TCI Express - Focus On Profitable Growth In B2B; Healthy Ramp-Up In New Segments: Motilal Oswal

Motilal Oswal Report

• TCI Express Ltd. has established itself as a leading logistics player with a pan-India reach, which gives the company an advantage against competition. The company focuses on the profitable business-to-business segment, which accounts for ~95% of its business. It also has a good blend of customers, with 50% of its revenue coming from small and medium enterprises and the balance from corporates. Over the years, TCI Express has developed a robust Hub-and-Spoke infrastructure, comprising over 950 owned centers across 60,000 locations in the country.

• While new segments, rail express and customer-to-customer express, are small parts of its overall business but are growing at a fast pace. TCI Express expects these high-margin segments to form nearly 25% of its overall business in FY25 from ~18% currently. After commissioning an automated center in Gurugram in FY22, the company is looking to automate the Pune facility in FY24. It would improve the turnaround time and reduce costs.

• During FY23, TCI Express incurred capex of Rs 1.25 billion, primarily for the purchase of land in Kolkata and Ahmedabad to set up new automated sorting center, a new corporate office in Gurgaon, and the network expansion by adding 35 new branches in key growing markets in the West and South regions.

• We expect TCI Express to achieve volume/revenue/Ebitda/profit after tax compound annual growth rate of 11%/13%/21%/21% over FY23-25, aided by automation and the transition from rental sorting centers to an owned model, resulting in better operating efficiency. The company plans to incur capex of Rs 5 billion over next five years for setting up its own sorting centers. It intends to have its own sorting centers in 11 cities by FY26. With targeted capex, a debt-free balance sheet and a focus on the highly profitable B2B segment, the outlook for TCI Express looks bright.

Key downside risks:

1. Any major slowdown in express logistics business and

2. Any significant market share loss due to aggressive competition.

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