ICRA reaffirms Commercial Paper rating of TCI Express Ltd

ICRA Limited (Credit Rating Agency), has reaffirmed credit rating in respect of TCI Express Limited's Commercial Paper Programme as "A1+".

The rating reaffirmation continues to factor in the strong operational performance of TCI Express Limited (TCI Express), with the company continuing to benefit from its established brand strength, geographic diversification, integrated operations and continued focus on investment in infrastructure and technology in the express distribution business. Despite a moderation in earnings in Q1 FY2022 led by the challenges brought about by the COVID second wave, TCI Express reported a healthy recovery in scale of operations aided by its resilient business model. TCI Express reported revenues of Rs. 1,081.0 crore in FY2022 (a YoY growth of 28.0%) and Rs 292.4 crore in Q1 FY2023 aided by pickup in economy activities and consequently higher demand. The operating profit margin improved slightly to 16.2% in FY2022 from 15.9% in FY2021 aided by improved operational efficiencies. An expectation of a continued improvement in industrial activity, resulting in better load availability for the company, is likely to help it record a healthy revenue growth over the medium term. Further, a gradual structural shift in preference towards organised fleet operators especially post goods and service tax (GST) and E-way bill implementation; coupled with the incremental revenues from the company's new service offerings, the Rail Express, the Cold Chain Express and the C2C Express, are also expected to support its growth prospects over the medium term.

TCI Express continues to have a healthy proportion of contracted business (~75% of overall revenues), which provides adequate revenue visibility, even as the fragmented nature of its business leads to stiff competition. Although the company's presence is limited to the express distribution business, it enjoys a diversified customer and segment profile, which insulates its business to an extent from a demand downturn in any industry. The assigned rating also favourably factors in its strong financial risk profile as characterised by a conservative capital structure, strong liquidity profile and robust return (RoCE of ~36% in FY2022) and debt coverage indicators (interest coverage ratio of 192.0 times in FY2022). Given its asset-light model, the company does not own any fleet and relies on the fleet hired from attached business vendors. This provides the company with the flexibility to manage its fleet requirements during downturns and helps retain its profitability and return indicators. Additionally, the working capital intensity in the business continues to remain at moderate levels, which has helped the company maintain a strong liquidity profile.

TCI Express has capex plans (Rs. 80-100 crore per annum) for strengthening its infrastructure, and towards automation and expansion of the company owned/operated sorting centres. The capex is likely to be primarily funded through its expected cash accruals, thereby helping TCI Express keep its dependence on external borrowings at low levels. ICRA would continue to monitor the company's ability to manage its working capital cycle and liquidity profile, as its operations scale up further.

Source : Equity Bulls

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