Buy TCI Express Ltd For Target Rs.2,000 - ICICI Direct
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Investing in building sorting centres, automation…
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
Q4FY22 Results: In line performance. Gurgaon centre has been commercialised.
* Revenues grew 7% YoY to | 298 crore (2% volume growth)
* EBITDA de-grew 8% YoY to | 50 crore with margins at 16.8% (vs. an exceptional margin of 19.4% in Q4FY21)
* Subsequently, PAT de-grew 15% to | 36 crore (high base effect)
What should investors do? Strong FCF generation due to efficient working capital management, higher growth, better margins from newer businesses and robust capital structure, make TCI Express well positioned to maintain and strengthen its leadership position among logistics peers.
* We remain positive on the stock and maintain our BUY recommendation
Target Price & Valuation: We value the stock at | 2000 i.e. 38x P/E on FY24E EPS.
Key triggers for future price performance: Automation of warehouses is expected to provide execution with minimal human intervention, which helps in lower truck halting period and efficient warehouse management and is expected to build a strong entry barrier in the B2B segment. Such steps are expected to drive the consolidated EBITDA margins above 20%+ levels.
* Newer businesses (rail express, pharma cold chain and C2C express) are expected to provide further room for margin improvement
* 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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