October 8, 2007 | Logistics
Transport Corporation of India (TRACOR)
Integrated logistics solutions …
Transport Corporation of India (TCI), one of the largest players in the domestic logistics industry, has transformed itself from a transportation company to an integrated logistics solution provider. The company has a presence across the entire logistics value chain and is enhancing its role in the high-value supply chain solution (SCS) business. We initiate coverage on the company with an OUTPERFORMER rating.
Current price Rs 115 Potential upside 35%
Time frame 12 months Potential upsidemonths Time frame 12 13%
Target price Rs 155 Time Frame 12-15 mts
firstname.lastname@example.org Sales & EPS trend
1800 1600 1400 1200 1000 800 600 400 200 0 FY05 FY06 FY07 Sales FY08E Diluted EPS FY09E 8 7 6 5 4 3 2 1 0 Rs
Domestic logistics industry on a high growth trajectory
The Indian logistics sector has grown at a robust CAGR of 11.5% during FY02-06. According to a Datamonitor study, it is further expected to grow at a CAGR of over 16% over 2007-10. The huge growth in the manufacturing sector, coupled with an increase in domestic spending will be the key growth drivers for the domestic logistics sector.
Integrated role gives it an edge
TCI is the largest integrated player having a 15% market share of the organised logistics industry. The company is capable of providing end-toend logistics solutions through its various divisions. Apart from transportation, it operates one of the largest warehousing facilities of about 6.5 million sq. ft.
Rs 340 crore capex to move up the logistics chain
The company has lined up an aggressive Rs 340 crore capex to scale up its business in order to meet increased demand. It plans to increase its warehousing space, buy new trucks, invest in cold chains, and boost its ship fleet strength over the next three years.
Stock metrics Promoters holding Market Cap 52 Week H/L Sensex Average volume
72.64% Rs 776 crore 138 / 52 17,491 61,082
At the current price of Rs 115, the stock discounts its FY09E EPS of Rs 7.11 by 16.1x. Given TCI’s leadership position in the organised logistics sector, and transformation to an integrated player, we value the stock at 22x its FY09E earnings. We rate the stock an OUTPERFORMER with a target price of Rs 155, an upside potential of 35% from current levels.
Comparative return metrics Stock return 3M TCI 12% Gati 1% Gateway Distriparks -9% Allcargo Global -14%
6M 85% 15% 1% -13%
12M 60% 12% 5% 17%
Exhibit 1: Key Financials Year to March 31 Net Profit (Rs crore) EPS (Rs) % Growth P/E (x) Price/Book (x) EV/EBIDTA (x) NPM (%) RoNW (%) RoCE (%)
FY06 26.83 3.97 154.4% 28.93 7.45 14.08 2.97 16.56 16.08
FY07 30.57 4.53 13.9% 25.40 8.26 13.19 2.82 16.27 13.37
FY08E 36.52 5.04 11.2% 22.83 6.13 11.40 2.93 13.42 12.48
FY09E 55.14 7.11 41.2% 16.17 4.55 8.87 3.60 14.07 14.23
160 140 Share Price (Rs) 120 100 80 60 40 20 0 Oct-04 Oct-05 Oct-06 Jan-05 Jan-06 Jan-07 Oct-07 Jul-04 Jul-05 Jul-06 Apr-04 Apr-05 Apr-06 Apr-07 Jul-07
Source: ICICIdirect Research
ICICIdirect | Equity Research
12.5 million sq ft of state-of-the-art warehousing space.8%
.1 10. The company has an extensive network of over 1. TCI is the first road transport organization in the country to achieve ISO 9001:2000 certification in service quality for its operations.Company Background
Transport Corporation of India (TCI). 6.64 6. set up in 1958 and part of the TCI Group. It operates a fleet of over 3.2 6.5%
97. coastal shipping.7% 24. is the largest integrated supply chain and logistics solutions provider in India.0%
0. 5 cargo ships.6
6.6 72.30 14.700 employees.000 trucks. supply chain solutions (SCS). Exhibit 2: Revenue Model (FY07)
Share holding pattern Share holder Promoters Institutional investors Other investors General public Promoter & Institutional holding trend
80 60 40 20 0 Q2FY07 Q3FY07 Q4FY07 10.6 72. express (courier).6
% Holding 72. windmills and trading (fuel stations).5 Q1FY08
Institutional investors (%)
Transport Corporation of India
Contribution to revenue (%) 52. It operates in six business segments: transportation. The company forayed into third party logistics (3PL) solutions by forming a 49:51 JV with Mitsui & Co in 1999.2% 10. The JV provides complete logistics solutions.54
72.4% EBIDTA Margins (%) 3.4%
Source: ICICIdirect Research
4. to Toyota Kirloskar Motors India.5 MW.100 company-owned offices and over 5.52 6. and a total installed windmill power generation capacity of 11.
According to a Datamonitor study. Demand for logistics solutions is directly corelated to the growth of the economy. Indian logistics market is slated to grow at a CAGR of over 16% over 2007-10. textiles.8%. The economy has been growing at a robust pace of about 9% annually for the past few years. its share in global trade remains miniscule at 0. Although. the logistics sector has grown at a healthy CAGR of 11.6% in the next five years
Logistics sector at an inflection point
The Indian logistics industry is at take-off point. ICICIdirect Research
India’s share of global trade to increase from 0. ICICIdirect Research
Key growth drivers
Economic growth to lead to higher transportation
The boom in the economy has led to a robust growth in key sectors like auto. Exhibit 3: Logistics industry on a high growth trajectory
25% 20% 15% 10% 5% 0% 2002-03 2003-04 GDP 2004-05 Logistics Sector TCI 2005-06
Growth of the logistics sector closely related to GDP growth
Source: Industry. FMCG. The manufacturing sector is becoming more competitive and companies are outsourcing non-core activities.1% during FY02-06. We believe that increased EXIM trade scenario will drive logistics growth. retail and consumer durables. Company. While the GDP grew at a CAGR of 7. electronics. India's export-import (EXIM) trade has grown at 20. Exhibit 4: India’s international trade growth
140 120 billion $ 100 80 60 40 20 0 2001 2002 2003 Exports
Source: CMIE. both within the country and outside.8% to 1. The Ministry of Commerce has targeted to increase this figure to 1.17% CAGR in the last five years. This has resulted in an increased movement of goods.6% in the next five years.
In the 11th fiveyear plan (2007-11). East-West Highway projects are likely to increase the efficiency in road transportation. ICICIdirect Research
Expected additional capacity 508. ICICIdirect Research
5846 7300 4000 6500 380 945 24971
Of which 4-laned 5601 1418 126 159 322 7626
Under Balance length Implementation 245 0 4903 1866 148 215 620 7997 821 2008 6352 6 20 9207
Ports: Key to EXIM trade
Capacity by FY12 1001. According to the National Highway Authority of India (NHAI). roads. This will raise infrastructure spending from 4.Improved infrastructure to boost logistics sector
The infrastructure required for logistics includes ports. the Golden Quadrilateral and the North-South.91 838.
Government plans US$ 350 billion investment in the during 11th five-year plan to boost infrastructure in India
Roads continue to dominate traffic movement in India
India has an existing road network of 3. Road development will have a major impact on the logistics sector. railways and airways to ensure safe and timely delivery of cargo. Rs 184.7% of GDP last year to around 8% of the GDP over the next five years.20 228. Exhibit 5: Road development projects Length (km) Golden Quadrilateral North-South East-West (Phase I & II) Phase III Phase V Port connectivity Others Total length
Source: NHAI. One of India's major drawbacks is the poor state of infrastructure.5 1575. This is expected to double by 2012 with various private ports coming up and several minor ports being upgraded to major ones.3
. Exhibit 6: Capacity at ports (million tonnes) Capacity (FY07) Major Ports (12) Minor Ports (187) Total (199)
Source: IPA. roads form the most common form of transportation and accounted for 80% of passenger traffic and 65% of freight traffic in 200506. For instance.60 493. which is the second largest road network in the world. The government has ambitious plans to improve this situation. This has resulted in high cost of logistics. it plans to invest US$ 350 billion in upgrading and creating infrastructure. Logistics cost in India amount to about 13% of the GDP against less than 10% in Western Europe and North America.19 736. According to CRISIL.700 crore will be invested in roads and highways sector over the next five years.31 345.3 million km. Indian ports have the capacity to handle around 737 million tonnes of cargo annually.
etc. The estimated cost of this project is around Rs 22.700 km. Integrated logistics companies provide cost-effective solutions to manufacturers through value-added services. 70% of the goods in India are transported by roads and only 30% by rail. inventory management and safety of goods. rail tracks have to be shared with passenger trains. It will have a total rail length of 2. It plans to provide strategic rail links to ports.483 km and is expected to complete by 2012. apart from reducing the cost of operation. is creating increasing demand for integrated logistics suppliers. Currently. this route will reduce the transit time between Delhi and Mumbai from 60 hours to 36 hours. Exhibit 7: Benefits of Dedicated Freight Corridor Existing Axle load wagons < 25 tonnes Speed ~ 30 km/hr Train length < 15000 m
Source: Indian Railways.000 crore. with feeder lines of about 5. The concept of just-in-time (JIT) is percolating into the Indian manufacturing sector. The Rail Vikas Nigam Ltd has been set up as a special purpose vehicle (SPV) for executing projects included under "Strengthening of Golden Quadrilateral". The corridor between Delhi and Mumbai would be 1. Apart from the lack of wagons and containers. Once commissioned.
Dedicated Freight Corridor (DFC)
The Dedicated Freight Corridor (DFC) will connect the northern hinterlands to the western and eastern ports with high-speed connectivity for high-axle load wagons. However. warehousing.
. due to infrastructure constraints. freight forwarding. improve connectivity to the hinterland and develop multi-modal transport corridors. ICICIdirect Research
DFC to create additional 2.000 crore
Post DFC > 30 tonnes 100 km / hr 15000 m
Integrated logistics: The future of the industry
Outsourcing of logistics activities to third party logistics (3PL) players will be a key growth driver as companies feel the pressure of reducing costs. usually a large manufacturing firm.000 km. 3PL is a concept where a single logistics service provider manages the entire logistics functions of a company. economies of scale and investment in IT and tracking systems. the logistics industry in India is highly fragmented with a large number of players providing services in individual segments like transportation. and the need for timely delivery.Railway development to ease pressure on roads
The cost of transporting goods by rail is 60% cheaper than by roads.700 km of rail at an investment of Rs 22. The government has conceived a massive investment plan for the railways to eliminate capacity bottlenecks on the Golden Quadrilateral and other highways.
Outsourcing: A key growth driver for integrated logistics players.
the Indian 3PL market. which can be used to supply cargo to different states in the region. It helped them to show movement of goods within the company and reduce the CST burden.3PL market a growth opportunity
According to a Frost & Sullivan report. But with the phasing out of CST. Manufacturing companies had to maintain small warehouses and depots in every state. which in turn can guarantee a much smoother logistics and distribution. However.9% to US$ 3. It will be reduced from 4% to 3% in 2007-08. Manufacturers will be able to operate on a hub-and-spoke model. Large regional warehouses can be set up at central locations. estimated at about US$ 890. infrastructure and other overheads.3 million in 2005. Exhibit 8: Indian logistics players moving up the 3PL hierarchy 3PL hierarchy Services (high to low) Customer developer Customer adapter Service developer Integrates with the customer and takes control over the entire logistics function Provides services at the request of the customer Value-added services (tracking and tracing. and retail sectors. manpower. companies can avoid that and outsource the job to logistics service providers who can build large warehouses in few key locations. warehousing distribution
Source: ICICIdirect Research
Simplified tax regime to boost warehousing outsourcing
The central government and almost all state governments have agreed to phase out the central sales tax (CST) over the next three years. FMCG.556. The report identified the auto industry as the largest end-user industry for 3PL services. different states followed a system of differential sales tax rates with a 4% CST levied on inter-state sales. Under the CST regime. with multinational companies being the predominant users of these services.7 million in 2012.556. cross docking. The tax will be phased out completely in 2010-11. is expected to grow at a CAGR of 21. providing unique security system)
3PL market expected to grow at a CAGR of 22% to reach US$ 3. this resulted in higher costs of inventory.7 million by 2012
Customer base Very few Small Medium Huge
Standard 3PL provider Packaging. Phasing out of CST to boost outsourcing of warehousing activities to logistics companies
. Other sectors that have shown substantial contribution to 3PL market and significant growth potential include IT hardware and electronics. 2% in 2008-09 and 1% in 2009-10. It will also pave the way for value-added taxation (VAT) becoming a central level tax.
000 DWT (dead weight tonnes). outbound transportation & distribution to a clientele of 40 – 50 manufactures. The integration has enabled it to become one of the largest multi-modal logistics solutions providers in India.000 owned and leased trucks and 1.
Supply Chain Solution (SCS)
SCS division provides single-window customized logistics and supply chain solutions to customers across industry verticals. It provides automotive logistics solutions to Toyota Kirloskar Motors in India. FCL (full container load). The company has about 300 shipping cargo containers and five vessels with a total capacity of 16.100 strong network of offices. to provide comprehensive rail-road-based "Door-to-Door Logistics and Warehousing" services for all categories of customers. EBITDA margins in the wind power segment exceed 95%.
XPS division (Express cargo)
XPS is a leading express logistics service provider. Other services include warehousing. Maharashtra.5 MW in Sangli.TCI’s business segments
TCI has transformed itself from a pure transport company to an integrated logistics solutions provider. It caters to the coastal cargo requirements for transporting container and bulk cargo from ports on the eastern coast to Port Blair and further distribution within the islands.
. the company also provides chartered services to Myanmar and South-East Asian destinations. Its windmill operations with capacities of 11. This division provides FTL (full truck load).
The company entered the wind power generation business to avail substantial tax benefits.5 MW consist of a 5 MW wind farm in Rajasthan and 6. Its range of services includes milk-run and just-in-time (JIT) deliveries to the consumer durables and automobile industries. offering door-to-door surface & air cargo and courier services. Occasionally. India's leading container train operator. It has a presence across the entire logistics value chain.
TCI Seaways started as an independent sea cargo division in February 1995 and merged with itself in FY07. from conventional trucking solutions to express cargo & courier. XPS Global provides international freight forwarding and customs clearance services. Transystem Logistics International is a joint venture between TCI and Mitsui (Japan). The company recently signed a memorandum of understanding (MoU) with Container Corporation of India. rail and ODC (over dimensional cargo) services with its mammoth fleet of 3. supply chain solutions & warehousing to coastal shipping. LTL (less than truck load).
The company entered the logistics business through its transport division in 1958.
We expect it to reduce further to 47% by FY10E. having a 15% market share of the organised logistics industry. It operates approximately 7. It has the country's widest branch network of over 1. TCI segregated SCS from its transportation division in 2006 to increase focus and provide customized services. of which it owns around 15% while the rest are leased. the company has built up a strong infrastructure to cash on the boom in the logistics sector. which is currently amongst the top 3 express distribution companies in the country. Apart from transportation. and stabilize around 40% over the next five years. Over the years.5% of India's GDP. it operates one of the largest warehousing space of about 6. Exhibit 9: Evolution of business model
100% 80% 60% 40% 20% 0% FY02 Transport FY03 FY04 FY05 Supply chain FY06 FY07 FY08E FY09E FY10E
Revenue contribution from transport to come down from 73% in FY02 to 47% in FY10E
Source: Company.000 trucks on a daily basis. express cargo and shipping. ICICIdirect Research
Supply chain solution (SCS) is in the growth phase in India and is expected to grow at a CAGR of 30% over the next 2-3 years. The group moves goods valued at more than 1.5 million square feet.11 per share over FY07–09E. XPS. For its XPS division it has in place a consignment tracking system that helps clients to track their consignments using web-based intelligent systems. an edge over peers
TCI is the largest integrated player. Revenue contribution from the high-volume low-margin transport business has come down from 72.
TCI has a market share of 15% in the organized logistics sector and is one of the largest players
Transformation from transport to integrated logistics
TCI has transformed its business model over the years to focus on high-margin businesses like supply chain. It has a vehicle tracking system that helps it to consolidate cargo at various locations.5% in FY02 to 53% in FY07. It leveraged this infrastructure to develop its express division. This will enable the company to grow at a CAGR of 19% to Rs 1531 crore along with improved operating margins and a strong earnings growth of 25% to Rs 7. TCI has also invested heavily in technology.
.100 company-owned offices.INVESTMENT RATIONALE
Integrated logistics player.
Globally.5%-1% of the total industry. It operates a fleet of 550 trucks and caters to a clientele of 40 – 50 manufactures. TCI is offering state-of-the-art warehousing and inventory management services based on just-in-time (JIT) and first-in-first-out (FIFO) basis. Reverse logistics cost which involves the process of dispatching faulty or outdated components back to the manufacturer is estimated to be around 0. retail. As a 3PL provider. Exhibit 10: List of key clients across Industry verticals Auto FMCG Telecom Pharma Toyota HLL Nokia Dr Reddys Bajaj P&G Reliance Sunil Health Maruti Nestle Motorola Bharti Health Tata Cadbury Ericson M&M Amul Tata Tele Chemicals Sonalika Office One MCC PTA TVS CCD Indo Rama JCB PRAXAIR
Hitech Whirlpool ABB L&T Dixon
Auto & auto ancillary industry forms 60% of revenue in SCS division
In India. inventory management. logistics costs account for 4%-5% of the retail cost. This high cost for an industry which operates on wafer-thin margins of 2%-3% globally. production planning. TCI is enhancing its focus on the fast growing supply chain solutions division. According to Frost & Sullivan. the 3PL market in the Indian retail sector was at US$ 49. whereas in auto components industry it is around 3-4%. About 90% of the auto component industry outsources their logistics requirement to 3PLs. logistics costs in the automobile industry accounts for 2%-3% of sales.
. Organised retail accounts for 4% of the total market and is expected to grow at 40% to reach around US$ 30 billion by 2010. pharma. telecom and consumer durables. Recognising this need.SCS division to grow at robust pace
The end-to-end supply chain solution approach involves providing assistance for purchasing. and just-in-time to improve the efficiency of supply chain. The size of the auto logistics industry is estimated to be at Rs 3.5 million in 2005 and is estimated to reach US$ 140. transportation. while in India it is as high as 7%-10%.0 million in 2012. Leading automobile companies now rigorously follow the concepts of pull against push. distribution and customer service etc. Auto and retail sectors to drive growth in SCS
Retail holds out the promise for the future
The Indian retail market is expected to grow from US$ 350 billion to US$ 427 billion by 2010. order processing and fulfillment. These clients are grouped into six key verticals namely: auto.471 crore in 2006-07. makes it imperative for retailers to outsource noncore operations to reduce costs. FMCG. Demand for end-to-end logistics solutions in retail far outstripping supply.
of owned/leased space at various locations. Exhibit 11: Warehouse capacity (million sq ft) Company Existing capacity TCI 6.0 2.6 Blue Dart 0.
TCIs experience with Mitsui
TCI entered into a joint venture with Mitsui & Co (49:51) to provide supply chain management solutions to Toyota Kirloskar Motors in 1999. from procurement of raw material from over 83 suppliers. Exhibit 12: Capex plan (Rs crore) Particulars FY07 Warehouse & land 22 Windpower 9 Ships & Containers 37 Trucks & Containers 23 Others 9 Total 100
Source: Company.5 Indo Arya 0.0 2.5 Total 12. The company has lined up an aggressive capex of Rs 152 crore over FY07-10E to increase its warehousing capacities to 10 million square feet by 2010.0 2.0 1. It would own around 4 million sq ft. trucks and containers.
Capex to tap growth opportunities
To expand its scale of operations and foray into emerging sectors like supply chain solutions and express division. while around 6 million sq ft will be leased. The capex is being funded through a mix of equity (Rs 125 crore).5 32.5 TNT 0.5 million sq ft. The funds will be used to expand its warehousing facilities. TCI unveiled a Rs 440 crore capex plan in FY07.0 DRS Logistics 1. managing inventory and distribution of the finished product. ICICIdirect Research
FY08E 110 18 40 30 2 200
FY09E 10 0 25 30 5 70
FY10E 10 0 25 27 8 70
Total 152 27 127 110 24 440
10 | P a g e
We believe the investments in warehouses and other infrastructure will increase TCI’s competitiveness. TCI leveraged this rich experience of international standards. The joint venture company named Transystem Logistics works on globally implemented “Just in time” concept. ICICIdirect Research
By 2010 10. About Rs 100 crore of the capex has been incurred in FY07.Aggressive ramp-up in warehousing capacities
TCI is investing heavily to ramp-up its warehousing facilities to meet the growing demand for SCS. to build up its SCS division. it has a capacity of 6.2 Gati 0. and invest in wind power facilities.5 Safexpress 3.0 5. It handles Toyota’s entire logistics chain. buy more ships.8
Source: Industry. thus helping it grow its SCS business revenues at a CAGR of 50% over FY07-09E to Rs 263 crore.0 10. Currently. debt (Rs 129 crore). loading them on a common carrier at the warehouse. and internal accruals (Rs 186 crore).
some of these properties.5 Book Value (Rs crore) 4. According to the company’s estimates. Delhi Dehradun Nalmangala.5 6.80 per share taking an equity base of 7. Ahmedabad Total Development Type Commercial / Residential Commercial Residential Residential Area (acres) 1. With most cities expanding due to increasing urbanization.9 0. These properties are situated in Delhi. Initially the company plans to develop 4 properties with a total area of 12. Bangalore. if it sells these four properties. which were earlier situated on the outskirts of cities.75 crore shares. are now within city limits. It has engaged international consultancy firms to identify the best use option. Exhibit 13: Property development plan Location Rambagh. These properties can be developed for outright sale/lease etc. This translates into a value of Rs 25.5 12.54 acres over FY08-12. Dehradun and Ahmedabad.5 1.4 Estimated Net realizable value (Rs crore) 50 50 80 20 200
Source: Company.5 1. Most are not operational due to the prohibition of transportation trucks plying within city limits.5 8. it expects to get a net realisable value of Rs 200 crore.Development of key properties to create additional value
TCI has around 220 properties with a book value of Rs 93 crore. ICICIdirect Research
11 | P a g e
. Bangalore Asalali. which are currently being used as branch offices or warehouses. The company has decided to move its logistics activities out of the cities and commercially develop the existing land.2 1.3 3.
3PL firms. there is a huge requirement of skilled manpower in areas suck as truck drivers. The growth in manufacturing and agricultural activities creates greater need for logistics. procurement and distribution of goods has become a challenging job for manufacturers. loading supervisors and warehouse managers. However. Taking a deeper look at the work profile. which are specialized in the logistics operations. A slow down in manufacturing activities would directly affect the growth in movement of inbound and outbound goods and adversely impact the logistics sector.
Availability of skilled manpower
The scale and scope at which the logistics industry is growing is likely to pose a strain on the availability of skilled manpower.
12 | P a g e
. The outsourcing of logistics function to 3PL has resulted in larger number of players investing heavily in warehousing and transportation. would benefit from this opportunity. if bottlenecks in the infrastructure system are not overcome on account of delay in implementing the proposed plans.RISK AND CONCERNS
Slowdown in the economy
The growth of the logistics sector is closely related to GDP growth. As a result supply.
Delay in infrastructure development plans
The development of Tier II and Tier III cities has resulted in the increasing urbanization away from major cities. this would reduce efficiency and therefore hamper profitability.
Segment wise contribution to EBITDA
Revamping of the revenue mix would result to a change in contribution to EBITDA from each segment. Net profit is expected to grow at a CAGR of 34% from Rs 31 crore in FY07 to Rs 55 crore in FY09E.FINANCIAL ANALYSIS
Revenue and net profit to surge
We expect revenues to grow at a CAGR of 19% from Rs 1085 crore in FY07 to Rs 1531 crore in FY09E. Exhibit 14: Growth in revenue and net profit
1700 1500 1300 Rs crore 1100 900 700 500 FY06 FY07 Revenues (LHS) FY08E Net Profit (RHS) FY09E 60 50 Rs crore 40 30 20 10
Source: Company. ICICIdirect Research
13 | P a g e
. Exhibit 15: Contribution to EBITDA
100% 80% 60% 40% 20% 0% FY07 Transport FY08E Supply chain XPS Seaways FY09E Windmills 8 17 28 8 19 27 7 20 26
Source: Company. We believe the SCS and XPS divisions with high EBITDA margins would contribute over 55% to EBITDA. while the transportation business should see its contribution decline to 20% from the existing 26% levels.
Segment-wise EBITDA margins vary significantly.5-3. high margin businesses will consequently lead to improved EBITDA margins over the next two years.4% from 6. Exhibit 16: Increase in EBITDA margins
140 120 100 Rs crore 80 60 40 20 0 FY06 FY07 EBIDTA (LHS) FY08E OPM (%) FY09E 10% 8% 6% 4% 2% 0%
Source: Company. The gradual shift in focus from pure transportation to value-added. We expect margins to increase by 195 bps over FY07-09E to 8. ranging between 2.5%.4%. While the transport business has thin margins. ICICIdirect Research
14 | P a g e
.EBITDA margins to improve
EBITDA grew by 31% to Rs 70 crore in FY07 from Rs 54 crore in FY06. those for SCS and XPS division are significantly high at 12% and 8% respectively.
The stock price recently got re-rated from around 14x its FY08E EPS to around 22x.17 14.51 13.23 16.VALUATIONS
TCI is slated to benefit from the robust growth in the economy.70 14.24 1986. At the current price of Rs 115. We rate the stock an OUTPERFORMER with a price target of Rs 155.87 Gateway 135 1553.2x its FY09E EPS of Rs 7.20 20.00 16.11.90 7.07 14.72
Source: Consensus Estimates. ICICIdirect Research
P/E 16.00 111.04 and 16.00 62.89
EV/EBITDA 8.14 7. at 22x FY09E earnings. we believe that it is still attractively valued.90
Exhibit 19: Global valuation matrix (CY06.60 17.30 6. On an EV/EBIDTA basis.90 9.00 54.11 Gati 113 806. the stock is trading at 22.20 23.85 373.4x FY08E earnings and 8.20 127.8x its FY08E EPS of Rs 5. the stock is available at 11.60
ROE 14.69 Allcargo 912 1842. US$ million) Company Mkt Cap Sales PAT Kuehne & Nagel 8592 11881 366 TNT 13809 9948 670 United Parcel Service 81653 47547 4202 FedEx 33874 32294 1806
P/E 23 17 19 18
RoE 22 21 21 17
EV/EBITDA 12 9 10 7
15 | P a g e
.82 916.9x FY09E earnings.31 1531.20
Exhibit 17: One-year forward rolling P/E Band
140 120 Share Price (Rs) 100 80 60 40 20 0 Jul-04 Jul-05 Jul-06 Oct-04 Jan-05 Oct-05 Jan-06 Oct-06 Jan-07 Jul-07 Oct-07 Apr-04 Apr-05 Apr-06 Apr-07
22x 18x 14x 10x
Source: ICICIdirect Research
Exhibit 18: Peer comparison (Estimates for FY09E) Market cap Revenue PAT Company Price (Rs crore) (Rs crore) (Rs crore) EPS (Rs) TCI 115 776.21 55.87 10. Though the stock price has recently run up.50 11.
02 18.45 30.90 112.04 659.39 FY08E 14.40 317.3% 2.41 5.8% 2.58 317.20 435.94 22.42 217.10 143.0% 7.00 52.59 15.7% 15.91 54.99% 26.05 5.89 22.50 257.42 44.13 31.11 FY07 1085.49 21.53 81.75 4.2% 9.28 0.20 78.31 73.56 8.36 10.00 28.7% 13.38 6.85 338.05 1.25 52.60 6.26 26.19 62.4% 5.42 42.50 19.11 51.9% 6.55 659.66 0.47 476.14 1.50 476.FINANCIAL SUMMARY
Profit and Loss Account
Year to March 31 Net Sales % Growth Total Expenditure Operating Profit % Growth Other Income EBIDTA EBIDTA margin (%) Depreciation EBIT Interest PBT % Growth Taxation PAT % Change YoY Shares O/S (crore) EPS (Rs) FY06 904.00 27.9% 1402.76 781.2% 851.68 34.39 263.57 55.71 186.50 376.20
(Rs crore) FY09E 15.87% 18.34 44.60 7.18 1.76 40.14 0.8% 1149.6% 23.69 50.59 128.62 32.60 25.71 FY07 13.23 7.33 20.75 6.0% 1015.55 338.57 13.17 0.03 (Rs crore) FY09E 1531.79 23.90 473.59 15.83 154.82% 19.80 7.50 174.51 96.68 100.42 43.21 22.40 2.90 Capex of Rs 370 crore over FY07-FY09E
16 | P a g e
.25 5.53 FY08E 1246.21 153.37 14.34 154.25 5.76 197.4% 7.27 6.09 4.13 37.75 7.58% 30.5% 10.52 44.19 45.03 30.24 74.94 99.60 5.44 26.00 44.24 53.94 131.24 18.8% 4.50 151.14 0.86 38.44 781.31 70.74 36.11
Revenues to grow at a CAGR of 19% over FY07-FY09E
Net profit to grow at a CAGR of 34% over FY07-FY09E
Year to March 31 Sources of funds Equity Share Capital Reserves & Surplus Secured Loans Unsecured Loans Deferred Tax Liability Current Liabilities & Provisions Total Liability Application of Funds Net Block Capital WIP Investments Cash & Bank Trade Receivables Inventory /other current assets Loans & Advances Total Asset FY06 10.55 61.
60 7.99 2.83 6.36 52.49 1.04 4.00 8.68 1.47) 0.75 3.81 6.46 105.30) 30.96 (98.66 49.50 1.87 2.68 (200.08 FY08E 5.13) 15.00 (5.45 15.27 13.72 0.51 0.34 1080.50 0.70 3.41) 17.00 12.66 2.00) (0.34 36.84 9.00) (1.03 1244.76 26.96) 18.77 3.30 6.76 2.00 (4.24) 49.96) 26.55 45.81 3.41 12.20
Improving margins due to increased contribution from high-margin businesses like SCS and XPS
17 | P a g e
.65 7.62 (50.58 3.03 8.89 (52.83 FY07 4.21
(Rs crore) FY09E 15.00 (2.67 0.00 (4.57 0.11 64.00 14.95 0.60) 0.16 4.52 4.00 81.31 1.25 (3.15 (70.03 4.21 55.71 7.11 0.59 14.00) 98.30 6.94 16.76
Year to March 31 EPS (Rs) Book Value (Rs) Enterprise Value (Rs crore) EV/Sales (x) EV/EBIDTA (x) Market Cap to sales (x) Price to Book Value (x) Operating Margin (%) Net Profit Margin (%) RONW (%) ROCE (%) Debt/ Equity (x) Current Ratio Debtors Turnover Ratio Fixed Assets Turnover Ratio FY06 5.36 789.06 1278.11 39.00 30.00 9.37 1.90 FY07 5.85 -0.46 2.11 2.03 50.81 1.07 4.23 0.31 (56.12) 1.92 (8.23) 31.59 0.47 0.68) 19.00 12.91 3.56 16.00 70.53 39.43) 33.82 2.87 12.06 14.86) 5.80) (0.81 16.55 0.56 8.90 30.47 1.63 (0.08 0.35 FY08E 15.00 58.74 (31.17 5.56 52.92 13.Cash Flow Statement
Year to March 31 Opening Cash Balance Profit after Tax Misc Items Dividend Paid Depreciation Provision for deferred tax Cash Flow before WC Changes Net Increase in Current Liabilities Net Increase in Current Assets Cash Flow after WC Changes Purchase of Fixed Assets (Increase) / Decrease in Investment Increase / (Decrease) in Loan Funds Increase / (Decrease) in Equity Capital Net Change in Cash Closing Cash Balance FY06 8.83 FY09E 7.
Prabhadevi. and Underperformer. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Appasaheb Marathe Marg. This report is not directed or intended for distribution to. Hold. The performance horizon is 2 years unless specified and the notional target price is defined as the analysts' valuation for a stock. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.RATING RATIONALE ICICIDirect endeavors to provide objective opinions and recommendations. publication. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. in part or in whole. legal. any person or entity who is a citizen or resident of or located in any locality. Performer. Actual results may differ materially from those set forth in projections. but no independent verification has been made nor is its accuracy or completeness guaranteed. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors.com
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way. Outperformer: 20% or more Performer: Between 10% and 20% Hold: +10% return Underperformer: -10% or more Harendra Kumar Head . The recipient should independently evaluate the investment risks. where such distribution.
18 | P a g e
. Stanrose House. This report may not be taken in substitution for the exercise of independent judgement by any recipient. regulation or which would subject I-Sec and affiliates to any registration or licensing requirement within such jurisdiction.kumar@icicidirect. Past performance is not necessarily a guide to future performance. based on their own investment objectives. who must make their own investment decisions. copied or distributed. or use by. This report is based on information obtained from public sources and sources believed to be reliable.Research & Advisory ICICIdirect Research Desk. I-Sec may be holding a small number of shares/position in the above-referred companies as on date of release of this report. to any other person or to the media or reproduced in any form. Nothing in this report constitutes investment. availability or use would be contrary to law. ICICIdirect assigns ratings to its stocks according to their notional target price vs current market price and then categorises them as Outperformer. The securities discussed and opinions expressed in this report may not be suitable for all investors. country or other jurisdiction. without prior written consent of ICICI Securities Ltd (I-Sec). financial positions and needs of specific recipient. transmitted to. Mumbai – 400 025 research@icicidirect. The author of the report does not hold any investment in any of the companies mentioned in this report. state. ICICI Securities Limited. 2nd Floor.com harendra. I-Sec may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.