TCI Express Limited (TCIEXP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Edelweiss Securities. We cordially invite you to participate in TCI Express Q3 FY '21 Earnings Conference Call, hosted by Edelweiss Securities Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Alok Deshpande from Edelweiss Securities Limited. Thank you, and over to you, sir.

Thanks, Malika, and good afternoon, and welcome to all the participants. We have with us Mr. Chander Agarwal, Managing Director of TCI Express; and Mr. Mukti Lal, Chief Financial Officer of TCI Express, to today discuss the Q3 FY '21 results with us. Without further ado, I'm handing over the call to Mr. Chander for his opening remarks. Chander, please go ahead.

Thank you, Alok. Good evening, everybody, and welcome to the earnings call of third quarter of financial 2021 of TCI Express Limited. As this is the first time we are interacting in 2021, I would like to start the call by wishing everyone a happy new year, and I hope you and your loved ones are staying safe and healthy. Our earnings presentation have been uploaded on the website and stock exchange, and I hope that you've had a chance to review it. We will start this call with a brief discussion on industry and company's performance. And then our CFO, Mr. Mukti, will present the financial performance of the company. Continuing the trend of second quarter, third quarter of the fiscal year saw a sequential recovery in terms of macroeconomic indicators. The quarter started with a strong recovery in October with normalization in the economic activity, improved business sentiments, demand also picked up during the festive season, and MSMEs expanded their business and operations. However, in November, we saw contraction in production for coal industry, which has dampening effect on recovery of a few sectors. As per data of Index for Industrial Production, IIP, the manufacturing index listed a strong month-on-month growth of 4% in October, and subsequently declined by almost 2%. And if you look at the sectors, machinery and equipment was up 4% in October, and then declined by 7% in November. This trend was visible in key industries. This trend was also reflected in [indiscernible] generation information. In October, 6.4 crore bills were generated, while in November, the figure stood at 5.8 crores. However, in December, there was a gain, again, pickup in production and demand. With these market conditions in mind, I am pleased to report that in this quarter, company delivered revenue from operations of INR 262 crores, and EBITDA stood at INR 47 crores with margins of 18%. The company posted strong sequential growth of 23% and in revenues support from our SME customers. And we reached near pre-COVID levels. We delivered one of the best profitability margins which can be attributed to not just the control -- cost control measures and the high-capacity utilization in operations but a platform created for sustaining these costs as we go along. We believe we will be able to drive the benefits of these cost acts -- cost saving acts in the quarters ahead and continue to deliver enhanced profitability. One of the main reasons for our performance is the dedication and support of our employees, the most valuable assets of TCI Express. And we would like to inform you that beginning from October 1, 2020, salary increments have been paid to employees. We continue to move forward with our geographic and infrastructure expansion plan. We opened 10 new branches in the quarter, a total of 20 new branches in 9 months. In Q3, we incurred a CapEx of INR 15 crores for the construction of the sorting centers in Gurgaon and Pune. The Pune sorting center construction is complete. And due to delay in receiving the regulatory permission of loan, operations will commence in next quarter, in Q4 financial '21. Gurgaon center, accordingly, will be operational by first quarter of next fiscal, by Q1 FY '22. Our asset-light business model has allowed us to maintain a strong balance sheet, and cash flows were further supported by timely collection from our customers, including the SA. I would like to inform you that Board of Directors have announced interim dividend of INR 2 per share with a payout ratio of 100% on face value and 13.2% on 9 months to the year. We have recently launched the ESG profile of TCI Express on our website to transparently disclose ESG-related information. At TCI Express, a strong governance structure focusing on creating an inclusive workplace culture and implementing environmental-friendly solutions are core pillars of our business and sustainability. You can access ESG-related disclosures on our website, and we will be updating ESG profile on a regular basis. And we keep all stakeholders fully involved at all time. Looking ahead for the industry, we increased allocation of spend and infrastructure development by government as announced in the recent budget and various new initiatives to promote the manufacturing sector will have a positive impact on logistics sector. And as a company, our 2 new sorting centers that will be commissioning in 2021 will be state of the art -- with the state of the art technology, will put us in forefront to serve our customers. Now I would like to hand over the call to Mr. Mukti to discuss financial performance of the quarter. Thank you.

Yes. Thank you, sir, and good afternoon to all of you. I will discuss key highlights of financial performance we achieved in this quarter 3. In third quarter, the momentum of sequential recovery in revenue continued, and we saw recovery in demand during October due to festive season. But in the month of November, businesses and specifically few core industries were again in a graph of slowdown and after a relatively subdued month, it only started on positive path again in December. In Q3 FY 2020-'21, our revenue from operations stood at, as mentioned by Mr. Chander, it's INR 262 crore. compared to INR 213 crores in previous quarter and INR 268 crore in the same period of last year. And the company posted a strong quarter-on-quarter growth of 23% in revenue. We are now at around pre-COVID levels. And in absolute terms, EBITDA was INR 47 crore, and we were able to deliver strong margin level of 18%, which is all-time high in Q3. And it is almost just doubled to what we had in 3 or 4 years back and compared to 16% in previous quarter. So in previous quarter, we also achieved 2% more and 13% same period last year. Improved EBITDA margin was due to basically increase in revenue as we have now scaled back to pre-COVID levels. And second is higher operational efficiency due to cost control measures implemented by a company in the same path. And also due to various initiatives taken on digitalization introduced in process and businesses. And we also continue to maintain high capacity utilization among our fleet, which has further supported our margin levels. So net profit of the company stood at now again all-time high of INR 34 crore with margin of 13%. In Q3, CapEx of INR 15 crores. And for 9-month, total CapEx outlay is INR 41 crores, which is primarily used in construction of -- our ongoing construction in sorting center and automation. We continue to generate strong cash flow in 9 months cash. And 9-month cash from operations stood at INR 85 crore. And so in conclusion, I can say, bearing in mind slight subdued revenue growth on a year on basis, we had a remarkable good quarter. As we move in a new financial year, we are optimistic about the growth prospects of our company as well as economy. As businesses recover, we plan to move forward with financial discipline and prudence by focusing on efficient working capital management, strong cash flow conversion cycle and robust collections from the customers. So thank you very much, and we can now open for -- the floor for the questions and answers. Over to Alok.

[Operator Instructions] The first question is from the line of Lokesh Manik from Vallum Capital.

Just one question from my side. If you can share the revenue mix between the -- from the SME clients and from the corporates, which are mainly volume-driven for this quarter?

Yes. Sorry, I missed your last name.

Sure. The revenue mix between SMEs and corporates.

Yes. So in this quarter, we see almost 52% from the SME customer and 48% almost from the corporate customers.

All right. All right. And this is value-wise or volume-wise?

It is basically value-wise. Volume from the SMEs because, as earlier mentioned, realization per unit from SME is much higher than corporate.

Next question is from the line of Depesh from Equirus.

Congrats for good results. So if you can please give the total tonnage handled this quarter and also in the 3Q last year? And what was the total capacity of your vehicles, please?

So tonnage in this quarter is almost 2.15 lakh tonne. And last year in the same quarter was around 2.25 lakh tonne.

So sir, we have taken a price hike in this quarter was around 3%?

Yes, around 2%, we had taken the price hikes in this quarter as well.

Understood. Sir, secondly, on your gross margins, with that scaled new highs this year, congrats for that. I just wanted to check 2 things. Has your Air Express [indiscernible] that is domestic or international segment, which used to be around 9% of your revenues, has that mix changed this year? And secondly, have the distance traveled by your vehicles drop this year, which is leading to lower costs?

Not really. So ratio in Air Express is the same as what earlier one. And another thing, this travel distance is also not reduced actually because we had a standard route, and every truck has to apply on those routes. So it's really not reduced actually. Earlier we mentioned we increased the weight capacity in existing truck. So that way, actually, we gain the benefit here.

Understood. Sir, lastly, you've added around 2 -- 20 new branches in this 9 months. And also you talked about the salary increment given to employees. But if I look at your employee cost, it is still below the pre-COVID level. So how should we think about it going forward?

So in Q4, it will be more or less same. And next year, yes, as a good gesture management is thinking to give a good high to employees. So that may be reached to back on in '22, maybe reach on a '20 level, on FY '20 levels or slightly like 2%, 3% higher than FY '20.

[Operator Instructions] The next question is from the line of Krupashankar from Spark Capital Advisory.

I had a couple of questions. First 1 was on the volume growth. So clearly, last quarter, you had mentioned that there were addition of new clients. So can you specify as to whether the incremental volumes is coming from these new clients? Or is it -- or perhaps if you can perhaps throw some light on what are the key sectors which is driving the growth and what is the other sectors dragging it?

Chander, sir, would you like to give answer?

Yes. Can you repeat the question?

Sure. So what I was -- 1 thing is on the volume growth. What is driving this growth? What are the key sectors which is driving this growth? And what is dragging it? And also, what would be the contribution of new clients which were added over the last quarter?

Right. So new client base is on the, I think, at this point, about a 50-50 ratio. Usually, when the times are much better, it's 60-40. And this time, it's about 50-50. And the sectors that have really seen an uptake is machinery and tools, the pharmaceuticals, the auto spare parts. But the textiles sector, unfortunately, hasn't really come up to the levels that one would expect. And going forward, I think with the budget announced, we assume that we will also see that the textile sector comes up. So in general, all our verticals that has been in -- that we have been working with have all come back to the pre-COVID levels, except for just 1 or 2.

That's good. Can you also throw some light on how has January been? And what are the -- what is the outlook [indiscernible]?

So January, it was actually much -- was pretty much same as last year, not much difference. But obviously, no improvement also. So February looks slightly better than last year. So I think it's a momentum which is building up, consumer confidence. We know that the whole year, things would not go straightforward. It was up and down. Consumption is still below its -- below the pre-COVID levels. So I think all these temporary shock, something that we are able to sustain with our asset-light model in general, every time we are able to show better profits is because of this reason. Now once the manufacturing starts picking up, then we will see superb top line growth also.

That's good. My second question was on the change in truck dimension. In last quarter, you had mentioned that it was 40% of [indiscernible] converted to the new dimension. So what is your progress there? And have you seen any benefits of this change?

Yes, absolutely, we have seen the benefits. It is already showing in the results in the financial performance. The impact has to be -- cannot be immediate change of the entire fleet because you see the demand is also less. So if we change the vehicle capacity to higher tonnages right away, then we may incur weight loss. So that is a problem that we have to also manage, that we do -- that we calculate. It's not just a plug-and-play system where all the trucks should be just changed to a higher capacity when the demand is lower. So we had bring it very tactfully and doing it appropriately as further demand.

So any percentage which can be provided as to what would be the progress? Or is it remaining at 40% of that?

No, I think it has increased to about 45% to 47%.

Yes, it is correct, yes.

Next question is from the line of Kaushal Shah from Dhanki Securities.

So first part of the question is regarding the CapEx. So over the long period, we had a plan of around INR 400 crore CapEx for the period of 5 years, of which around INR 240 crores is what is expected to be pending. So after this Gurgaon expansion is happening, so what are the plan to that basically if you have done anything?

Mukti?

Yes. So on that, you rightly said, we still have to spend INR 240 crores. And still on automation and remaining construction part, we need to be spent around INR 70 more crore in these 2 center. And the remaining part, around INR 175 crore, we have to be spent like we are already in progress to take the approval in Chennai and in [indiscernible]. And in those, so these locations, are already in pipeline. And we are also looking forward to take the land in Mumbai and Kolkata. So these are the pipeline projects we have for the next 2, 3 years. So we are intend to spend these money in the next 2, 2.5 years.

Okay. Okay. Got it, sir. Sir, and initially, maybe on, say, 1.5 years back, we had a very aspirational target for the branch count also, expansion of branches into the Tier 1 and metro cities to around 1,700 to 2,000 branches. So right now, as if I'm not mistaken, we are at around 800 branches. So what would be the path for the expansion that we were looking at?

I think as disclosed earlier, we'll do -- double our branches in the next 3 to 4 years. So that is very well intact in our plan, and we will do it.

Okay. So this will be again in the metro and Tier 1 mostly, right?

No, Tier 2 also. And Tier 3, again, the problem is that it's very easy to open branches. But then this business volume should happen. So we are only opening where the business volumes are increasing. Now just to give you an example, for you understand, let's say, a city like Jaipur, that has only 1 branch that was open at 10 years ago. But the quantum of business or the number of SMEs has gone up drastically. So we would need a second branch there. So that would give us a better coverage and better business growth also. So I assume that the growth will also come from opening these branches. If we plan to double our business in the next 3 years or 4 years, these branch expansion will assist in that and also maybe possibly help us in more than doubling our business going forward.

Understood, sir, understood. And the second part was regarding basically the opportunity relating to the COVID vaccine. So we had some updates from you earlier when the plan was launched. So any updates regarding that?

Yes. So it is still all under government control. And we are working with the government only on the transportation. And whatever sector the government is opening up, we are getting that as per the requirement. So the initial haul of all the logistics companies opening, this and that and all that, I think that was pretty much very uncalled for because no one knew anything. And we also did not make noise about it because we had no idea also how it would play out. So it is still in the hands of government, and they decide the distribution based on the capability of the logistics company. So we are only doing in certain sectors in South India.

Okay. Sir, any quantification, I mean, if you would like to give it?

Sorry?

Any quantification or any amount that you would like to...

Very hard to say because like if you look at the population, only 60 lakhs have been inoculated by now. So that is nothing for like a 100 crore or 100-plus crore population.

Understood. And last one, bookkeeping question. Sir, what was the traction factor for this particular quarter or 9 months?

Sorry?

Yes. So it is around 86% on -- in this quarter.

The next question is from the line of Kunal Bhatia from Dalal & Broacha.

I had a couple of questions. I just wanted to know, sir, how much was your volume for the 9 months ended FY '21 vis-à-vis last year?

So in this last 9 months, volumes were around 4.6 tonne -- 4.6 lakh tonne in comparison of last year's 6.75 tonne -- 6.75 lakh tonne. So it's down by almost 31% in 9 months.

Okay. Okay. And sir, secondly, in terms of the cost rationalization which we have YTD, how much of this going forward would be sustained? Because we are at an all-time high kind of an EBITDA margins, and we've already crossed our guidance of 1% improvement on a year-on-year basis. So more of sustainable margins, what should be the #1 should look out for?

Yes. I think it is sustainable because now we have also created a basis, a platform basis, where we understand how the costs are going to behave in when business is lower or when business is high and especially when the fuel price is high. Fuel is up almost 20%. So if the fuel is up 20%, most of the logistics companies have not been able to deliver. And for us, we have understood that the -- what it takes, the basic fundamental tool that is required to keep this momentum going, that particular understanding has been fed into the system. So we know exactly how to -- how everything behaves, and we can have that in control.

Right. So like, for example, you did allude to the fact that the employee cost, which has come down to very low...

The employee cost is not so much of a big deal for us. We are anyway very high employee costs. If you look at the industry, if you look at the country, if you look at the companies, it's not high. So that's not my bone of contention. What you have to look at is the operating costs. Our indirect costs are very, very low, even with thousand branches in all the offices and all that. That cost -- that aspect is still one of the lowest in the country and industry. If you look at the operating cost, which is still detail, as to how that will behave going forward.

So we've almost reached like a 68% to sales. So we will be able to sustain that kind of operating expenses?

Yes. So again, you rightly said, last year, we were around 71% in average. And this year, we will finish 68%. And next year, we have taken the target to reduce further by 1% at least. So that will continue. And we're finding the way how we can be, just as Mr. -- Mentioned by Chander, how we are finding -- how we can keep it in control and even reduced. So we are very dynamic internally. And now we have sharpened even analysis on even twice in a month or even sometimes on a daily basis. So this tempo will be continued for the next 4, 5 years, and our ultimate target to reach around 63% or 64%.

Okay. Okay. That's good to hear. Sir, and also, I wanted to -- you generally, you do speak about the turnaround time. So how -- in this 9-month period, how are the turnaround time improved vis-à-vis FY '20?

So turnaround time's obviously been much lower compared to last year and there's multitude of factors, like labor issue initially and then the highway been closed and all of that. So overall, if you see that will get impacted, but this is something which is temporary. This is not here to stay.

So if you were to give a comparative how would we be standing as of now vis-à-vis FY '20.

That is slightly down over last year. So as Chander mentioned, it is impacted basically due to certain reasons, yes, is mentioned.

Maybe only by about 15%, which is not a big deal. Even the customers understand that like a lot of issues have been happening.

And sir, in terms of this warehouse in Pune, so...

That's sorting center, you mean.

Yes, sorry, sorting center in Pune. Could you give some more details in terms of the total square footage and what kind of CapEx entirely spend for this sorting center?

Yes, Mukti?

So in square feet is around 1.5 lakhs square feet. And total CapEx would be -- there is 2 kind of Capex: it is one with construction and another one in automation. So these 2 type of costs would be there. So construction is around INR 25 crore. And then on automation, we will be spent around INR 15 crores to INR 20 crore on that center.

[Operator Instructions] The next question is from the line of Sameer Chuglani from Edelweiss Securities.

So my first question is that can you give some color on what is the margin differential between large corporate customers versus -- as compared to an SME customer? And secondly, do you think e-commerce is an opportunity where you would like to expand or specifically into B2C? So any thoughts on that would be great.

So question one can be answered by Mukti. I'll answer the second part.

Yes. So margin level difference here, a big difference in versus -- SME customer versus big customers. SME usually giving almost 20% to 25% higher margin than to corporate customers. [indiscernible]

Now we have not put our focus on B2C. That's why we have actually shown robust results. And going forward, we'll continue doing the same.

Yes. Yes. So just how much of your volumes would be from e-commerce, even B2B?

E-commerce B2B has not really picked up in India. But I would say that our e-commerce level is about 3% to 4%.

The next question is from the line of Ronald Siyoni from Sharekhan.

So a couple of questions. First one being the competitive intensity, how do you think like some of the listed players are going into Express also and they are also going through asset-light models. So are they more venturing into B2C and avoiding B2B space, something of that sort you are finding? Or you are seeing competition increasing in B2B also?

Mukti?

Yes. So if you see on B2B, there is no intense competition is arising. Whoever is -- they are actually focusing on B2C market because there, it is -- so if you see B2B and B2C, there is -- operation is completely different. Cargo size, if you see package side or is a delivery location or pickup locations, so everything is different. And they are basically focusing on B2C and not B2B.

Okay. So the same level of competition exists as there's no increase in competition levels?

Yes, correct.

Second thing is, any specific sectors you are inclined towards in the space, like you said, machinery, tools pharma, auto are doing good, so -- and textiles. So any of these sectors, 1 or 2 odd sectors which are -- comprises more towards your revenue.

Yes, Chander, please?

So we have also telecom equipment. And then there are many verticals that we are doing. There is also like paints, a lot we see the list. And as per the list what we get in -- one second, I'll just pull that up.

No, sir, only the sector which contributes the highest, the 1 or 2 major sectors which are core of TCI.

So that would be the -- what I mentioned.

So these 3, 4 sectors are the core?

Yes. But then we don't have more than 10% in these sectors.

So no -- okay. No sector concentration. The last one is, sir, you also mentioned in this presentation that there were some issues with respect to government policies in 2 states. So are you relating it to the farmer strike? Or is there some other issues in some states? And what kind of impact has there been due to the farmer strike?