>TRANSPORT CORPORATION OF INDIA (ICICI DIRECT)

Sustainable margin expansion…

Transport Corporation of India (TCI), one of the largest integrated logistic solution providers in India, reported its Q1FY10 results. Net sales De-grew 1.7% YoY and 4.7% QoQ to Rs 311.3 crore in Q1FY10. EBITDA margin surged by 101 bps YoY to 7.2% in Q1FY10 on account low diesel price and cost control measures adopted by the company. TCI registered a bottomline of Rs 7.9 crore in Q1FY10 against Rs 5.9 crore in Q1FY09.

Outlook
Fuel cost figures around 70% of total cost. Fuel prices were low in Q1FY10 but have increased by Rs 2 / litre in July 2009. However, this increase in fuel price is passed on to the clients in the form of higher freight rates which secures the profit margins. This will lead to considerable improvement in topline. TCI has planned a capex of Rs 160 crore for FY10E of which Rs 110
crore will be invested in high margin shipping business. TCI will raise debt of Rs 120 crore for executing this expansion plan. Being present in the low margin business, TCI is taking steps to improve margins by changing the product mix and the customer mix.

Valuations
At the current price of Rs 65, the stock is trading at 14.6x its FY10E EPS of Rs 4.5 and 12x its FY11E EPS of Rs 5.4. On an EV/EBITDA basis, the stock is available at 7.7x FY10E earnings and 6.7x FY11E earnings. Considering the continual and sustainable margin expansion we have revised our target price. We rate the stock as HOLD with the target price of Rs 59.

To see full report: TCI