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Our take

TCI Express enjoys the leadership position in surface logistics in India, which contributes to 86% of its revenue. Its extensive pan-India presence covers 708 districts, and services 40,000+ pick-up points through 5000+ leased trucks. Post the demerger from TCI, the company has sharpened its focus on the asset-light express logistics business. The company has an aggressive capex outlay of Rs 400Cr for five years (of which ~Rs 119Cr has already been invested in the past three years). It aims to expand its total branches from ~800 (in FY20) to ~2,000 over the next 2-3 years.

The company plans to increase its owned sorting centres vis-à-vis leased ones, a move which would further bolster its margins due to lower rental expenses. This capex will increase sorting space from 2mn sqft to 3mnsqft. We expect revenue to be hit in the near term by Covid-led economic slowdown. The industry is highly dependent on the manufacturing sector and government support, which are expected to slow down with the economy slowing down.

Valuations and recommendation

We expect that, going forth, the company would gain from its leadership position, expansion, diversification of customers, and revenue stream. Also, its superior return ratios, asset-light business model, and robust financials provide comfort.

Furthermore, it is pertinent to note that the company operates in a highly underpenetrated segment which has a high share of unorganized players (~95%); we believe this presents a structural growth opportunity that can be harnessed with limited investment, given the asset-light nature of the business. The opportunity size (large unorganized market), leadership in a stable industry, and high return ratios justify the premium valuation of TCI Express.

With increasing share of rails even in EXIM container trade and relatively better positioning of stronger balance sheet organised sector road transporters like TCI Express could benefit sustainably. This benefit could increase with the advent of DFC (Dedicated Freight Corridor).

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