Domestic house Anand Rathi has picked logistics stocks Transport Corporation of India (TCI) as its 'Top value pick buy'. The stock has outperformed benchmarks massively in the last 1 year, surging nearly 90 percent versus a flat Nifty.
In 2022 YTD as well, the stock has added 6.5 percent versus just a 1 percent rise in Nifty50. It is up nearly 11 percent in September so far.
The brokerage believes that TCI is well placed in India’s logistics industry given its strength and capability. Various government initiatives and key strategies will drive the growth of the logistics sector, it added.
"Logistic industry is a key contributor to the country’s vision of being a $5 trillion economy by 2024-25. The rise in e-commerce, growing Omni-channels, and China+1 strategy will also add to the growth of the industry," said Anand Rathi. It has initiated coverage on TCI with a BUY rating and a target price of ₹920 per share.
The brokerage noted that TCI is India’s leading integrated multimodal logistics and supply chain solutions provider. With expertise spanning over six decades and infrastructure comprising an extensive network of 1400+ company-owned offices, 13 million sq. ft. of warehousing space, a strong team of 6000+ trained employees and a strong foundation, TCI group has expanded boundaries to offer seamless multimodal transportation solutions in both Indian and International markets, it highlighted.
TCI is a logistics firm that provides solutions such as surface transport solutions, supply chain solutions, end-to-end coastal shipping solutions, cost-effective integrated rail-road service in a joint venture with CONCOR, integrated cold chain solutions, warehousing, and chemical logistics solutions.
TCI provides services and solutions to various industries including automobiles, retail, hi-tech, health care and life sciences, energy and renewables, e-commerce, chemicals, iron and steel, agriculture, aviation and defence. It does so by providing customers a single window solution, operational cost efficiencies, trusted delivery and fulfillment, and economies of scale, noted Anand Rathi.
As per the brokerage, the firm is making a Capex of around ₹250 crore in FY23.
"Out of this, about ₹100-125 crore will be spent on ships and containers and another ₹30-50 crore will be utilized for trucks. It will also be spending ₹75 crore towards building warehouses. The company has been able to manage its liquidity well and almost debt free," pointed out the brokerage.
Anand Rathi believes that the company is likely to benefit from the government’s thrust on the Gati Shakti initiative to reduce logistics costs and enhance multimodal shifts. The programme will be critical in coordinating all of the efforts and activities around the construction of this multimodal infrastructure, it added. The Government’s vision of Gati Shakti coupled with customers' demand for contract logistics and technology-driven value-added services augur well for the Company in the coming years, explained the brokerage.
In the June quarter, TCI's consolidated income from operations rose 29.7 percent to ₹902.9 crore, compared to ₹696 crore in the corresponding quarter of the previous year. Meanwhile, its consolidated income from operations for the year FY22 rose 16.2 percent to ₹3,256.7 crore versus ₹2,802.4 crore in the previous year.
Profit before exceptional items and tax for the quarter ended June 30, 2022, surged increased 55.1 percent to ₹78.2 crore, compared with ₹50.4 crore in the corresponding quarter of the previous year. Profit before exceptional items and tax for the year FY22 also increased 59.9 percent to ₹415.8 crore, compared with ₹260 crore in FY21.
The brokerage estimates that the company’s revenue will grow at 12 percent CAGR over the coming two years and expects the operating margins to remain stable.
Key risks, as per the brokerage, include volatile crude oil prices, port congestions and inefficiencies, blockage in major trade routes, shortage of ships and containers, and high international freight rates.
Meanwhile, key strengths, according to Anand Rathi, include technology and automation-driven operations, integrated multimodal network capabilities and wide range of services, unique positioning of supply change management business, large-scale modern warehousing, ICRA A+ rating for TCI’s commercial paper and CRISIL AA/Stable (Reaffirmed) Bank credit facilities, and modern equipment assets.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
