This Multibagger Small Cap Logistics Sector Stock Likely To Gain 20%, Motilal Oswal Recommends Buy

Motilal Oswal recently published a report on Transport Corporation Of India Limited with a 'buy' call for a target price of Rs 860 apiece. Transport Corporation of India small cap Logistics sector company. It has a market cap of Rs 5,585.01 crore. Considering the stock's current market price and the brokerage's estimated target price, the stock could surge up to 20% in 12 months.

Stock Outlook

The current market price of the stock is Rs 719.35 apiece, trading 1.18% up at the time of writing. It was opened at Rs 175.45 apiece. The 52 week low of the stock was recorded on 24 August 2021 at Rs 388.35 apiece and the 52 week high was recorded on 17 January 2022 at Rs 858.60 apiece. The current market price is trading at Rs 331 above its 52-week low and Rs 139.25 below the 52 week high, respectively.

Returns of Investments

Over the week, the stock of the company fell, giving a negative return of 7.85%. However, in the past 1 month, the stock surged nearly 3.23%. Over the past 3 months, the stock fell roughly 2.48%. In the past1 year, the stock surged and gave a positive return of 75.51%. Whereas, in the past 3 and 5 years, the stock gave a positive multibagger return of 157.01% and 163.06%, respectively.

Focus on providing multimodal Logistics solutions to aid growth

TRPC offers integrated Logistics solutions through its three business divisions: TCI Freight, TCI Supply Chain, and TCI Seaways. It also has a JV with CONCOR, where it provides rail transport solutions. Its presence across segments helped it cater to a larger market and provide customized value-added solution services as against mere transportation or warehousing. It has a fleet of more than 12,000 trucks, six cargo ships, more than 150 reefer vehicles, and 13m sq. ft. of warehousing space. While the freight services business is likely to benefit from a shift to organized from the unorganized sector, the supply chain will see a strong recovery driven by an improvement in the Auto sector. The Seaways segment, which is the highest margin segment for TRPC, is expected to continue its growth momentum in FY23. It plans to add capacity in its Seaways division by FY23-end, which should aid volume growth.

Seaways business drives earnings growth; on track to add a new ship by the end of FY23

TRPC saw robust demand for its freight services and is looking to increase the mix of its high-margin less than truck load share (LTL) in the overall freight mix to 40% by FY23-end from 35% at present. In the Supply Chain business, the company provides technology-driven inbound and outbound transportation, warehousing, and yard management solutions. An improvement in the Auto vertical is expected to drive growth. The Seaways business witnessed strong upward momentum in FY22, along with the doubling of margin. The elevated margin in the Seaways business is likely to continue in the medium term. In FY22, TRPC divested 20% stake in its cold chain business to Mitsui & Co. for INR160m. It expects considerable growth from processed foods, QSR, and Pharmaceutical industries. It has pared its debt level to sub-INR1b from ~INR4b about two years ago.

Integration of technology across business verticals has ensured better responsiveness, efficiency, and accuracy

Constant focus on digital transformation and automation of processes has enabled TRPC to streamline its business operations across verticals and ensured better efficiency, accuracy, and effective supply-chain management. It has adopted IT-enabled infrastructure and database solutions like Cloud computing, database warehousing management system, and repository systems, which has enabled it to provide better client service, boost productivity, and strengthen its network. TRPC has implemented an algorithm-based refueling system, which has aided in the reduction of fuel cost. The government's vision of Gati Shakti, coupled with customer demand for contract Logistics and technology-driven value-added services, augurs well for the company in coming years.

Strong asset base supported by IT-enabled infrastructure; looking at growth-focused capex

TRPC has a fleet of more than 12,000 trucks, six cargo ships, over 150 reefer vehicles, and 13m sq. ft. of warehousing space under management. It plans to add capacity in its Seaways division by the end of FY23. The management is looking at a capex of INR2.5b in FY23, of which INR1-1.25b will be spent on acquiring ships and containers, INR300-500m on purchase of trucks, and INR750m will be utilized towards building warehouses.

Focus on ESG initiatives

The management is focused on reducing its carbon footprint through an integrated multimodal Logistics approach and a gradual shift to rail and coastal multimodal solutions from road. Through its JV, TCI-CONCOR Multimodal Solutions and Transystem Logistics International Pvt., the company moved 0.11MT of cargo via multimodal trains, reducing the carbon footprint of ~38,000 trucks. In FY22, the TCI Group launched 'Safe Safar' to educate and create awareness among the Logistics community about health and road safety norms across more than 50 cities, covering over 20,000 drivers, and reaching ~1m people across India.

Strong play on multimodal Logistics, Buy for a target price of Rs 860

The brokerage said, "We continue to see TRPC as a long-term play, backed by: a) a diversified clientele, b) improving share in the LTL business in the Road Freight division, and c) elevated contribution from the high-margin Seaways segment. We expect TRPC to clock a revenue/PAT CAGR of ~18%/19% over FY22-24. The stock trades at 14x FY24E EPS. We maintain our Buy rating on the stock with a TP of INR860 (based on 17x FY24E EPS)."

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.