Transport Corporation of India Ltd (TCIL)s earnings has come in below our
estimates, for 2QFY2016. The top-line was flat on a yoy basis, mainly due to
poor performance of all business segments, barring Seaways, which reported a
growth of ~11% yoy. On the operating front, the company showed a slight
improvement in margins. Further, lower interest costs boosted the overall
Muted standalone top-line performance: TCIL’s earnings for the quarter
have come in below our estimates. The top-line, at ~Rs556cr (our estimate was of
~Rs625cr), is flat on a yoy basis, with all business segments posting poor
performances, barring Seaways, which reported a growth of ~11% yoy to Rs32cr.
Higher other income boosts overall PAT growth: For the quarter, the company
reported an operating profit of ~Rs44cr, up ~7% yoy. Further, the company’s
operating margin expanded by 53bp yoy to 7.9%, primarily on account of decline
in operating expenses as a percentage of sales by 245bp yoy. The net profit grew
by ~9% yoy to ~Rs23cr (which is below our estimates of Rs25cr), mainly due to
lower sales growth during the quarter.
Outlook and valuation: TCIL benefits from its pan-India scale, which gives it
competitive advantage in higher margin segments of the logistics industry; as well
as from its asset-light business model which cushions its profitability in cyclical
downturns and gives it an attractive ROE profile. The company is well-placed to
be a key beneficiary of the anticipated implementation of the GST. However, in
the last few quarters, the company has not been able to report good numbers,
both on the top-line and bottom-line fronts, due to delay in pick-up in economic
activities. Hence we are downgrading our estimates. Currently, we have a
NEUTRAL rating on the stock.

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