TCI XPS Demerger - Huge Value Unlocking

Transport Corporation of India Ltd (TCI)                        cmp - 250

TCI incorporated in 1958, as a “One Man, One Truck, One Office” company. Today it is a leading integrated supply chain and logistics solutions provider and a pioneer in the sphere of cargo transportation in India. TCI is an  ISO 9001:2008 company with leverage of extensive infrastructure it offers seamless multi-modal Logistics solutions. The company operates with six divisions such as TCI Freight, TCI XPS, TCI Supply Chain Solution, TCI Global, TCI Seaways and TCI Foundation.  It serves customers in various sectors, including automobile, pharmaceuticals, textiles, electronics, computer peripherals, chemicals, engineering, consumer goods, telecom and e-commerce sector. It has vast network of 1,400 fully computerized offices., 10.5 million square feet warehouses, 9,000 GPS enabled owned and managed vehicles, over 6,000 trained staff,  several decades of relationship with the customers, presence in 6 countries, all these strengths makes it difficult to emulate and gives a competitive edge over other players.

http://www.moneycontrol.com/video/results-boardroom/expect-1015-profit-topline-growthfy17-tci_5263461.html

Investment Rationale - Demerger of TCI  XPS

TCI Express Ltd (XPS) an express distribution specialist offers a single window solution to its clients through assured door to door courier and express cargo services for time sensitive, high value documents and parcel in domestic and oversea markets  backed with Money Back Guarantee. It is fully equipped with an ISO 9001:2008 certified operations . TCI XPS delivers consignments of all sizes and weights to 13000 locations in India and 200 countries abroad. TCI XPS has significantly expanded its e-commerce and omni-channel retail fulfillment capabilities of handling 150000 unique orders per day. Business growth of  e-commerce picking up, management expects this to increase to 15-20% going forward with increased focus on e-commerce, high consumption driven sector.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/4E405939_F541_40C5_8B51_4BB9FD68C670_181305.pdf

The company has announced demerger of its wholly owned subsidiary TCI Express Ltd - XPS division  on October 8, 2015. Management has taken timely decision to demerge the express business  to give better focus on it. Courier business is expected to grow much faster due to high growth opportunity in the e-commerce business in India. It is also  gives opportunity to investors and strategic partners who are betting heavily on express delivery business in India. Ultimately it will unlock big value by issuing one equity share of TCI Express Ltd to the existing shareholders of TCI Ltd for every two equity shares held. The appointed date for demerger is 31.03.2016.

http://www.tcil.com/tcil/pdf/NOTICE%20OF%20COURT%20CONVENED%20MEETING%20TO%20UNSECURED%20CREDITORS.pdf

Demerger of TCI Express Ltd will make it number two company in door to door courier and express cargo services business in India  after Blue Dart. Other businesses like supply chain solutions and  freight also included in the revenue of other two listed companies Blue Dart and Gati but TCI XPS is engaged purely in high margin courier and express cargo business.  There is fair possibility that within 2-3 years XPS will trade at better P/E than its peer.

XPS division accounts for 30% of the total revenue and 37% of profit of whole TCI business. If we compare TCI XPS with Blue Dart than in it is equal to 1/4 of Blue Dart in revenue and profit. TCI XPS has 60% higher equity base than Blue Dart. 

Facts about e-commerce in India

• According to the report from IAMAI & IMRB, the e-commerce industry in India has reached a value of 81, 525 crore (US$ 13.5 Billion) in 2014.
• The growth of e-commerce logistics is directly proportional to the fortunes of the online retail industry.
• According to the Assocham prediction, E-commerce is to grow to become a US$38 billion industry in 2016.
• According to Goldman Sachs report, e-commerce will be a $220 billion market in 2030.
• Tier 2 & Tier 3 cities are expected to contribute to more than 350 million e-tailing shipments in 2018.
• Logistics providers will be expected to handle US$8 billion of cash in 2018
• E-commerce retail sales in India has gone up tremendously from 2.3 billion U.S. dollars in 2012 to 23 billion U.S. dollars in 2015, with an almost ten-fold growth.
• Flipkart co-founder Sachin Bansal hopes Indian ecommerce market to reach approximately $50-70 billion by 2020. Which is four-fold growth in next four years.

http://www.thehindu.com/business/ecommerce-industry-to-cross-38-billion-this-year-assocham/article8058892.ece

http://economictimes.indiatimes.com/industry/services/retail/indias-ecommerce-market-to-breach-100-billion-mark-by-fy20-goldman-sachs/articleshow/49532128.cms

http://www.statista.com/topics/2454/e-commerce-in-india/

http://dazeinfo.com/2015/03/19/e-commerce-industry-india-worth-13-5-billion-2014-will-cross-16-billion-2015/

Residual Business of Transport Corporation of India Ltd (TCI)

Demerger will enable TCIL to focus on its residual business and achieve greater synergies and efficiency from high margin SCS and shipping business and same time it can also focus to maintain the profitability of low margin freight business.

TCI SCS (supply chain solutions) Division

It provides supply chain solutions across industries and services, right from conceptualization and design of logistics to actual implementation. It operates with a customized fleet of 1100 own trucks including 34 refrigerated trucks. Auto sector contribute 70% of the total revenue for this segment . It has been the fastest growing segment for TCI in recent years. The warehousing is also growing at good rate and demand for warehousing has improved significantly in recent time. company has edge over other competitors due to large warehouse capacity of 10.5 Mn sqft. The Company claims it is seeing good traction in this business and is confident of a 15-20% growth going ahead. High growth expected in managing fulfillment centers and backend operations for e-commerce. 

Seaways Division

This division provides coastal shipping services for transporting container and  bulk cargo along the Western & Eastern coast of India. The seaways division maintains its Port Blair-Chennai-Vishakhapatnam route monopoly with fleet of ships for transporting container and bulk cargo from islands and ports. The company expects growth around 20-25% led by addition of new ship which is in  operation since April 2015. It has  support to stabilize the operations of west coast.

Freight Division

TCI Freight is leading surface transport provider in India. It has a strong backing in terms of its extensive and strategically located branch network and trained work force. The segment deals with Full Truck Load (FTL), Less than Truck Load (LTL) and sundry cargo. The segment is witnessing growth in the multi-model logistics. The demand for road and rail has improved quite a lot from last one year. 

Key Factors of Growth in Freight Division

• Economic revival of rural and industrial field.
• Strengthening investment in infrastructure – DFC (dedicated freight corridor) and DMIC (Delhi Mumbai industrial corridor)
• Increasing usage of third-party transporting contracts from  new companies
• Higher prominence of e-commerce business
• Retail FDI, which will increase productivity and efficiency in distribution network
• Implementation of GST will result in volume addition due to movement of business toward organized transport companies.

TCI Global

Global business division of TCI provides complete Logistics & Supply Chain Solutions across boundaries.TCI Global has set up offices in Brazil, Indonesia, Thailand, Singapore & Vietnam. It is planning to expand its horizon of services to other Asian countries and selected centers in Europe as well. TCI Global offers freight forwarding, customs clearance activities domestically from its offices in Delhi, Mumbai, Nagpur, Ahmadabad, Chennai, Bangalore & Kolkata. TCI Global’s new initiative to target international business through subsidiaries and operating JVs in Indonesia and Nigeria for local distribution and mining logistics.

TCI Rail (Infinite)

A joint venture formed with Container Corporation of India Ltd, a navratna company (CONCOR) for bulk multi-modal logistics solutions by rail and road solutions for their various needs in a safe, speedy and cost effective manner. It will  synergize the efficient movement of cargo between two rail and road giants, CONCOR has rich knowledge and expertise in dealing with Indian Railways and TCI Rail is dedicated to providing world class freight solutions to its esteemed clients.

Value Added Services (VAS)

Value added services provide advantages for both the customers and the service providers. These additional custom services often cost the company little extra but have the potential to significantly enhance the growth and the reputation of the company. Logistics & Supply Chain Solutions Companies complement the smooth flow of goods with additional services for individual industries, including pre assembling equipment, adding labels to textile products and stocking display units. In close cooperation with customers and with a detailed understanding of specific needs, companies develop customized services that perfectly complement transport.

Conclusion

The TCI XPS  has tremendous growth and profitability potential, more specifically in ecommerce and high consumption driven sectors. TCI XPS will unlock huge value for investors and expected EPS would be more than 10. Courier sector stocks are trading at very high P/E ( Blue Dart P/E 74 and Gati P/E 58).  Even if XPS will trade at 50 P/E than also it translate into more than 500. Remaining  business left with TCI has enough strength to sustain the  stock price after record date of demerger. Supply chain solutions and Seaways are high margin high growth business and expected to grow at decent pace in coming quarters. Clearance of GST bill will be  an added advantage for XPS and TCI. GST is not taken in consideration for above investment rationale.


TCI XPS is best long term investment opportunity for those who miss to buy Blue Dart below 100. TCI XPS is available for free of cost with every two share of Transport Corporation of India Ltd (TCI) held before record date of demerger.