| Transport Corporation of India Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of Transport Corporation of India Ltd (TCIL).
Operating performance remained strong despite the impact of the second wave of the Covid-19 pandemic. Revenue increased to Rs 2,359 crore with operating margin of 12% in the first nine months of fiscal 2022, compared with Rs 1,910 crore and 9%, respectively, during the corresponding period of the previous fiscal. While operating profit was temporarily boosted because of two-way cargo in the seaways segment, it is expected to remain 11-13% over the medium term, driven by higher share of less-than-truckload in the freight segment and the company’s asset-light model. Over the medium term, revenue growth is expected to be driven by recovery in demand and robust growth outlook across sectors. Furthermore, strong client relationships and integrated product offerings across the logistics industry are expected to keep the business risk profile stable. Sustained profitability, efficient working capital management and moderate capital expenditure (capex) is expected to benefit the financial risk profile over the medium term.
The ratings continue to reflect TCIL’s leading market position in the logistics business, strong infrastructure and healthy financial risk profile, backed by robust capital structure and healthy debt protection metrics. These strengths are partially offset by sizeable proportion of conventional low-margin freight business in revenue and large working capital requirement. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of TCIL and its subsidiaries and joint ventures (JVs; to the extent of TCIL’s interest) because of business and financial links.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths Leading market position TCIL is an established integrated logistics service provider in India. It handles more than 5 million tonnes of cargo and services nearly 200,000 customers annually. It is also the only player in the domestic logistics industry to offer services across road, rail, and sea. Apart from the original freight business, the company has healthy presence in supply chain solutions (SCS) and seaways segments. Operating profitability is expected to remain healthy over the medium term, supported by higher proportion of less-than-truckload cargo in the freight segment and addition of ships leading to higher contribution from the seaways segment. Presence across the logistics value chain should protect the company from any large variation in operating performance in any of the divisions.
Strong infrastructure TCIL operates a fleet of more than 9000 trucks in operation and six cargo ships, and a warehousing space of 12 million square feet. The hub-and-spoke marketing network, comprising over 25 hubs and 900 branches, enables the company to handle freight across 18,000 domestic and overseas locations. The advanced vehicle-tracking system and network provided to all branches give customers accurate and timely information and help cover any urgent requirement. The strong infrastructure should continue to support business growth over the medium term.
Strong financial risk profile The financial risk profile is expected to remain stable over the medium term, backed by healthy cash accrual, increased profit contribution from the SCS and seaways divisions, and gradual improvement in the freight division. Networth was large and gearing comfortable at Rs 1,289 crore and 0.1 time, respectively, as on September 30, 2021. The debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of around 11 times and 0.8 time, respectively, in fiscal 2021. The company has repaid a large part of its long-term debt in fiscal 2022, leading to further improvement in the financial metrics. TCIL is expected to undertake capex of Rs 150-250 crore per annum over the next three fiscals for building hubs and small warehouses and increasing the fleet of ships, trucks and containers. The expenditure will be partly funded by debt.
Weaknesses Higher revenue from low-margin freight business and susceptibility to economic downturns TCIL’s conventional road transportation business accounted for ~50% of the consolidated revenue for the 9 months ending December 2021. Profitability in this segment remains susceptible to economic downturns and competition from both unorganised players and new-age start-ups. However, increasing contribution from the more profitable less-than-truckload operations and asset-light operating model protects the business from significant cyclicality. This is evident in profit before interest and tax (PBIT) margin improving to 3.5% in fiscal 2021 from 1.5% in fiscal 2016. In addition, implementation of the goods and services tax has increased the entry barrier and helped organised players to gain larger market share. Profitability will remain a key rating sensitivity factor over the medium term.
Large working capital requirement Receivables was 67 days as on March 31, 2021, constituting almost 75% of current assets and 30% of total assets. This is mitigated partly by closely monitoring receivables through credit control managers and electronic proof of delivery. Cash balance was moderate at around Rs 33 crore as on September 30, 2021. Nonetheless, improving accrual should mitigate any adverse impact on the financial risk profile. Also, working capital intensity acts as an entry barrier for newer players in this industry. |
Liquidity: Strong Cash accrual—expected at more than Rs 250 crore per annum over the medium term—should amply cover yearly debt obligation of Rs 60-100 crore. Cash equivalent was around Rs 33 crore as on September 30, 2021. Annual capex is expected to be moderate at Rs 150-250 crore over the medium term, which will be partly funded through debt. |
Outlook Stable TCIL’s business risk profile will remain healthy over the medium term, supported by comfortable revenue growth, sustained profitability in the SCS and coastal shipping divisions, and improving efficiency in the freight segment. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company TCIL was established in 1958 by Mr P D Agarwal. From a conventional transportation company, TCIL has emerged as India’s largest integrated logistics service provider. It has a network of over 1,000 company-owned offices and more than 7,000 employees.
It has formed two JVs: Transystem Logistics International Pvt Ltd with Mitsui and Co Ltd, which is the lead logistics partner for Toyota Kirloskar Motors Ltd in India, and TCI-CONCOR Multimodal Solutions Pvt Ltd with Container Corporation of India Ltd. TCIL demerged its express cargo division into a separate entity, TCI Express Ltd (rated ‘CRISIL AA-/Stable’), with effect from April 1, 2016. During the year TCI, through its subsidiary TCI Cold Chain Solutions Limited, has entered into another joint venture with Mitsui & Co. Limited (Mitsui). Mitsui enjoys global expertise in logistics and supply chain management. It is believed that the synergies created by bringing together the respective resources and capabilities of the two companies will further help create more value for the customers.
For the nine months ended December 31, 2021, net profit was Rs 206 crore on net sales of Rs 2,359 crore, against Rs 85 crore and Rs 1,910 crore, respectively, for the corresponding period of the previous fiscal. |
Key Financial Indicators (CRISIL adjusted numbers)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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