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Focus on pan-India presence, newer service offerings

About the stock: TCI Express is a leading asset light B2B (95% of revenues) express logistics company with 28 sorting centres, 800+ owned pan-India centres covering 40000 pick-up and delivery points.

* SME and corporate clients comprise 50:50 of overall revenues

* Total 55% of revenues from sectors like auto ancillary, pharma, engineering

Q2FY22 Results: On-track commissioning of sorting centres, results in line.

* Revenues grew 28% YoY to | 273 crore

* EBITDA grew 39% YoY to | 45 crore with margins at 16.6% (vs. 15.3% in Q2FY21) due to lower higher utilisation and better cost control measures

* PAT grew 45% to | 34 crore due to strong operating performance

What should investors do? Building pan-India owned branches and sorting centres in every major city supported by IT enabled transportation infrastructure is expected to build a strong entry barrier in the B2B division.

* We remain positive on the stock and maintain our BUY recommendation

Target Price & Valuation: We value the stock at | 1950 i.e. 37x P/E on FY23E EPS

Key triggers for future price performance: Newer asset light B2B offerings from TCI Express such as Rail express, Pharma Cold Chain and C2C express are expected to contribute 25% of the topline, from the current 15%. These businesses are expected to drive the consolidated EBITDA margins above 20%+ levels.

* Automation of sorting centres (Gurgaon and Pune) is expected to halve the laden time in moving goods in and out of sorting centres (current 15 hours)

* Newer offerings expected to post EBITDA margins in 22-25% range in medium to long term

* Asset light business model, with projected 25%+ RoIC

Alternate Stock Idea: Apart from TCI Express, we remain positive on BlueDart

* BlueDart, with its premium offerings, has been a beneficiary of flight to quality trend post pandemic, which resulted in higher tonnage growth, backed by greater digital connect with customers and focus on servicing bigger customers and brands

* We remain positive on the stock due to revival in its B2C and B2B segments and a continued expansion in margin profile

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