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NSE Sep 28, 2020 15:31 PM
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TCI Express Ltd.    
05 Dec 2019
TCI Express has the advantage compared to its competitors

by Suhani Adilabadkar

TCI Express had reported strong September quarter results, showing  resilience despite slowdown concerns. The stock has gained 24% over the past one year and more than doubled investor wealth in the last five years.

TCI Express casts a wide web: it is one of India’s leading express logistics companies with the largest hub and spoke network, and offers express delivery solutions both domestically and internationally. The firm provides services, including surface express, reverse express, domestic and international air express and e-commerce express for automotive, pharmaceutical, retail, engineering, apparel, e-commerce and other industries. It has nearly 40,000 pickup and delivery points with about 5,000 containerized vehicles. 

Over the years, the company has expanded its coverage to almost 95% of India’s pin codes, with a network of 28 sorting centres, 500 express routes, 2,500 feeder routes and 700 branch offices.

Quick notes

  • Revenue from operations jumped 9% and operating profit stood at Rs. 31 crore rising 12.5% YoY in Q2FY20.

  • Profit after tax was Rs. 26 crores increasing 60% YoY and 42% sequentially. 

  • The company expects volume growth of about 10-11% in FY20. 

  • TCI Express has outlined capex of Rs. 400 crore in the next 5 years. 

  • The company has become debt free in the June quarter of FY20. 

Double digit profit growth in the September Quarter 

TCI Express reported good numbers for September FY20, with PAT and operating profit seeing double digit growth and revenue growth stable at 9% YoY. Revenue from operations was reported at Rs. 270 crore, compared to Rs. 247 crore in the same period last year. The jump was driven by an increase in SME customers. 

Operating profit stood at Rs. 31 crore compared to Rs. 27 crore in Q2FY19, growing 12.5% YoY with margin coming out at 11.4% expanding 36 bps YoY aided by operational efficiency and better working capital management. 

Profit after tax was Rs. 26 crores in Q2FY20, increasing 60% YoY against Rs. 16 crore the same quarter last year. Commenting on the September results, Mr. Chander Agarwal, MD, TCI Express said, “Despite the headwinds, we were able to deliver robust growth which can be attributed to our unique value proposition, strong partnership arrangement with vendors and support from our growing and diversified client base of SMEs”.   

At an advantage compared to competitors

The express logistics industry owes its origin to the United States. After the deregulation of air cargo transportation in the US in 1977, the express cargo industry witnessed phenomenal growth, expanding into other parts of the world, including Europe by the 1980s and other developing countries.

Express logistics provides guaranteed, fast, on-demand, integrated door-to-door distribution services. The industry has evolved from delivering parcels and documents to distributing specialised high-tech products using airways, roadways and other modes of transport for deliveries in the shortest possible delivery. The services offered include door-step pickup and delivery, domestic and international air express and reverse express i.e transfer of goods from end user to manufacturer.  The major industries which utilize these services are auto components, apparel and lifestyle, electronics, medical equipment and pharmaceuticals. 

In the Indian landscape, the major express players are market leader Blue Dart, FedEx, Gati and market runner up TCI Express.Blue Dart has seen its growth dented by the slowing e-commerce segment, its core air express segment hit by faster growth in surface express and high capex outlays. The stock is at its 52 week low with revenue growth stagnant and PAT declining 34% YoY in Q2FY20. Gati, another important player reported negative PAT of Rs. 10 crore and revenue declining 6% YoY in September quarter FY20. The stock has declined 30% over the past one year, and has recently gained only on murmurs of AllCargo Logistics acquiring a controlling stake. 

Runner up TCI Express on the other hand, has been seeing strong growth momentum, adding new branches, outlining aggressive capex plans for the next 5 years, adding new SME customers, expecting double digit volume growth and strong margins in FY20. 

As per the TCI Express management, the company is cautiously optimistic on the domestic economy. The company managed to report strong numbers even though July and August business were impacted by floods and the J&K shutdown. With respect to slowdown concerns, the company has seen a pick-up in all its verticals including its auto parts segment which is doing well. Speaking on strong growth momentum of the company, Mr Chander Agarwal said, “We are expecting double digit growth and strong bottom-line for H2”. He further added that volume growth is expected to be around 10-11% in FY20 and for EBDITA margins, target is to improve 100 bps every year and reach 15% EBDITA margin level in the next three years. 

TCI Express has added 15 new branches during the quarter, 25 in H1FY20, and aims to add another 40 branches in H2FY20 with the objective to penetrate in metro cities and tap more SME customers. The company has also outlined robust capex plans for FY20. Annual capex target is Rs. 80 crore and roughly Rs. 400 crore in the next five years mainly for investment in sorting centres and for automation, and enhancing technological capabilities. 

Adding more on sorting centers, Mr Agarwal said, “During the quarter, we held an official ground-breaking ceremony for our two new sorting centres at Gurgaon and Pune. Construction of the new 2 lakh sq.ft. sorting centre at Gurgaon and 1.5 lakh sq.ft. sorting centre at Pune, a total of 3.5 lakh sq. ft., are expected to be completed by the end of the current fiscal year with commercial operations projected to begin from Q1 FY2021”. 

The company has 28 sorting centers in total, of which 8 are owned and the rest are on lease. It intends to convert its sorting centers from leased to owned basis and add new sorting centers in cities like Delhi, Kanpur, Indore, Nagpur and Chennai. 

In fact, TCI Express aims to double its current 2 mn sq feet sorting centre area with the earmarked capex in the next few years.  The capex outlay is being funded by internal accruals as the company generates strong free cash flows which have increased from Rs. 14 crore in FY17 to Rs. 58 crore in FY19. TCI express has become debt free in June quarter FY20. 

The company is on a strong growth path in spite of headwinds and has been able to deliver consistent growth due to its strong operational efficiency, solid partnership with vendors and diversified SME client base. 

TCI Express’ timing is encouraging. Government efforts such as the five major industrial corridors planned across 15 states, development of 15 multimodal logistic parks, increasing the length of NH to 200,000 km and making India, the largest aviation market by 2030, would help the logistics industry as a whole significantly and also augment Rs 25,000 crore express logistics market, only the fittest players would be able to use these growth levers to hasten growth in the long run. 

TCI Express Ltd. has an average target of 893.00 from 3 brokers.
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