A PROJECT REPORT ON

CONDUCTING INDUSTRY RESEARCH TO IDENTIFY THE INDUSTRY TRENDS AND VALUING THE EQUITY OF THE LEADING PLAYER IN THE INDUSTRYSUBMITTED BY Mr. SUJAY PRAKASHCHANDRA SOMANI MBA++ FINANCE UNDER GUIDANCE OF

INTERNAL GUIDE PROF. ANIL AGASHE FACULTY,DMS UNIVERSITY OF PUNE

EXTERNAL GUIDE MR.HARSHAD DESHPANDE CEO, CONSCI CONSULTANCY PVT LTD

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF DEGREE OF MASTERS IN BUSINESS ADMINISTRATION

DEPARTMENT OF MANAGEMENT SCIENCES UNIVERSITY OF PUNE (PUMBA) 2009-11

Project report

Department of Management Sciences (PUMBA) University of Pune

CERTIFICATE

This is to certify that the Summer Project titled Conducting Industry Research to identify the industry trends and valuing the equity of the leading player in the industry carried out at Consci Consultancy Pvt. Ltd,Thane,Mumbai has been submitted by Mr Sujay Prakashchandra Somani , 2nd year MBA Finance student of the Department of Management Sciences, University of Pune (PUMBA), towards the partial fulfilment of the requirement for the award of the Masters in Business Administration (MBA) and the same has been satisfactorily carried out under the guidance of Prof Anil Agashe during the academic year 2010 - 2011.

Prof Anil Agashe Faculty PUMBA

External Examiner

Dr B. V. Sangvikar Head of Department PUMBA

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ACKNOWLESummer i ternshi

E ENTappl the theoretical

is a great practical experience which helps t

knowledge and get acquainted with the business world. For this purpose many people help the interns to make it an experience of life time. I would like to express my sincere gratitude to ,CEO,Consci

Consultancy Pvt. Ltd,Thane,Mumbai for providing me this opportunity to work with their reputed organization. I would like to thank Ashwi l Consci Consultancy Pvt.

Ltd.,Thane, Mumabi for being my mentor and guide and helping me with his vast experience for the of Project.

I would like to put forth my earnest thanks to

Anil Agashe, Faculty, PUMB

for

playing an ideal mentor and being a constant source of knowledge throughout. I would also like to thank Dr. B.V. Sangvi ar, HO , Department of Management Sciences, University of Pune for giving such an opportunity.

Sujay Prakashchandra Somani

Roll No. 9152

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PrExecutive Summary:

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Indian economy today is providing various investment opportunities especially with the booming industry and whopping government spend on infrastructure. Logistics is a priority for, presently the movement of goods in the Indian market is very slow as compared to the other economies in the world. And we find steps taken by the Government of India so as to reduce it in near future with plans for implementation of GST and development of infrastructure. Our project is based on Fundamental analysis. Firstly we view the international Economic scenario where USA is recovering from the financial turbulence and few shaky incidences in the European economy. Indian economy due to its strong domestic market and impetuous on savings wasnt affected badly and we found just a slight slowdown in the economic growth. Further we take a look in the Logistics sector. It has a direct correlation with GDP of the country, where most of the papers calculate logistics sector as a percentage of the GDP. Indian logistics sector is less efficient since it is unorganized in nature and Government rules deter smooth movement of goods. But we expect share of organized players to grow in the near future and Government supportive with plans for introduction of GST and infrastructure development. Further various listed companies were reviewed and TCI was selected for our study, since it has presence in the market since 1958 and has pan India coverage. Also it has major presence in all segments of Logistics sector. TCI-Transport Corporation of India has its major revenue with Freight followed by XPS, and is expanding majorly in Supply chain and Warehousing. Their revenues were projected considering the Historical data and the trends in various segments coupled to company strategy and caapability. After projection of revenues and calculating anticipated profits and projecting Balance Sheet and Cash Flow statement, FCFE method was used so as to calculate the price of the security. The interest rate of 20 years Government Bond is taken as risk free interest rate. And 7% as risk premium for the security. The beta is taken from reuters database and is 1.5.

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Project report

ContentsExecutive Summary: ................................ ................................ ................................ ............ 5

Company Profile: ................................ ................................ ................................ .................. 8 Economic Analysis ................................ ................................ ................................ ............... 9International Economy:................................ ................................ ................................ .................. 9 Oil Prices: ................................ ................................ ................................ ................................ ... 9 USD-INR Exchange rate scenario: ................................ ................................ ............................. 10 Indian Economy: ................................ ................................ ................................ .......................... 11 GDP: ................................ ................................ ................................ ................................ ........ 11 Inflation in India: ................................ ................................ ................................ ...................... 11 IIP Index of Industrial Production: ................................ ................................ ............................ 12

Sectoral Analysis: ................................ ................................ ................................ ............... 14 The Logistics Sector: Definition:................................ ................................ ......................... 14Overview ................................ ................................ ................................ ................................ . 14 Investment Argument ................................ ................................ ................................ .............. 15 Segments of logistics:................................ ................................ ................................ ................... 16 Express Cargo Industry................................ ................................ ................................ ................. 16 Transportation segment:................................ ................................ ................................ .......... 17 Seaways: ................................ ................................ ................................ ................................ .. 20 Warehousing: ................................ ................................ ................................ .......................... 21 Growth drivers for outsourcing logistics solutions................................ ................................ ........ 21 What was wrong AND What has changed ................................ ................................ .................... 21

Company Analysis: ................................ ................................ ................................ ............. 23Logistics Indian Peers ................................ ................................ ................................ ................... 23 Company Background ................................ ................................ ................................ .................. 27 Business of company: ................................ ................................ ................................ .................. 29 MAJOR HIGHLIGHTS OF FY 2009-10: ................................ ................................ ............................ 31 Five Forces Model for TCI:................................ ................................ ................................ ............ 33 SWOT ANALYSIS OF TCI: ................................ ................................ ................................ ............... 34

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Project reportFUTURE OUTLOOK FOR FY 2010-11: ................................ ................................ ............................. 35

Valuations and Recommendations ................................ ................................ ...................... 36Stock performance................................ ................................ ................................ ....................... 36 Forward rolling band charts ................................ ................................ ................................ ......... 37 PROJECTIONS:................................ ................................ ................................ .............................. 38 Balance Sheet: ................................ ................................ ................................ ............................. 39 Profit and Loss Account:................................ ................................ ................................ ............... 39 Cash Flow Statement: ................................ ................................ ................................ .................. 39 FCFE:................................ ................................ ................................ ................................ ............ 39

Analysis:................................ ................................ ................................ ............................. 40 Recommendation: ................................ ................................ ................................ ............... 40 References: ................................ ................................ ................................ ......................... 41

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Company Profile:Consci Consultancy Pvt. Ltd is a start-up firm started by passionate team comprising of young individuals with backgrounds in Science, Engineering, Management, Costing, Accounting, Law, etc. The company is into following business;

Industry/ Company Analysis: Competition analysis, market share analysis, differentiation, financial analysis, growth analysis, equity analysis, etc.

Financial Projections: The company helps organizations to project the financials helping them prepare for raising funds.

Special Research Reports: The company works in collaboration with the research houses, fund houses, PE players to do a focused and in depth research on specific areas. We ensure that our clients get clear insights helping making them their investment decisions.

Fund Raising: The company works for raising funds for individuals or companies by Debt or Equity.

Training: The company undertakes training programs for students viz.. Equity Research Workshops, Economic Establishments & Markets, Portfolio Management, Introduction to IFRS, Understanding Credit Rating Process, Annual Report Reading and add value to the students with their experience.

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Project report Economic Analysis International Economy:The international economy faced a financial turbulence due to collapse of financial institutions in the US. This impacted the Indian economy in three ways:First: The financial channel was affected, which reduced the ability of Indian companies to mobili e equity and debt in the foreign market. rosion of risk appetite resulted in lenders being reluctant to lend. Second: rosion of import demand in the developed economies and the dislocation in trade finance and related markets which resulted in a sharp decline in the external demand for Indian exporters. Third: Collapse of business and consumer confidence.

Oil Prices:The oil prices have hovered around 65-70 USD per barrel in summer of 2009. Despite of the recession the world demand of oil is 84.3 Mn Barrel/Day which is 2.1% less than previous year and 1.4% less than 2007 demand.

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Project report

Yea r

Jan Feb Mar Apr May Jun

Jul

Aug

Sep Oct Nov Dec

201 77.5 76.2 0 1 0

80.86 84.86 72.68 75.33 72.14 75.5 76.6 74.1 5 4 9

200 42.3 40.3 9 7 5

48.80 51.66 59.23 69.80 65.54 71.27 68.84

200 92.9 95.3 105.7 112.9 125.6 137.0 135.6 116.8 104.7 75.0 55.6 39.6 8 7 8 1 0 2 6 3 2 1 8 1 7

* The table above displays the monthly average Source: http://www.tradingeconomics.com/Economics/Commodities.aspx?Symbol=CL 1#ix 0t5dF5000With the deregulation of the petrol and diesel prices. The price of crude in the international market would play a vital role in Indian economy especially with respect to the profitability and cost of various goods. Note to be taken is that the price of petrol and diesel are deregulated but still the taxes are same causing a double burden.

USD-INR Exchange rate scenario:

We see depreciation in the Indian rupee in year 2008 and 2009. From mid 2009 slight strengthening of rupee is observed.

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Project reportIndian Economy: GDP:We talk about the economy; Indian economy grew at 6.7% of GDP for the year 2008-09.And is expected to grow at a rate of 7.2% for FY 2009-10. (Budget 2008-09) GDP growth rate Q-on-Q:

GDP growth rate Y-on-Y:

The si e of the Indian economy is 1.3Trillion USD. The agriculture sector is supposed to show negative growth of 2%. The manufacturing sector grew at a slower pace in 2008 at 5.3% due to slower pace of -09 export demand , higher interest cost and rise in material and energy cost.

Inflation in India:Rising inflation and that two a double digit since sept-oct 09 is a matter of great concern. Also the iip data shows double digit growth rate since sept-oct 09. Thus the demand side seems to heavy as compared to the supply side.

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Project reportYea r 201 0 200 9 200 8 200 7 200 6 4.39 5.31 5.31 5.26 6.14 6.72 7.56 6.72 6.67 6.61 5.51 5.47 7.87 7.81 7.75 Jan 16.2 2 10.4 5 9.63 8.03 8.7 8.63 Feb 14.8 6 Mar 14.8 6 Apr 13.3 3 May 13.9 1 9.2 9 7.6 9 5.6 9 7.8 9 6.9 5.98 6.84 7.63 6.72 6.72 6.45 7.26 6.4 5.51 5.51 5.51 8.33 9.02 9.77 11.8 9 11.7 2 11.6 4 11.4 9 10.4 5 13.5 1 10.4 5 14.9 7 9.7 Jun Jul Aug Sep Oct Nov Dec

IIP Index of Industrial Production: The general index of iip numbers stand at 316.7 with respect to the base year 1993 which -94 is 17.6% higher as compared to the April 2009. The indices for the industrial production (iip) for the Mining, Manufacturing, and electricity sector for the month of April 2010 stands at 11.4%, 19.4%, and 6.0% as compared to April 2009.

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Source: www.moisp.org.in .The sectoral growth rates in April 2010 over April 2009 are 8.8% in Basic goods, 72.8% in Capital goods, and 10.8% in intermediate goods; The consumer durables and consumer non -durables have recorded growth of 37% and 6.6%, with overall growth in consumer goods being 14.5%. (iip data www.mospi.org.in/mospi_iip.htm) India industrial production data:

The Financial turbulence had hit the Indian markets thus we see ve growth rate of 0.2% in Jan 09. The Indian markets seem to have recovered with continuous +ve trend iniip data. We see double digit figure from sept-oct 09 onwards which is a good sign.

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Sectoral Analysis:The Logistics Sector:

Definition:Logistics is the management of the flow of goods, information and other resources between the point of origin and the point of consumption in order to meet the requirements of consumers. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and occasionally security. Logistics is a channel of the supply chain which adds the value of time and place utility.

The Global logistic sector size is $3.5Trillion. For any country the annual logistic cost comes to around 9-20% of the GDP. For US it comes around 9% of the economy. The Indian logistic industry comes to around 13% of the GDP which translates into $125Bn. (Lugano conference-Logistics Industry by: Subrata Mitra). This indicates the level of inefficiencies of the Indian logistics sector. Also the Indian logistic sector is lot complex by way of volumes, scale and geographic spread of operations. Few of the methodologies used to address these complexities are:Integrated logistics solutions to help create efficiency. Efficiency through route optimization for hub and spoke model. Milk run and line haul route optimization for road transport. Efficient benchmarking and optimal resource deployment in logistics operations. The logistics industry contains many operations which are manpower intensive and thus planning for manpower temporary and permanent is a critical element to be addressed.

OverviewWith the changing economic scenario, factors such as globalization of markets, international economic integration, removal of barriers to business and trade and increased competition have enhanced the need of transportation. It is one of the most important infrastructure requirement which is essential for the expansion of opportunities and plays an important role in making or breaking the competitive positioning. Transport volumes in India remain much less than those in the developed countries. India has still to go a long way in strengthening its transportation network. The countries

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Project reporttransportation network suffers from several inadequacies and, in particular it has little resilience to deal with unforeseen demands. Transportation, like all industries is largely influenced by information and communication technologies with the focus being on knowledge of customer needs and value added services. Surface transport is provided by the Road and the Indian Railways (primarily for carrying low value bulk commodity, mostly for the government sector). Cargo Road Transport is entirely in the hands of the private sector. An estimated 1.2 million trucks (9 tons capacity) crisscross the country covering more than 80,000 kilometres of roads. In India road transportation is preferred for cargo movement, where flexibility of routing assumes importance. It facilitates door-to-door delivery, overcoming unnecessary delays which normally take place in the other modes of transportation.

Investment ArgumentIndias logistics market is at an inflection point with the organised sector likely to witness a 25% CAGR as players offer cost effective, end-to-end integrated logistics solutions. Lower logistics outsourcing drives inefficiencies The development of Indias logistics companies has lagged behind their global peers, as is reflected in logistics costs being high at 13% of GDP (other countries logistics costs at 8-9% of GDP), mainly due to lower outsourcing of logistics functions by corporate. The lower outsourcing, in turn, is due to a multi-layered tax system, lower manufacturing outsourcing and poor infrastructure. However, demand for integrated logistics solutions is growing rapidly, as significant investments are being made in infrastructure and move towards implementation of GST. Moreover, the trend for higher manufacturing outsourcing is further driving the demand for logistics outsourcing.

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Project reportCurrent Industry Dynamics:

Segments of logistics: Express Cargo Industry NeedIn today's business big or small , domestic or global, the value of time is clearly immense. Business today is focusing on how it can deliver goods and services to global markets in a timely and reliable manner. Besides efficiency in pick up , timely delivery , timely information and availability of other infra structural facilities for efficient handling of cargo transportation have become the need of the day. In other words prompt customer service is what gives competitive edge to the players of the cargo transporta tion industry in today's rapidly changing environment. It was this need which stimulated the growth of the express cargo industry worldwide. The express cargo industry is judged primarily on the following key parameters : Speed of distribution World wide service Security and reliability Value added Service Customer care To meet the above needs , the express industry is developing effective use of information technology, which forms the backbone of the industry. Right from the pic kup point, the precise status of the consignment needs to be monitored at every stage of its journey. Secondly the use of multi modal services assumes importance in order to provide turnkey solutions to the customer. Also, guaranteed timely delivery givesthe required confidence to the customer to reduce his inventory positions at various levels of distribution. Sector-wise Market Share- Express Cargo Express cargo can be segmented in four categories as rgani ed Sector, which operates in domestic as well as international markets, semiorganised sector, unorgani ed sector and EMS speed post, which is express arms of the postal department (Refer Fig.1).

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Project report

(Source: Transport India 2000) Transportation segment: Freight handled by different segments:

In Mn Tonnes RAIL ROAD SEA AIR TOTAL IN % RAIL ROAD SEA AIR

2006

2007

2008

2009

667 1353 424 1.4

728 1478 464 1.55

794 1612 519 1.71

850 1726 530 1.7 3107.7 6% 27% 56% 17% 0%

2445.4 2671.55 2926.71 Increase 27% 55% 17% 0% 9% 27% 55% 17% 0% 10% 27% 55% 18% 0%

Source: SSKI RESEARCH.We find a steady increase of total freight and individual segments at 9 -10%. And similar increase is expected in coming years. For the year 2009 is justified due to the financial turbulence in the international market and collapse of major banks in the USA. ver all maximum of the freight is carried by the road. Next is the rail. Seaways handle a

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Project reportsi able chunk. Air freight has negligible presence due to the high cost. It is primarily used for courier service. Indian Road Freight Industry Organised Vs. Unorganised Sector

The road freight industry stands out unique with the majority of the market share held by the unorgani ed sector. Out of the entire market si e of approximately Rs. 38,000 crores , Rs 6000 crores is with the organized sector and the remaining with the unorgani ed sector. Above Fig indicates that organi ed sector has only a miniscule 14%share of the total road freight transportation industry.

Transport through Railways: Item Unit 199091 Freight-Tonnes Originating Kilometres Earnings Billion Billion Rs. Billion Avg earnings per tonne per Paise 35.00 73.80 80.80 85.40 0.34 243.00 82.47 0.50 316.00 230.45 0.67 440.00 355.35 0.73 481.00 410.92 200001 200506 200607

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Project reportkm.SOURCE: Railway BoardThe transport of cargo via railways is cheaper as compared to the roadways. But due to lack of competition and lack of service road transport is still preferred over rail transport. It can be seen by figures given table below. Road transport handles around 56% of the total freight. One reason being the lack of door to door service. In 2006 Govt. invited private players and 13 licenses were offered to private players to provide cargo service. Thus in long distance routes using the hub and spoke model players provide the first mile and last mile services along with railway services so as to utilize the cost efficiency and provide the door to door service. But still the private players handle not more than 3% of the total rail freight till date.

Privatization of the rail freight: Along with Concor 13 companies have signed up for rail based services:Rs.50 crore route category:(all India operation, including JNPT to NCR) Three Rs.10 crore route category :JNPT/Mumbai to hinterland except NCR. Pipavav, Mundra, Chennai/Ennore, Vizag and Kochi with hinterland Kandla, New Mangalore, Tuticorin, Haldia/Kolkata, Paradip and Mormugao with their hinterland The 10 companies in the Rs.50 crore categories: Adani Logistics Central Warehousing Corporation Concor Dinesh/ETA (Emirates Trading agency) Gateway Distriparks Ltd Hind Terminals (MSC Group), India Infrastructure & Logistics (Joint venture of APL & Hindustan Infrastructure & Logstics) Reliance Energy Ltd (Anil Ambani group) SICAL Logistics. The 4 companies in Rs.10 crores categories:Sujay Somani Page 19

Project reportDelhi-Assam roadways corporation ltd. Bothra Shipping JM Baxi & Co Pipavav Rail Corporation ltd.

Seaways:The seaways are used for international cargo. Also India is getting developed as a hub for the International cargo. We see that the major transport at the various ports is the overseas cargo. very little cargo is moved as costal. But with development of various ports like Mundra and JNPT with direct connectivity with Rail freight transport and licenses being provided to the private players the share of seaways would increase in the near term.

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Project reportSOURCE: Transport Research Wing, Ministry of Shipping,Road Transport & HighwaysWarehousing:It forms a major segment of the Logistics industry with 40 Million Sq.ft of space being cover for warehousing. This segment has come up due to three reasons; development of retail sector, escalating growth in the commodities market, and change in consumer preferences from fresh to processed food. Warehousing is growing at rate of 34-40% per annually and is expected to become a $55 bn industry in next 3-4 years with more than 50Million Sq.ft of logistics space and 100 of logistics parks. The creation of SEZ (FTZW), with tax benefits under section 80 IG of Income Tax Act. Also various value added services have been developed to cater to the consumers.

SE

ENTS OF LOGISTICS SECTOR AND SEGMENT SCENARIO:

SOURCE: TCI Annual Report 2008-09 Table above give us an idea of the growth rate in individual segments and the industry scenario. Growth drivers for outsourcing logistics solutions What was wrong AND What has changed Infrastructure Infrastructure bottlenecks led to higher transit time and higher costs Investments of Rs8618bn in infrastructure help provide effective 3PL solutions Taxation

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Project reportMulti layer tax system prevents outsourcing of logistics functions Production & consumption centres closer to each other, leads to low value addition from outsourcing Lack of integrated logistics providers to service corporate CST phase out to spurt demand for logistics outsourcing Manufacturing outsourcing Increasing global manufacturing outsourcing driving demand for logistics outsourcing 3PL providers Increasing proportion of integrated logistics providers to service corporate Increasing investments in technology encourages outsourcing (tracking ability improving) Technology Low investments in technology adds limited value from outsourcing (tracking ability low) Increasing investment in technology (eg: GPS) has improved tracking ability to provide better service to the customers. Future expectations of market: From 2005-10 the logistics industry in India has grown at CAGR of 25%. In 2007 the size of the industry was $100 Bn. And in 2010 the size of the industry is $130 Bn. Sand from 201015 the logistics industry is expected to grow to $385 Bn. The share of the organized players would also increase from 6% in 2007 to 12% by 2015. Thus we would witness a major mergers and acquisition in the industry.

Deregulation of petrol and diesel prices:The deregulation of petrol and diesel prices in last week of June has increased the price by 3.73 Rupees for petrol and slightly above 4 Rupees for diesel. And also the private players can link the petrol price to the international crude oilSujay Somani Page 22

Project reportprices while for govt. companies they have to strictly average out for 15 days and can change prices on fortnightly basis. This has led to an increase in freight charges by 10%. No effects in the short term are noted, but it might have an impact in long term. Especially it would increase the cost of goods and reflect in the inflation. How far will it hamper the growth is to be seen. Also variation in petrol and diesel prices can change costing and affect profitability.

Company Analysis:Logistics Indian PeersSALES T C I SI C AL ESS S AR C I SIZE ROAD 24 70 PI SHR CON L L E A COR S AE ALL GI S CAR GO G A C W

TI C

IN Rs Cr 28 3 122 30 0 313 51 8

6 9 0

24 4

RAIL

34 68

1

3417

50

SEAWA YS

62 49

6 7

218 7

3 7 2

24

150 93

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Project report7AIR CARGO XPS 34 7 0

3 4 7

SCS

16 8

1 6 8

COLD CHAIN WAREH OUSING GLOBA L MISCEL LENEO US TOTAL

0

81 5 42 4 23 6

23 7 1 1 21 27 387

85

7 48 6

21 5

14 17 6

1 2 8 2

52 9

257 4

3 28 7 2 7 3

146

3417

38 5

463

61 75 8 1

Source: Data compiled from annual reports (FY 2007-08) of above companies TCI is No.1 in Revenue Size in Road Freight segment and has presence in all major segments. Revenue- A comparison Segment wise and overall of listed companies Thus we select TCI as our company for study. For iy has presence in all the major segments

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Project reportin the logistics industry. And also its revenue is comparable and large as compared to other peers in India.

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Project reportKe y dat aSe ct o rM ARKET C ap

Logistics 9.84 Bn 14 2. 80/ 62. 6 5 264.99

52 W k H/ L ( Rs ) A vg. d ail y vol. ( 6 m ont h) in lac s ( NS E) B S E C od e N S E C od e Bl oom ber g Re ut er s

532349INE688A01022T RP C@ IN T C IL. N S

Sensex Nifty

17977.86 5399.35

TCI Vs Nifty

Shareholding pattern (%) Jun 2010 Mar 2010 FIIs MFs and institutions Promoters Others

6.58 6.50 0.05 0.52 68.76 68.76 24.61 24.223 mth 12 mth 4.82 1.21 81.1 23.8

Absolute returns (%) 1 mth Stock NSE NIFTY BSE Logistics 10.3 4.45

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Annexure 1

Company BackgroundTCI - key beneficiary of the logistics boom TCI, established in 1958 as a trucking company as one man, one truck, one office, it is one of the largest integrated logistics company in India today providing pan India coverage, and a one-stop shop for all cargo transportation services solutions, including logistics management, transport management, warehousing services, inventory management and supply chain management for all types of cargo, primarily through surface movement. It has its international presence through subsidiaries and joint ventures in Singapore, Hong Kong, Thailand, Mauritius, Indonesia, China, Germany and The Netherlands. It has a great reputation in the market. Asset base:8.25 Million sq.ft of Warehousing space. Five,cargo ships. Operating,7000 trucks and trailers. 1200 owned. 1200 fully computerized offices with pan India presence. and a strong work force of 6500 employee and 20000 strong outsourced team in Indian and

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Project reportabroad.

TRANSPORT DIVISION 8000 6000 4000 2000 0 2008-09 revenue 2009-10 revenue TCI SEAWAYS SUPPLY CHAIN SOLUTIONS DIVISION XPSDIVISION

REVENUE CONTRIBUTION FROM THE VARIOUS SEGMENTS FOR FY 2009-10:

Thus TCI handles 12%(Rs7200Mn)of total organi ed road freight(Rs60000Mn).rd The XPS division provides on 1/4th (Rs3860Mn) of the revenue and contributes to 1/3 of

total profits. PROFIT CONTRIBUTION FROM VARIOUS SEGMENTS FOR FY2009-10:

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Business of company:

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TRANSPORTA FY 2009-10 TION XPS TIMELY AND DOOR TO DOOR SERVICEDISTRIBUT ION, C&F, SCS

COAST TO COAST OTHERS

(SURFACE,A WAREHOU IR, BULK TRANSPORTA TIONFTL,LTL,ODC, SERVICE RAIL CEMENT, FOODGRAINS, STEEL AND CARGO HANDLED CONTAINERS ETC UPTO 50KG CARGO COURIER INBOUND/ OUTBOUN D SERVICES BAJAJ, HLL, TELCO, MUL, IT, PHARMA, AUTO, CLIENTS REVENUE AS % OF Sujay Somani CORPORATES 7273.5 48% NOKIA, Dr. REDDY, INDO CORPORATE RETAIL CORPORA TES 634.4Page 4% 30

SING, COLD CHAIN , VALUE ADDED SERVICES) OCEAN AND COASTAL FREIGHTM, FUEL PUMPS

COURIER, GLOBAL, CUSTOM CLEARANC E)

STEVEDORIN AND WIND G POWER

TIMBER,WO OD NUTS ETC PETROL, POWER

RETAIL ETC RAMA ETC S 3860.4 25% 2942.1 19%

536.8 4%

Project reportWHOLE NPM AS % OF WHOLE OPM% CAPITAL EMPLOYED AS % OF WHOLE ROCE EMPLOYEE 30% 15% 2200 21% 22% 2500 19% 18% 1100 12% 11% 115 18% 1% 585 1904.36 1352.17 1226.38 773.48 1141.72 32% 4% 33% 8% 24% 8% 9% 13% 2% 3% 285.7 301.1 220.7 83.2 14.8

Source: Audited financial result 2009-10 of TCI. & SSKI RESEARCH.Thus most of the clients of TCI are corporate. And TCI provides customized solutions to most of these corporate. We can get to know about this fact from the 2006-07 report where they have mentioned a Bajaj case study. Thus repeat business from the customer is a source of revenue. So as to take advantage of cheap rail transport, TCI has ventured into a JV with CONCOR (TCI 51% + CONCOR 49%) to form a Infinite Logistics Solution. This would have benefit to customer in form of:Rail Road cargo movement, Establishing synergy between Two Rail And Road, JV company to provide end to end multi modal solutions. This would Freight segment increase its net profit margin. It will also help sustain growth pattern in TCI freight segment. MAJOR HIGHLIGHTS OF FY 2009-10: New clients acquired for TCI Freight during the FY 2009-10 are:TATA NANO, GM, NITCO, HERO HONDA, SAMSUNG. This would enhance their fixed revenues. Addition of 0.75 Million of Warehousing space in the year.Sujay Somani Page 31

Project reportIn cold chain, TCI caters to various Pharma, Foods and Chemicals by reefer vehicles. TCI is looking for aggressive growth in Supply Chain Solution in the Year. TCI SEAWAYS: Due to rising fuel and manning cost the profitability of the TCI SEAWAYS has come down. Also Break Down of one of the ships incurred an additional cost of Rs. 2.5 Cr. Thus the overall profitability of TCI SEAWAYS has gone down for the FY.

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Five Forces Model for TCI:

Threat of new entrants Low Its hard for new entrants to enter in the industry since it is requires reach across geography, heavy initial investment, economy of scale, industry relations, expertise, and requires labor.

Bargaining Power of Suppliers Medium Petrol and Diesel being one the key input The company stands as a proce taker, while labor and machinery are available, it has ability to bargain.

Inter-firm Rivalry High With many players the rivalry is high. But due to long standing relations with corporate, help retain market. With retail the competetion is very high especially in xps segment.

Bargaining Power of Buyers Low The operating margins are as low as 4%, and with rising petrol and diesel prices, Buyers are in state of price takers.

Threat from Substitutes Low For Road-Rail is a substitute with its own limitations. It has to still depend for first and last mile services.

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SWOT ANALYSIS OF TCI:

Strengths Strong domain focus. Upgraded technology. Pan India presence with 1200 fully computerized offices which covers 99% region of India. Strong and experienced management and Employee workforce Opportunities Warehousing especially with retail boom. Opening of rail transport to private players. Expanding Indian Economy. Need of organized logistics providers. Expansion in SEAWAYS.

SWOTfor Transport Corp> of India

Weaknesses It hasnt forayed in the rail cargo which is cheaper. Very small presence in the Seaways.

Threats Deregulation of petrol prices would tip off the profitability. Other domestic competitors. Global economic scenario. Rail cargo especially with entry to private players.

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Project reportFUTURE OUTLOOK FOR FY 2010-11:TCI FREIGHT: The company has stable revenues through clients like BAJAJ, HUL, MUL, TELCO, Dr REDDYs, TATA NANO,GM, NITCO, HERO HONDA, SAMSUNG and tie ups with various other players. Thus this segment of the company will keep growing at a steady pace. The OPM % of the segment is very low with makes the company most suitable for outsourcing for the other companies. Also the recent tie up with CONCOR to provide multimodal cargo service would give fruits in future. TCI XPS: It contribution to revenue is 2nd largest and contribution to Profits is highest with 8% OPM. TCI is increasing its revenue in the segment and is looking for aggressive growth so as to add to the bottomline. Also the segment is showing growth. TCI SCS: TCI is continuously increasing its warehousing space and providing specialized services to the various Pharma and foods and chemical companies which is a growing segment. TCI SEAWAYS: TCI is increasing its presence in the SEAWAYS slowly and is set to achieve growth; but this would take time before it gets implemented, due to lack of experience. Thus in FY 2010-11 we would see increasing share of TCI XPS in the revenue, Thus increment in the profit. TCI FREIGHT is expected to grow at 12%; TCI XPS is expected to grow at 25%; TCI SCS is expected to grow at around 30%; TCI SEAWAYS is expected to grow at around 10%. TCI PAT is expected to grow at least at 24% over the previous years growth of 52%. For revenue it would follow the growth pattern of the previous year.

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Valuations and RecommendationsStock performance

Transport Corporation of IndiaAbsolute Performance From 10 th JAN10

TCI160 140 120 100 80 60 40 20 020/Jan/10 20/Feb/10 20/Mar/10 20/Apr/10 20/May/10 20/Jun/10

TCI

Relative Performance NIFTY From 1th JAN 10

NIFTY5600 5400 5200 5000 4800 4600 4400 4200

NIFTY

Thus we see the movement of TCI in accordance with the NIFTY stock. Source: nseindia.comSujay Somani Page 36

Project report

Forward rolling band chartsTransport Corporation of India

PE60 00 40 00 20 00

P/BV8 00 6 00

4 00 0 00

2 00

0 00

MARKET CAPITALISATION; NET SALES; NET PROFIT

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BV

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Project reportPROJECTIONS:All figures in Million `:60000.00 50000.00 40000.00 30000.00 20000.00 10000.00 0.00

FREIGHT XPS

SCS SEAWAYS TOTAL

PROJECT SALES IN GRAPHICAL FORM:

3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00

FRE IG

PROJECTED PROFITS IN GRAPHICAL FORM:

25.00% 20.00% 15.00%10.00% ACTUAL SALES GROWTH/GDP GROWTH

EARNINGS RETAINED

5.00% 0.00%ACTUAL SALES GROWTH

RATIOS

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Project report15.00%10.00%

5.00% 0.00%-5.00%

-10.00%% GROWTH IN GDP QOQ % GROWTH IN S LES T I

Thus we see Cyclic trend in the year long sales of the TCI.

25.00% 20.00%15.00% 10.00% 5.00%

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Thus there is slight correlation in the GDP and Sales Growth of the company.

Balance Sheet: Profit and Loss Account: Cash Flow Statement: FCFE:

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0.00%

% GROWTH IN GDP YOY % GROWTH IN S LES T I

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Analysis:The company Transport Corporation of India is doing good and would be a key beneficiary of the Economic growth and consolidation of the logistics sector.

But the stock is over priced at the RFR 8% and Risk Premium of 7%. Also the Beta of the stock is high at 1.5, which reduces the value of the stock. The Logistics sector is highly dependent on GDP, and the sales and overall logistics sector has a very high correlation with the GDP of the country. This may be the reason for the high Beta; since the world has undergone a financial turbulence and Indian economy is also coupled to the world economy.

Also TCI is a firm at national level, thus global markets affect the sales of TCI for the domestic demand is catered by the unorganized sector. The JV with CONCOR if it increases the profit margin of TCI would affect the valuations. But the operations are yet to start.

If the SCS and XPS operations sustain the profitability and reduce the Beta, still it would affect the valuations.

Recommendation:Wait and watch is the recommendation. Also let the price correct before investing. The RFR for foreign investors is low which makes it a lucrative stock for foreign investors. For Indian scenario we have to just invest on short term basis and move out in case of price correction for foreign investors.

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Project reportReferences:

www.tradingeconomies.com www.moisp.org.in http://www.tciscs.com www.tcil.com http://www.concorindia.com http://www.ciilogistics.com/ http://www.chartered.co.in/groupof.html http://www.indiainfraguru.com/logistics.html http://www.aqualogistics.com/case9.html http://www.pwc.com/in/en/publications/Transport Infrastructure_report.jhtml http://www.essar.com http://www.itln.in/ http://www.shahilogistics.com/newsinfo.htm http://www.shipindia.com/newsite/default.asp http://www.valuenotes.com/ http://www.bloomberg.com/markets/stocks/movers_index_dow.html http://www.activeboard.com/forum.spark http://www.moneyworks4me.com/ http://in.reuters.com/finance/stocks/overview?symbol TCIL.NS http://www.visualeconomy.com/MarketMonitor http://www.investopedia.com http://www.valuepro.net/approach/freecash/freecash.shtml http://www.quickmba.com/finance/free-cash-flow/ http://www.investopedia.com/terms/f/freecashflowfirm.asp http://www.economywatch.com/indianeconomy/ http://www.mospi.gov.in/mospi_iip.htm http://goidirectory.nic.in/ INVESTMENTS- BODIE, KANE, MARCUS & MOHANTY. FINANCIAL MANAGEMNT- I.M.PANDEY ACCOUNTING FOR MANAGEMENT- Dr.JAWAHAR LAL

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Project reportFUNDAMENTALS OF STATISTICS- S.C.GUPTA

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