Does this ring a bell? - “Why wait till Monday? Get your packages picked up and delivered on Sundays and holidays…”.
With the growth of e-commerce sites, frequency of our phone lighting up with a notification - ‘Your package is out for delivery…’ has also snowballed. This, along with the $10-trillion economy theme, appears to be a shot in the arm for the logistics industry.
Along with the major players ― BlueDart, FedEx, Safexpress and Gati in the express logistics market ― there is also TCI Express Ltd (TCIE), which is expanding at a handsome pace.
TCIE is a well-established player in the Express Logistics segment, with a pan India presence. TCIE offers services comprising surface, domestic and international air, e-commerce, priority, and reverse express services. It caters to consumer electronics, retail, apparel and lifestyle, automobile, pharmaceuticals, engineering, e-commerce, energy/power, and telecommunications. The company has also launched three new value-added services ― Cold Chain Express (catering to pharma and frozen food packaging companies), C2C Express (first-to-launch customer-to-customer service with multi-location pick-up and delivery), and Rail Express (to cater to B2B air cargo business).
Equipped with a well-diversified client base, the company focuses on the high-margin B2B space with 95 percent share. Approximately 50 percent of its revenue comes from small and medium enterprises (SMEs) and another 50 percent from corporate clients. Meanwhile, around 55 percent of revenues are from sectors like auto ancillary, pharma and engineering.
Standalone net sales for the quarter ended March 2023 stood at Rs 326.25 crore, up 9 percent year-on-year (YoY), while net profit rose 7 percent to Rs 38.45 crore. TCIE closed the year with the highest-ever quarterly revenue of Rs 326 crore and earnings before interest, taxes, depreciation and amortisation (EBITDA) of Rs 56 crore.
Yet the company’s stock has shed 10 percent year-to-date (YTD) but is up 10 percent in the past month. The scrip was trading at Rs 1,658.8 on June 7 at 3:17 pm on the BSE. Its 52-week high is at Rs 2,009.95.
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Why the bullishness
Several analysts believe that the risk-reward ratio for TCIE is favourable and the earnings growth trajectory is also high for the next two years.
Ronald Siyoni, Associate Vice President, Sharekhan by BNP Paribas, said he likes TCIE because the stock is valued at a premium to most of its peers on account of its presence in the high-growth express cargo business, asset-light business model, higher operating margins, low working capital requirement, lowest cost structure and high return ratios.
He added that currently the stock is valued at a price to earnings (P/E) of 35.8 times its FY24 earnings per share (EPS) estimate and 28.9 times its FY25 EPS estimate. “The current valuation provides favourable risk-reward considering its five-year average one-year forward PE multiple of 35 times,” he pointed out. He expects TCI Express to report a 24 percent compounded annual growth rate (CAGR) in net earnings over FY23-FY25, driven by a 17 percent compounded annual growth in net revenues and operating margin expansion of 225 basis points (bps).
Even as the current valuation is slightly lower than that of the past five years, there is an expectation that the company’s growth outlook and strong demand scenario could underpin TCIE’s better earnings going forward which would justify the current valuations.
“In the express business, Delhivery, Gati and Blue Dart Express are the closest listed peer companies. In the unlisted space, Safexpress is a large peer, besides many unorganised players. Allcargo Logistics is not a direct competitor; it competes with its acquired entity Gati. Mahindra Logistics has recently acquired Rivigo’s B2B express business,” Siyoni said.
Sharekhan pointed out that TCIE has been affected by a sluggish macro environment during the second half of FY23 even though it has performed well in comparison to industry peers. The continuous expansion by setting up new sorting centres and automation of existing centres, the addition of new branches and scale-up of new businesses would help net earnings grow more than 20 percent compounded annually over FY23-25, it added.
Further, Sharekhan likes the company for its strong balance sheet, healthy cash flow-generation capacity, and high return ratios. The brokerage firm has retained its ‘buy’ rating on the stock with an unchanged target price of Rs 2,070.
Meanwhile, “TCIE’s focus on the high-margin B2B Express segment provides a strong foundation for profitability and growth,” said Motilal Oswal Financial Services, adding that the expansion of its branch network in key markets with a specific focus on the SME segment presents an opportunity to capture additional market share.
Moreover, the addition of new automation sorting centres is likely to improve its operational efficiency and reduce the turnaround time, thereby enhancing its competitiveness in the market, the broking company pointed out. Motilal Oswal Financial Services has reiterated its ‘buy’ rating on TCIE with a share target price of Rs 1,780.
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Guidance
The company is looking to grow FY24 revenues by 17-18 percent YoY against 20 percent earlier, with an expectation of 15 percent YoY volume growth as compared to 18 percent earlier.
It has also guided for a 100 bps expansion in operating margin on a YoY basis to 17.5 percent, supported by a 2 percent price hike in FY24. In Q1 of FY24, almost 50 percent of the contracts come up for renewal and management mentioned that, so far, the hike has been accepted. So as and when the existing contracts come up for renewal, the company will try to get the price hike.
For FY25, TCIE has set a revenue target of Rs 1,750-1,800 crore, a little down from its earlier guidance of Rs 1,900 crore.
TCIE expects that about 50-60 percent of the revenue growth in FY24 will come from existing customers, while the remaining 40 percent will be driven by new customer acquisitions. It added that new value-added services are expected to contribute 25 percent to the topline driven by rail express and cold chain.
The volume momentum has been satisfactory across the end-use segments and TCIE has been able to maintain decent capacity utilisation levels of around 85 percent. Higher volumes have ensured a strong margin at 16 percent level.
New services currently account for 18 percent of overall sales. The management expects these higher-margin businesses (18-20 percent) to account for 25 percent of overall business by FY25.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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