'Profitability, cash flow is the mantra', says Jefferies on this Indian logistics stock with 'Buy' rating

 

Trucking fleet relationships, customer relationships, historical land bank for setting up sorting centres are the drivers of its high ROE, said Jefferies

Global brokerage visited logistics firm TCI Express’ (TCIE) automated sorting centre at Gurgaon and interacted with Chander Agarwal (CEO) and Mukti Lal (CFO) to discuss the company's business operations.

“Profitability and cash flow is the mantra even if it means lower revenue growth. B2B is 95% of revenues, with e-commerce at only 5%. Profitable business focus reflects in the 25%+ ROE and we believe double-digit revenue growth, 28% EPS CAGR in FY22-25E are upside triggers ahead," the note stated.

Trucking fleet relationships, customer relationships, historical land bank for setting up sorting centres are the drivers of its high ROEs and margin management even in an inflationary environment, as per Jefferies. 

“The stock traded at a high of 63x and average of 31x since it listed in December 2016," said Jefferies while maintaining its Buy rating on TCI Express shares with a target price of ₹2,515 apiece. 

The brokerage house believes that 28% EPS CAGR in FY22E-25E, 25%+ ROE in an industry set for high growth for organised players could see the stock re-rate further as it consistently delivers. Though, it sees excessive price competition from new age players; organised logistics market shift taking longer than anticipated as downside risks.

“Management is confident of achieving 18-20% YoY revenue growth in FY23E with margin expansion of 50-100 bps, implying 17% YoY revenue growth in the next 2 quarters. Focus remains on increasing reach through branches and picking up business particularly across MSMEs where pricing is better. 22 branches were added in 1H taking the overall number to 920+. Not growing at the cost of margins and cash flows was reiterated, even if peers are growing faster on the topline. ROE focus remains high," the note added.

TCI Express posted an about 12% rise in profit after tax (PAT) at ₹38 crore in the September quarter on account of higher income. The company's net profit stood at ₹34 crore in the corresponding quarter of the previous financial year. Its total income during July-September 2022 rose to ₹312 crore from ₹275 crore in the year-ago period.

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