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Another muted quarter

TCIE reported yet another muted quarter, with revenue/EBITDA/PAT declining 3%/17%/18% YoY and missing our estimates by 2%/6%/5%, respectively. Management alluded to macro headwinds in sectors like pharma, lifestyle and textile, as well as jettisoning of a few non-profitable customers impacting its volumes. With H1FY25 expected to be muted owing to seasonality and imminent central elections, double-digit volume growth is likely to be elusive even in FY25 for TCIE. We expect strong competitive intensity to impede TCIE’s top-line growth in the near term. Sustained network investments in automation (Pune hub commissioned) and margin-accretive new services provide comfort on margins. We cut our PAT for FY25/26E by 4%/5%, respectively, while retaining our ADD rating on account of TCIE’s efficient cost management and reasonable valuations. Our Mar-25E TP stands revised down at Rs1,150 (DCF methodology), implying FY26E EV/EBITDA of 21x and P/E of 29x.

Volumes continue to disappoint

TCIE reported a revenue decline of 3% YoY despite H2 being traditionally stronger for B2B express logistics players. Volumes declined 2% YoY for the second consecutive quarter and blended realizations decreased 1% YoY. Except for auto, Company saw no growth for its pharma and engineering verticals, whereas its textile and lifestyle verticals registered a negative trajectory. Lower contribution from SME (49% this quarter vs. 52% in previous quarter) may have led to the realization dip, in our view. Gross margin decreased by 126bps YoY, as volumes disappointed. EBITDA margin decreased by 245bps to 14.1%, due to contraction in gross margins exacerbated by negative operating leverage (7% YoY increase in employee costs). Other income increased 16% YoY, negating the increase in depreciation (16% YoY), and leading to the bottom line decreasing by 182bps on YoY basis. The company has announced a final dividend of Rs2/share, taking the total dividend to Rs8/share for FY24. The net cash on books stood at Rs 1.1bn, with capex for the year at Rs461mn. NWC days for FY24 were stable at 16.

Outlook and risks

High competitive intensity, seasonality, and upcoming central elections are likely to plague TCIE in the near term, thereby limiting its chances to deliver double-digit volume growth in FY25, in our view. Network automation plans with 2 sorting centers (Ahmedabad and Kolkata) to be constructed by FY26E and the higher contribution of new services (Rail & Air) bode well for the margin trajectory. We expect EBITDA margins to expand by 80bps over FY24-26E and forecast 6% volume CAGR with muted realizations (1% CAGR) over the same period, as competitive intensity in the B2B express segment remains elevated with the entry of new-age express operators. Strong balance sheet (net cash of Rs1.1bn), diverse customer base (50% SME), and robust cash generation (OCF as a % of EBITDA: 73%) are likely to shield TCIE during this heighted phase of competitive intensity, in our view. Key risks: Slowdown in manufacturing/overall GDP growth, pricing aggression from well-funded, new-age companies entering the B2B space, competition from PTL vendors, and shortage of labor.

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