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Interaction with the CEO

GST implementation to transform road logistics industry

TCI is well placed to benefit



Transport Corporation

of India





The share of multimodal logistics is poised to grow due to expected rise in average

distance travelled by goods post GST implementation. TCI is well placed to benefit from

the growth in multimodal logistics, given its JV with CONCOR.

GST implementation would result in consolidation of smaller warehouses to form large

warehouses to cater to the hub-and-spoke model. The smaller fleet operators are also

likely to consolidate, with clients preferring organized/GST-compliant operators.

Shift from unorganized fleet operators to organized fleet operators would initially lead to

increase in freight cost for the organized sector. However, in the medium term, due to

better turnaround time and improved fuel efficiency, overall freight cost would decline.

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.

Motilal Oswal values your

support in the Asiamoney

Brokers Poll 2017 for India

Research, Sales and Trading

team. We

request your ballot.

Our view: Organized transporters are likely to see an increase in volumes post GST

implementation. Being the largest organized fleet operator, TCI would be the biggest

beneficiary.

Post the implementation of GST, TCI expects the average distance travelled by goods to

structurally increase, as they would not have to go through multiple warehouses for tax

saving. This should drive higher demand for multimodal transportation including rail,

road and coastal shipping. As goods are likely to travel longer distances between hubs,

the movement of goods by rail would increase. The efficient usage of roads would be

more for transportation of goods from hub to spoke, and for first mile and last mile

connectivity. TCI is well placed for multimodal transportation, given its JV with CONCOR,

where it handles the first and the last mile connectivity for the goods transported by

CONCOR.

Share of multimodal logistics to increase

Reduction in number of check posts should result in better turnaround for inter-state

transportation of goods. Post the implementation of GST from July 01, 2017, the

absence of check posts has increased the average lead distances travelled by trucks by

20-30%. However, post the introduction of E-Way bill in the next two months, there

could be some disruption in the initial 3-6 months. Additionally, states like Bihar, Bengal

and Gujarat could have different forms of E-Way bills, again causing some disruption.

Transit time for movement of goods between two states to decline

TCI expects many small warehouse operators to consolidate their business to form large

warehouses to cater to hub-and-spoke models. While we believe their functionality could be a challenge, the trend

for consolidation of smaller warehouses would be evident initially. The smaller fleet operators are also likely to

consolidate, with clients preferring organized/GST-compliant operators.

Consolidation the way forward for road/warehouse operators

Abhishek Ghosh - Research analyst

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

Abhinil Dahiwale - Research analyst

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

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

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

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While there has been destocking of goods by key sectors in 1QFY18, given that the festival seasons are earlier this

year, TCI expects the restocking process to begin soon. However, the demand for transportation of goods has been

lackluster in the first fortnight of July 2017.

the

1QFY18 saw destocking of goods

TCI would continue to operate in its asset-light model and would depend on leased trucks for its freight business, as

it helps to weather the cyclicality better. It is unlikely to stretch its balance sheet for owning trucks.

TCI to retain asset-light model

Working capital requirement significant for road operators

The average receivables for TCI stand at ~3 months. Receivables are likely to remain elevated, resulting in higher

working capital requirement for the business.

Majority of the large corporate clients use unorganized transporters for most of their transportation needs to save

on freight costs. However, to become more GST-compliant, their dependence on organized transporters like TCI

would increase, resulting in higher logistics cost in the short term. In the medium term, however, shorter

turnaround time and higher fuel efficiencies should lead to lower overall freight cost for organized transporters,

which they would most likely pass on to customers.

Logistics costs for organized sector to increase initially

Higher volumes likely for organized transporters

Currently, traders rely on unorganized transporters to save costs; only 10% of their overall transportation needs is

met by the organized sector. With the need for GST compliance, the goods transported by traders through the

organized sector could increase disproportionately, resulting in higher volumes for the organized sector.

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NOTES

Disclosure of Interest Statement



Analyst ownership of the stock

Transport Corporation of India

No

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