Multibagger of 2021! This small & midcap stock is a play in logistics sector

Transport Corporation of India Ltd (TCI) which has already rallied by about 180 per cent so far in 2021 compared to 23 per cent upside seen in the Nifty50 has still some steam left.

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Investors who missed out on the rally seen in the logistics space can look at buying the stock at current levels or on dips for a target of Rs 790 that translates into an upside of about 15 per cent from Rs 687 recorded on 1 December, Motilal Oswal said in a report.

The easing of restrictions and robust festive demand has led to a strong pickup in volumes in the last few months for the logistics industry. The brokerage firm notes that formalisation in the sector would provide strong growth opportunities for some of the established players, such as Transport Corporation (TCI).

In terms of shareholding, foreign investors reduced their stake marginally from 2.42 per cent recorded in the June quarter to 2.08 in the September quarter, Trendlyne data showed.

Mutual fund managers increased their holding from 11.49 per cent seen in June quarter to 11.64 per cent for the quarter ended September.

Technically, the stock is trading above all the short term, and long term moving averages placed at 30,50,100, and 200-Days Moving Average.  

In terms of business opportunity, TCI has a well-blended portfolio, with a presence across a) high-volume Freight segment, b) value-added segments such as Integrated Supply Chain Solutions, and c) niche high-margins segments such as Seaways.

These unique multimodal capabilities would drive consistent growth in volumes and earnings over next few years, said the note.

Motilal Oswal expects that the growth momentum is likely to continue with a) the pickup in economic activity, b) the normalization of transportation activity, and c) govt. reforms leading to formalization and market share gains for organized players such as TCI.

It is likely to clock a revenue/EBITDA/PAT CAGR of ~17%/25%/33% over FY21–24E. TCI reported all-time high margins of ~13% in 2QFY22.

While Seaways saw strong margins with increased freight rates, Freight Services margins were driven by cost control and improved efficiency, said the note.

Multimodal capabilities to drive sustainable performance:

TCI is among the very few players that provide end-to-end logistic solutions with multimodal capabilities across road freight, rail, and coastal shipping, Motilal Oswal highlighted in a note.

A) Road freight would benefit from the plunge in diesel prices by 10% from the tax cuts announced in early Nov’21, which would support margins.

B) The Supply Chain segment is well-placed to capitalize on the early-mover advantage with its wide service offerings and strong clientele.

C) The Seaways segment is expected to grow well with higher volumes and improved realization. The purchase of a new ship in FY23E would help increase the share of the high-margin Seaways segment, aiding earnings growth.

Valuations:

The brokerage firm expects the growth momentum to continue with a) the pickup in economic activity, b) the normalization of transportation activity, and c) govt. reforms leading to formalization and market share gains for organized players such as TCI.

“We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~17%/25%/33% over FY21–24E. The stock trades at 14x FY24 EPS. We maintain our Buy rating, with revised TP of INR790/share (16x FY24E EPS),” said the note.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)