TCIEXP - TCI Express Limited Share Price

Management Outlook and Major Points:

Outlook:
TCI Express remains cautiously optimistic, anticipating economic recovery driven by government infrastructure investments, fiscal measures, and manufacturing growth. Key initiatives like the Union Budget's PM Gati Shakti integration (optimizing routes, reducing costs), air cargo infrastructure upgrades, and social schemes for gig workers are expected to boost efficiency and service quality. Management projects a gradual recovery in volumes, targeting double-digit growth (~10-12%) in FY26, supported by diversification into multimodal services (aiming 20-22% revenue share in 2-3 years) and focus on corporate clients.

Major Points:

1. Operational Challenges: Moderation in manufacturing PMI, muted festive demand, inflationary pressures (8-10% toll hikes, labor/transport costs), and SME sector weakness impacted Q3 volumes (-3% YoY) and margins (EBITDA margin: 11% vs. higher historical levels).
2. Strategic Shifts: Prioritizing big customers (53% of Q3 revenue) over SMEs (47%) to stabilize volumes and improve capacity utilization (82%). Automation in sorting centers (Gurgaon, Pune; Ahmedabad/Kolkata next) aims to cut costs by 30-50 bps.
3. Growth Drivers:
   • Multimodal Expansion: Rail/Air Express (17-18% of revenue) to grow via faster delivery and cost advantages over traditional air cargo.
   • International Foray: Singapore subsidiary to enhance global freight forwarding.
   • Capex: Rs. 110 crore planned for FY26 to expand branches and sorting centers.
4. Financial Resilience: Debt-free status, strong cash flow (Rs. 40 crore from operations in 9M FY25), and interim dividend (Rs. 3/share) reflect robust balance sheet management.
5. Margins: Near-term pressure from cost inflation and lower SME pricing, but recovery expected via price hikes (1% targeted in Q4) and volume normalization post-elections.

Risks: SME sector recovery, global economic headwinds, and competitive pricing dynamics remain key watchpoints.

What has been the volume growth for this quarter?
Volume declined by 3% in Q3 FY25, attributed to reduced SME activity, muted manufacturing demand, and lower festive-season freight movement.

How are Q4 and margins expected to shape up amid persistent challenges?
Q4 volumes remain uncertain due to ongoing macroeconomic pressures, though partial price hikes (1% target) and cost management may stabilize margins. Margins face pressure from elevated toll, labor, and air freight costs, but gradual recovery is anticipated post-volume normalization.

Have competitors implemented price hikes, and why hasn't TCI followed?
Competitors' price hikes reflect inflationary adjustments rather than volume growth. TCI prioritized SME support during their downturn, delaying aggressive hikes for large clients until Q4. SME pricing flexibility remains constrained.

Is the 1.5x GDP growth target for logistics still viable?
The 1.5x GDP target holds long-term, but FY25 is an exception due to manufacturing slowdown and service-sector-driven GDP. Recovery is expected post-FY25 as manufacturing regains momentum.

What were January's volume trends, and what price hikes were implemented?
January saw volume improvement, but sustainability depends on March performance. Price hikes targeted large customers (~1% overall impact), with SME hikes deferred due to their financial strain.

Why invest $7.5M in Singapore amid domestic Capex cuts?
The Singapore subsidiary focuses on global freight forwarding to complement Indian operations, funded incrementally (10"“15% annual cash flow). Domestic Capex (sorting centers, automation) remains prioritized, with no overlap in funding.

Are you shifting focus to corporate clients over SMEs?
Temporarily prioritizing corporate clients to offset SME volume declines and improve truck utilization. SME focus will resume post-recovery to maintain a 50-50 revenue mix.

Why hesitate to pass cost inflation to SMEs?
SMEs, facing high borrowing costs and weak demand, are granted pricing relief to preserve long-term relationships. Cost inflation (200 bps) is manageable, with margin recovery tied to volume normalization.

What is the FY26"“27 branch expansion plan?
50"“75 branches in FY26 and 75"“100 in FY27, focusing on SME and Multimodal Logistics support. Expansion aligns with volume recovery and automation rollouts (Ahmedabad/Kolkata hubs by FY27).

What is Rail Express's contribution and differentiation?
Rail Express (17"“18% of revenue) offers 2"“3-day delivery at 25% of air freight costs, serving time-sensitive B2B sectors. It complements Surface Express without cannibalization, targeting niche demand.

How will Dedicated Freight Corridors (DFCs) impact Surface business?
DFCs focus on bulk/commodity transport, not door-to-door express logistics. TCI may adopt rail for mid-mile if service efficiency improves, but Surface Express remains core for last-mile delivery.

What sectors drive volume weakness, and when will normalization occur?
Lifestyle, engineering, and electronics sectors lag due to muted demand. Normalization is expected post-FY25, aided by potential rate cuts, inflation easing, and post-election economic momentum.

What is Multimodal's revenue target and margin outlook?
Multimodal (Air/Rail) aims for 22% revenue share in 3 years, with margins slightly above corporate-focused Surface Express. Growth will stem from rail's cost advantage and air's premium service.

How has automation impacted costs?
Automated sorting centers (Gurgaon/Pune) cut processing time and costs by 30"“50 bps. Ahmedabad/Kolkata automation (FY27) will extend efficiency gains, supporting margin recovery.

What is the international expansion strategy?
Singapore subsidiary will facilitate global freight forwarding, leveraging existing agent networks. No near-term revenue targets, but the focus is on inbound/outbound synergies with Indian operations.