Transport Corporation of India’s revenues is growing at a healthy rate, in line with a booming economy, but cost pressures are affecting its profit growth. Sales grew by a healthy pace of 20% whereas its operating margin grew marginally by about 50 basis points. Growth was led by growth in its supply chain solutions division and courier business (XPS division), which grew by 60% and 23% , respectively. The company is trying to improve its margins by focusing on more profitable areas like supply chain solutions and coastal shipping.

Rising operating costs coupled with a huge increase in interest costs have hindered profit growth. Operating expenses as a percentage of operating revenue increased to 74% this year as against 71% last year, mainly because of higher diesel prices and higher toll charges.

Interest coverage has in fact dipped to about 7 times during the current year from nine times, attributable to the higher cost of borrowings by about 200 basis points due to rate hikes by the Reserve Bank of India during the year ended March 2007.

The company has a total capital expenditure plan of about Rs 100-125 crore during the current financial year, for which it plans to issue equity. The funds will be utilised to improve scale of its high margin businesses. The management expects revenue growth in the range of 20-25%.

While operating margins for transport division are about 2.5%, for XPS (courier) division the same is about 8%, for Supply chain solutions division it is about 5% and for Seaways it is about 20%. Thus, as the last two divisions grow in size, TCI’s margins could start looking up.