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Expect reversion in margins to 17%+ from Q2 onward

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

Q1FY23 Results: Margins took a hit due to seasonality.

* Revenues grew 30% YoY to | 290 crore (flat volume growth)

* EBITDA grew 30% YoY to | 43 crore with margins at 14.7% (vs. expected 16% margins)

* Subsequently, PAT grew 31% to | 31 crore (low base effect)

What should investors do? Asset light business, with IT enabled owned branches, keeps at the business operations at optimum levels and aligned to the company strategy of providing customised express solution to its customers. It makes 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 | 1950 i.e. 40x 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 Blue Dart.

* Blue Dart, 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

Q1FY23 Results: Owned branches to provide better aligned culture for winning customers

* In Q1, the company added 10 new branches in the metro cities, primarily in the west and north region 

* Revenue mix was driven equally by SME and Corporates

Q1FY23 Earnings Conference Call highlights

* The board has also approved buyback amounting to | 75 crore through open offer route at indicative price of | 2050, subject to shareholder’s approval

* TCI Express Pune centre has reached 40% utilisation rate

* TCI Express has added 10 new branches in Q1

* The company had launched three new services Pharma Cold Chain Express, C2C Express and Rail Express in FY22, which are seeing good acceptance among customers

* The company has incurred | 33 crore as capex in Q1 for purchasing land in Kolkata (for building a sorting centre)

* The new businesses are contributing 15% to revenues and are expected to grow to 25% in FY25

* The company expects to take a price hike of 3-4% in FY23 whereas last year it took a hike in the range of 2.5%

* Truck utilisation was at 84.5% during the quarter. The management expects 85%+ from next quarter onwards

* The management has guided for 16-20% revenue growth in the next three years

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