TCI Express, a logistic firm, has seen a surge in its stock price, rising from ₹487 apiece to ₹1,542 and delivering over 216% returns to investors in the last five years.
In its recent note, brokerage firm Motilal Oswal has maintained its 'buy' rating on TCI Express with a target price of ₹1,750 apiece, suggesting a 13.5% upside from the stock's previous closing price.
Motilal Oswal has identified several key factors for the company's future performance, including TCI Express's presence in the high-margin B2B express segment, and its increasing branch network in significant markets with a focus on SMEs.
Aiming on generating incremental revenues from new services like air express, rail express, cold chain express, and C2C, which accounted for about 18% of the revenues in 3QFY23.
Furthermore, the addition of new automation sorting centers that could potentially reduce turnaround time is another factor that could positively impact TCI Express's growth, said the brokerage.
TCI Express is a well-established player in the express logistics segment, with a pan-India presence and a solid Hub and Spoke infrastructure that includes more than 925 owned centers across India, servicing more than 50,000 locations across the country.
The brokerage believes that the loyal customer base of TCI Express is made up of small and medium enterprises (SMEs), which account for around 50% of the company's total revenue.
The company has recently commenced rail express service, which intends to gain market share from the air express industry by leveraging its existing network. As of December 2022, TCI Express has expanded its customer base in the rail express segment to 1750 from 250 and its presence to 125 routes from 10 routes since inception.
To facilitate business growth, the company has opened 73 new branches between April 2021 and December 2022. The company intends to establish around 100 new branches annually, leveraging upcoming manufacturing facilities and clusters of SMEs. With the expansion, the company can reach emerging markets to meet the increasing demands of SME customers, the brokerage highlighted.
TCIE aims to focus on expanding its customer base, aided by doubling branches and ramping up new value-added services, such as cold chain express, C2C express, rail express, and air express, to contribute 25% of revenues from 18% in Q3 FY23, and by owning sorting centers in major metro cities of India. With this, it expects to achieve revenues of ₹20 billion in the next few years, the brokerage noted.
Additionally, the company also aims to capitalize on the increasing demand for professionally managed service providers over unorganised players.
Management has guided for a capex of ₹5 billion over the next five years toward setting up its sorting centers and corporate office in Gurugram, Haryana. The company intends to have its own sorting centers in over 11 cities by FY26, it added.
On the downside, the company could face macro headwinds and competitive intensity in the surface express industry in the near term, which could impact volume growth and realizations.
According to Motilal Oswal, TCI Express is expected to achieve a CAGR of 11% in revenue and 19% in EBITDA and Profit After Tax over FY23-25.
12 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
