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Interaction with the CEO

Healthy volume growth led by restocking post GST

TCI key beneficiary of shift of trade from unorganized to organized



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TCI has raised prices in the freight division and the supply chain division to pass on the

impact of higher diesel prices.

Volume growth in 2QFY18 was healthy, led by restocking by industries post GST

implementation and festive demand.

Implementation of e-waybills in March 2018 will determine the efficiency levels for road

operators.

Transport

Corporation of

India (TCI)

Our view: While the industry is seeking clarity over GST implementation and efficiency gains

from reorganization of warehouses, the real shift of business from unorganized to organized

would happen post the implementation of e-waybills in March 2018.

Road freight operators including TCI have increased prices in 2QFY18 to pass on the

impact of higher diesel prices. While road freight rates have not increased in tandem

with the increase in diesel prices until now, any sharp increases in crude prices would

result in sharper increase in road freight rates in the medium term. The coefficient of

increase in road tariff to increase in diesel price was 0.4-0.5x in the last few months.

This is likely to increase if crude prices firm up further.

Prices increased to adjust for cost push

Mr Vineet Agarwal —

Managing Director

Mr Vineet Agarwal has been

the Managing Director of

Transport Corporation of

India (TCI) since July 2011.

He has been Executive

Director since April 1, 2005.

He has been instrumental in

successfully positioning TCI

as the market leader, more

particularly, as a total

logistics solutions provider

offering customized

solutions. Mr Agarwal holds

a BSc degree in Economics

and Industrial Management

from the Carnegie Mellon

University, USA.

Volume growth for TCI’s SCM division was healthy in 2QFY18 on early festive season

demand and restocking post GST implementation. The key sectors that contributed to

demand were primarily in non-auto segments like retail. TCI expects 3QFY18 to be

slightly sluggish sequentially in the absence of any festive demand and restocking

impact of GST. However, multi-national clients should help in offsetting some of the

sluggishness in 3QFY18, given that they have to meet yearly targets.

Volume growth healthy, led by festive demand

In the present system, the movement of trucks is fairly smooth, as most states have done away with check posts,

resulting in improved turnaround times for trucks. However, this could be short-lived – the implementation of e-

waybills in phases over January-March 2018 would determine the actual efficiencies gained by road operators. Post

the implementation of e-waybills, clarity would emerge over the actual turnaround times of trucks and their

respective efficiency levels. At present, four states including Karnataka, Bihar, West Bengal and Gujarat continue to

operate with entry tax mechanism, and do not facilitate free movement of trucks.

E-waybill implementation to determine efficiency levels

Client enquiries have increased meaningfully in terms of the multiple services that would be provided by organized

players like TCI. Clients are evaluating the entire value chain and are looking for value addition across each part of

the value chain. Few clients have also resorted to the concept of shared warehouses to seek the benefits of efficient

and effective warehouse management by TCI. However, quite a few clients are seeking clarity and orders would

follow, as clarity emerges over efficiency gains from GST implementation and over input tax credit.

Client enquiries at elevated levels

Abhishek Ghosh – Research analyst

(Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436

Abhinil Dahiwale – Research analyst

(Abhinil.Dahiwale@MotilalOswal.com); +91 22 3980 4309

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

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Margins in coastal shipping impacted

Margins in the coastal shipping segment were impacted due to increase in effective tax rate for furnace oil from

13-14% to 18%, which has not been passed on to the end consumer. Additionally, the effective tax rate for spares

has also increased which has further impacted the margins for the segment in 2QFY18.

the

GST advantage for unregistered players no threat to organized players’ competitiveness

While transactions between unregistered players are exempt from GST, this is only possible for intra-state

movement in case of road freight. The exemption is not applicable for inter-state movement of goods. Hence, TCI

does not estimate a major benefit for unorganized players – the competitiveness of organized players will remain.

6 November 2017

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Story in charts

Exhibit 1:

1HFY18 revenue growth healthy for Transport

division

Transport Division Revenue (INR b)

YoY Growth(%)

15%

5%

1%

9%

3%

7%

1%

-4%

1.9 2.0 2.1 2.1 2.0 2.1 2.0 2.2 2.2 2.2 2.2 2.6 2.4 2.3

7% 7% 7%

10%

12%

4%

2%

1%

1%

Exhibit 2:

Margins improve QoQ for Transport division

Transport Division EBIT (INR mn)

3%

2%

2% 2%

1%

2%

2%

2% 2% 2%

EBIT margin (%)

3%

25 18 38 46 24 36 34 56 49 67 47 50 49 71

Source: MOSL, Company

Source: MOSL, Company

Exhibit 3:

Strong volume and realization growth in supply

chain solution

Supply Chain Solution Revenue(INR b)

26%

22%

14%

2%

5%

0% 2% 2%

5%

22%

YoY Growth(%)

25%

11%

15%

20%

Exhibit 4:

Supply chain solution margin healthy, led by

operating leverage

Supply Chain Solution EBIT (INR mn)

7%

6% 5%

6%

6%

5% 6%

7% 7%

6%

EBIT margin (%)

6% 6%

7%

5%

1.5 1.6 1.5 1.6 1.5 1.6 1.5 1.7 1.7 1.9 1.9 1.8 2.0 2.3

84 86 89 115 94 85 87 115 115 119 98 115 118 157

Source: MOSL, Company

Source: MOSL, Company

Exhibit 5:

Strong revenue growth in the seaway division

Ship-TCISW Revenue (INR mn)

YoY Growth(%)

45%

30%

4% 0%

9%

16%

11%

16%

8% 9%

18%

25%

13%

53%

Exhibit 6:

Seaway division’s margins impacted due to higher

cost of fuel

Ship-TCISW EBIT (INR mn)

27%

23%

20%

23%

15%

14%

65 58 69 94 50 47 92 82 70 97 92 123 119 98

26%

22%

17%

EBIT margin (%)

26%

23%

27%

20%

17%

285 290 303 342 369 320 353 370 400 379 398 462 581 579

Source: MOSL, Company

Source: MOSL, Company

6 November 2017

3

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Securities Ltd. (MOSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the Regulations, is engaged

the

business of providing Stock

in the

broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOSL is a subsidiary company of Motilal Oswal Financial Service Ltd. (MOFSL). MOFSL is a listed

public company, the details in respect of which are available on

www.motilaloswal.com.

MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock

Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Metropolitan Stock Exchange Of India Ltd. (MSE) for its stock broking activities & is Depository participant with Central Depository Services Limited

(CDSL) & National Securities Depository Limited (NSDL) and is member of Association of Mutual Funds of India (AMFI) for distribution of financial products. Details of associate entities of Motilal Oswal Securities Limited are

available on the website at

http://onlinereports.motilaloswal.com/Dormant/documents/Associate%20Details.pdf

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Pending Regulatory Enquiries against Motilal Oswal Securities Limited by SEBI:

SEBI pursuant to a complaint from client Shri C.R. Mohanraj alleging unauthorized trading, issued a letter dated 29th April 2014 to MOSL notifying appointment of an Adjudicating Officer as per SEBI regulations to hold

inquiry and adjudge violation of SEBI Regulations; MOSL requested SEBI to provide all documents, records, investigation report relied upon by SEBI which were referred in Show Cause Notice and also sought personal

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a)

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been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice.

The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though

disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as customers by virtue of their receiving this report.

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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or

indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

NOTES

Disclosure of Interest Statement



Analyst ownership of the stock

Companies where there is interest

No

A graph of daily closing prices of securities is available at

www.nseindia.com, www.bseindia.com.

Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary

trading desk of MOSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOSL research activity and therefore it can have an independent view with regards to

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Registration details of group entities.: MOSL: NSE (Cash): INB231041238; NSE (F&O): INF231041238; NSE (CD): INE231041238; BSE (Cash): INB011041257; BSE(F&O): INF011041257; BSE(CD); MSE(Cash): INB261041231;

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Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products

6 November 2017

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