Rating Rationale
November 04, 2019 | Mumbai
Transport Corporation of India Limited
Long-term rating upgraded to 'CRISIL AA/Stable'; short-term rating reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.600 Crore (Enhanced from Rs.560 Crore)
Long Term Rating CRISIL AA/Stable (Upgraded from 'CRISIL AA-/Positive')
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facilities of Transport Corporation of India Limited (TCIL) to 'CRISIL AA/Stable' from 'CRISIL AA-/Positive'; the short-term rating has been reaffirmed at 'CRISIL A1+'.
 
The upgrade reflects improvement in TCIL's business risk profile, with steady revenue growth and sustained profitability in all the business segments, despite economic headwinds. Revenue grew 18% year-on-year in fiscal 2019 while operating margin improved to 9.4% from 9.3%. While revenue growth is expected to moderate in fiscal 2020 due to the current slowdown in economic activity, healthy client relationships and integrated product offerings across the logistics industry are expected to keep business risk profile healthy.
 
Financial risk profile remains strong, backed by interest coverage ratio of around 8 times in fiscal 2019 and gearing of 0.5 time as on March 31, 2019. Sustained profitability, efficient working capital management, and moderate capital expenditure (capex) should keep the profile stable 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. These strengths are partially offset by sizeable proportion of the conventional low-margin freight business in revenue and large working capital requirement.

Analytical Approach

CRISIL 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.
 
Refer to Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment.

Key Rating Drivers & Detailed Description
Strengths
* Leading market position
TCIL is an established integrated logistics services provider in India. It handles more than 5 million tonne 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, sea, and air. Furthermore, the company has a healthy presence in the supply chain solutions (SCS) and seaways segments. While revenue from the freight segment grew 17% in fiscal 2019, the SCS and seaways divisions recorded growth of 12% and 40%, respectively. Profit before interest and tax (PBIT) margin, too, was healthy for the freight, SCS, and seaways segments at 3.0%, 6.9%, and 20.5%, respectively, in fiscal 2019, as against 2.8%, 6.6%, and 23.1% the previous fiscal. Improvement in operating performance is expected to sustain 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 9,000 trucks and seven cargo ships as well as 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.
 
* Healthy financial risk profile
Financial risk profile is healthy and should remain stable over the medium term, backed by adequate cash accrual, increased profit contribution from the SCS and seaways divisions, and gradual improvement in the freight division. Networth was large and gearing moderate at Rs 897 crore and 0.52 time, respectively, as on March 31, 2019. Debt protection metrics were robust, with interest coverage and net cash accrual to total debt ratios of 7.8 times and 0.4 time, respectively, in fiscal 2019. The company is expected to undertake capex of Rs 150-200 crore per annum over the next three years for building hubs and small warehouses and increasing the fleet of ships, trucks, and containers; the expenditure will be partly debt-funded.
 
Weaknesses
* Higher revenue from the low-margin freight business, and susceptibility to economic downturns
TCIL is primarily engaged in the conventional road transportation business, which accounted for 50% of the consolidated revenue in fiscal 2019. 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 as well as the asset-light model protect the business from significant cyclicality. This is evident in PBIT margin improving to 3% in fiscal 2019 from 1.5% in fiscal 2016. In addition, the implementation of Goods and Services Tax has increased entry barriers and helped organised players gain a larger market share. Profitability will remain a key rating sensitivity factor over the medium term.
 
* Large working capital requirement
Receivables, at 68 days as on March 31, 2019, constituted almost 90% of current assets and 30% of total assets. Though the company closely monitors receivables through credit control managers and electronic proof of delivery, large working capital requirements typically lead to high bank limit utilisation of over 70%. Cash balance was moderate at Rs 21 crore as on March 31, 2019. Nonetheless, plans to enhance working capital limit in the near term and improving profitability should mitigate any adverse impact on financial risk profile.
 
Liquidity: Strong
Liquidity is strong. Cash accrual - expected at Rs 200-300 crore per annum over the medium term - should amply cover yearly debt obligation of Rs 60-100 crore. Cash equivalents were around Rs 20 crore as on March 31, 2019. Annual capex is expected to be moderate at Rs 150-200 crore over the medium term.
Outlook: Stable

CRISIL believes 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 Factor
* Sustained improvement in operating efficiency (of above 12%) and stable revenue growth
* Sustenance of healthy financial risk profile

Downward Factor
* Stretch in receivables of more than 90 days of sales leading to higher dependence on borrowings
* Weakening of financial risk profile due to a decline in profitability or substantial debt-funded capex.

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 4,000 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.
 
For the three months ended June 30, 2019, net profit was Rs 34 crore on net sales of Rs 663 crore, against Rs 30 crore and Rs 629 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 Unit 2019 2018
Revenue Rs crore 2764 2352
Profit after tax (PAT) Rs crore 145 124
PAT margin % 5.3 5.3
Adjusted debt/adjusted networth Times 0.52 0.57
Interest coverage Times 7.8 7.8

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs.Cr) Rating assigned with outlook
NA Bank Guarantee NA NA NA 22.00 CRISIL A1+
NA Bank Guarantee NA NA NA 15.00 CRISIL AA/Stable
NA Cash Credit NA NA NA 280.0 CRISIL AA/Stable
NA Term Loan NA NA Sept-2027 177.66 CRISIL AA/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 105.34 CRISIL AA/Stable
 
Annexure - List of Entities Consolidated
Name of entities Extent of consolidation Rationale for consolidation
TCI Global (Singapore) Pte Ltd. Full Strong managerial, operational, and financial linkages
TCI Holdings Asia Pacific Pvt Ltd Full Strong managerial, operational, and financial linkages
TCI Global Brazil Logistica Ltd Full Strong managerial, operational, and financial linkages
TCI Holdings Netherlands B.V. Full Strong managerial, operational, and financial linkages
TCI Holdings SA & E Pvt Ltd Full Strong managerial, operational, and financial linkages
TCI Bangladesh Ltd Full Strong managerial, operational, and financial linkages
TCI Nepal Pvt Ltd Full Strong managerial, operational, and financial linkages
TCI Cold Chain Solutions Ltd Full Strong managerial, operational, and financial linkages
TCI Ventures Ltd Full Strong managerial, operational, and financial linkages
Stratsol Logistic Private Limited Full Strong managerial, operational, and financial linkages
TCI-CONCOR Multimodal Solutions Pvt Ltd Full Joint venture/associate
Transystem Logistics International Pvt Ltd Equity method Joint venture/associate - proportionate consolidation
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  563.00  CRISIL AA/Stable      29-08-18  CRISIL AA-/Positive  21-08-17  CRISIL AA-/Stable  31-05-16  CRISIL AA-/Negative  CRISIL AA-/Watch Negative 
                    29-04-16  CRISIL AA-/Negative   
                    11-01-16  CRISIL AA-/Watch Negative   
Non Fund-based Bank Facilities  LT/ST  37.00  CRISIL AA/Stable/ CRISIL A1+      29-08-18  CRISIL AA-/Positive/ CRISIL A1+  21-08-17  CRISIL AA-/Stable/ CRISIL A1+  31-05-16  CRISIL AA-/Negative/ CRISIL A1+  CRISIL AA-/Watch Negative/ CRISIL A1+/Watch Negative 
                    29-04-16  CRISIL AA-/Negative/ CRISIL A1+   
                    11-01-16  CRISIL AA-/Watch Negative/ CRISIL A1+/Watch Negative   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 22 CRISIL A1+ Bank Guarantee 22 CRISIL A1+
Bank Guarantee 15 CRISIL AA/Stable Bank Guarantee 15 CRISIL AA-/Positive
Cash Credit 280 CRISIL AA/Stable Cash Credit 280 CRISIL AA-/Positive
Proposed Long Term Bank Loan Facility 105.34 CRISIL AA/Stable Proposed Long Term Bank Loan Facility 24.86 CRISIL AA-/Positive
Term Loan 177.66 CRISIL AA/Stable Term Loan 218.14 CRISIL AA-/Positive
Total 600 -- Total 560 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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