Tci – Management Meet Note

TCI – management meet note

We recently interacted with management of Transport Corporation (TCI) to gain insights into company's growth plan and perspective on the rollout of the GST. We believe TCI is aptly poised to benefit from revival in domestic macro, implementation of GST and expected improvement in trends towards outsourcing of logistics. Over the past years, company has delivered steady financial performance and diversified from being a plain road freight service operator to segments (value added services) like Supply Chain Solutions, third party logistics, multimodal movement and express distribution (recently demerged into TCI Express). We expect TCI to register a revenue/PAT CAGR of 15%/22% over FY17-FY19e. We value the stock at Mar-18 PT of INR 380 based on 24x FY19 EPS and upgrade the stock to BUY from HOLD. Despite lower return ratios versus VRLL, we have allocated multiple inline with that for VRLL owing to 1) TCI’s steady financial performance in past; 2) higher growth levers post GST rollout versus that for VRL.

Material beneficiary of the implementation of GST

TCI has presence in 1) managing warehousing space, 2) providing multimodal logistics, 3) supply chain management and the third party logistics - which all are amongst the key Industry themes to emerge from the rollout of the GST. Further the organized players would gain share from unorganized sector as several players in the unorganised sector avoid tax, at this point, which generates a cost gap between them and the organized players. Ahead of the rollout of GST, TCI is amid building capacity and strengthening its network. It is investing towards more warehouses, hubs centers and trucks and should likely benefit with the infrastructure in place. Management believes that it may take 2-3 years for industry to iron out issues related to GST. We believe TCI could be a meaningful beneficiary from the rollout of the GST with the company’s growth shifting to a new trajectory in medium term.

Delivering growth ahead of peers

Over past 1-2 years, company has delivered growth ahead of the peers as management indicates of market share gains and improvement of payment cycles from customers. The growth in the freight segment is directly linked to the recovery in the macro and company has been gaining new clients and expanding market share in Less than Truck Load segment as well. The company has benefited from its capabilities to provide multimodal transport services combining the benefits of integration of the road, rail and sea services. We believe multimodal logistics would gain increased relevance with the rollout of GST.