Buy TCI Express, target Rs 762: ICICI Securities

ICICI Securities has given a buy recommendation on TCI Express with a target price of Rs 762.

Shares of TCI Express traded at Rs 560 around 12:05 pm on 2 August, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Investment rationale by the brokerage:


With the weakest topline growth in the past 10 quarters, the management of the company reduced its topline guidance for FY20 to 16-17 per cent.

The management mentioned growth has started picking up from July’19 as revenues grew nearly 15 per cent (volume growth of 12 per cent). For the full year, volume growth should reach 12-13 per cent and 4-5 per cent is expected from realisation growth.

The guidance remains impressive in what appears to be a weak external environment.

Margins showed all-round improvement. Gross margins and Ebitda margins increased 310bps and 67bps, YoY, respectively. Gross margin/te increased nearly Rs 400/te YoY (13.8 per cent YoY) while Ebitda/te increased by Rs 93, YoY, despite significant increase in employee costs and other expenses.

With the addition of 10 new branches (totaling to 710) employee costs have increased.

Management expects profitability to improve further and PAT margin to cross 9 per cent in FY20. Price hikes have been undertaken in May, 2019, the impact of the same will be visible in Q3FY20.

Capex target for FY20E has been pared down to Rs 60 crore from Rs 80 crore earlier. The reduction happened as certain approvals for a few sorting centres are yet to be received.

Out of Rs 60 crore, Rs 55 crore would be used for sorting centres in Gurgaon and Pune, and the balance for other smaller sorting centres and miscellaneous capital expenditures.

Construction of Pune and Gurgaon sorting centres is expected to complete by FY20-end and operations will likely commence from the beginning of FY21.

Future sorting centres will be centered at Chennai, Kolkata, Nagpur, Indore followed by Mumbai.

TCIE paid out its entire debt during the quarter and is a debt-free company now with a cash of Rs 10 crore. The balance capex of Rs 58 crore for FY20 is expected to be funded by internal cashflows.