Karvy has recommended hold rating on Transport Corp with a target price of Rs 358 in its research report dated December 01, 2015.
Karvy's reserach report on Transport Corp
During 1HFY16E, the net profit of the company grew by 12.6% to Rs. 421 Mn on the back of 2.5% growth in the top-line at Rs. 11042 Mn. The EBITDA margin of the company remained almost flat during the period under review 7.7% in comparison to 7.6% during the same period previous year. Resultantly, the absolute EBITDA grew by 3.5% to Rs. 852 Mn. However, the net profit of the company grew by 12.6% to Rs. 421 Mn on the back of higher other income and lower interest cost. The other income of the company grew by 60% to Rs. 102 Mn while the finance charges declined by 12% to Rs. 138 Mn. Flat EBITDA margin was on account of lower revenue contribution from Express (XPS) and Supply Chain Solution (SCS) division which operates at higher margin. Lower revenue growth is on account of flat growth in the Express (XPS) and Supply Chain Solution (SCS) division which reported -0.2% and 0.8% revenue growth respectively during the H1FY16. XPS division, which contributes almost 30% of the total revenue, witnessed slowdown due to decline in the movement of high value cargo. Moreover, the company’s strategy to avoid high price competitive freight resulted in loss of volume. Despite the flat revenue growth, the segment has reported 7.4% growth at EBIT level to Rs. 2331 Mn as the EBIT margin improved to 7.3% from 6.8% during the corresponding period last year. The SCS division reported 0.8% revenue growth at Rs. 31029 Mn and contributed 28% to the total revenue. Auto continues to contribute 75% of the segment total revenue. During the period under review, the freight division of the company witnessed revival in growth on the back of new client addition, the segment reported 4.3% growth in revenue to Rs. 41014 Mn and the EBIT of the segment grew by 41.4% to Rs. 594 Mn. Sale from the seaway division grew by 20% to Rs. 6890 Mn on the back of new ship addition and service from Mundra to Cochin picking up.
We continue with our positive outlook for the company despite the slow performance during the first half of the current fiscal. Strong infrastructure of the company and government initiatives provide growth opportunities in the business. Moreover, the demerger plan of the company would also help in value unlocking for the express division of the company and thus enhance shareholders wealth. We thus revise the target price upwards from Rs. 300 to Rs. 358, an upside of 11%.
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