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Primed for next leap in performance…

TCI Express (TCIEL) reported a strong performance, posting its highest ever EBITDA margins of 19.4%, backed by higher operating leverage, realisation hike, cost control initiatives and passing on of fuel price hike to most customers. Overall, Q4FY21 witnessed broad based revival across all major industries as reflected in the Q4 E-Way bill (up 28%), which led to strong growth in revenues. Revenues for Q4FY21 grew 18% YoY to | 280 crore, led by 15% growth in volumes to 2.3 lakh tonnes and 2.3% growth in realisation to | 12.2 per kg. The resultant EBITDA grew 2x to | 54 crore, due to 822 bps expansion in the EBITDA margins to 19.4%.

Profitability continues to soar to newer heights

TCI Express continued to post a recovery in profitability in FY21 (EBITDA margin expansion by 410 bps), in-spite of lower operating leverage (volumes down 17% in FY21), as the management employed cost control measures, realisation hikes, passage of crude oil price rise to most of the customers and continued to pick only profitable sales. The management expects the expansion in EBITDA margins to continue from here on (100 bps each year), aided mainly by volume growth, as it expects the SME sector to bounce back, as the state-wide restrictions due to pandemic subsides. It is also banking on strengthening its IT network and automating its sorting centres to save further costs and lower turnaround times.

Newer service offerings to diversify revenue streams

TCIEL has begun providing offerings such as cold chain express (for catering to pharma sector and would be asset light), air express division, customer to customer (C2C) express logistics (earned | 50 crore revenues in FY21). The company expects a meaningful ramp-up in these divisions in 12-18 months while continuously investing behind building capabilities (IT, infra, etc) for each of the divisions. TCIEL expects to infuse | 100 crore in the next two years to automate its new sorting centres at Gurgaon, Pune and also start building pan-India bigger warehouses (purchased land in Chennai and is finalising land parcel in Kolkata).

Valuation & Outlook

Rising competitiveness in the sector has left TCIEL unscathed, primarily due to the company’s relentless focus on building its moat in the B2B segment by having owned branch offices, delivery to 40000 locations, focus on MSME and SME clients, continued investments in building IT networks etc, which helps the company in having control over user experience and providing value added services to clients. The management further intends to strengthen its capability by automating its warehouses and providing innovative C2C services, express rail logistics, along-with investments in newer geographies (100 new branches and three to four bigger warehouses). We value TCIEL at 28x P/E with a target price of | 1400 (earlier | 1150). We maintain our BUY recommendation.

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