Buy Transport Corporation of India; target of Rs 1,200: ICICI Securities

ICICI Securitie's research report on Transport Corporation of India

Despite the likely decline in seaways business, we expect EBITDA margin to improve to 10.5% by FY26E on the back of higher proportion of LTL in surface division – growing to 40% compared to 36% in FY24 and enhanced focus on supply chain business. Capex of INR 3-4bn expected to be incurred in next three years, focused on acquisition of two new ships for (more profitable) seaways division and augmenting warehousing and surface infrastructure. Hence, we see a clear trajectory for margin improvement beyond FY26 as two new ships are added and start contributing. Further, the small warehouses will aid the company in harnessing synergies between freight and supply chain businesses, thus providing complete solution to the customer and increased wallet share.

Outlook

We see Transport Corporation of India (TCIL) as a good opportunity in the current subdued operating environment for the logistics sector. Key points: 1) In the process of refining freight mix in favour of higher-margin LTL business; 2) Capex in high-margin sea freight segment likely to improve overall margins; 3) Improving performance of JVs expected to result in further earnings improvement; and 4) Trading at relatively attractive valuation compared to peers. Going ahead, we believe that higher LTL proportion in freight business and addition of two new ships (despite seaways margin receding) in seaways division are the two main growth drivers. Factoring in favourable risk-reward at current valuations vs. peers, we initiate coverage on TCIL with a BUY rating and TP of INR 1,200 based on 22x FY26E EPS.