Fundamental Radar: 6 reasons why TCI Express could rally 20% in next 12 months

The logistics stock hit a fresh 52-week high of Rs 2,570 on 23 December 2021 but it failed to hold on to the momentum.

However, it has rallied more than 28% from its May 2022 low of Rs 1,444. The stock has recouped some losses and could scale Rs 2,250 level in the next 12 months which translates into an upside of over 20% from Rs 1851 recorded on 30 November, suggest experts.

Logistics sector is estimated at 14% of India’s GDP and is slated to grow at 8-10% CAGR over the next five years. It is a highly fragmented sector with more than 90% share of unorganised players.

“This provides immense growth potential for organised players. We like TCI Express which is our top pick from the logistics space,” Ronald Siyoni – Associate Vice President – Sharekhan, said.

“We have a Buy rating on the stock with a price target of Rs 2,250,” he added.

Ronald Siyoni – Associate Vice President – Sharekhan lists 6 factors why investors can consider investing in TCI Express for the long term:

TCI Express is India’s fastest B2B express delivery service provider following an asset light model and having 25 years of industry experience.

It has ~900 branches, 5,000 containerised vehicle vendor tie-ups, 28 sorting centres, and over 50,000 delivery locations which are difficult to replicate.

Growth in profits:

It has grown its operating and net profits at a CAGR of 23% and 28% respectively over FY2017-FY2022 despite getting affected by covid pandemic during FY2020 and FY2021.

Over FY17-FY22, it has increased the number of branches to 900 from 500, delivery locations to 50,000 from 32,000, sorting centres to 28 from 26, and customers to 2.2 lakh from 1.6 lakh.

New center:

It aims to grow its revenues at 18-20% per annum to touch Rs 2,000 crore mark by FY2025 led by client additions, doubling branch offices, and owning additional sorting centres in key metro areas.

It would be incurring Rs 500 crore capex over the next five years for setting up five new sorting centres and automating 10-11 existing centres.

New businesses:

It has added three new services viz. Rail Express, Pharma Cold Chain and C2C express. The new service is in line with its expansion strategy as an Indian multimodal express delivery firm. The new businesses are expected to contribute significantly by FY2025 end.

Operating cash flows:

It has generated on an average Rs 90 crore per annum of operating cash flows during FY2017-FY2022 while incurring over Rs 270 crore capex and consistently paying out dividends.

During the same period, it generated more than 25% RoE. It boasts of a tight working capital management with nil debt on balance sheet and cash and cash equivalents of Rs 84 crore.

Favourable government policies:

Favorable government policies are expected to aid the company in gaining market share going ahead. It expects to corner 15-18% market share from the current 7-10% over the next five years.

Valuations:

TCI is expected to benefit from strong domestic economic activity aided by its continuous expansion by setting up new sorting centres and automation of existing centres. Scale-up of new businesses and operational efficiencies would help OPM improve each year.

We expect the company to capitalise on improving infrastructure, national logistics policy, and GST to post strong net earnings growth over FY2022-FY2025E.

Currently, the stock is trading at a P/E of 37x/32x its FY2024E/FY2025E earnings which we believe leaves room for further upside considering its strong earnings growth trajectory. Hence, we have a Buy rating on the stock with a price target of Rs 2,250.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)