IGI Logo

In-line performance; volume growth likely to improve in 2HFY24

* TCI Express (TCIE)’s 2QFY24 revenue grew 3% YoY to ~INR3.2b, in line with our estimate. Volume stood at 0.25m tonnes (+2% YoY), while realization rose ~1% during the quarter. In 1HFY24, volume grew ~3% YoY (0.49m tonnes). Utilization improved sequentially to 84%. Volumes were impacted by the shift of festival-linked demand to Oct’23. Hence, 3QFY24 is expected to witness strong volume growth.

* EBITDA stood at INR505m with margin of 15.8% (est. 16.2%). PAT came in at INR356m (5% below our estimate) with margin of 11.1%.

* TCIE generated CFO of INR385m in 1HFY24 vs. INR1.5b in 1HFY23. Total cash and bank balance as of Sep’23 were INR150m. Net working capital days stood at 23 in 2QFY24 vs. 24 in 2QFY23. ROE/ROCE for 1HFY24 were at 22%/29%.

* The 2Q performance was largely in line with our estimate. Given a softened outlook, we cut our EPS estimates by ~4%/3% for FY24/FY25. We expect a CAGR of 8%/10%/16%/16% in volume/revenue/EBITDA/PAT over FY23-25, aided by automation and branch network expansion, resulting in improved operating efficiencies. Capex of INR5b is envisaged over FY23-28 for setting up its own sorting centers and corporate office in Gurugram, Haryana. Reiterate BUY with a revised TP of INR1,700 (based on 35x FY25E EPS).

Highlights from the management commentary

* Value-added services contributed ~17% in 2QFY24, up from 15.5% in 2QFY23. Air and rail express businesses are yielding higher margins than the surface express business. The company aims to increase the contribution of valueadded services to 25% by FY25 and 50% in the next 6-7 years.

* The Auto and Pharma industries contributed ~70-80% of revenue in 2Q, while lifestyle products and apparels contributed ~10-15%.

* TCIE is on track to achieve double-digit growth in FY24 and improve its margin profile. It continues to focus on increasing its customer base, setting up new branches and developing automated sorting centers.

* TCIE has appointed Hemant Srivastava as COO of the non-surface express business to enhance value-added services such as rail express, cold chain express, etc.

Cautious branch expansion while aiming for sustainable Margin and ROCE profile

* TCIE has opened 12 new branches in 1HFY24 and aims to open another 25 branches in 2HFY24. The management will selectively open new branches depending on the pickup in the manufacturing sector.

* The company aims to achieve sustainability in margins and ROCE by enhancing its operational efficiency through tech-driven advancement. 

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412