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We recently hosted TCI Express (TCIE) for a non-deal roadshow. Here are the key highlights:

* TCIE has established itself as a leading logistics player with a pan-India reach, which gives the company an advantage against competition. The company focuses on the profitable B2B segment, which accounts for ~95% of its business. It also has a good blend of customers, with 50% of its revenue coming from SMEs and the balance from Corporates. Over the years, TCIE has developed a robust Hub-and-Spoke infrastructure, comprising over 950 owned centers across 60,000 locations in the country.

* While new segments, Rail Express and C2C Express, are small parts of its overall business but are growing at a fast pace. TCIE expects these high-margin segments to form nearly 25% of its overall business in FY25 from ~18% currently. After commissioning an automated center in Gurugram in FY22, TCIE is looking to automate the Pune facility in FY24. It would improve the turnaround time and reduce costs.

* During FY23, TCIE incurred capex of INR1.25b, primarily for the purchase of land in Kolkata and Ahmedabad to set up new automated sorting center, a new corporate office in Gurgaon, and the network expansion by adding 35 new branches in key growing markets in the West and South regions.

* We expect TCIE to achieve volume/revenue/EBITDA/PAT CAGR of 11%/13%/21%/21% over FY23-25, aided by automation and the transition from rental sorting centers to an owned model, resulting in better operating efficiency. TCIE plans to incur capex of INR5b over next five years for setting up its own sorting centers. It intends to have its own sorting centers in 11 cities by FY26. With targeted capex, a debt-free balance sheet and a focus on the highly profitable B2B segment, the outlook for TCIE looks bright. We reiterate our BUY rating with a TP of INR1,850, based on 35x FY25E EPS.

Focus on high-margin B2B space; would not venture into B2C in big way

* TCIE is generating the majority of its business from the B2B segment where customers are more sticky and driven by long-term relationships. On the other hand, customers in the B2C segment are more price-sensitive, and hence the margin profile of B2B is far superior to that of B2C.

* TCIE, therefore, focuses on the B2B segment and would only take up highmargin volume opportunities in the B2C segment.

New value-added services to augment growth

* In the past two years, TCIE introduced Rail Express, Pharma Cold Chain, and C2C Express services as part of its efforts to enhance its value proposition while adhering to an asset-light model. These services have received significant attention and have contributed to the expansion of TCIE's customer base.

* Among newly launched services, Rail Express is getting good traction, and the company has successfully expanded its customer base from 250 to 2,200 and presence from 10 routes to 125 routes since inception. These high-margin offerings are expected to contribute materially in the next few years.

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