TCI Express - In-line result; continue to exhibit pricing power - ICICI Securities

TCI Express (TCIE) has reported an in-line operational performance in Q2FY21 with EBITDA of Rs326mn. Topline was down ~21% YoY, due to ~23.5% decline in volumes and ~3% increase in realisations. The flexibility of the asset-light operational model comes to the forefront, with gross margin at ~32% (up 356bps YoY). Further EBITDA margin increased 400bps YoY as TCIE could reduce other expenses by ~30% YoY. Net cash balance continues to improve QoQ, from 700mn end Q1FY21 to Rs 870mn end Q2FY21. Favourable working capital movement (reduction of receivables) and lower-than-guided capex have ensured Rs551mn of FCF in H1FY21. We maintain BUY with a revised target price of Rs1,007/share (Rs878/share earlier).

Conference call on Tuesday, Nov 3, 16:00 hrs IST.

- Topline at Rs2.13bn was down 21% YoY. This was mainly due to 23.5% decline in volume, while TCIE could increase realisation by 3% YoY. While some part of the QoQ increase is to account for the price hike in diesel, the price increases undertaken paved the way for gross margin to expand. Gross margin increased 356ps YoY to 32%. Volume is likely to recover over Q3/Q4FY21, and in the process, we expect some dilution in elevated gross margins.

- EBITDA margin at 15.3%, up nearly 400bps YoY. While sectoral volumes failed to recover fully in Q2FY21, the extent of pricing power embedded in the model is evident. Apart from expansion in gross margins, TCIE has also ensured to reduce costs meaningfully - employee costs reduced by 16% YoY, other expenses reduced by 30% YoY. Costs effort has resulted in better EBITDA margin.

- Guidance suggests significantly higher capex in H2FY21. Significant release in working capital has ensured increase in net cash balance (including current investments) to ~ Rs 870mn in Sep, '20 from Rs412mn end Mar,'20. Capex in H1FY21 is Rs152mn, meaningfully lower than the guided capex of Rs800mn in FY21. The Pune and Gurgaon sorting centre expansion is expected to complete by FY21 which should lead to higher capex in H2FY21.

- Maintain BUY. Trucking has been meaningfully impacted on account of Covid-19 pandemic; utilisation has recovered to 75/80% in July and has stabilised at 85% by the end of the quarter. We continue to highlight two trends in the sector- increasing share of rails even in EXIM container trade and relatively better positioning of stronger balance sheet organised sector road transporters i.e. players like TCIE. 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.767.75 as compared to the previous close of Rs. 792.3. The total number of shares traded during the day was 2015 in over 365 trades.

The stock hit an intraday high of Rs. 800 and intraday low of 761.9. The net turnover during the day was Rs. 1581381.

Source : Equity Bulls

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