TCI Express Ltd - Decent Performance - Conference call takeaways - YES Securities

Volumes: Volumes stood at 0.18 MT during Q2 FY21 (0.24 MT in Q2 FY20), down 23% YoY. Business was affected as manufacturing units were not ready for the dispatch. Garment units still not yet opened 100%. Added new customers in the segments like auto components, pharma and engineering products during the quarter. The company expects the volumes that have gone to Rail and Air segment to move back to road as challenges like driver issues and truck availability have been resolved to large extent.

- Price: Hike of 3% taken during the quarter on blended basis

- Demand: Demand has improved with the opening up of the economy and pick up in the business activities. SME customers too, saw an improvement. September/October saw very good demand due to festive season.

- Utilisation: Overall utilization for the quarter stood at 87% of the pre-Covid levels. During the previous quarter, May utilisation was at 35%. June improved to 58%, July stood at 85% of Pre-Covid-levels. Expects improvement due to Pre-Diwali buying. The company is closely monitoring the capacity utilisation.

- Margin: The company reported gross margin of 32.2% vs 28.4 % YoY/ 34.8% QoQ. The margins improved on the back of 1) recovery in revenue 2) higher utilization 3) higher efficiency and 4) price hike. The company targets EBITDA margin of 15% for the year driven by very minimal travel, conveyance, incentives cost along with a decline in fix cost. Further vehicle rationalisation will also help in margin improvement along with some benefit of axle load.

- Costs: (1) Labor cost: The company has given the full salary to all the employees (except MD) and given Diwali bonus to all. Expects labor cost run rate of at Rs 240 mn for coming quarters. (2) Freight Cost: The company has not been affected by freight hikes taken in October as company has fixed price contract with vendors. Thus no major impact on the cost. Hikes has been more on FTL side. (3) The company has renegotiated the rentals for this year and next year.

- Capex: Incurred capex of Rs 90 mn during the quarter for the construction of two new sorting centres in Gurgaon and Pune. The Pune sorting centre construction will be completed by Q3 and Gurgaon centre by Q4 FY21 It has also opened 10 new branches in the metro cities to deepen TCI Express presence during H1FY21 and targets 30 branch addition during the year FY21 (opened 10 in H1FY21 and 10 each in Q3 and Q4). H1FY21 capex stood at Rs 260 mn, spent primarily on expansion of sorting centres and IT infrastructure. The company plans to start sorting centres at Chennai, Mumbai, Nagpur and Indore from FY22 onwards.

- New Segment: The company has entered into cold chain segment and are in talks with the agencies and government for the distribution of Covid vaccine. Currently the revenues and volumes are negligible. At present, pharma forms ~52% of the volumes within cold storage segment.

- Other Details (1) Currently cost of the rail is higher than road due to first and last-mile connectivity which needs to reduce. Mumbai-Delhi per Kg rate for Air remains highest at Rs 60/kg vs Rs 15/kg for road and Rs 25/kg for Rail. Expects volumes to return back to road soon. (3) No of e-way bills has increased on MoM basis, 48mn in July, 49mn in Aug and 57mn in Sept. (higher YoY).

Our view

- The cost cutting measures, price hikes, opening of owned sorting centres at select locations would ensure improvement in operating margin performance. We believe the asset light model would significantly benefit the Company in the uncertain business scenario. We largely retain our estimates and maintain our BUY rating on the stock for unchanged target price of Rs 936.

TCI Express Q2 FY21 summary

- Revenue declined by 21% YoY (higher 140% QoQ) to Rs 2.1 bn driven by 23-24% volume decline offset by 3% price hike. The sequential improvement was on account of strong pick-up in economic and business activities across the country. Volumes for the quarter stood at 1.8lac vs 2.35lac units

- The company reported gross margin of 32.2% vs 28.4 % YoY/ 34.8% QoQ. Operating profit also saw sharp improvement (6% YoY) to Rs 326 mn as against a Rs 20 mn in Q1 FY21 which was impacted due to lockdown. Improvement in profitability was due to cost control measures implemented, is expected to continue going forward. Operating Margins improved to 15.3% vs 11.4% YoY/2.3% QoQ.

- Higher operating profit saw APAT grow to Rs 235 mn during Q2 FY21 (Rs 261 mn in Q2 FY20). This was higher than our estimate of ~Rs.190 mn

- The management expects revival in economy to drive the growth further in Q3 FY21.

- RoE and RoCE for H1 FY21 (annualized) stood at 26.7% and 35.7%.

- 1H FY21 Gross debt stood at Rs 14 mn vs Rs 28 mn in FY20. Cash stood at Rs 875 mn vs Rs 412 mn in FY20. 1H FY21 Cashflow from Operations stood at Rs 704 mn vs Rs 811 mn in FY20 while Free cash flow stood at Rs 444 mn vs Rs 492 mn in FY20.

Shares of TCI Express Ltd was last trading in BSE at Rs.788 as compared to the previous close of Rs. 767.75. The total number of shares traded during the day was 254 in over 98 trades.

The stock hit an intraday high of Rs. 794.35 and intraday low of 775. The net turnover during the day was Rs. 199915.

Source : Equity Bulls

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