TCI Express - Strength of business model comes to the fore - ICICI Securities

TCI Express (TCIE) has reported better-than-expected operational performance with EBITDA of Rs20mn against EBITDA loss of Rs70mn expected. Topline was lower than expected at Rs887mn (down 65%YoY); I-Sec Rs1,000mn. The flexibility of the asset-light operational model which comes to the forefront, with gross margin at ~35% (against 27.7% YoY), and other expenses reduced by 37% YoY, allow TCI Ex to report a positive EBITDA. Not only did EBITDA surprise, cashflow has also thrown in a positive surprise with Q1FY21-end cash balance at ~Rs700mn. This is despite TCIE incurring Rs170mn of capex. The QoQ increase in cash balance, from Rs 372mn to Rs700mn, is on account of reduction in receivables. We maintain BUY with a target price of Rs819/share.

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- Topline at Rs887mn was down 65% YoY. This was mainly driven by 68% decline in volume, while TCIE could increase realisation by 7% YoY (and 15% QoQ). While some part of the QoQ increase is to account for the sharp increase in excise and price hikes for diesel, clearly, the price increases undertaken paved the way for gross margin to expand materially. Gross margin increased 480bps QoQ and 714bps YoY. Also, Q1FY21 clarifies a lot of doubt on the nature of contract TCIE have with truckers. Capacity utilisation on routes operated and trucks plying increasing from 83-84% to 88/89% YoY.

- Asset-light model helps maintain positive EBITDA even while revenues decline 65%. The merits of an asset-light model come to the fore in Q1FY21. As highlighted by the management in Q4FY20 concall, the current work contract with truckers is quite flexible and linked to load rather than guaranteed/committed utilisation. Also, the management did guide to reduce 5-7% employee cost and 20% other cost (including travelling, selling and marketing). Q1FY21 scores high on all fronts as we see employee costs reducing ~27% YoY and other expenses reducing ~37% YoY. A major part of other expense reduction, in our estimates, will be waived off/renegotiated rentals. To what extent TCIE can retain them for the year needs to be seen.

- Maintain BUY. Trucking has been worst hit; utilisation has recovered to 75/80% in July. April and May have seen negligible volumes for trucking, while June utilisation improved reaching 50-60%. Current industry utilisation is 75-80%. Leveraged asset- heavy players continue to face meaningful distress and we expect truck possession to see a sharp spike once the moratorium on EMI payments end in Sept, 2020. In this pandemic-hit Q1FY21, two trends were clear - increasing share of rails even in EXIM container trade and relatively better positioning of stronger balance sheet organised sector road transporter. Both the trends are structural and will accentuate with the advent of DFC and determine our rating rationale on TCIE.

Shares of TCI Express Ltd was last trading in BSE at Rs.688 as compared to the previous close of Rs. 679.2. The total number of shares traded during the day was 2517 in over 357 trades.

The stock hit an intraday high of Rs. 693.3 and intraday low of 671.65. The net turnover during the day was Rs. 1706701.

Source : Equity Bulls

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