Buy Transport Corp; target of Rs 135: Asit C. Mehta

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Buy Transport Corp; target of Rs 135: Asit C. Mehta

Asit C. Mehta is bullish on Transport Corporation of India (TCI) and has recommended buy rating on the stock with a target of Rs 135 in its January 24, 2011 research report.

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Asit C. Mehta is bullish on Transport Corporation of India (TCI) and has recommended buy rating on the stock with a target of Rs 135 in its January 24, 2011 research report.

"Transport Corporation of India (TCI) recorded net sales of Rs 4,444 million, growth of 16.6% YoY and 5.2% QoQ in Q3FY11. Given the stable freight rate scenario in Q3FY11 and improvement in operating efficiency, the company was able to expand its operating margins in all three major business segments i.e. transportation, XPS and supply chain solution (SCS). The company reported net profit of Rs 118.3 million, which was flat YoY owing to the hike in the interest rates."

"Revenue from transportation business at Rs 2,091.6 million grew by 10.7% YoY and PBIT margin at 4.8% saw an expansion of 123 bps YoY and 77 bps QoQ. The company expects to maintain such high profitability margins going forward as well. However, we expect the margins to be ~4% in FY11E-12E. High topline growth in SCS division continued in Q3FY11 too. Topline at Rs 1001.5 million registered a growth of 43.4% YoY. Company has added new clients like Eureka Forbes in this division. We expect SCS division to register a growth of 38.7% CAGR during FY10-12E."

"Seaways division once again registered disappointing results owing to three ships out of the five being sent for dry-docking (maintenance) in Q3FY11. These ships have to be sent for dry-docking twice in five years and all five ships have been sent for dry-docking once in past 15 months. Therefore, we believe revenue from this division subdued in FY11E and expect a growth of 9% CAGR during FY10-12E. Fuel cost and freight rates were stable throughout the quarter thereby avoiding volatility in revenue. TCI has completed a capex of ~ Rs 600 million in 9mFY11 as against the planned capex ~ Rs 1,600 million and our expectation of Rs 1,100 million in FY11E. Volumes were strong in October and December and a bit week in November. Overall volumes grew by 22% YoY in 9m FY11."

"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, higher volumes from the automobile industry and continual and sustainable margin expansion, we believe TCI will register a growth of 18.1% and 29.2% CAGR in topline and bottomline, respectively, during FY10-FY12E. At the current price of Rs 107, the stock is trading at 14.1x its FY11E EPS of Rs 7.6 and 10.7x its FY12E EPS of Rs 10. We value the core standalone business at 13.5x FY12E EPS and maintain our target price of Rs 135. We recommend investors to "BUY" the stock at current levels," says Asit C. Mehta research report.

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To read the full report click on the attachment