E-commerce Pressure And Rising Capex Will Erode Value

Key Takeaways

• Rising competition from e-commerce platforms and tech-driven logistics startups is weakening TCI Express's market position and pricing power, putting pressure on growth and margins.
  
• Heavy investments in green technology and automation, combined with limited geographic diversification, increase margin risks and exposure to domestic economic cycles.
  
• Infrastructure expansion, revenue diversification, strong financial stability, and process optimization position TCI Express for improved profitability and reduced risk as market demand recovers.

Catalysts

Provides express delivery solutions in India and internationally.

• Increasing digitalization and large e-commerce platforms are continuing to strengthen their own in-house logistics networks, directly threatening TCI Express's long-term market share and reducing its pricing power, with revenue growth risks mounting as the company moves into more competitive B2C and e-commerce-driven segments.
  
• Stricter environmental regulations and the urgent shift to green supply chains will force TCI Express to make substantial investments in electric vehicles for last-mile delivery and renewable energy solutions, putting upward pressure on operating costs and likely compressing net margins over the next several years due to significant capex that may not be fully recouped.
  
• The company's persistently limited international presence, and focus on the maturing Indian domestic market, leaves it exposed to domestic economic slowdowns and sector cyclicality, making sustained revenue and earnings growth increasingly uncertain unless it can successfully diversify beyond India's borders.
  
• Ongoing high capex needs, with the multiyear expansion of automation and sorting centers consuming at least five hundred crore rupees over five years, create the risk of underutilization and diminishing returns, particularly as some new multimodal and air segments are operating at lower capacity and lower margins-threatening both net margin expansion and return on invested capital if volume growth continues to underwhelm.
  
• Intensifying competition from well-capitalized new players and start-ups, including those leveraging advanced automation and artificial intelligence, alongside persistent industry fragmentation, is driving fierce price-based competition and eroding TCI Express's ability to raise prices in key segments, resulting in chronic margin pressure and heightened risk of missing both revenue and EBITDA growth targets.

TCI Express Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on TCI Express compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming TCI Express's revenue will grow by 6.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.9% today to 9.2% in 3 years time.
• The bearish analysts expect earnings to reach ₹1.3 billion (and earnings per share of ₹31.22) by about August 2028, up from ₹829.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.5x on those 2028 earnings, down from 31.2x today. This future PE is greater than the current PE for the IN Logistics industry at 20.3x.
• Analysts expect the number of shares outstanding to decline by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.53%, as per the Simply Wall St company report.

TCI Express Future Earnings Per Share Growth

Risks

• TCI Express is accelerating infrastructure expansion-including new sorting centers, branch additions, and multimodal network investments-which positions the company to capture long-term revenue growth opportunities as demand recovers and industrial and retail sectors pick up.
  
• Despite recent margin compression, the company has demonstrated operational resilience by improving process automation, optimizing routes, and enhancing productivity, which is likely to support a rebound in EBITDA margins and overall profitability as network utilization improves.
  
• The company is actively diversifying its revenue streams by building multimodal capabilities and expanding into higher-growth verticals such as Air International (which grew 33% year-on-year), Rail, C2C, and is refocusing on e-commerce (B2C deliveries), enhancing long-term earnings visibility and reducing dependence on a single segment.
  
• TCI Express maintains a strong balance sheet with zero debt, robust cash flows, and an asset-light business model, allowing it to sustain capital investments and absorb market volatility, thus mitigating risks to financial stability and supporting future return on invested capital.
  
• Management remains committed to passing on cost inflation through price hikes, with successful execution of rate increases and explicit strategies in place to maintain and gradually expand margins, which may lead to improved net margins and bottom-line growth as sector conditions normalize.

Valuation

• The assumed bearish price target for TCI Express is ₹648.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of TCI Express's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1250.0, and the most bearish reporting a price target of just ₹648.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹14.4 billion, earnings will come to ₹1.3 billion, and it would be trading on a PE ratio of 26.5x, assuming you use a discount rate of 13.5%.
  
• Given the current share price of ₹674.0, the bearish analyst price target of ₹648.0 is 4.0% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.