Stock Review: Transport Corporation of India (TCI)

Transport Corporation of India (TCI) appears undervalued considering its stable growth outlook, marginal exposure to fuel price hikes and integration of various logistic services

BUSINESS

TCI is India's largest integrated logistics player, and has warehousing space of about 9.1 million square feet across 1,100 locations. It also generates power through windmills.

In FY11, the company's sales grew 21.7% to 1,851 crore while its net profit increased 21.4% to 50 crore. Except wind power, all divisions grew in double digits. The freight division is TCI's single largest segment with a 46% share of total revenues, Supply chain solutions and express (or courier) divisions account for another 48% of revenues, with other segments making up the remaining 6%.
The company has a fuel escalation clause in nearly 70% of its freight contracts. Therefore, every increase in fuel is passed on to customers, barring a few cases where the fuel cost rise is recovered in the following month.

GROWTH DRIVERS

The supply chain solutions division has been the key driver for the company's growth in the recent past. It grew 59% in FY11 and contributed 22% to TCI's total revenues, up from 17% last year. Although it may not grow at the same pace in future, rising volumes in two wheelers, retail and consumer products industries will enable the segment to grow at 35-40% in FY12. TCI has been growing consistently with a CAGR of 14% in revenues and 21% in net profit over the last three years. It has a capex plan of 100 crore in FY12 for buying trucks, ships and building warehouses. This will help TCI to achieve its target of 18-20% growth in FY12 revenues.

VALUATIONS

The stock is currently trading at a P/E of 12.3, which is much lower compared to the ET Logistics Index's P/E of 19.9. Its nearest competitors, GATI and Container Corporation of India, are currently trading at a P/E of 35.1 and 19.9, respectively.
The company has paid dividends consistently and its 0.90 per share dividend for FY11 translates to a yield of 1% at current market price.