Strong Buy Of TCI Express Ltd: Initiating Coverage Research Report By SMIFS

TCI Express Ltd.: A safe play in Indian logistics sector growth story

TCI Express Ltd is the leading B2B express logistics company providing door-to-door Express Distribution Services. TCI Express came into existence in 2016 with the demerger of TCI XPS from TCIL. TCI Express has built an extensive network of more than 800 branches across the country covering 708 districts. The company possesses the capacity of servicing 40,000+ pickup and delivery points through its 5000+ containerized vehicles.

TCI Express adopts a unique hub-and-spoke model fulfilling 2,500 feeder routes through its 500 express routes and 28 strategically located Sorting Centers. The network efficiencies built over past few years has led to outpace the growth in profitability (~28% CAGR) over revenue growth (~3% CAGR) during FY17-21.

TCI Express has successfully built a strong position in the B2B segment, with focus on SMEs clients (~50% revenue). Continued focus and investments on technology has enabled company to stay ahead of the competition and deliver value added services to clients. Recently, it has launched Cold Chain Express and C2C Express services. TCI Express to further strengthen its efficiencies and capabilities through automation, setting up new sorting centers and adding new branches.

We initiate coverage on TCI Express with a “STRONG BUY” rating and price target of Rs 1,832, over a period of 12-18 months, valuing the stock at 40x FY23E EPS of Rs 45.8.

 Asset light business model: TCI Express has maintained an ‘Asset light model and refrained from taking ownership of the fleet or doing large investments in building assets. This has provided greater flexibility as the WC requirement is low.

 B2B business model with diversified industry exposure: Derives ~95% of the revenue from B2B Express, which is well balanced between SMEs and corporate customers across key manufacturing industries; ~50% exposure to SMEs help to keep the utilizations high (~86%) and expansion in margins; ~60% exposure is towards industries, which are relatively immune to economy slowdown.

 Diversifying revenue stream with launch of new value added: Launched ‘Cold Chain Express Service’ aimed to cater, Pharma and Frozen Food Packaging companies, and C2C Express service to provide multi-location pick-up and delivery services. Margins in Cold Chain express business expected at ~20%.

 Automation and setting up of new ‘sorting centers’ to drive growth: Has opened 2 new sorting centers at Pune and Gurugram. Planned capex of Rs 500 million towards automation of these centers, which will result in shorter turnaround time, higher capacity utilizations, increased operational efficiencies and profitability.

 Strong guidance: Management has provided strong guidance post Q4FY21. It expect revenue to be ~Rs 20,000 million, while net profits to grow 4x in next 4 years.