The cost structure is not impacted only because of an increase in fuel prices. – TCI

The cost structure is not impacted only because of an increase in fuel prices. – TCI

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,204 (-0.06%), 10 points lower. Among the sectoral indices, IT (+1%), HEALTHCARE (+0.46%) and PHARMA (+0.44%) were the gainers and OIL & GAS (-1.4%), METAL (-1.2%), REALTY (-1%) led the losers. Among the NIFTY50 components, NTPC (+2.7%), INDUSINDBK (+2%), and HCLTECH (+1.9%) were the top gainers while BAJAJ-AUTO (-1.9%), RELIANCE (-1.6%) and JSWSTEEL (-1.58%) led the laggards.

Excerpts of an interview with Mr. Vineet Agarwal, MD of Transport Corporation of India (TCI), with ET Now on 28th December 2021:

  • TCI is very conservative about their growth because of the fear of how the third wave of covid or new omicron variant impact supply chain or consumer demand but in 1HFY22 TCI performed above their targets. TCI guided for 15% to 20% growth in the top line and 30% to 40% growth in the bottom line for FY22.
  • Cost structure was not only impacted because of fuel prices but rising lubricant prices, tyre prices, driver wages and toll charges. Not only road sector but rail and coastal shipping side were also impacted due to higher input cost. TCI does not see any margin pressure as the company passes on higher input cost to end customers.
  • Due to the changes in the industries and economy, the logistic sector is at the point of change. Customers demand also change and demand comes from all kind of areas. The big change from a demand perspective led to a huge amount of demand for organized players like TCI in the logistic sector.
  • Customers are outsourcing more and more logistics, not only road or warehousing but multi-mode logistics also. TCI offers a combination of multi-modal services which will be the growth driver in the future.
  • Improvement in infrastructure like buildings new expressways, new ports directly impacting positively on improvement and efficiency of logistics industry which drive more business for organized players. TCI expects logistic looking attractive in several sectors and regions in the coming years.
  • A good initiative like PM Gati Shakti Programme, creates a platform where products can move smoothly across the country irrespective of the mode of transport. In India more than 60% of cargo moves by road, 20% to 25% by rail. India has to shift aggressively towards a cheaper mode of transport like railways and coastal shipping.
  • TCI seeing Increased use of IoT and things like drones, the evolution of introducing other new products going to be a game-changer for the logistic sector.
  • TCI planned to spend about Rs 5000 mn for the next three years for buying trucks or ships, railway rakes, and construction of warehouses. TCI growing faster than the market and this will lead to market share gains for TCI.
  • Many companies in the logistic sector looking at green logistics. TCI looking at less carbon emission and moving from road to rail to sea and reducing the amount of carbon footprint. The company expects many companies in the logistics sector to think about moving towards multimodal for green logistics.
  • Customers want green logistics and TCI has to evolve. TCI is offering different solutions to customers from road to rail to sea and a combination of them. TCI has their own services for road, seaways business and TCI has a JV with Concor to run rail logistics that gives TCI a little bit of edge while offering services.

Asset Multiplier Comments

  • We think TCI’s diversified range of services via a single window leads to capturing higher wallet share of its customer. Consistently growing E-Commerce industry drives the growth for TCI. Well-diversified range of services helps TCI in volatile times.
  • As the economic activities started ramping up, supply chain issues have started to resolve and normalization of input cost is happening. We think TCI may perform very well in the logistic sector.

Consensus Estimate: (Source: TIKR website)

  • The closing price of TCI was ₹ 760/- as of 30-December-2021. It traded at 25x/23x/17x the EPS estimates of ₹ 30.4/33.5/45.4/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 734/- implies a P/E Multiple of 16x on FY24E EPS of ₹ 45.4/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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