IGI Logo

Ticking all the right boxes

We reiterate our Buy rating with a revised TP of INR2,130, implying a potential upside of 25%. Our investment thesis is premised on: a) its presence in the high margin B2B Express segment, b) investment in value-added areas like sorting centers, c) entry into niche and highly profitable segments, and d) a debt free Balance Sheet.

TCIE is a well-established player in the Express Logistics segment, with a pan India presence and catering to 95% of pin codes. It has a well-diversified client base with a focus on the high margin B2B space (95% share)

With a lease-based model for most of its required assets, TCIE enjoys greater operational flexibilities and generates a better return on assets. It is investing in sorting centers, which will usher a higher level of automation and better efficiency. TCIE has just operationalized its Pune sorting center, while its Gurugram center will be operational in 4QFY22

In recent times, TCIE has entered into newer segments like Rail Express, Cold Chain Solutions, and Customer-to-Customer (C2C) Express. This will increase its addressable market and generate a similar or better margin.

We lower our FY23/FY24 EBITDA estimate by 5%/2% and earnings estimate by 4%/1% to factor in the expected increase in fuel price in the near term. We expect TCIE to clock a revenue/EBITDA/PAT CAGR of ~22%/28%/27% over FY21-24E. The recent stock price correction provides an attractive entry point in our opinion.

Volumes back to pre-COVID levels, with strong festive demand; new segments to aid future growth

The easing of restrictions and robust festive demand resulted in a strong pickup in volumes over the last few months. Improved volumes and tighter cost controls aided margin performance (EBITDA at 16-17% levels).

The niche segments of Rail Express, C2C, and Cold Chain are performing well. These high growth and margin segments, along with Air Express, are expected to constitute 25% of revenue by FY25 v/s 10-15% at present.

Robust industry outlook brightens TCIE’s prospects

The Express Logistics industry is expected to clock robust growth, with: a) growing demand for faster delivery, b) improved road connectivity, reducing the turnaround time, c) growth in e-commerce, and d) reforms like GST

Given its strong network, it is well positioned to capitalize on this opportunity.

Valuation and view

While branch additions and entry into newer segments will help cater to higher volumes, investment in sorting centers and automation will improve efficiency and aid margin. We derive comfort from its asset light business model, leading to a debt-free Balance Sheet and higher return ratios (~27%).

We expect TCIE to clock a revenue/EBITDA/PAT CAGR of ~22%/28%/27% over FY21-24E. The stock trades at 32x FY24E EPS. We reiterate our Buy rating, with a revised TP of INR2,130/share (40x FY24E EPS).

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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