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Weak volumes continue to hurt profitability

Performance below our estimates

* TCI Express (TCIE)’s 2QFY25 revenue decreased 3% YoY to ~INR3.1b (7% below our estimate), while volumes declined ~1% YoY. Volumes were hit by slower growth in the manufacturing, automobiles, and textile sectors. The quarter also saw several challenges, such as higher costs from multimodal enhancements and high inflation adversely affecting customers.

* Volumes stood at 0.25m tonnes (-2% YoY), while realization was INR12,462 per ton (down 2% YoY). EBITDA came in at INR368m with a margin of 11.8% (vs. our estimate of 13.3%). TCIE faced cost pressures in its Air Express division along with slower growth in the manufacturing, automobiles, and textile sectors, thereby adversely impacting the business. In line with weak operating performance, TCIE’s APAT dipped 29% YoY to INR252m (our est. at INR303m).

* In 1HFY25, revenue stood at INR6.0b (-3% YoY), EBITDA was INR 0.69b (-28% YoY), EBITDA margin came in at 11.5%, and APAT was INR0.48b (-30% YoY). During 2HFY25, revenue is expected to grow 10% YoY, EBITDA to remain flat YoY, while APAT is expected to decline 3% YoY.

* Weak volume growth, particularly from MSME customers, and higher costs led to a weak performance in 2Q. Management remains cautious on volume growth in the near to medium term. We cut our EBITDA/PAT estimates for FY25 by 12%/13% to incorporate the weak 1H performance and the challenges ahead. We also reduce our EBITDA/PAT estimates for FY26 by 9%/10% to incorporate the soft business outlook. We expect TCIE to clock an 8% volume CAGR and a revenue/EBITDA CAGR of 10%/11% over FY24-27. TCIE has struggled to generate volumes, which has hit growth and margins. Volume growth is likely to remain muted in the near to medium term. We downgrade the stock to Neutral with a revised TP of INR1,060 (based on 25x Sep-26E EPS).

Highlights from the management commentary

* Volumes in 2QFY25 stood at 0.25m tonnes (down 1% YoY). Slower growth in sectors like manufacturing, automobiles, and Textile resulted in lower demand, contributing to softer revenues and reduced profit margins.

* TCIE expects volume to grow in mid-single digits in 2HFY25 due to weak industry volumes.

* TCIE undertook capex of INR106m in 2QFY25 and generated CFO of INR216m in 1HFY25. The capex was primarily towards the development of branch networks, sorting centers, and IT infrastructure.

* Management expects a 20-25% contribution to revenue from new valueadded services by FY25.

Valuation and view

* Volume growth has been muted in 2QFY25 due to slower growth in manufacturing, automobiles, and textile sectors. Management remains cautious on future growth owing to the industry-level weakness.

* We expect TCIE to clock an 8% volume CAGR and a revenue/ EBITDA CAGR of 10%/11% over FY24-27. TCIE has struggled to generate volumes, which have adversely affected growth and margins. Volume growth is likely to remain muted in the near to medium term. We downgrade the stock to Neutral with a revised TP of INR1,060 (based on 25x Sep-26 EPS).

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