operates in the value space and providing customized solutions, for key verticals such as Auto, Retail, Telecom, Electricals, Pharmaceuticals, FMCG, Record Management and Cold Chain. TCI Seaways is engaged in coastal shipping services for transporting container and bulk cargo along the Western & Eastern coasts of India. The company also operates in the international markets like Nigeria, Brazil, Indonesia, etc.


Cash Flow (Rs. Mn)

Balance sheet (Rs. Mn) Total Assets

Net Fixed assets

FY15

FY16E

FY17E

11376

14162

16790

5587

6224

7244

5176

Current assets Other assets

613

7165 772

8511 1035

Total Liabilities

11376

14162

16790

Minority Interest

35

35

35

Networth

6207

Debt

Current Liabilities

Other Liabilites & Prov.

7004

7979

3195

5233

6817

295

295

295

1645

1596

1665

Balance Sheet Ratios RoE (%)

14.6

RoCE (%)

14.3

16.8

Net Debt/Equity

16.4

0.5

Equity/Total Assets

16.6

0.6

0.5

P/BV (x)

15.3 0.7

0.5

2.7

0.5

2.4

2.1


Exhibit 2: Shareholding Pattern (%)

PBT

Depreciation

FY17E

1144

1357

1639

Interest charges

333

421

602

Tax

Changes in WC CF from Operations

870

(278)

(414)

(507)

(52)

(70)

(75)

(446)

Others

715

1246

(283) 1727

(528) 2001

Capex

(1364)

(2750)

(2250)

CF from Investing

(1211)

(2908)

(2590)

(157)

2038

1584

Others

153

Change in Equity

619

Change in Debt

Dividends & Interest paid CF from Financing Change in Cash

(158) 0

(340) 0

(503)

(564)

(763)

(7)

293

232

(42)

1474

821


Exhibit 3: Segment Revenue (%)

DIIs 5.7%


FY16E

545

FIIs 2.8%

Promoters 66.9%

FY15

Others 24.7%

XPS Division 30%

Supply Chain Solutions Division 28%

Seaways Division 5%

Freight Division 37%


2


Higher contribution from supply chain solution and express services to drive revenue and profitability Exhibit 4: Exhibit : Revenue Contribution from SCS and XPS Increasing

0%

4%

10%

9%

FY07

30%

24%

20%

37%

40%

53%

60%

28%

5%

FY15

Freight Division XPS Division Supply Chain Solutions Division Seaways Division Others

The management of the company has shifted its focus towards high value logistics business from basic freight business. In 1996, the company introduced TCI-XPS, the company’s express servicing division. In 1999, the company entered into joint venture with Mitsui and Co of Japan for providing automobile logistics and today the company has separate division TCI-SCS. The division provides single window customized solutions, for key verticals such as Auto, Retail, Telecom, Electricals, Pharmaceuticals, FMCG, Record Management and Cold Chain. The revenue contributions from both the divisions are fast growing and they also operate at high EBITDA margins.


Exhibit 5: Capital Expenditure Plan (Rs. Mn) Actual (FY07 to FY15)

Planned (FY16E)

Hub Centers & Small warehouses

2602

1668

Ships & Containers

1515

22

Wind power

90

Trucks & Cars

Others (W/H Equipements, IT etc.)

2407

800

7385

2750

771

Total

0

260


TCI-XPS contribution to the total business has increased to ~30% and operating at EBITDA margin of ~8% Exhibit 6: 12.3

6900

0

14.0

8.8

8.2

8.0

7.9

7.0

6010

6602

10.5 5564

2300

9.9

4953

4600

8.0

3.5

FY12

FY13 FY14 FY15 Revenue (Rs. Mn) Revenue Growth (%) EBITDA Margin (%)


0.0

The revenue contribution from TCI-XPS is increasing every year and the business is growing at a CAGR of ~12% in the last eight years. The revenue contribution has increased to ~30% in FY15 from ~24% in FY07. Going forward, the segment is expected to continue the growth momentum on the back of revival in the economy and robust outlook for the E-commerce in India. The segment provides services to both B2B and B2C customers with coverage in 13000 locations in India and 200 locations out-side India. In the Business-to-Consume (B2C) segment, the company provides last mile delivery to the E-Commerce customers and in the Business-to- Business (B2B) segment, it caters to industries like Pharma, Auto Ancillary, Consumer Durables, Apparels, FMCG etc.

The profit margin for the division is in the range of 7% to 10% and the company is further focusing on improving the profit margins by higher capacity utilization going forward. In FY15, the margins were under pressure due to the hike in the diesel prices. Even though there was sell-off in the crude prices, the impact was not seen in FY15 due to the lag effect. The benefit of falling crude oil prices would be visible in this year. Moreover, the company does not own any trucks in this division and all are vendor based thereby making it asset light. In FY15, the company managed to reduce the operating cost by 20bps and the transit time was also reduced by almost 50%, thereby giving the company an operational efficiency.

3


TCI SCS revenue contribution has increased to ~28% and is operating at EBITDA margin of ~12% Exhibit 7: 7830

0

FY12

17.5 14.0

11.8 10.9

11.5 7813

6986

12.7 6794

2610

12.4 5825

5220

16.6

2.8

FY13 FY14 FY15 Revenue (Rs. In Mn) Revenue Growth (%) EBITDA Margin (%)

10.5 7.0 3.5 0.0

TCI SCS division of the company is the front runner in driving the revenue and the profitability of the company. In the last eight years, the division has grown at CAGR of 27%. The revenue contribution of the division has increased to ~28% in FY15 from just ~10% in FY07. Some sluggishness was there in FY14 when the revenue grew just by 3% due to overall economic slowdown and tepid demand for auto industry. Currently, automobile industry accounts for almost 75% of the division’s total sales, thus the revival in India’s auto industry has helped the company to report 12% revenue growth in FY15. Going forward, the outlook for the division is robust as the demand outlook for the automobile is gearing up. E-Commerce is the other segment which


would contribute in driving the business growth for the division. The company provides management of fulfillment centers and backend operation for the E-commerce. It currently has 8 fulfillment centers with an handling capacity of 100000 unique orders and 20000 deliveries per day. Other sectors which would drive the revenue for the company are the FMCG, Hi Tech & Telecom, Health Care, Retail & Consumer Products and Cold Chain. In this segment, the company owns 1100 trucks which include 34 reefer vehicles and has 10.5 Mn sq. ft. of warehouses with own storage and material handling infrastructure to provide seamless services to its customers. Apart from transportation, the division also provides warehouse management service to its customers. The reefers vehicles of the company are mostly dedicated to pharma industry were the margins are high and less to the food industry.

Transystem Logistics International, a joint venture between TCI and Mitsui & Co. Ltd This JV was formed in 1999 to provide exclusive logistics services of both inbound and outbound logistics to the Toyota Kirloskar Motors Ltd. in India. This was the first step for the company to enter into supply chain solution services. In this joint venture, TCI holds 49% stake and the remaining is with Mitsui & co. Today, transystem logistics provide complete logistics solutions to multiple auto and machinery manufacturers, which include inbound, outbound, warehousing, multimodal logistics etc.

Revival in the automobile industry to drive TCI SCS business growth Exhibit 8: 30% 20% 10% 0% -10% -20%

FY11

FY12

Domestic Sales PV

FY13

FY14

FY15

CV Two Wheelers

After two years of subdued growth, India’s auto industry has started to witness revival in growth. Domestic auto sales in FY11 and FY12 grew at 26% and 12% respectively but it started to decline in FY13, growing at 2% and in FY14 it grew at 4%, however in FY15 it grew by 7%. In FY15, the industry witnessed broad based recovery, with Passenger Vehicles (PV) growing around 4%, after reporting de-growth of 6% in FY14. Three wheelers and two wheelers both report healthy growth of 11% and 8% respectively. However, the Commercial Vehicles (CV) sales declined by 3%, which is better than 20% decline reported in FY14. During the period between April 2015 to July 2015, passenger vehicle sales grew by 7.46%

Source: SIAM, Karvy Research

sale of Commercial Vehicles grew by 5.63%. However, the sale of two wheelers and three wheelers were flat. This clearly suggests that the automobile sector is all set for the next leg of growth, on the back of government initiative for Make in India, low commodity prices etc. In the auto segment, TCI services companies like Maruti, VW Group, Tata Motors, Hero and Bajaj.

Fast growing E-commerce to drive TCI-XPS and TCI SCS business growth E-commerce industry in India is fast growing and growth potential is huge as the country is still at the nascent stage. As per the PWC report, since 2009, the e-commerce industry in India has grown at a CAGR of 34% to $16.4 bn and is expected to reach $22 bn by 2015. Within this, e-tailing which includes online retail and online marketplace, has been growing at CAGR of 54% to $3.5 bn and by 2015, it is expected to be around $6 bn. Currently, the contribution of e-tailing in india is very low at 0.4% and it is expected to increase to 3% by 2020. Key driving factor for the e-commerce in India is very low internet penetration at 19% of the total population. Internet users in India stand at ~243 Mn, which is very low in comparison to China where it is around 641Mn. In the last couple of years, the company has been investing heavily on hubs and fulfillment centers. 4

Aug 27, 2015 Transport Corporation of India Ltd Exhibit 9: E-Commerce and E-tailing are fast growing

Exhibit 10: Share of E-Tailing in Indian retail

25.0

0.0

2009 2010 2011 E-Commerce (US$ Bn)

2012

3.5

2.3

91.6%

40%

6.0

12.6 1.5

9.5

1.0

7.0

0.6

5.3

0.4

3.8

10.0

14.0%

60%

16.4

15.0

3.0%

80%

21.3

20.0

5.0

0.4% 8.0%

100%

83.0%

20% 0%

2013 2014 2015 E-Tailing (US$ Bn)

2014 Independent Retail

2020 Brick & Mortar Retail

E-Tail


Source: Industry, Karvy Research

Exhibit 11: Internet users by country

Exhibit 12: Internet penetration as percentage of population 100%

641

675

80%

450

87%

Japan

US

60%

279

243

40%

225

0

86%

109

107

20%

84

0%

China

US

India

Japan

Brazil

Russia

46%

59%

19% India

China

Brazil

Russia

% of Population

Internet Users (in Mn) Source: Industry, Karvy Research

53%

Source: Industry, Karvy Research

Revival in the Indian economy to drive TCI freight business Exhibit 13: Key Freight Generating parameters expected to improve going forward YE Mar (Rs. Mn)

FY14 (%) FY15 (%) FY16E (%)

Industrial GDP

4.5

5.9

6.2

Cement

2.7

5.2

6.3

Construction

5.8

Coal Mining

5.4

1.8

Iron Mining

4.4

6.6

Steel products

2.5

Two Wheeler

Cars and UVs

-6.0

Pharmaceuticals

17.0

Consumer Durables Fertilizers

Textiles (RMG) Port Traffic


9-11

12-14

3.3

10.0

10.5

2.6

(0.6)

3.7

1.1

5.5

Agri GDP

23.4

4-6

0.3

2.0

5.4

5.5 2.5

7.3

8.7

5.9 5.0

5.5

9-11

12.5

2.1 6.7 3.0 7.0

In FY15, the Indian economy grew ~7.5% and as per the World Bank estimates, India’s GDP is expected to grow around 8% in FY16E and FY17E. Empirical evidence suggests that the Indian Logistics industry grows at 1.5 to 2 times the GDP, thus revival in the economy will directly contribute to the growth of overall logistics industry. TCI will be the clear beneficiary as it is currently transporting 2.5% of the India’s GDP by value. The company has strong pan India presence with 1400 own branch network, covering 99.5% of the GDP area. It has around 2400 trucks and trailers providing freight movement services on daily basis. TCI freight division provides integrated multi-modal solution. The service includes Full Truck Load (FTL) to Less than Truck Load (LTL), Sundry and Project Heavy Haul (PHH). The profit margin in the segment is very low as the segment is highly unorganized with large number of small players in order to improve the profit margin of company and is focusing on high margin, like Sundry & Less than Truck Load (LTL) business, to utilize the fixed cost of branches, hubs and manpower.

Exhibit 14: Improvement in Index of Industrial Production and Manufacturing Positive for the Logistics Industry 25% 20% 15% 10% 5% 0% May-06 -5%

May-07

-10%

May-08

May-09 General Index

May-10

May-11

May-12

May-13

May-14

May-15

Manufacturing

Source: RBI, Karvy Research

5

Aug 27, 2015 Transport Corporation of India Ltd Exhibit 15: Revival in the Economy to Drive Freight Traffic

Exhibit 16: Road Freight Rate Index (RFRI) 200

8.0 7.0

7.3

6.9

7.5

7.9

8.0

150

6.0

Source: world Bank, Karvy Research

FY15

FY14

FY13

FY12

FY11

FY10

FY09

2017E

Real GDP Growth Rate (%)

FY08

2016E

FY07

2015

FY06

2014

FY05

2013

FY04

2012

100

FY03

5.1

FY02

4.0

125

FY01

5.0

175

RFRI Source: Company, Karvy Research

TCI-CONCOR Multimodal Solutions Pvt. Ltd., joint venture between TCI and CONCOR In 2010, TCI and Container Corporation of India (Concor), a leading container logistics company of India, together formed a joint venture company to provide bulk integrated multi-modal logistics solution by rail and road. In the JV, TCI holds 51% stake and the remaining 49% is held with Concor. In the joint venture, TCI is dedicated to the first and the last mile delivery of the cargo and the rail transportation is carried out by Concor. With this JV, TCI is in a position to provide cost efficiency and time bound rail – road solution.

Company is asset light and enjoys Economies of scale Over the years, the company has built strong infrastructure to provide integrated multi-modal logistics services to its marquee customers like Maruti, VW Group, Tata Motors, Hero, Bajaj, Hindustan Unilever, Samsung among others. As on June 2015, the company operates with over 9000 trucks/trailers/reefer vehicles, 10.5 Mn sq. ft. of warehouse space, it has 1400 company owned branches and has deep market penetration with coverage in 17000 locations both in India and abroad. TCI freight is equipped to carry cargo of any dimensions and size right from Full Truck Load (FTL)/ Less than Truck Load (LTL)/ Sundry, Project & Heavy Haul (PHH) and Rail. The availability of robust infrastructure provides economies of scale to the company. Meanwhile, the company follows the method of not owning every asset it requires and makes the company’s balance sheet healthy. Out of the 9000 fleet, the company owns only 1100 trucks and out of the 10.5 Mn sq. ft. of warehouses less than 20% is owned by the company.

Capacity expansion in TCI Seaways to drive revenue and profit growth of the company Currently, the company has four ships with a total capacity of ~23317 Dead Weight Tonnes (DWT). It also owns 2047 marine containers. In FY15, the company added one more ship with a capacity of 10545 DWT and in FY16E, the company further plans to invest Rs. 22 Mn in ships and containers. Three ships with a capacity of 4000-4500 DWT each are operational in the east coast from Vizag - Chennai to Andamans. These ships of the company are multipurpose vessels, moving container as well as non-containerized cargo. The new ship, TCI Arjun, is scheduled to be operational in the west coast of India from mundra to Cochin. All the earnings of the business are in rupees so it is not linked to international freight index like Baltic dry index etc. Although the revenue contribution from the division is low at ~5%, the EBITDA margin of the division is high, around 27%, and is contributing ~17% of the company’s total EBITDA.

Government Initiatives to drive logistics industry growth yyImplementation of Goods and Service Tax (GST) would lead to rationalization of tax, consolidation in the warehouseing and concentration in the transportation.

yyFocus on building robust infrastructure: Dedicated freight corridor / Diamond Quadrilateral would create additional capacity thereby reducing unit cost of transportation and increasing multi-modal transportation of bulk cargo. yyMake-in-India Initiatives: Improve disposable income and increase consumption expenditure.

6


Exhibit 17: Business Assumptions Y/E Mar (Rs. Mn)

FY14

FY15E

FY16E

FY17E Comments

Consolidated Revenue

Higher revenue contribution from TCI-SCS and TCI-XPS to drive revenue growth. With the pick32413 up in the industrial activities the company's freight business will revive.

22265

24167

27887

4.5

8.5

15.4

1680

1932

2434

EBITDA Margins (%)

7.5

8.0

8.7

PAT (normalized)

716

814

947

1144

Fully Diluted EPS (Rs.)

9.8

10.8

12.5

15.1

Capex (ex. Acquisition) - cash capex

(741)

(1364)

(2750)

(2250)

Net CFO

1577

1246

1727

2001

Net Debt

2879

2774

4519

5871

836

(118)

(1023)

(249)

Revenue Growth (%)

EBITDA

Fully Diluted EPS Growth (%)

2.9

Free Cash Flow


9.5

16.2

Higher contribution from TCI-SCS and TCI XPS, which are also the high margin businesses will improve the EBITDA margin of the company. 3041 Business expansion in the TCI seaways, which operates with very high margin may also support the margin expansion. 9.4

16.4

20.7

Higher revenue growth would support bottom-line growth.

The company plans to invest in building warehouse infrastructure, hubs, fleets, ships and containers.

Better revenue mix is likely to improve the cash flow from operation.

The company plans to fund the capex through internal accruals and debts.

Exhibit 18: Karvy vs Consensus Karvy

Consensus

Divergence (%)

FY16E

27887

27682

0.7

FY17E

32413

32408

0.0

FY16E

2434

2338

4.1

FY17E

3041

2854

6.6

FY16E

12.5

14.1

(10.9)

FY17E

15.1

18.1

(16.3)

Comments

Revenues (Rs. Mn)

EBITDA (Rs. Mn) We are expecting higher revenue contribution from high margin businesses like TCI-XPS and TCI-SCS would increase going forward.

EPS (Rs.)

Source: Bloomberg, Karvy Research

7


33000

24167

21305

11000 0

22265

9.0

22000

8.5

27887

15.4

16.2

20

32413

Exhibit 19: Steady Revenue Growth

15 10 5

4.5

FY13

0

FY14 FY15 FY16E FY17E Revenue (Rs. Mn) Revenue Growth (%)

Going forward the top-line of the company is expected to grow at CAGR of 16%. The revenue growth would be driven by TCI-SCS and TCI-XPS on the back of revival in the automoblie industry and fast growing e-commerce in india. In the last couple of years, the company has expanded its capacity in terms of numbers fleets, warehouses, hubs across the country.


Exhibit 20: EBITDA & EBITDA Margin 26.0

3150

8.0

3041

1737

FY13

-3.3

10

2434

7.5

20

8.7 9.4

1932

0

15.0

11.1 8.2

1050

30

1680

2100

25.0

FY14

FY15

FY16E

FY17E

0 -10

EBITDA (Rs. Mn) EBITDA Growth (%) EBITDA Margin (%)

Going forward, it is expected that the EBITDA margin to improve because of higher revenue contribution from the divisions like TCI-SCS and TCI-XPS which operate at higher margin as compared to TCI-Freight where the margins are very low. The company is also expanding its TCI seaways by adding ships and containers. This divison operates with very high profit margins in FY15; the EBITDA margin from TCI seaways was around 27%. Moreover, fall in the crude oil prices would further help in improving the margins.


Exhibit 21: Return Ratio (%) 20.0

18.0

15.0

17.1

16.2

16.8

16.4

16.6

15.4

14.6

14.3

15.3

7.3

7.6

7.4

7.4

10.0 5.0 0.0

7.6 FY13

FY14 Return on Return on Return on

FY15 FY16E FY17E assets (%) Equity (%) capital employed (%)

The company follows asset light business model by not owning every asset it requires, therefore the company maintains healthy return ratios eventhough the margins are not very high in the logistic business. In the last couple of years, the company has been investing in building its infrastructure to gain market share and expand its business throughout the country. Better revenue mix and higher utilization are expected to drive the return ratio going forward.


Exhibit 22: Debt-Equity Ratio 0.90 0.85

0.84

0.80

0.80

0.70

0.64

0.65

0.58

0.60 0.55

The debt to equity ratio of the company is well below 1x As on FY15, the debt equity ratio of the company was at 0.58x, and this is expected to increase because of the capex which the company is planing to finance through debt and internal accruals.

0.73

0.75

FY13

FY14

FY15 FY16E Debt-Equity ratio

FY17E


8


Valuation & Outlook TCI-SCS and TCI-XPS are going to be the next key driving factors for the company going forward. In the last couple of years, the company has built robust infrastructure and has developed pan India presence. In the next two years, the company is planning to build more warehouses, hubs and trucks to benefit from the expected revival in the overall Indian economy and fast growing e-commerce industry. Government initiatives like development of robust infrastructure, Make-in-India, implementation of GST (under progress) would have direct benefit for the large logistics players like TCI. At CMP of Rs. 225, the stock is trading at P/Ex of 18.0x and 14.9x of FY16E and FY17E earnings. We thus recommend to “BUY” the stock with a price target of Rs. 300, with an upside potential of 33%. Exhibit 23: PE Band

Exhibit 24: PB Band

60

7

40

5 3

20

P/E STDEV2

Average ~-1STDEV

P/BV STDEV2

STDEV1


Average ~-1STDEV

Aug-15

Aug-14

Aug-13

Aug-12

Aug-11

Aug-10

Aug-09

Aug-08

Aug-07

Aug-06

Aug-05

Aug-04

Aug-03

-1

Aug-02

Aug-15

Aug-14

Aug-13

Aug-12

Aug-11

Aug-10

Aug-09

Aug-08

Aug-07

Aug-06

Aug-05

Aug-04

Aug-03

Aug-02

1 0

STDEV1


Exhibit 25: EV/EBITDA 20 15 10 5 0 Aug-02

Aug-03

Aug-04

Aug-05

EV/EBITDA

Aug-06

Aug-07

Aug-08

Aug-09

Average

Aug-10

Aug-11

STDEV1

Aug-12

Aug-13

STDEV2

Aug-14

Aug-15

~-1STDEV


Exhibit 26: Company Snapshot (Ratings) Low 1

High 2

3

Exports

Net Debt/Equity

Working Capital Requirement Quality of Management Depth of Management Promoter

Corporate Governance Source: Company, Karvy Research

33

5

33 33

Quality of Earnings Domestic Sales

4

33 33

33 33 33 33

9


Key Risks yyChange in crude oil prices.

yySlow down in the economic growth.

yyPricing pressure due to the fragmented logistic market.

yyThird party risk as most of the assets, trucks and warehouses, are on lease.

10


Financials Exhibit 27: Income Statement YE Mar (Rs. Mn)

FY13

FY14

FY15

FY16E

FY17E

Revenues

21305

22265

24167

27887

32413

Operating Expenses

19568

20585

22236

25453

29371

11.1

(3.3)

15.0

26.0

25.0

Growth (%) EBITDA

Growth (%)

Depreciation & Amortization Other Income

9.0

1737

464

73

4.5

1680

468

92

8.5

1932

545

91

15.4

2434

715

60

16.2

3041

870

70

EBIT

1347

1304

1477

1778

2241

PBT

1010

993

1142

1357

1639

Interest Expenses Tax

Adjusted PAT Growth (%)


336 315 695

16.8

311 275 716

333 326 814

421 407

602 492

3.0

13.6

16.4

947

1144

20.7

Exhibit 28: Balance Sheet YE Mar (Rs. Mn)

FY13

FY14

FY15

FY16E

FY17E

Cash & cash Equivalent

460

428

421

715

946

Sundry Debtors

Loans & Advances Investments

Gross Block Net Block CWIP

Miscellaneous

3951

3800

4346

4580

5176

80

80

72

80

90

899

1172

6367

6781

51

183

4099

111

4262

83

1192

1402

1802

8051

10731

12921

68

138

198

5176

101

7165

83

8511

67

Total Assets

9650

10009

11376

14162

16790

Debt

3469

3307

3195

5233

6817

Current Liabilities & Provisions Other Liabilities

Total Liabilities

Shareholders Equity Reserves & Surplus

1478 322

5269

146

4224

1412 349

5068

146

4764

1645 295

5134

151

6056

1596 295

7124

151

6852

1665 295

8776

151

7828

Total Networth

4370

4910

6207

7004

7979

Total Networth & Liabilities

9650

10009

11376

14162

16790

Minority Interest


11

31

35

35

35

11

Aug 27, 2015 Transport Corporation of India Ltd Exhibit 29: Cash Flow Statement YE Mar (Rs. Mn)

FY13

FY14

FY15

FY16E

FY17E

PBT

1010

993

1144

1357

1639

Depreciation Interest

Tax Paid

Inc/dec in Net WC Other

Cash flow from operating activities

464 336

(264) (462)

(40)

1044

468 311

(280)

146

(61)

1577

545 333

(278) (446)

(52)

1246

715 421

(414) (283)

(70)

1727

870 602

(507) (528)

(75)

2001

Inc/dec in capital expenditure

(441)

(741)

(1364)

(2750)

(2250)

Cash flow from investing activities

(608)

(976)

(1211)

(2908)

(2590)

Others

Inc/dec in borrowings Issuance of equity Dividend paid

(167)

134

10

(235) (189)

8

153

(157)

619

(158) 2038

0

(340) 1584

0

(91)

(140)

(170)

(143)

(161)

(284)

(633)

(42)

1474

821

FY13

FY14

FY15

FY16E

FY17E

EBITDA Margin (%)

8.2

7.5

8.0

8.7

9.4

Net Profit Margin (%)

3.3

3.2

3.4

3.4

3.5

Interest paid

Cash flow from financing activities Net change in cash


(336)

153

(311)

(32)

(333)

(7)

(421) 293

(602) 232

Exhibit 30: Key Ratios YE Mar EBIT Margin (%)

6.3

5.9

6.1

6.4

6.9

Dividend Payout ratio

10.5

13.2

13.9

13.6

12.6

RoE (%)

17.1

15.4

14.6

14.3

15.3

FY13

FY14

FY15

FY16E

FY17E

9.5

9.8

10.8

12.5

15.1

BV (Rs.)

60.0

67.3

82.0

92.6

105.4

P/BV (x)

3.7

3.3

2.7

2.4

2.1

Net Debt/Equity RoCE (%)


0.7

18.0

0.6

16.2

0.5

16.8

0.6

16.4

0.7

16.6

Exhibit 31: Valuation Parameters YE Mar EPS (Rs.)

DPS (Rs.) PE (x)

EV/EBITDA (x) EV/Sales (x)

1.0

23.6

2.8 0.2

1.3

22.9

2.8 0.2

1.5

20.9

1.7

18.0

2.4 0.2

Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price

2.6 0.2

1.9

14.9

2.5 0.2

12

Aug 27, 2015 Transport Corporation of India Ltd Stock Ratings Buy

:

Sell

:

Hold

:

Absolute Returns > 15%

5-15%