TCI Express Limited (TCIEXP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TCI Express Q4 FY '23 Earnings Conference Call hosted by Motilal Oswal. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Alok Deora. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Motilal Oswal Institutional Equities, I welcome you all for the TCI Express Q4 FY '23 post earnings call. I would like to thank the management for giving us the opportunity to host the call. From the management side, we have Mr. Chander Agarwal, Managing Director; Mr. Mukti Lal, CFO; and Mr. Pabitra Mohan Panda, COO, for the call. We'll start with the opening remarks from the management and then open the floor for Q&A session. I would now like to hand over the call to Mr. Chander Agarwal. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and welcome to the Q4 and full year financial '23 earnings call of TCI Express Limited. I would like to thank all of you for joining us here today. Our earnings presentation has been updated on the website as well as on the [ stock ] exchange, and I hope you've had a chance to review it. I will first briefly talk about the performance for the quarter and then discuss the prevailing and projected industry and business environment, and then we'll hand over the call to CFO, Mr. Mukti, to present the financial performance of the company. Financial 2023 has been a year of growth acceleration for TCI Express, despite heavy macroeconomic challenges and inflationary trends across India. We take pride in consistently outperforming in the industry with double-digit revenue growth and double-digit profitability margins. The accomplishment can be attributed to a strong [ asset ] light business model, efficient operations and cost effective measures, including the automation of sorting center. Quarterly highlight. During the quarter, TCI Express delivered a notable performance with highest ever revenue, reflecting our relentless pursuit of excellence and commitment to driving sustainable growth with profitability. The growth was primarily driven by the strong demand from the MSME and corporate sector, high utilization in -- through the newly developed sorting center. In the light of robust performance during the quarter, the Board of Directors has recommended a dividend of INR 2.00 per share taking the full year dividend to INR 8.00 per share representing a payout of 400% on the face value of Financial '23. In addition, we also successfully completed a share buyback program of INR 42.5 crores announced in Q4 financial '22. This is a testament to our strong financial position and our commitment to rewarding our shareholders for the trust and support. In terms of operational achievements, we expanded our presence by adding 35 new branches in financial '23. This expansion will help us cater to our customers with more extensive reach, leading to faster turnaround time. Our strategic investment in automation and digitalizations are [ paying ] off and reflecting in the structural improvement in cash flow and profitability. Among our new launched services, the Rail Express is offering a good traction from customers, and we have successfully expanded customer base from 250 to 2,200 and presence from 20 routes to 125 routes since its inception. These services are expected to contribute positively to our top line in the forthcoming quarters, enabling us to achieve higher margin levels. For us, business [indiscernible] also means that we take a positive contribution to the world with sustainable actions and dedication to society and environment. We are happy to share that the TCI Express Giga Sorting Centre in Tajnagar and Pune Sorting Centre in Chakan has been awarded the prestigious GEM 5 Certification, demonstrating our commitment to promoting environmentally sustainable green building design and construction practices. With our ESG road map, we are taking bold action to tackle climate change by replacing the old vehicles with new standards, investing in automation and installation of solar panels on our sorting centers and wherever viable. It will enable us to be self-sufficient in our energy requirements going forward. The Indian economy has shown a [ market ] resilience and still shows very high growth potential and is rebounding strongly even in the face of global uncertainties. The government's focus on infrastructure development, various formed -- reformed initiatives and robust domestic demand, the logistics sector --the [ Express ] logistics sector is poised for [ significant ] expansion with a major policy pushed by the government and needed by some economic [Technical Difficulty], we are strategically well positioned to capitalize on this [ market ] growth potential of the Indian economy. Our strategic initiatives and robust fundamentals will continue to propel us forward with sustained profitable growth and delivering superior value to our customers. With this, I would now like to hand over the call to Mr. Mukti to discuss the financial performance of the quarter.

Yes. Thanks, Chander, sir, and now I would like to discuss our financial performance of the company. Our total income stood at INR 328 crores for Q4 2023 as compared to INR 316 crore in previous quarter and INR 300 crore in same period last year. So this wage is the highest revenue we achieved in any quarter. The company posted a sequential growth of 4% and year-on-year growth of 9%. The growth was primarily driven by strong demand from SME and corporate segment as well as higher utilization in newly developed sorting center facilities. Our EBITDA for the quarter stood at INR 56 crores with a margin 17% back, [ testing ] a growth of 6.7% and 18% on year-on-year and sequential basis, respectively. The net profit of the company stood at INR 38 crores with margin of 11.7%, registering a growth of 20% and 7% sequentially and year-on-year basis, respectively. On a full year basis, the total income for FY 2023 stood at INR 1,248 crores as compared to INR 1,090 crores last year, registering a year-on-year growth of 14.5%. EBITDA for FY '22 -- '23 was INR 202 crores with a margin of 16.2%, registering a growth of 10%. Net profit for FY '23 was INR 139 crores with a margin of 11.2%, registering a year-on-year growth of 8%. We continue to generate strong operating cash flow of INR 147 crores and a maintained cash balance of INR 49 crores. With a flexible capital structure, we are well positioned to fund our strategic growth plan. And now during FY 2023, we incurred a highest CapEx of INR 125 crores, primarily for the purchase of land in Kolkata and Ahmedabad for setting up the new automated sorting center and for new corporate office in Gurgaon and for network expansion by adding 35 new branches to penetrate deeper in key growing markets in West and South region to cater the growing market demand. We will continue to implement the automation strategy in other sorting centers to enhance the overall operational efficiency and ultimately to drive profitability further. So thank you very much, and now I would like to open the floor for [ question-and-answer ], and over to moderator, please. Thank you.

[Operator Instructions] We take the first question from the line of Krupashankar NJ from Avendus Spark.

My first question is on your outlook on FY '24. I do understand that there are some exits in future respect to overall macro. But how is it shaping up your targets going ahead with respect to revenue growth as well as margin expansion? And second thing, on the recently -- yes, of course, in this quarter, you have stated that the hubs utilization -- the newly launched hubs utilization have also improved. Then -- but margins have jumped back to the Q3 levels, if I'm not mistaken. So is there further lever of margin expansion coming in from these automation centers? Or do you have to [ reach ] for newer operation centers [ monthly ] for margin expansion?

Yes, Krupashankar, you actually -- can you ask one by one because we missed a few things on your questions.

Sure, sir. I'll -- if you want, I can repeat the first question.

Yes.

So my first question was on your outlook for FY '24. Just wanted to understand that given that macro headwinds remain, how would you think TCI Express would grow in FY '24? And what kind of margin expansion you can -- likely to see with new brands -- new hubs coming up?

Yes. For growth aspect, Mr. Chander would give an answer on that. First, I will be -- take like on margin expansion. Yes, in this year, FY 2024, we will be -- again have planning to increase the margin of 100 basis points. Like in this year, we couldn't succeed on that because in -- since day 1 we said we are -- we have not taken to price hikes in FY '23 -- whole FY '23. In this current year, we had targeted and started a process to take a price hike from the customer. So we are looking for at least to increase the prices at least 2% on an overall year basis. So I think we will be back to like 17.5% kind of EBITDA margin in this FY '24. Chander sir, kindly gave a guidance on revenue, please?

Revenue would be about close to 15% to 16%, is what I'm envisioning. Look, but, Chander, we do see that there are underlying challenges in respect to the overall industry as a whole, right? So because -- we are seeing that corporates also saying that [ coming growth ] will not be… I'm not able to understand what you're saying. Can you talk clearly, please.

So what I was asking is that, while we are seeing a lot of headwinds relating to the tonnage growth as a whole this year, are we aiming for higher growth with a different strategy, which is known on pricing basis? Or is it more on catering to specific new branches? What would be our strategy going ahead in this year at least?

We are yet to see a lot of -- we will not be making any significant changes from our business model, or we will not be doing anything different to -- just to garner additional business. We are always -- and I've always said that our backbone or our rider is the economic growth of the country. We will follow that. And if the country is projecting at -- to grow at about 7%, we will grow at about 15% to 16%. There is nothing more that can be done well in terms of getting additional business at the cost of 1%, 2% more additional business at the cost of lowering profit. I don't think that is justified. The top line business is getting the top line only, is nowhere I think a sustainable one model. So we will -- we are well equipped and well planned and well-funded internally to increase our business growth organically, and we will do so.

My second question was more to do with your new hubs. I mean, while the integration seems to have improved at new hubs which have come too, the margin expansion which we were expecting, I think that is still to come through because we've just reached what the margins we had posted in the second quarter. So just wanted to get your sense on -- while Mukti ji had just mentioned that there can be 100 expansion [ deal ] price hikes. Is there some factor also coming in from that utilization going up? Is that a fair understanding to make?

Mukti?

Yes. So basically, we are planning to be put on a second automation in Chakan, Pune in this year. And as we said, like we already started for Tajnagar. So we will be -- margin improvement through this system is yet to become. Like we just increase our margin level of 15 basis points only in this year. Next year onwards, we are trying to be like at 25 basis points on this automation only. So that will be a part of strategy, and it is like given us so many benefit, like also mentioned in the last call, which is in a benefit and flexibility of operation. And whole year we have not faced any challenge on the center and rather we improve on time, also improve -- like we cut this -- reduced the time from 24 hours to 8 hours on truck waiting time. So this way, and we also able to reduce the labor numbers, and flexibility in operation is there. So time -- overall time has been reduced in the center from like 20 hours to only 8 hours. And this will be further reduced wherever we will be creating a more efficiency in a destination hub, because like in the last meeting, we said. So once we will be doing both center, origin and destination, then we will be have the more probability and more operational efficiency on that.

I have more questions, I'll get back in the queue.

We take the next question from the line of Mr. Amit Dixit from ICIC Securities.

Congratulations for good performance in this quarter. I have 2 questions. The first one is essentially an offshoot of the previous answer that you gave regarding price hikes. So we are looking for a price increase of 2% for FY '24. Now first of all, have you intimated the customers regarding the same? How do you see the acceptance of this price hike in the current macro environment? And also the growth that you are seeing in the different sectors, if you could just throw some light on that? That is the first question I have.

Yes. So on price hike side, yes, this is in a process where business -- this all agreements is roll over on a different-different date, though majorly 50% were in a first quarter of year -- any year. So we intimate all the customer, and we are able to get some hikes from these customers. And over the period, we will also be able to get that, because whenever it comes for a renewal, we will be asked for the annual hikes from the customers, and the fortunate customer is allowing to that. And if you talk about -- like market condition is good, there is no challenge and everybody is anticipating to be -- grow the economy in the range of 7%. And that's guidance given by [ R&D ]. So we will be achieve like 15% to 17% and -- like 15% in volume and then 17%, 18%, and we will be having a revenue growth. So that is our target for FY '24. And again, yes, you rightly said. So we're continuously adding the brands. These new [ brands ] and new offerings, whatever we started in a 1, 1.5 year back, that is also contributing continuously on these years to come also.

Sir, the second question is essentially on the CapEx that we are doing now. While it is appreciable that you are investing where it matters the most, that is in automation, however, coming to the return side, the returns in near term might suffer a bit because these investments typically would give you return only when the entire network is automated, not when one is automated, the other is not. So your thoughts on that? I mean, how -- are you have -- do you have a threshold ROE in mind, ROCE in mind that, okay, my return should not go below this in the [ interim ]? I understand by FY '25, '26, all the automation centers would be there, so possibly margins would be in a different trajectory. But in the interim period, do you have a threshold in mind?

You have to understand -- let me answer this. You have to understand that the addition of what I have also said in the previous con call that the whole -- the real benefit will come when all the sorting centers are automated. However, since we are already very efficient in our operations, adding automation in each center will enhance that efficiency in the entire supply chain. It does not -- in our case, in my company, in this -- sorry, in this company, it does not make a difference whether you're adding one by one or you're adding all together, because we are already very efficient, because we are supplied, and we have a very robust network -- hub and spoke network. We will not see that the [ theories ] what you are talking about in terms of a dip, because of automation. It will only enhance it.

So the -- what you are trying and implying is that the ROE that we are generating, 25%...

We can talk on this -- we can -- I can explain you more later. But if you have any specific other short questions, I can answer that now.

No, sure. I'll take it offline. No problem.

[Operator Instructions] We take the next question from the line of Mr. Ravi Naredi from Naredi Investments.

Really, Chander, our company strategy growing on growth path in your direction and leadership. Sir, how much railway business in overall top line and what is planned this business in next 5 years?

Yes, you're talking about revenue, please?

Yes.

So revenue, like, firstly, we had to be -- have a very like midterm plan for the FY 2025, we want to reach on a INR 1,750 crores to INR 1,800 crore revenue. And then obviously, we -- again, there's a very simple math on that. We want to be 2x of GDP growth rates, all depending on the GDP. Supposing tomorrow GDP starts to grow 8% to 9%, then we will be grow in a range of 20% to 22%. So this is our trajectory we have to be grow in that 2x of GDP plus something on that. So that if you see in simple terms, we are always targeting to be have 18% to 20% growth in -- on revenue side.

How much our railway business in this overall network?

Sorry, which one?

Railway.

Railway. Because railway just start 1.5 year back, it is almost -- it is still not sizable one, obviously, but it's growing very faster, and customers are giving good traction on that. And good thing is that it's the highest profitable business and in all service level of what we are providing or competition providing air service. So that way is going fantastically. And we hope by 2025, we will be grow like in a more than 5% in overall revenue. That is our target for them.

And sir, how many more sorting center we are planning in next 5 years?

So right now, we have only automated one. Another one is -- we constructed in Chakan which will be automated in this year. And we already bought the land for 4 center already, like we bought for the Ahmedabad, Kolkata, Chennai and Nagpur and Indore, 5 centers we already bought the land. And construction is going on for the Nagpur project and remaining 3, 4 will be started this year or next year. And then we are also looking for -- to buy the land for Mumbai Center and Bangalore center. So by FY '26, if you say then we will have like -- 7, 8 more center will be ready for that '26, I'm saying.

And I think this one center will need INR 50 crores of CapEx?

Yes, more or less INR 50 crores to INR 60 crores rupee on bigger location. Like if you talk about Nagpur, it will not be -- may cost more than like INR 30 crores, or Indore the same way. But if you talk about Mumbai, yes, it will be like INR 60, INR 65 crores kind of. So if you take an average of that, like it is in the range of INR 45 crores to INR 50 crores.

And one last, sir, this 2% price hike, how much amount will be transferred to bottom line out of 2%?

So again, like, it will be -- we targeting to be directly transferred to my bottom line because our balance sheet there of profitability is very simple. In spite of all the challenges, we are able to maintain our gross margin for this year, and we will be certainly enhanced on next year by this price hike. And again, on operational efficiency, we want to improve truck utilization from current level of -- like last year, we -- whole year, we maintained almost 84.25%, which we will be back to 85% in this year. So further margin will be improved on that.

[Operator Instructions] We'll take the next question from the line of [ Prit Nagarsheth from Wealth Investor ].

So the question, Chander, I would like to understand better is that, given the learnings from the automation conducted, the next few centers that we open up, would we be able to operationalize them faster? Or would it also take similar time as it has taken for the Gurgaon?

I think it will be faster because we have only learned how to...

Sorry, Chander, I couldn't catch that. But could you say by how much faster? Meaning if you can quantify what would it take now to operationalize a new setting?

Yes. So basically, Gurgaon Center we've taken almost 1 year to be start from the installation to commissioning and [ utilization ] the process. And now we are very good learning from that center. So we want to cut overall process from installation to [ utilization ] is maximum to maximum 8 to 9-month max. So now we almost on the verge to finalize the vendor. And I think, hopefully, by March 24, we -- this center will be ready on Pune. And this will be again -- we will be have a further cost cutting in this new center because we have a lot of learning from this Gurgaon one and although with a good efficiency. So this is a process, because in India no one have these kind of automation earlier, and this is the first one we launched, and we have very good learning, and we will be obviously replicate the same in Pune center and subsequent other centers also.

The other thing I wanted to understand is that how is the competitive intensity shaping up? Because I believe that -- I think even Mahindra Logistics has gotten into the B2B side on the Express side, right? So any insights in terms of how the competitive intensity is there?

Chander sir, you would like to answer?

Can you repeat?

Yes. I was referring to the competitive intensity. In the sense that looking at the ROCE profile, right, of the industry and companies like TCI Express and others, I think there are other income -- other people who are looking to get -- make a growth into this sector. So for example, the recent one was Mahindra Logistics acquiring Rivigo's B2B side. Now, is this competitive intensity stopping the margin expansion? Or is it slowing it down? Or how is it shaping up on the ground? If you can shed light on that?

No -- Yes, let me be clear to all that it's not the competition which slows down our margin expansion. It is the state of the economy of the country that dictates our margin. And secondly, Rivigo is not a B2B company. It is -- was just a cutting company, the [ own suite ]. So one has to really study the market to understand what the business everyone is talking about and what we're actually doing. In your B2B play, T TCI Express is the only company that stands. Everybody -- every other company has some share of [ midterm ] or B2C or something like that?

We'll take the next question from the line of Ronald Siyoni from Sherkhan Limited.

Congratulations on good numbers, sir. Sir, I wanted to understand about sectoral growth outlook which you are seeing for FY '24. We are seeing a good outlook on auto, then whether we are expecting 2-wheelers also to come back in growth trajectory or the consumer durables this returning to the growth trajectory? The inflation and the interest rates which have now been -- later been taking a pause. So are you banking on the same to revive the growth in this sector and within this segment?

Yes, Chander sir, would like answer?

Ladies and gentlemen, the line from Mr. Chander has got disconnected. Please stay connected while we reconnect him.

Sir, should I repeat the question?

No. I had said that we -- you have to really study the market to understand what competition is doing. Most of them have B2C, they have a good [ palm ], all that [ news ] as a larger chunk. And then, if you look at the other competition you were talking about, there were 3 [ donors ]. They were new B2B -- running trucks. So our profile is very different. Pure play Express company, we are the only one in the country.

Yes, sir. This was the answer related to previous question. So I was asking about sir, end-user industries. Like for FY '24, which pockets, say, within auto? Are we looking 2-wheelers getting into growth trajectory, consumer durables getting revived? So this kind of growth post-March, as we see in April and May, the green shoots, the segments which were a little bit slow during quarter. So these segments are picking up or are expected to pick up in FY '24?

It's too early to say anything. The year has started. So maybe later -- next quarter, I can give you a better idea.

And your decision to going for a 2% price hike during this year, is a way -- not undertaking it in the prior, say, H2. So this do instill some kind of confidence in the growth assumptions for -- sectoral growth assumptions, especially for FY '24. So no, that's what I was looking for in terms of our auto and consumer durables especially. If you can just give a few views on these 2 sectors?

Mukti, please answer.

Yes. So we are very confident to be -- like we started to -- asking to customers and customers also responding on our request to increase the prices. And we've already taken some price hikes. And we will be in the -- for whole year, yes, we will be to -- like 1.5% to 2%, we will be take it. And industry-wise, you talk about all the industry is doing well. But specifically, like we are in pharma, it is all-time industry. New industries came up with -- like kitchenware and bathroomware, this is a new industry or a new segment where we're also targeting a good revenue with our new service offerings. So combination of all the things and our customer base, like 50-50. Interestingly, like always our SME customer is supporting a lot to us, and that's why margin level is so high and we are just outside the market on that, and we are generating 17% kind of EBITDA. So these number of customer base is huge. And with the expansion of branch network, we further expanding to other customers for -- especially the SME customers. So this put together, we are confident that we achieve the revenue growth of kind of 17% to 18% in this year, and obviously, EBITDA margin, we want to be the 17.5% kind of EBITDA margin for this.

One last question. What are your targets for branch expansion this year, FY '24? Any specific target?

So there is a -- we have a strategy to be like -- first we opened like 4, 5 -- 450 branches over the last 5 years. So we are stabilizing that also. And in this year, we are taking a target to open a branch in the range of 50 to 75 in this year, FY '24.

[Operator Instructions] The next question is from the line of Mr. Jignesh Makwana from Asian Markets Securities.

So first, if -- I don't know whether I missed on that, if you can provide the absolute tonnage volume for the second quarter and the utilization ratio for the [ full year ]?

So -- yes, Jignesh. So basically, in this quarter, we achieved the highest volume growth -- volume of 2,53,000 tonnes for that -- this quarter. And we are happy to announce first time we crossed the 1 million volumes in the whole year 1 million tonnes.

And what about the [Technical difficulty] utilization ratio for the full year?

So full year utilization in truck is 84.25%. In this quarter, we achieved an 85% utilization.

And lastly, if you can provide absolute revenue contribution from the new service which we started?