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Weak operating performance yet again; outlook remains soft

• TCI Express’s (TCIE) 1QFY26 revenue declined 2% YoY to INR2.9b (-7% QoQ), 9% below our estimate. Volumes declined ~1% YoY in 1QFY25, impacted by slower growth in the SME segment.
• EBITDA stood at INR281m (-14% YoY/+7% QoQ), 17% below our estimate. EBITDA margin came in at 9.8% in 1QFY26 vs. our estimate of 10.7%. Higher employee and other expenses resulted in lower margins
• Weak operating performance resulted in APAT decline of 13% YoY to INR195m (flat QoQ) vs our estimate of INR242m.
• Management expects 8-9% tonnage and 11-12% revenue growth in FY26. However, the margin expansion target may face challenges from persistent cost pressures, inflationary labor expenses, and relatively lower margins in the international air express segment. The planned capex of INR2b over FY26-27, largely for sorting center automation and network expansion, along with dependence on higher-margin multimodal segments, could pose risks if demand recovery is slower than anticipated.
• 1QFY26’s performance was impacted by soft demand in certain industrial segments, coupled with elevated freight rates and compliance-related costs, despite stable capacity utilization and cost discipline in Surface Express. We cut our EBITDA/PAT estimates for FY26 by ~7%/8%, respectively, to incorporate the weak 1QFY26 performance, while marginally reducing EBITDA and PAT estimates for FY27 by 3% each. We expect TCIE to clock a 9%/20%/22% volume/revenue/EBITDA CAGR over FY25-27. We reiterate our Neutral rating with a revised TP of INR730 (based on 22x FY27 EPS).

Highlights from the management commentary

• Volumes in 1QFY26 stood at 0.23m tons (down 1% YoY). Capacity utilization during 1QFY26 remained steady at 82%.
• TCIE commissioned three advanced sorting centers in Nagpur, Raipur, and Indore (over 0.2m sq. ft.), enhancing processing capacity and enabling faster, cost-efficient operations in Central India. Further, new branches were added during the quarter to strengthen last-mile delivery and service reach.
• Tonnage growth in FY26 is expected at 8-9%. Revenue growth is projected at 11-12%, supported by price hikes, network expansion, and growing multimodal contribution.
• EBITDA margin is expected to improve through cost optimization, higher automation benefits, and price increases, with FY27 margins guided at 15- 16%.

Valuation and view

• TCIE faces headwinds as SME demand remains weak amid high inflation and interest rates. Management expects 8-9% tonnage and 11-12% revenue growth in FY26. However, margin expansion may be limited by ongoing cost pressures, inflationary labor expenses, and lower margins in the international air express segment.
• We cut our EBITDA/PAT estimates for FY26 by ~7%/8%, respectively, to incorporate the weak 1QFY26 performance, while marginally reducing EBITDA and PAT estimates for FY27 by 3% each. We expect TCIE to clock a 9%/20%/22% volume/revenue/EBITDA CAGR over FY25-27. We reiterate our Neutral rating with a revised TP of INR730 (based on 22x FY27 EPS).

Highlights from our interaction with the management

Operational highlights

• Volumes in 1QFY26 stood at 0.23m tons (down 1% YoY).
• Capacity utilization during 1QFY26 remained steady at 82%.
• TCIE commissioned three advanced sorting centers in Nagpur, Raipur, and Indore (over 0.2m sq. ft.), enhancing processing capacity and enabling faster, cost-efficient operations in Central India.
• Capex of INR129m was incurred in 1QFY26, which was directed toward branch expansion, sorting center construction, and IT infrastructure upgrades.
• The Surface Express segment maintained stable direct costs through April-June 2025 despite elevated freight rates and inflationary labor costs.
• The company continues to focus on automation, with upcoming facilities in Kolkata and Ahmedabad to replicate technologies deployed at Gurugram and Pune.
• Multimodal express capabilities remain a strategic focus, with the contribution targeted to reach 20-22% of the total revenue over the next 2-3 years.

Segment performance

• Surface Express: The segment remained the largest contributor to revenue, driven by demand from retail, automotive, and industrial goods. A price hike of 0.75% was implemented in 1Q, with additional hikes totaling 2% expected by Dec’25. The company is targeting volume growth of ~8% for FY26.
• Rail Express: The segment saw continued network expansion and customer acquisition, delivering ~8% growth during the quarter. This was supported by cost-effective, environmentally compliant services. ? Domestic Air Express: The segment expanded its last-mile connectivity to improve reach beyond metros.
• International Air Express: The segment delivered ~33% YoY growth with over 100 tons handled in the quarter. It operates a two-way flow model, catering to a distinct customer base.
• C2C Segment: The segment grew 14% YoY, driven by new customer acquisition and adoption of customized delivery solutions. It enhances operational efficiency through route optimization and improved return-node utilization.

Guidance

• Tonnage growth in FY26 is expected at 8-9%. Revenue growth is projected at 11- 12%, supported by price hikes, network expansion, and growing multimodal contribution.
• Multimodal revenue share is targeted to rise from 17-18% currently to 20-22% over the next 2-3 years, aided by separate service networks for air, rail, international, and C2C segments.
• EBITDA margin is expected to expand through cost optimization, higher automation benefits, and price increases, with FY27 margins guided at 15-16%.
• The total capex of INR5b is planned for FY23-FY27 (likely extending to FY28), with INR2b spent to date. INR1b each is budgeted for FY26 and FY27, primarily for automated sorting centers (INR80–100m per site excluding land) and network expansion.

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