TCI Express: Margin show drives up Q4 numbers


– Q4 volumes impacted by general slowdown
– Operating efficiencies aided margin expansion
– Exposure to auto sector limited to 13 percent of revenues– Trading at 31 times FY20 estimated earnings


Third-party express logistics service provider TCI Express (TCIX) came out with yet another quarter of strong operational show for Q4 FY19. While top line growth was subdued due to a depressed demand environment, expansion in operating margins boosted operating profit.

Quarterly results highlights

– Revenue of TCIX for the quarter increased a mere 7 percent year-on-year (YoY) to Rs 266 crore, a fallout of muted manufacturing activity due to elections and a general slowdown in the domestic economy. The volume growth in Q4 was driven by new as well as existing clients, but was weaker than previous quarters as business segments like automobile and engineering sectors felt the liquidity squeeze.

– Operational performance continued to remain strong as earnings before interest, tax, depreciation and amortisation (EBITDA) came in 19 percent higher than last year at Rs 34 crore. Economies of scale, along with price hikes and operating efficiencies, aided the expansion in operating margin to 12.7 percent in January-March. The company enjoys strong pricing power and follows fuel surcharge based pricing mechanism with its vendors and customers, which largely insulates it from diesel price movements.

– Improvement in revenues, along with margin expansion, trickled down to bottom line, which went up 22 percent YoY.

– Finance cost for the quarter stood at Rs 0.5 crore, down more than 60 percent YoY. Repayment of debt in the second half of the fiscal year resulted in significant cost savings for the period under review. During the past 12 months, the company has repaid around Rs 32 crore of debt and the total debt at the end of March quarter stood at just Rs 9 crore. The company plans to repay the outstanding amount in the next 3 months and aims to be debt free by Q1 FY20.

– In the auto segment, TCIX generates its revenue from the transportation of spare parts and other automotive components. The replacement demand in the sector continues to be the key revenue driver and therefore, the management has highlighted that the slowdown in auto sector is unlikely to have a big impact on TCIX as it contributes nearly 13 percent to its top line.

– In FY19, the company curtailed its capital expenditure on account of election-related political uncertainty. The capex outlay for the last year stood at just Rs 19 crore, but the same for FY20 is pegged at Rs 80-90 crore and will be directed towards opening sorting centres and offices and technology upgradation.

– The management is targeting 20-22 percent revenue growth in FY20, fed by a strong volume recovery in second half of the fiscal year closer to the Diwali festive season. In our view, the targeted number appears fairly optimistic and will be difficult to achieve as the Indian economy is grappling with multiple issues such as tight liquidity, consumption slowdown and the global trade war, and a V-shape recovery seems unlikely at this point.

Outlook and Recommendation

– The demand for express logistics is anticipated to grow much faster (~2x) than the overall economic growth. Although the near-term business environment looks challenging, the medium to long-term outlook on TCIX appears fairly promising on the back of structural changes in the industry.

– Given the strong track record of execution and solid business fundamentals, TCIX remains our preferred pick in the logistics sector. However, the current valuations (31 times based on FY20 projected earnings) seems priced to perfection from a near-term perspective and investors with a medium to long-term view should look to accumulate TCIX on corrections.

Also Read: Havells India — A weak March quarter, moderation in growth outlook and a pricey stock

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