Domestic brokerage ICICI Securities is bullish on Transport Corporation of India (TCI) and has initiated coverage on the stock with a target of Rs 1,200, implying potential gains of 21 per cent from the last close.

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The brokerage sees the company as a good play in the current subdued operating environment for the logistics sector.

Further, it has listed down few of the pointers that augur well for the company:

- In the process of refining freight mix in favour of higher-margin LTL or less than truckload business;

-Capex in high-margin sea freight segment likely to improve overall margins;

- Improving performance of JVs expected to result in further earnings improvement; 

-Trading at relatively attractive valuation compared to peers.

Further, the brokerage is of the view that the higher LTL proportion in freight business and addition of two new ships (despite seawaysmargin receding) in seaways division are the two main growth drivers.

The brokerage expects TCIL’s revenue CAGR at 10.8 per cent YoY through to FY26 largely on the back of revenue growth (CAGR) in supply chain segment at 15% YoY. We expect revenue growth of surface freight segment at 8 per cent, mainly due to higher proportion of LTL segment – 40 per cent by FY26E compared to 36 per cent in FY24, said the brokerage report.

The brokerage estimates EBITDA margin to stay largely stable at 10-10.5 per cent as the margin decline from seaways segment is expected to be offset by slightly higher margins at surface freight segment. We expect cumulative FCF generation for FY25E and FY26E at INR 410 crore.

Factoring in favourable risk-reward at current valuations versus peers, the brokerage has initiated coverage on TCIL with a BUY rating and TP of INR 1,200 based on 22x FY26E EPS.