Subdued Q4 performance; co expects 10-12% revenue growth in FY25
TCI Express’ (TCIE) Q4FY24 EBITDA undershot our estimates by 12.1%, mainly on account of underutilised capacity due to volume decline. Key points: 1) Volume declined 1.9% YoY on subdued macro environment, 2) EBITDA margin declined to 14.1% (14.6% Q3FY24), lowest since Q2FY21, 3) 25 new branches were added in FY24 (10 branches in Q4FY24), 4) new services contributed ~17.5-18% of revenue, 5) company incurred capex of INR 460mn in FY24, 6) Board has recommended a final dividend of INR 2/share, and 6) management expects 10-12% revenue growth with 50-100bps improvement in the margin in FY25. TCIE is our top pick in the logistics space and we maintain BUY on the stock with TP of INR 1,495 at an unchanged 34x FY26E EPS.
EBITDA misses estimates
TCIE’s Q4FY24 performance was below estimates, mainly due to subdued industry demand, decline in volumes which led to underutilisation of capacity. Key points: 1) EBITDA of INR 448mn (down 17.2% YoY) was mainly because of decline in volumes YoY, lower realisation/te and low gross margin/te; 2) truck utilisation was 83.5%, however, current utilisation declined to ~83%; 3) EBITDA margin declined to 14.1%, lowest since Q2FY21 as lower utilisation led to high unabsorbed costs; 4) incurred capex of INR 460mn in FY24; 5) added 25 new branches in FY24, 6) new services contributed ~17.5-18% of revenue, 7) customer mix for the quarter stood at ~51% for non-SMEs and 49% for SMEs. Going forward, we believe volume growth in H1FY25 is likely to remain muted due to election led demand slowdown.
Key positives: Sound balance sheet and focus on new services
In Q4FY24 earnings concall, the management has mentioned: i) 10-12% revenue growth for FY25, ii) initiating an annual price hike of 1-2% and iii) margin improvement of 100bps. However, we believe, price hikes are difficult due to subdued demand. Yet, we believe TCIE’s sound balance sheet, returns in excess of 20% and cash conversion of 50%, may aid the company in these turbulent times. Besides, management is focused on expanding its footprint in new services and efforts are underway to increase it to ~20% by FY25, which is likely to be earning accretive.
Outlook: Performance is likely to improve in FY25
We believe TCIE is best placed among peers in the times of lacklustre demand owing to its strong balance sheet, focus on other revenue streams and possibility of further cost efficiencies from Pune automatic sorting centre. Further, we believe volume growth in H1FY25 is likely to remain muted due to election led demand slowdown; however, the management has mentioned ~10-12% revenue growth for FY25, along with margin improvement of 100bps due to annual price hike and cost efficiencies measures undertaken by the company. TCIE is our top pick in logistics space and we maintain BUY on the stock with TP of INR 1,495 at an unchanged 34x FY26E EPS.
Key risks
Upside risks: 1) Increased tonnage with improvement in domestic manufacturing; and 2) retention of cost efficiencies obtained in FY21 as volume returns. Downside risks: 1) Increased rail share leading to a shift in business model for express players like TCIE; 2) more omni-channel developments requiring higher technology investments, and 3) a business disruption favouring startups in the space.
Leave a Reply