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Weak print; volume recovery imperative

TCI Express (TCIE) continues to face industry-level headwinds impacting both, SME and institutional customers, and resulting in Q4 revenue declining 3% YoY. Per the management, FY25 EBITDA margin has contracted owing to i) inflationary pressures in toll and labor charges, ii) lower network utilization owing to weak volume, and iii) investment in new services. While the management is taking corrective steps and has given guidance for volume growth of 7-8%, we expect a muted 4% volume trajectory over FY25-28 owing to elevated competitive intensity and the challenging external environment. TCIE’s investment in automation, while being beneficial in the long term, would keep return ratios and margins under pressure, especially given the current tepid environment, in our view. Baking in the Q4 miss, we cut our EBITDA/PAT estimates by 5% each for FY26. We retain REDUCE with unchanged Mar-26E TP of Rs650 (DCF methodology), implying FY27E EV/EBITDA of 14x and P/E of 22x.

Challenging environment

TCIE reported revenue decline of 3% YoY in Q4FY25. SME contributed 48% of the revenue, with big customers contributing the balance. Volume declined 1% YoY – the sixth consecutive quarter of decline; blended realizations were down 2% YoY. Owing to the dip in revenue, gross margin continued to contract (down by 330bps YoY) as truck utilizations slipped further (82.5% vs 83.5% in Mar-25). EBITDA margin decreased by ~560bps YoY to 8.5% YoY, due to contraction in gross margin, exacerbated by negative operating leverage (6%/15% YoY increase in employee costs and SG&A expenses). Other income increased 2x YoY, negating the increase in depreciation (22% YoY). PAT declined 39% YoY. Capex spend for the year stood at Rs444mn on account of branch additions and construction of sorting centers. The company announced final dividend of Rs2/share.

Call highlights

1) The management gave guidance for volume growth of 7-8% and revenue growth of 10-12% (aided by price hike) for FY26, with higher focus on high-yield business and improving utilization (particularly in East India). 2) The management alluded to margins having bottomed out; it expects recovery in coming quarters which would lead to margin expansion of 150-200bps in FY26 on the back of its cost rationalization initiatives and planned price hikes. 3) TCIE is planning to build a network of 10 automated centers by CY30, to benefit from material cost savings. It is on track to add 2 centers – at Kolkata and Ahmedabad, by FY27. 4) The company plans to add 80 branches in FY26 (will aid 2- 3% volume growth), divided equally between surface and rail. 5) The management does not intend to focus on e-commerce due to poor profitability and targets increasing its SME mix back to 50% (from 48% currently), as it hopes for a gradual recovery in this space.

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