Hold TCI Express Ltd For Target Rs. 816 - Prabhudas Liladhar Capital Ltd
Volume and margin pressure persists
Quick Pointers:
* Aiming for a volume growth of 7-8% in FY26E.
* EBITDA margin at multi-quarter low of 9.2%.
We cut our EPS estimates by 8%/12% for FY26E/FY27E and downgrade TCIEXP to HOLD (earlier BUY) amid persistent volume growth challenges and pricing pressure. TCIEXP reported weak set of results as revenues declined 3.0% YoY to Rs3,075mn (PLe Rs3,033mn) with an EBITDA margin of 9.2% (PLe 11.2%) as volumes declined for 6th quarter in a row to 255,000 MT. Pricing pressure was also evident as realization was down 1.5% YoY to Rs12,058 per ton. Given stiff competition, we expect volume and realization CAGR of 6%/1% over FY25- FY27E. However, EBITDA margin is expected to improve 430 bps over the next 2 years amid improvement in utilization levels to 84% by FY27E. We expect sales/PAT CAGR of 8%/29% (driven by low base) over FY25-FY27E and downgrade the stock to HOLD with a TP of Rs816 (22x FY27E EPS; no change in target multiple).
Revenue declined by 3.0% YoY: Revenue decreased by 3.0% YoY to Rs3,075mn (PLe Rs3,033mn) on account of lower volumes. Gross margin declined to 28.3% (PLe 28.9%) due to below par fleet utilization (82.5%).
EBITDA margin at 9.2%: EBITDA decreased by 37.2% YoY to Rs282mn (PLe Rs341mn) on account of higher operational expenses like toll tax and labor cost. EBITDA margin compressed to 9.2% (PLe 11.2%). PAT for the quarter was flat at Rs207mn (PLe Rs225mn) with a margin of 6.7%
Con-call highlights: 1) The domestic air express segment has mapped 1,000 pin codes to widen its distribution network for faster delivery. 2) Volume in 4QFY25/FY25 stood at 255,000/995,000 MT respectively. 3) A 3% price hike is projected for FY26E. 4) 80/100 branches are expected to be opened in FY26E/FY27E, with an even split between the surface segment and air & rail segment. 5) For FY26E, capex is pegged at ~Rs0.8-1bn. 6) Volume growth target for FY26E is ~7-8%, with value growth estimated at ~10-12%. 7) The customer mix for the year is as follows: 48% - SMEs and 52% - Corporates. 8) Margin for FY26E is estimated to improve by 150-200bps. 9) For FY25, margins contracted by 250bps, primarily due to higher toll and labor costs (100bps), lower tonnage and utilization (100bps), and elevated network costs (50bps). 10) Capacity utilization was 82.5% for FY25 (83.5% in FY24). 11) April’25 and May’25 have witnessed low single digit growth in terms of tonnage. 12) Cost of installing one sorting machine ranges between ~Rs200mn-250mn.
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