Recommendation: Buy
CMP = Rs 115 (as of Thursday)
Price target = Rs 155
Key points:
· 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.
· 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-to-end 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.
· 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.
· I am very upbeat about TCIL and recommend Buy option with a price target of Rs 155 and time frame of 12 – 15 months.
