See 20-30% rise in FY10 net profit: Transport Corporation

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS Truckmakers in India see strong sales in 2010 ALSO READ See latest News about Transport Corp See previous management interviews See what other Experts & Brokerages are saying about Transport Corp Transport Corp BSE | NSE 29/05/12 Are Mutual Funds betting on Transport Corp?

Truck rentals for the week-ended January 4 have hit a two-year high. The increase in rentals is on account of double digit manufacturing growth. Also, higher exports support an increase in rentals.

Leading transportation and logistics firm, Transport Corporation of India, sees shipping being one of its big growth drivers. The shipping division of the company clocked margins at close to 20% in the second quarter.

In an interview with CNBC-TV18, Vineet Aggarwal, ED, Transport Corporation of India , spoke about the company's business plans and gave a prognosis on the sector going forward.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: If you can take us on how business is now? One hears that export has picked up in a big way - can you give us some idea of how much better the second half looks compared to the first half in terms of both freight rates and volumes of freight that you are moving?

A; In terms of volume of freight the first six months of last year till September 2008 was very good and comparatively this year we had seen lower volumes. But September onwards we saw a lot of inventory build up because of an early Diwali and that has continued on till the end of December as well. I think the overall volume growth would be close to 10-15% compared to the last six months.

Going forward in the next quarter also typically with the year end closing coming in for most companies as well as with the budget in February, we see a rise in volumes going forward.

Simultaneously the freight rates also start moving up after September and this is again because of volumes. We think that there would be a certain amount of increase in the coming quarter although in the last three months we have seen a flattish trend in terms of freight rates.

Q: From what I heard from some of the smaller truckers or logistic companies, they said that if it is your own truck you tend to make money. But if oil prices start to go up and then you have interest rates to pay on a truck because you bought it on lease or you bought it and you are paying interest when you are dealing with multinationals or some of the bigger companies you are unable to increase prices - could you shed some light on whether the volume increase is passing on to real profits for perhaps middle sized logistic companies especially if they have to deal with higher oil prices and interest rate burdens on the trucks they have?

A: If you typically own a truck as a corporate you do not end up making a lot of money. I think the overheads that any corporation has - any mid-sized to large sized - is substantial to actually increase your cost compared to a single truck owner or a guy who has 10-20 trucks.

The mid coporates or companies like us actually most of our contracts are long-term contracts, maybe 1-2 years where we have locked in the prices. But we do have an escalation clause for fuel. So whenever fuel prices go up we do pass on that to the customer directly.

However the guy who we take the trucks from typically he does not get that much of an increase in the system. So with interest rates going up, that guy tends to get squeezed a bit.

Q: How much of excess capacity is still in the system which means - does not matter if freight goes up by 15-20% there are enough trucks which means pricing still remains an issue while volumes goes up. Is that situation there till the time it balances off and at which point do you think that balance is there supply and demand for trucks kind of meets up?

A: If you look at the commercial vehicles (CV) sales for the last few months they have really taken off. This does not mean that there is a lot of excess capacity that has come in. There was a certain amount of excess capacity - as you rightly said - which was created in the last two years. We saw that was the peak of the CV cycle.

That is exactly the problem that in the last few months even though volumes have gone up we have not seen freight rates really go up so much. But now we are seeing the crunch coming in because that capacity addition that had to take place in the last year has not happened.

So now we are seeing a certain amount of trucks that are being bought that are on the higher tonnage category. So that would be the new capacity that is going to get added. Certain sectors had a tremendous amount of a short fall.

For example the movement of cars, the automobile sector really took off in the last few months but people have short change in terms of having car carriers available.

Q: There are some brokerage reports which I am reading which expect you to post revenues of about Rs 1450-1500 crore in the current year and Rs 1600 crore in the next year. In terms of profits the expectation is about Rs 47 crore this year and Rs 51 crore. Are they ballpark right and if you can give us a margin picture as well?

A: Last year for the full financial year, we did Rs 1350 crore in revenue and about Rs 33 crore in PAT. Going forward, we have a guidance of 10-15% increase in revenues and about a 20-30% increase in profitability.

On those lines, yes I think those reports are moderately in the right range and the year after financial year 2011 we think that the growth should accelerate with GDP growth also growing coming in. And with the diversification that we have had towards the supply chain and our express cargo business.