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Last Updated : Jun 11, 2019 10:50 AM IST | Source: Moneycontrol.com

Transport Corporation of India Q4: Performance delivered amid testing times

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Todays L/H

- Seaways division drove the overall top line
- Q4 operating margin at multi-quarter high
- Supply chain business to be impacted by auto sector

- Current valuations appear reasonable for fresh entry


Multimodal logistics service provider Transport Corporation of India (TCI) delivered a healthy fourth quarter despite slowdown in the domestic business environment. Business mix continues to improve as the company saw strong growth in top line as well as bottom line.


Key results highlights

- In January-March, TCI reported sales increase of 14 percent year-on-year (YoY) to Rs 692 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 23 percent, driven by a change in business mix. Operating margin touched a multi-quarter high of 11.1 percent for the period under review.


- Seaways division reported strongest revenue growth across its three business verticals and reported a revenue jump of 46 percent in the three months to March on the back of fleet expansion. This was aided by robust growth in its core freight business. Supply Chain Solutions (SCS) also clocked a healthy revenue growth of 9 percent despite a sluggish demand in the automotive segment.

- Increased contribution from the high-margin seaways business boosted the overall margin profile for TCI. Recent softening of crude oil prices alleviated some of the cost pressures on a sequential basis. However, the margins were lower than last year. Higher volumes from the LTL (less than load) business led to margin expansion in the freight division. SCS margins were largely stable YoY.


- In FY19, TCI incurred a total capital expenditure of nearly Rs 151 crore, which went into building small warehouses, distribution centres and acquiring a new fleet of trucks and ships. The capex pipeline for FY20 is much stronger than last year and is pegged at Rs 275 crore. The investment will be funded through a combination of debt and internal accruals and the funds will be used to expand the capacity across its three business lines.


- SCS business is heavily reliant on the auto sector (>70 percent revenues) and the recent production cuts by OEMs is bound to impact the segmental revenues over the next 1-2 quarters.  While the growth in the freight business will move in sync with the economic activity of the country, higher capacity utilisation and softening of crude prices will aid the revenue as well as margins in the shipping business. Given the muted domestic demand environment, TCI has deferred its plans of ship addition by 6-8 months.

Outlook and Recommendation

- TCI’s overall performance in Q4 was noteworthy, considering the muted manufacturing activity due to the general elections and a general slowdown in the domestic economy. While the near-term growth prospects appear muted due to a challenging business environment across India Inc, TCI is well equipped to navigate through the current headwinds and is perfectly positioned to benefit from improving market conditions. Further expansion in Seaways and Supply Chain Solutions should act as margins levers in the medium term.


- In terms of valuations, TCI trades at a discount to sector peers and offers a fairly lucrative long-term investment opportunity at a current valuations (FY20 estimated price-earnings multiple of 16x), which holds significant scope for re-rating.

Also Read: Will the Warehousing sector generate alpha for investors?

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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here
First Published on Jun 11, 2019 10:50 am