Expanding Air Express And Multimodal Services Will Boost Customer Reach And Service Levels

Key Takeaways

• Expansion of delivery networks and multimodal services aims to diversify revenue streams and improve margins through higher-margin offerings.
  
• Investments in automation and IT infrastructure, supported by government initiatives, are set to enhance operational efficiency and reduce costs.
  
• The company's revenue growth faces challenges from manufacturing slowdown, inflationary pressures, and shifting focus to larger, lower-margin corporate customers impacting earnings and dividend sustainability.

Catalysts

Provides express delivery solutions in India and internationally.

• TCI Express is strengthening its Air Express segment by expanding metro city delivery networks and launching direct delivery services, which is expected to improve service levels and customer reach, thereby potentially increasing revenue.
  
• The company plans to increase the revenue share of Multimodal services to 20-22% over the next 2-3 years, which could diversify revenue streams and improve net margins due to potentially higher-margin offerings.
  
• Expansion of branch networks and construction of sorting centers with automation capabilities are anticipated to improve operational efficiencies, which could lead to better net margins.
  
• Ongoing investments in IT infrastructure are expected to enhance service delivery and operational management, potentially leading to improved earnings.
  
• TCI Express plans to leverage government initiatives like access to the PM Gati Shakti database for optimized route planning and air cargo infrastructure upgrades, which could lower operational costs and enhance transit times, supporting margin expansion and revenue growth.

TCI Express Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TCI Express's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 9.0% in 3 years time.
• Analysts expect earnings to reach ₹1.4 billion (and earnings per share of ₹36.87) by about March 2028, up from ₹980.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹1.7 billion in earnings, and the most bearish expecting ₹1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.8x on those 2028 earnings, up from 26.0x today. This future PE is greater than the current PE for the IN Logistics industry at 24.9x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.03%, as per the Simply Wall St company report.

TCI Express Future Earnings Per Share Growth

Risks

• The company's revenue growth has been impacted by a slowdown in manufacturing activity and weaker-than-expected festive season demand, indicating potential challenges in achieving consistent revenue growth.
  
• Inflationary pressures, including toll revisions and increased labor and transport costs, have added to operating expenses, which could affect the company's net margins.
  
• A shift in strategy to focus more on large corporate customers due to declining SME volumes might result in lower profit margins, as larger customers typically offer lower margins compared to SMEs.
  
• Weakness in key sectors such as lifestyle products and engineering goods, along with ongoing supply chain disruptions, may pose risks to volume growth and revenue stability.
  
• Continued pressure on margins due to cost increases and challenged volume growth in the SME segment could impact the company's earnings and their ability to sustain current dividend levels.

Valuation

• The analysts have a consensus price target of ₹926.636 for TCI Express based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1370.0, and the most bearish reporting a price target of just ₹785.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹15.7 billion, earnings will come to ₹1.4 billion, and it would be trading on a PE ratio of 35.8x, assuming you use a discount rate of 13.0%.
• Given the current share price of ₹664.85, the analyst price target of ₹926.64 is 28.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.