TCI Express is well positioned to capitalize on the growing opportunities in the domestic logistics space: SMIFS

TCI Express Ltd.

Highest quarterly sales, strong momentum to continue

TCI Express reported highest quarterly sales in Q2FY23 with revenue growth of ~13.3% YoY. Sales growth was driven by higher volumes from both Corporate and SME customers. Automation of sorting centers helped in increasing the daily capacity by reducing parcel handling time, vehicle handling time and labour involvement which resulted in enhancement of operational efficiency and helped in reporting overall margin improvement in Q2FY23. Capacity utilization for the quarter stood at ~85% improved by ~50 bps QoQ. Volumes registered a growth of ~12.3% YoY at ~2,47,000 MT. In H1FY23 company reported volume growth of ~21% YoY at 4,77,000 MT. Company added 12 new branches in Q2FY23 & 22 in H1FY23 mainly in North & West region and expects to add ~50 new branches in H2FY23. Further it plans to add ~100 new branches in FY24. Company incurred a capex of ~Rs 500 mn in H1FY23 primarily towards the purchase of land in Kolkata for setting up automated sorting center and rest towards network expansion to serve rapidly growing market. During Q4FY22, company successfully commissioned India’s first and largest automated B2B sorting center in Gurgaon, which will help in reduction in turnaround time and enhance operational efficiencies in the long run resulting into reduction of direct cost. Going forward management is confident of delivering good growth in H2FY23 with an improvement in margins and is on track to achieve annual revenue growth of ~18-20% YoY in FY23. Margins are expected to improve by ~50-100 bps over next 2-3 years, due to improvement in operational efficiencies following automation of sorting centers and company’s ability to take price increase. We remain positive on the company’s mid-to-long term potential and maintain an ‘Accumulate’ rating on the stock.

H1FY23 earnings key highlights

▪ In H1FY23 Net revenues grew ~20.9% YoY at Rs 6,003 mn. Growth in revenue was led higher volumes from both corporate as well as SME customers. Business mix for H1FY23 form corporate customer was ~49% and rest was from SME customers.

▪ Gross profit was up ~19.5% YoY at Rs 1,887 mn. EBITDA grew by ~21.9% YoY at Rs 943 mn, margins improved by ~12 bps YoY at ~15.7%. Management expects margins to improve in the coming quarters with pick up in utilisation levels.

▪ PAT increased by ~19% YoY at Rs 688 mn. Company generated cash flow from operation of ~Rs 460 mn in H1FY23 and continued to maintain a strong CFO to EBIDTA ratio of ~47%.

Long-term capex plan of Rs 5 bn over 5 years

▪ Company plans to spend a capex ~Rs 5 bn over next 5 years (FY23-FY28) which will be spent mainly towards new sorting centers, automation and enhancing technological capabilities.

Mid to long-term outlook remains positive

TCI Express is well positioned to capitalize on the growing opportunities in the domestic logistics space. The company to further strengthen its efficiencies and capabilities through automation, setting up new sorting centers, adding new branches and launch of new service. We have valued the stock at 40x Sep’24 EPS of Rs 54.2 (rollover from Mar ’24) to arrive at a target price of Rs 2,168, offering retun potential of ~14.5% and maintain an “Accumulate” rating on the stock.