IGI Logo

Company Background

TCI Express (TCIEXP) promoted by Mr. D.P. Agarwal & family, managed under the leadership of Mr. D.P. Agarwal, Chairman and Mr. Chander Agarwal, Managing Director, has emerged as amongst the fastest growing surface express logistics company, offering customised solutions. It enjoys ~5% market share with pan-India network comprising of 28 sorting centres (10 owned and 18 leased), 800+ branches, servicing 40,000+ pickup and delivery points through 5,000+ containerized vehicles, covering more than 95% of PIN codes in India. TCIEXP also specializes in international air express serving 202 countries.

Investment Rationale

Robust performance with rise in volumes

* During Q2FY22, TCIEXP reported net sales of Rs 2,734.4 mn, registering a growth of 28.4% yo-y on the back of broad based recovery witnessed in the economy post second wave of COVID-19 and a successful vaccination drive thereafter, leading to improvement in business sentiments. The growth was majorly facilitated by SME segment.

* The Company witnessed volume growth of ~25% at 225,000 MT and realisation at ~Rs 12,153/MT during the quarter. TCIEXP passed on the diesel price increase entirely and further took a price hike of 1% during the quarter (It took a price hike of 2% during Q1FY22). The Company witnessed topline growth of 64.5% at Rs 4,963.7 mn during H1FY22.

* During Q4FY21, the Company launched two additional value-added services named Cold Chain Express and C2C Express (which are high margin businesses with EBIDTA margins of 20%+) to expand its service offering and create a niche for itself in new segments. In the Cold Chain Express, the Company is catering to growing demand from pharmaceuticals and frozen food packaging companies.

* Under C2C business, the Company is following multi-location pickup and delivery, bypassing sorting centres thereby, reducing truck transit time and adding value to the customers. Both the businesses, though presently at a nascent stage, have started contributing to the topline. Cold Chain Express Service has transported 10.5 mn vaccines during H1FY22. Both the services are expected to contribute meaningfully in the coming quarters.

* TCIEXP has launched another value added service of Rail Express with the intention to fill the void of expansive air express services wherein the Company will provide value added services at low cost (1/3rd of air freight) and will cater to B2B segment, in line with TCIEXP’s asset light model. This is a high margin business with ~20% margins at EBIDTA level. With the introduction of this business vertical TCIEXP has become the fastest growing multimodal express service company in India. The Rail Express service has started gaining traction among its customers.

* The Company also has also added 15 new branches during the quarter mainly in the Southern and Western regions to cater to the growing business demand from SME customers. The Company has further plans to open another 200-250 new branches in next two years.

* With clear strategic direction, the Company is well positioned to drive growth in the coming years. We have built in a revenue growth of ~33% (on the back of lower volume base),~18 and ~17% for FY22E, FY23E and FY24E respectively keeping in view TCIEXP robust track record and expectation of rise in economic activities going forward.

EBIDTA Margins to remain in the vicinity of ~19.5%

* During Q2FY22, EBITDA margins increased by 126 bps y-o-y at 16.6%, on the back of increase in capacity utilization at 85.5% vis-à-vis 83.5% during Q1FY22 due to growth in key service areas of the Company, improvement in overall efficiencies, high demand due to on-going festive season and increase in footprint due to increasing branches. The Company witnessed EBIDTA margin of 15.6% during H1FY22. With expected robust growth in sales volume, going forward, we expect EBIDTA margins to be maintained in the vicinity of 19.5% in FY24E.

* PAT Margin also improved significantly by 140 bps y-o-y and 180 bps q-o-q at 12.4%. Going forward, we expect PAT margins to remain in the vicinity of 14.5% during FY24E.

Construction of sorting centres in Gurugram and Pune

* TCIEXP has incurred a total capex of Rs 460 mn during Q2FY22, primarily towards construction and automation of sorting centres in Gurgaon. Construction of Pune sorting centre is completed last quarter, and is now operational. Gurgaon sorting centre (with a capacity of 2 lakh square feet) is expected to be operational by Q3FY22. TCIEXP is automating its Gurgaon sorting centre to enhance its operational efficiency.

* Automation of Pune sorting centre will be taken up after the automation of Gurgaon sorting centre is over and will be spending ~Rs 500 mn in automation at these centres. Company’s objective is to invest in automation and implementation of business intelligence tools to reduce turnaround time and enhance operational efficiencies in the long run by reduction of direct cost.

* TCIEXP has become the first logistics company in India to install solar panels on its sorting centre (Pune). With plans to install solar panels in all its sorting centres we expect it to become self-sufficient to meet its energy requirements going forward.

VALUATION

* We expect TCIEXP to emerge as a strong player due to its asset-light model, focus on B2B segment with pan India presence and improving operating efficiencies led by cost rationalisation, capex funded through internal accruals, its venturing into new value-added verticals and strong balance sheet.

* We have valued TCIEXP on PE basis, assigning a multiple of 36x to FY24E EPS of Rs 58.8. Recently, the stock has rallied to an all-time high of Rs 1,813 and is currently trading at Rs 1,781. With the introduction of FY24E numbers, we recommend a ‘Buy’ on the stock with a target price of Rs 2,116 in 18 months (upside of ~19%).

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.skpsecurities.com/index.php/Disclaimer_new/disclaimer

SEBI Registration number is NOS : NSE : INB/INF 230707532

Above views are of the author and not of the website kindly read disclaimer