Reduce TCI Express Ltd For Target Rs. 700 By Emkay Global Financial Services Ltd
TCI Express (TCIE)’s Q1FY26 results were in line with our muted expectations. The company’s efforts to diversify business beyond surface express seem to be fructifying, as international air express/C2C segments registered 33%/14% YoY growth, respectively. While margins in new services (especially air express) are lower than those for surface, we view the management strategy of growing its multimodal services toward contributing 20-22% of overall revenue in coming 2-3 years positively, given the diversification benefits. Owing to elevated competitive intensity in surface and a challenging external environment, we maintain our low expectations – only 5% volume growth trajectory over FY25-28. We believe 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. We cut FY27E/28E EBITDA by 6%/5%, respectively, factoring in the lower margins from new services, while retaining REDUCE. Jun-26E TP of Rs700 remains unchanged (basis DCF methodology), implying FY27E EV/EBITDA of 16x and P/E of 25x. Subdued performance persists TCIE reported revenue decline of 2% YoY in Q1FY26. SME contributed 49% of the revenue, with big customers contributing the balance. Volume declined 1% YoY – the 7 th consecutive quarter of decline; blended realizations were down 1% YoY. Owing to the dip in revenue, gross margin continued to contract (by 53bps YoY) as truck utilizations slipped further (82% vs 82.5% in Jun-25). EBITDA margin decreased by ~139bps YoY to 9.8% YoY, due to gross margin contraction and exacerbated by negative operating leverage (2%/5% increase in employee cost/SG&A expenses). The increase in other income by 65% YoY more than offsets the rise in depreciation (up 4% YoY). PAT fell 13% YoY. Q1 capex stood at Rs129mn, mainly for branch additions. Call highlights 1) The management guided to volume growth of 8-9% (up by 100bps) and revenue growth of 10-12% (aided by price hike) for FY26, driven by reduced uncertainty and improved visibility vs FY25. It also aims for double-digit volume growth in FY27. 2) The management is optimistic about improving its margin trajectory starting Q3, led by price hikes (75bps taken in Q1 and another 75bps planned for Q2) and higher focus on its multi-modal business with an independent team. 3) TCIE has spent Rs2bn in the last 3 years, of its planned Rs5bn capex for 5 years. It expects to spend another Rs2bn within 2 years, predominantly on its automated centers (one center each added in Nagpur, Raipur, and Indore; it is on track to add 2 more centers by FY27). 4) TCIE added 10 branches in Q1 and 3 in Jul, with a major addition planned for Sep, progressing toward achieving its goal of adding 80 branches in FY26. 5) SME mix improved to 49% in Q1 (48% in FY25), moving closer to its long term goal of 50%. 6) Volume in Q1 stood at 0.23MT with network utilization of 82%. 7) Higher competitive intensity in international air express also impacted margins in Q1.
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