TCI Express (TCIEXP) - ICICI Directcontent.icicidirect.com/mailimages/IDirect_TCIExpress_IC.pdf · TCI Express (TCIEL) was established as a multi-specialist only express cargo company

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Speed, agility, delivery!!!

TCI Express (TCIEL) was established as a multi-specialist only express

cargo company with its own distribution set-up across India servicing

more than 40000 pick up and delivery points. With over two decades of

experience, TCIEL commands 3% market share of the | 25000 crore

express logistics market (unorganised 50%). In the past two decades,

TCIEL has designed one of the largest pan-India networks of 28 sorting

centres and 550 branches offering time-definite solutions to 670 out of

675 districts in India. Post de-merger, TCIEL charted aggressive expansion

plans sharpening its focus on owning & modernising sorting centres and

strengthening IT infrastructure that would garner revenue, PAT growth of

16%, 27% CAGR in FY17-20E to | 1184 crore, | 84 crore, respectively.

GST-era calling need for specialised players like TCIEL…

The routing network (hub & spoke), developed, tried & tested over several

years, remains the backbone of the express business that manages

prompt movement of cargo generating higher yield per route. We believe

the GST ideology would lead most business decisions to be focused on

supply chain efficiency rather than state-wise tax benefits. Subsequently,

the need for specialised players would accelerate demand for organised

players like TCIEL. We expect revenues to grow at 16% CAGR in FY17-

20E, faster than its historical (FY12-17 CAGR of 9%) to | 1184 crore.

Multi specialist offerings leading to diversified business model

With services like surface express, domestic air express, international air

express, reverse express, TCIEL has positioned itself as a multi-specialist

logistics player. About 95% of its business is derived from B2B while the

remaining 5% is derived from B2C. In sectors per se, SMEs contribute

majority (50%) of overall revenues, automobile spare parts: 13%,

pharmaceuticals: 11%, lifestyle retail & engineering: 7% each and

telecom & consumer durables: 6% each. Also, no single client accounts

for more than 1% of overall business. We believe this diversification

would allow TCIEL to keep its utilisation optimum (85% on each route)

enabling it to command consistency in EBITDA margins (~8-9%). Lower

rentals (own sorting centres) coupled with GST efficiencies would result

in margin expansion of 300 bps in FY17-20E to 12%.

Focused asset allocation; robust growth trajectory; assign BUY…

Having outperformed the overall industry in FY17, TCIEL is planning a

capex of | 400 crore (over five years) staying committed to enhancing its

handling capacity and improving efficiencies. Prudent asset allocation has

led TCIEL to deliver one of the best return ratios (after BlueDart) in the

industry. On the back of low leverage, robust growth trajectory and high

return ratios (>25%), we expect TCIEL to continue command premium

valuations. We assign BUY on TCIEL, ascribing a P/E multiple of 30x on an

estimated EPS of | 22 (FY20E) and arrive at a target price of | 660.

Exhibit 1: Financial Performance

(Year-end March) FY16 FY17 FY18E FY19E FY20E

Revenues (| crore) 663.2 755.2 857.1 1,012.9 1,183.8

EBITDA (| crore) 54.6 67.6 83.3 112.0 139.8

Adjusted Net Profit (| crore) 28.5 40.7 53.5 66.8 83.6

EPS (|) 7.4 10.6 14.0 17.4 21.9

P/E (x) 72.2 50.8 38.7 31.0 24.7

Price / Book (x) 16.7 12.9 10.3 7.7 5.9

EV/EBITDA (x) 38.2 30.9 25.2 18.7 14.9

RoCE (%) 34.6 35.1 34.9 36.9 36.7

RoNW (%) 23.9 28.8 29.6 28.4 27.0

Source: Company, ICICIdirect.com Research

TCI Express (TCIEXP)

| 540

Rating Matrix

Rating : Buy

Target : | 660

Target Period : 12-18 months

Potential Upside : 22%

Financial Parameters (| crore)

| Crore FY17 FY18E FY19E FY20E

Revenues 755.2 857.1 1,012.9 1,183.8

EBITDA 67.6 83.3 112.0 139.8

Net Profit 40.7 53.5 66.8 83.6

EPS (|) 10.6 14.0 17.4 21.9

Valuation Summary

FY17 FY18E FY19E FY20E

P/E 50.8 38.7 31.0 24.7

Target P/E 62.0 47.3 37.8 30.2

EV / EBITDA 30.9 25.2 18.7 14.9

P/BV 12.9 10.3 7.7 5.9

RoNW (%) 28.8 29.6 28.4 27.0

RoCE (%) 35.1 34.9 36.9 36.7

Stock Data

Particular Amount

Market Capitalization (| Cr) 2,068.2

Total Debt (FY17) (| Cr) 31.6

Cash and Investments (FY17) (| Cr) 9.5

EV (| Cr) 2,090.3

52 week H/L 645 / 284

Equity capital (| Cr) 7.7

Face value (|) 2.0

FII Holding (%) 3.2

DII Holding (%) 10.2

Comparative return matrix (%)

Return % 1M 3M 6M 12M

Blue Dart Exp. 0.3 12.9 (3.3) 3.7

Gati 2.0 19.6 2.6 13.4

VRL Logistics (3.7) 13.2 27.8 36.2

TCI Express (4.0) (6.7) 14.5 81.4

Price movement

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

0

100

200

300

400

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Jan-18Jun-17

Price (R.H.S) Nifty (L.H.S)

Research Analysts

Bharat Chhoda

[email protected]

Ankit Panchmatia

[email protected]

January 25, 2018

Page 2 ICICI Securities Ltd | Retail Equity Research

Company background

TCI Express (TCIEL), headquartered in Gurugram, was established in 1996

as one of the foremost divisions of Transport Corporation of India (TCI).

Having achieved financial and growth stability, TCI de-merged this

division in 2017. Given the exclusivity of the business, TCI issued one

equity share (FV | 2) to existing shareholders for every two equity shares

(FV | 2). Post demerger, TCI Express ceased to remain a division of TCI

and was separately listed on the bourses.

The de-merger was done to sharpen TCIEL’s focus on express delivery

services and offer time definite solutions for customer’s requirements. In

terms of market share, TCIEL commands ~3% of the market share of the

overall express logistics market, estimated at | 25000 crore. However,

from a broader perspective, with total logistics industry (transportation,

warehousing, value added service and inventory in-transit cost) pegged at

13% of overall GDP ($300 billion), TCIEL claims to carry goods worth $7

billion (in value) arriving at an indicative market share of 2-3%.

Exhibit 3: Express zones…


The wide spectrum of services offered by TCIEL include surface express,

domestic and international air express, e-com express, priority express

and reverse express. These logistical solutions are spread across industry

segments such as automobile spare parts, pharmaceuticals, retail, e-

commerce, telecom and SMEs. The offerings mainly address B2B

customers (95% of revenue). It involves door-to-door pick-up and delivery

of parcels (5-40 kg) in a time bound manner predominantly via surface

transport. TCIEL claims to have one of the largest reaches domestically. It

serves 670 districts (out of 675) through a flotilla of 4000 containerised

trucks. A network of 28 sorting centres, 550 company branches, 400

express routes and 2500 feeder routes, TCIEL serves 40,000 pickup and

delivery points.

Exhibit 2: Revenue bifurcation zone-wise…

States

% of revenue

contribution

North Zone

Punjab, Chandigarh, Haryana, Uttarakhand,

Delhi, Uttar Pradesh & Rajasthan

West Zone

Maharashtra, Goa, Gujarat, Madhya

Pradesh, Daman & Diu, Dadar & Nagar

Haveli

South Zone

Andhra Pradesh, Karnataka, Tamil Nadu &

Pondicherry

East Zone & Special Zone

Bihar, Jharkhand, Chhattisgarh, West

Bengal & Odisha, Himachal Pradesh,

Arunachal Pradesh, Assam, Nagaland,

Mizoram, Meghalaya, Sikkim, Tripura,

Manipur, Jammu & Kashmir, Port Blair &

Kerala

29%

15%

28%

28%


Shareholding pattern (Q3FY18)

Shareholding Pattern Holdings (%)

Promoters 66.1

Institutional investors 13.4

Others 20.5

Institutional holding trend (%)

7.1

5.1 5.3

3.2

7.3

9.710.3 10.2

0

2

4

6

8

10

12

Q4FY17 Q1FY18 Q2FY18 Q3FY18

(%

)

FII DII


One-stop shop for express logistics requirements…

TCIEL specialises in providing day definite solution services that involve

end-to-end pick-up and delivery of parcels. The company deals in a

variety of parcels with weights ranging from 1 kg (apparels, cellphones,

etc) to 40 kg (consumer durables, automotive ancillaries, etc). Majority of

the revenues are derived from B2B services (95%) while the remaining

5% is contributed by B2C services. Given the peculiarity of the business,

the modal share remains in favour of road transportation (86% of overall

revenues). However, with 8% of revenues from air express, TCIEL also

fulfils requests for same day/next day deliveries in all major metros (24

hours) and mini-metros and A-class cities (48 hours).

Exhibit 4: Road dominates modal share

Surface

express, 86%

Air express,

8%

International

air express,

1%

E-commerce

express, 5%


Exhibit 5: B2B remains core to business

B2B, 95%

B2C, 5%


TCIEL could be characterised as a less than truck load player (LTL), which

operates in a time sensitive cargo segment. The segment competes with

the likes of BlueDart, Gati KWE and VRL Logistics (LTL) in the listed space.

However, in the unlisted space, it competes with Safexpress and the

Indian operations of DHL and FedEx.

Exhibit 6: Established and valued added service range…

Road Air Rail Water Warehousing CFS/ICD Cold Chain Bulk Liquid

Express/

LTL

Supply

Chain/3PL

Multi-modal E-commerce

Listed Entities

TCI Express Yes Yes - - - - - - Yes - - Yes

Blue Dart Yes Yes - - - - - - Yes - - Yes

VRL Logistics Yes - - - - - - - Yes Yes - -

Gati Limited Yes Yes Yes - - - Yes - Yes Yes - Yes

TCI Yes Yes Yes Yes Yes - Yes - - Yes Yes Yes

Private Players

Delhivery Yes - - - Yes - - - Yes Yes - Yes

Rivigo Yes Yes - - - - Yes - Yes Yes - Yes

Safexpress Yes Yes - - - - Yes - Yes Yes - Yes

DHL Yes Yes - - - - - - Yes - - Yes

Fedex Yes Yes - - - - - - Yes - - -

Storage Services

Company Name

Transportation


With a vendor network of 4000+ containerised trucks, 550 branches and

28 sorting centres (mainly leased), TCIEL operates on an asset-light

business model. In contrast, VRL (trucks, warehouses) and BlueDart (flight

carriers) own and manage their assets. However, Gati KWE partially owns

its fleet (~500 trucks) and additionally manages a vendor network

equivalent to that of TCIEL.


Investment Rationale

Demarcation to bring focused approach; high growth phase for TCIEL…

In CY16, Transport Corporation of India (TCI) completed the de-merger of

its XPS division in the ratio of one share of TCIEL for every two shares

held. Post this, the shares of TCIEL were separately listed on the bourses

in December 2016. Post de-merger, FY17-18 was the first operating year

wherein TCIEL operated as a separate independent entity declaring

separate business goals and targets. Due to under-investments and

different business verticals, TCIEL under the consolidated entity grew at a

sluggish pace of mere 9% in FY10-16 compared to the industry, which

grew >10% over the same period.

Exhibit 8: De-merger to accelerate revenues for TCI Express…

727 812 788 796 826 816 839

440 474

248

393583

679 699615 628

366432

386

460

495

556600

659663

361

407

0

500

1000

1500

2000

2500

FY10 FY11 FY12 FY13 FY14 FY15 FY16 H1FY17 H1FY18

| c

rore

Transport Division Supply chain TCI Seaways division XPS division

Acclerating its

growth post de-

merger

13% YoY

9% CAGR over

FY10-16


Revenue growth rates for H1FY18 for TCIEL (post de-merger) remained

robust at 13% YoY to | 407 crore compared to | 361 crore in H1FY17. For

the same period, TCIEL outperformed its industry peers BlueDart and VRL

Logistics for which H1FY18 revenue growth rates were at 7% and 4% to

| 1369.5 crore and | 943.8 crore, respectively. However, H1FY18 revenue

of its closest competitor Gati KWE de-grew 3% YoY to | 550 crore.

Exhibit 9: TCIEL delivering industry leading growth rates…

10.2%

16.4%

11.6%12.2%

15.7%

10.0%

-1.3%

2.0%

-4.0%

-7.7%

-1.1%

-5.4%

0.7%1.6%

10.3%

7.4% 7.3%

6.0%3.3%

6.3%5.7%

6.6%7.2%

0.4%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

% g

row

th rate Y

oY

TCIEL Gati KWE Bluedart VRL Logistics


Exhibit 7: TCI Developers robust revenue growth…

1.5 2.02.6 3.1

8.49.3

10.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY11 FY12 FY13 FY14 FY15 FY16 FY17

| c

rore

Revenue

TCI Developers

38% CAGR

Source: ICICIdirect.com Research

TCI Developers was de-merged from parent Transport

Corporation of India (TCI) in 2010. The same was

separately listed on the bourses in April 2011. Post de-

merger, revenues of the company grew at a CAGR of 24%

in the next seven years from | 0.5 crore to | 1.9 crore


Trinity of revenue growth, margin expansion & structural changes

The under-investments and sluggish business environment led TCIEL to

grow at 6% CAGR in FY13-16. However, FY16-17 marked the first year for

TCIEL as an independent entity that led to dedicated investment of | 95.3

crore in FY15-17. TCIEL has now earmarked a capex of ~| 400 crore over

five years (FY18-22). The core to these investments would be expanding

its pan-India presence (locations served), improving parcel turnaround

time (handling equipments) and increasing handling capacity (sorting

centres). The focused capex has initiated a new growth phase for the

company with FY17 revenue growth of 14% positioning TCIEL at an

inflection point. Revenues are expected to grow at 16% CAGR to | 1184

crore in FY17-20E.

Exhibit 10: Investments to translate to revenue growth…

555.7

600.0

658.6

663.2

755.2

857.1

1012.9

1183.8

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

| c

rore

Revenue

6% CAGR

14%

YoY

16% CAGR


Over the past few years, Transport Corporation of India (parent) has

increased its investments to accelerate its core business. The average

annual capital expenditure over the past five years was at | 120 crore

(FY12-17) compared to | 72.5 crore in FY06-12. However, recent

investments were mainly allocated to strengthening its multi-modal

carrying capacity. Core investments included that made in ships,

warehouses and truck/cars. Of the total capex of | 152.5 crore and | 168.4

crore in FY15 and FY16, investments in TCIEL were a mere | 3 crore and

| 11 crore (| 49 crore due to de-merger), respectively.

Exhibit 11: TCI capex trend; eludes TCIEL…

24.1 55.6 41.6 95.717.9

77.6

4.3

65.236.5

22.5

20.7 64.5

27.6

5.7

6.1

12.6

3.9

14.4

0.0

50.0

100.0

150.0

200.0

FY13 FY14 FY15 FY16 FY17

| c

rore

Hub Centres & small warehouses Wind power Ships & Containers Trucks & Cars Others



Ups ante in capital expenditure, TCIEL on accelerated growth path

Given the focused approach coupled with aggressive capital outlay, we

expect TCIEL to continue to post industry leading growth rates. Majority

(| 200 crore) of the capital investment outlay of | 400 crore involves

replacement of all leased sorting/distribution (S&D) centres with the

company owned sorting centres. The S&D operations would

reduce/eliminate errors, labour and cycle time while increasing accuracy

and improving service. These S&D centres would be multi-specialist,

highly mechanised, which would be capable of generating faster

turnaround of parcels. TCIEL currently manages 28 S&D centres with a

total warehousing space of 1 million sq ft (msf). Out of these 20 S&D

centres, with coverage of 0.7 msf, 70% are leased. The remaining 0.3 msf

with eight S&D centres are owned.

Although the management intends to minimise or shift the S&D

operations to owned facilities, we believe TCIEL would continue to

manage non-core centres on a leased model. Subsequently, we expect

the S&D space to double to 2 msf by FY22. However, the ratio would shift

in favour of owned centres claiming 70% (vs. 30% current) of the overall

space while the remaining 30% (vs. current 70%) would be leased.

Improved efficiencies coupled with a decline in rental expenses would

result in expansion of 300 bps in EBITDA margins to 12% vs. current 9%.

Robust revenue growth coupled with margin expansion are expected to

lead to EBITDA growth of 29% CAGR in FY17-20E to | 140 crore.

Exhibit 12: Focused capex to lead to profitable growth

Capital expenditure

(| crore)

FY17

Assets

2017-18

Proposed FY18 Assets

Sorting Centers 88.5 50.0 138.5

Cars 2.5 1.0 3.5

Plant & Machinery 6.2 2.0 8.2

IT 3.4 2.0 5.4

Office Equipment 2.4 3.0 5.4

Furniture & Fixtures 3.3 2.0 5.3

Total 106.3 60.0 166.3


Exhibit 13: Sorting centres space to double from FY17 to FY22…

0.40.5

0.7

0.9

1.30.7

0.7

0.7

0.7

0.7

0.0

0.5

1.0

1.5

2.0

2.5

FY 17 FY 18 FY 19 FY 20 FY22

mn.sq.ft

Sorting centre spaceOwned Contracted

39% CAGR

1 mn sq.ft

1.6 mn sq.ft

16% CAGR

2 mn sq.ft12% CAGR

20% CAGR


Exhibit 14: Reduction in rental expense, efficiencies to drive EBITDA…

54.6 67.6 83.3 112.0 139.8

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

FY16 FY17 FY18E FY19E FY20E

| c

rore

EBITDA



Sorting centres to provide better efficiencies

Sorting activities remain at the heart of the logistics express players. The

turnaround time could be drastically improved by clear segregation and

leveraging the automation at the centres. On the one hand, material

ordered in bulk at possibly a discounted rate can be separated at the

logistics centre, sorted and then shipped to the designated project. On the

other hand, material coming from different suppliers can be consolidated

and then shipped to a certain project.

In FY17, TCIEL made changes in its distribution strategy. Earlier, the

consignments used to arrive at the consolidation hub unloaded, marked

and numbered and then shifted to respective sorting centres for final

delivery. However, recent changes involved elimination of transportation

to nearby branches and directly ship consignments from its pick-up point

to the nearest sorting centre and direct shipment to consumer. The

strategy has not only led to time saving but also resulted in a reduction of

fixed overheads resulting in margin improvement. The strategy was

implemented in FY17 over eight to 10 metro cities, resulting in margin

expansion of 120 bps in FY16-H1FY18 to 9.4%. The strategy would be

further extended to other cities in FY17-18. However, it would not be

possible across all routes as synergies could be derived only on high

density routes. Moreover, TCIEL has also implemented minimum selling

prices (MSP) across its service centres. The same is executed through

standardised rate cards that would avoid undercutting of prices that were

earlier a practice adopted by business associates to attract volumes.

Recent efforts coupled with benefits of route optimisation would accrue

over our estimated period (FY17-20E) resulting in margin expansion of

300 bps to 12% (vs. current 9%).

Exhibit 15: Revised distribution strategy for quick turnaround, better efficiencies…


Exhibit 16: Improved efficiencies to result in uptrend in margin…

8.2

9.09.4

9.7

11.0

11.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

FY16 FY17 H1FY18 FY18E FY19E FY20E

% o

f s

ale

s

EBITDA margins

Optimisation of distribution

strategy resulting in margin

improvement

Benefits to accrue over

the estimated time

period


Elimination to result

faster and efficient

distribution model


GST, e-way bill - Structural impetus to organised segment…

Traditionally, due to a multi-point taxation system, logistics activities were

operationally challenged by complicated transport networks and high

coordination costs. The goods directly supplied to dealers attracted state

VAT. To avoid the same, logistics service providers (LSPs) operate a hub-

and-spoke model in most states wherein transfer from warehouse was

treated as stock transfer. The strategy led LSPs to set up a number of

warehouses across states resulting in warehouses operating below

capacity. With the abolition of multiple taxes, the GST regime has led

most businesses to redesign their supply chain network leading to cost

efficiencies compared to the erstwhile network, which was based on

state-wise tax benefits. The logistics industry is expected to witness an

era of higher turnaround and improved efficiencies as illustrated below:

Exhibit 18: Impact on supply chain mechanism post GST…

Source: Industry interactions, ICICIdirect.com Research

Exhibit 19: Established and valued added service range…


Some of the other benefits are expected to be as follows:

Idle time for truck fleet is expected to reduce 20% due to

elimination/rationalisation of check post between states (more than 20

states have already removed check posts)

Elimination of octroi is expected to reduce congestion and improve

productivity for logistics industry for distribution in large cities

Higher automation coupled with larger warehouses would result in

improved infrastructure and economies of scale

Exhibit 17: GST rate card - Logistics players…

Sector

Tax rate

earlier

Amended Tax rate

under GST

Road transport 4.5-6%

5% - No input tax

12% - With input tax

Rail & coastal shipping 4.5-6%

5%

(With input tax)

Container rail 6%

12%

(With input tax)

Express, warehousing & other

value added services

15%

18%

(With input tax)


FTL model – Covering

greater distances

<500-2500 kms

Express/LTL

model

<500 kms

Last mile or

Express/LTL

<100 kms

Total

distance

<3000

kms

Express/LTL

model

<1000 kms

Last mile or

Express/LTL

<100 kms

Total

distance

<2600

kms

FTL model

<500-1500 kms

Given the benefits of GST and

eradication of state-wise

warehouses, we expect the role of

full truck load (FTL) to decline. A

reduction in diversions taken to

reach outskirts would lead transit

time (in km) to decline nearly 5-

10%. However, the role of

express/less than truck load (LTL)

players like TCIEL would increase.

Inbound activities like just-in-time

inventory and outbound activities

like time to market would gain

momentum leading to demand for

time definite logistics services

A recent, post GST study conducted by Ministry of Road

Transport & Highways reveal that trucks have started

covering 300-325 km/day (vs. earlier 225 km/day).

Efficiencies were on the back of time saving accrued from

border checkposts, lower congestion and abolition of toll

centres from certain states


Earlier, different states prescribed multiple transit passes that made

compliance difficult resulting in bottlenecks at check posts. Electronic way

(e-way) bill aims to replace separate transit passes with a uniform way bill

rule, which will be applicable throughout the country. The hindrances

encountered in a conventional check post system would be withdrawn

and replaced by a transparent IT mechanism.

Exhibit 21: E-way bill flow: parcel movement…

Consignor/ Shipper generates

invoice

Transporter generates

Intrastate E-way bill

Arrival of goods at Transporter

Hub

Sortation and Long haul

movement

Transporter generates e-way

for long haul

Transporter updates e-way

bill for any change of

vehicle/ mode of transport

Arrival at delivery hub

Transporter generates

intrastate e-way bill

Delivery of goods


Only one e-way bill is required for movement of a full truck load (FTL)

vehicle. Unlike parcel movement, no separate e-way bill is required across

multiple states. However, for parcel movement, a separate e-way bill is

required for intra-state movement and inter-state movement. The GST

Council has approved a nationwide implementation of the e-way bill

pertaining to inter-state movement of goods from February 1, 2018 and

intra-state movement of goods from June 1, 2018.

Exhibit 22: Transparency in parcel movement…


Commencement of e-way bill would ensure that goods being transported

comply with the GST law, which includes invoicing, disclosure, tax

payment, etc. Moreover, it would also facilitate real time tracking of goods

movement. Unorganised players would remain wary of random checking

by “mobile squads”, which continues under the GST system. The

surveillance under e-way mechanism makes it difficult for unorganised

player to operate. Capitulation of unorganised players coupled with faster

turnaround time would benefit organised player like TCIEL.

Exhibit 20: E-way bill mechanism…

Distance

Less 100 Km

100-300 Km

300-500 Km

500-1000 Km

> 1000 Km

E-way Bill Validity

1 day

3 days

5 days

10 days

15 days


E-way bill has a validity based on date of generation and

distance to be travelled. A vehicle must carry a valid e-

waybill during its entire journey


Specialist logistics services like express delivery to gain momentum

Express delivery (ED) logistics being fast, safe, controllable and traceable

is currently experiencing rapid growth. Increasing demand for time

accuracy and decentralisation of production and need to reduce inventory

costs have necessitated the evolution of ED. The B2B aspect of just-in-

time (JIT) delivery, which involves more frequent delivery of materials at

the right time and right place, could be capably fulfilled by ED. This has

led growth in ED (14% CAGR in FY12-14) to outperform the 12% CAGR

growth in the logistics industry. Over these years, ED players have

evolved from being a basic courier service provider delivering documents

to an integrated door-to-door logistics partner. The consumption-driven

economy led consumer focused industries like auto, apparel, pharma,

FMCG, consumer durables to grow at a rate faster than raw material

centric industries like polymers, cotton, coal, mining, etc.

Exhibit 24: Consumer oriented sector remains biggest contributors to express growth…

12-15

10-12

15-18

12-15

8-10

2-3

0

5

10

15

20

25

FMCG Apparel Pharma Auto Polymers Mining

% g

row

th

Customer centric Raw material centric

Source: FSC DRHP, ICICIdirect.com Research

A pan-India express network, which is tried, tested and invested over a

long gestation, remains core to the competitive proposition. Higher initial

investments to build network and scale have led the global ED industry to

become an oligopolistic market. However, inefficiencies and a lack of

infrastructure have given rise to three layers (on the basis of geographical

reach) of ED in developing countries. National service providers, which

have a pan-India reach, offer best pricing. However regional/local service

providers offer deeper penetration and high local connect (SMEs). Given

the synergies and capabilities, national operators continue to control a

significant market share.

Exhibit 25: Relative positioning of express logistics service providers… e

Source: Ken research, ICICIdirect.com Research

Given the reach and volume sourcing capabilities, regional/local players

seeking growth and higher utilisation levels would collaborate with

national players for parcels delivered across India. Subsequently, the

share of organised national express players is expected to reach 60% by

FY22 vs. the current 50% in FY17.

Exhibit 23: Global ED business - Oligopolistic nature..!



Express - “Business class” of logistics industry…

The specialised and priority nature of the business, positions the express

industry as a premium segment in the logistics industry. The industry is

known for providing complete end-to-end solutions for all logistics needs

right from delivery to packaging, sorting, storage, clearance and

payments (COD) as well. The express industry provides an integrated

multimodal approach to the delivery of shipments. Shipments are moved

through air and surface modes depending on the urgency of the delivery.

The average delivery time for a standard package under express logistics

is 24 to 72 hours. Moreover, the segment differentiates itself with

implementation of technology (IT) providing crucial real time information

of tracking and tracing. The clientele profile deploying express logistics

includes FMCG, retail, auto components, consumer durables, e-

commerce, etc. These players remain sensitive on time-to-market thereby

having higher propensity to pay. Consequently, per tonne realisations for

express services remain one of the highest in the industry.

We believe that a revival in the economy coupled with a shift from

unorganised to organised would lead industries catered to by express

players (organised retail, e-commerce, consumer durables, electronic

products and healthcare) to witness higher than average growth. Given

the benefits of reduced delivery time, growing preference for just-in-time

approach (reducing inventory costs), minimisation of loss of sale

opportunities and rising end-consumer demand for quality logistics

services, express delivery services are increasingly becoming the

preferred mode of logistics for a large number of users.

Exhibit 26: Express market by market structure

70%

20%

10%

B2B B2C C2C

Source: Ken research, ICICIdirect.com Research

Exhibit 27: Express remains premium category of logistics segment…

Multi-modal

(Rail + Road)

freight cost

Road freight

cost (|) per

tonne

Express cost

(|) per tonne

From To Rail + Road Road

1 Delhi Chennai 144 94 4136 9053

2 Delhi Hyderabad 120 79 3531 6472

3 Delhi Banglore 144 91 4197 7922

4 Delhi Kolkata 120 84 3344 3560

5 Delhi Guwahati 360 121 4110 5310

Sr. no

Route

Transit time

(hours)

|12000 to

|25000 across

India

(|) per tonne


Exhibit 28: Key drivers of express industry…


Moving goods

faster in time

bound manner

E-commerce trade

catching up in tier-2

cities

Enables faster collection

for traders offering cash

on delivery

Designed to suit high

volume and high value

customer


TCIEL –Preferred partner across varied industries…

TCIEL recorded a sales CAGR of ~9% in FY15-17 led by higher client

addition in lifestyle (garment & textile) segment, which grew at 19% CAGR

(favourable base) in FY12-17. The segment now contributes 7% of overall

revenues compared to 5.5% in FY15. However, on a higher base,

pharmaceutical grew at 14% CAGR to | 100.7 crore (13.3% of overall

revenues). Robust growth in the pharmaceutical segment was on the back

of a dedicated team set-up targeting newer clients and value added

services. Over FY15-17, TCIEL has weeded out its clientele in auto

components and others, which had delayed payments following which

growth remained sluggish at 3% CAGR in FY15-17.

Exhibit 29: Sector-wise break-up of TCIEL…

Motor vehicle

parts, 14%Pharmaceutical,

13%

Engineering and

Tele-

Communication,

11%

Energy and

Power , 9%

Garments and

Textiles , 7%

SME's, 45%


Exhibit 30: Business with decent visibility…

Contractual,

60%

Repeat, 25%

Business

associates,

15%


Approximately 60% of the business is contractual process adopted by

large corporate clients. Apart from cost effectiveness as a parameter, the

key trait for securing a contract remains historical experience and long

term relationships. The business remains sticky as contracts are for a

minimum period of a year, which undergoes tendering each year. In

addition to the new contracts, the renewal/repeat contracts contribute 22-

25% of overall revenues. The remaining (15-20%) is contributed by

business associates (small vehicle owners).

Exhibit 31: Client base of well-renowned corporate players…



E-commerce - low on management’s pecking order now...

TCIEL provides B2C services to prominent e-commerce companies. In

addition to the execution of B2C deliveries, the company also offered

value added services like cash on delivery (CoD), reverse logistics,

Sunday and holiday deliveries, etc. Key services include bulk movement

(vendor to warehouse, inter-warehouse), warehouse to customer with

cash collection, etc. With the surge in e-tailing in FY11-16, revenues from

the division grew phenomenally by nearly six-fold growth to | 37.8 crore

(5% of overall topline) in FY17. Following this, TCIEL earlier expected this

division to be the future growth engine. However on the lower base the

company expects the division to grow at 40-50% CAGR and estimates it

will contribute <10% of the company’s FY20 topline.

The growth attracted many new players that were further supported by

funding from capitalists. In addition to the new player, captive units of e-

tail players like Delhivery (Flipkart), Vulcan Express (Snapdeal), Amazon

Transportation Services (ATS), etc. The B2C delivery space got crowded.

This had a direct impact on pricing resulting in rapid growth at the cost of

margins. The easiest to start routes were initially filled. However, pan-

India players like TCIEL continued their strategic presence across all e-

tailing logistics partners.

Exhibit 32: E-commerce revenues to remain <10% of overall revenues…

5.6 19.9 37.8 118.4

1%

3%

5%

<10%

0%

2%

4%

6%

8%

10%

12%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

FY13 FY16 FY17 FY 20E

| c

rore

E-commerce revenue


Exhibit 33: PE funding ushering competitive intensity in e-commerce logistics…

425 81 207 132 436 501

0

100

200

300

400

500

600

2012 2013 2014 2015 2016 2017

$ m

n

PE investments - Transport & Logistics sector

Source: Grant Thornton , ICICIdirect.com Research


Route optimisation – Sorting centres located strategically…

Express logistics is unique in nature as it differentiates itself from the

traditional transportation business by aiming at movement of time

sensitive cargo while at the same time charging a premium for the same.

Routing network of a hub & spoke model remains the backbone of the

express business that has been developed, tried and tested over several

years. The strong network would enable prompt movement of cargo

driving efficiencies generating higher yield per route.

Over the past two decades, TCIEL has designed one of the largest pan-

India networks of 28 sorting centres and 550 branches. Through a flotilla

of 4000 containerised trucks, TCIEL offers time-definite solutions to 670

out of 675 districts (40000 locations) in India. The company manages 400

express routes and 2500 feeder routes serving close to 3500 pin codes.

TCIEL also leverages information technology (IT) infrastructure to derive

higher efficiencies by adopting technological undertakings like CCTV

surveillance, Central Control Monitoring, GPS enabled vehicles and

enterprise resource planning (ERP) linked branches.

Exhibit 34: Technical assistance to improve efficiency


Exhibit 35: Pan-India presence to keep up competitive positioning…



Fleet management remains core to business model...

TCIEL operates a unique asset light business model where majority of the

investments are channelised in expanding its handling capacity (72% of

the gross block in land & buildings). For trucking, TCIEL refrains from truck

ownership by entering into near to long term contracts with truck owners

thereby booking a dedicated space. Approximately 95% of the fleet is

managed through vendors while the remaining 5% is hired on a spot

basis. The long haul with 1700 trucks remains the backbone of managing

the scheduled running plying between sorting centres. These are

contractual agreements mostly renewed at the end of every year. As

these trucks cover majority of the distance, the same are paid on distance

covered (per km basis). The remaining 2300 vehicles are parcel gushers,

which connect the initial customer to the sorting centre and/or to the end

customer. Two decades of experience and a widespread network enable

TCIEL to fulfil 20% of volumes directly without shifting them to branches.

Exhibit 37: Fleet utilisation core to business strategy…


Core to TCIEL’s fleet management is a quick payment schedule. The

company maintains a slated payment system with vendors/truck owners

provided payments on fixed dates i.e. third, 13th

and 23rd

of every month.

The strategy reflects in payable days that are lowest in the industry.

Exhibit 36: Expanding its reach…

500

550

610645 660

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016

No of District served


Exhibit 38: TCIEL remains best in industry to collaborate with…

1110

13 13

1819

14 14

11

25

12

20

30

3537

35

38

41 41

45

0

5

10

15

20

25

30

35

40

45

50

FY13 FY14 FY15 FY16 FY17

Payable

days

TCIEL Gati-KWE Bluedart Mahindra Logistics



Financials

Revenues likely to grow at 17% CAGR in FY17-20E

The scheduled investments are expected to result in a 12.3% CAGR

increase in handling capacity to 1 million tonnes compared to the current

765000 tonnes. However, with incremental capacity, we believe utilisation

levels will moderate in a range of 82-83% in initial years (FY18, FY19).

Post stabilisation, we believe TCIEL will reclaim its 85% capacity

utilisation levels. Subsequently, volumes are expected to grow at a CAGR

of 12% to 920920 tonnes. A faster turnaround time coupled with

improved efficiencies would lead to improved realisation for the

company. We expect realisations to grow at 4% CAGR in FY17-20E.

Exhibit 39: Higher capacity maintaining existing utilisation levels…

764706

879412

984941

1083435

85%

82%

84%

85%

80%

81%

82%

83%

84%

85%

86%

0

200000

400000

600000

800000

1000000

1200000

FY 17 FY 18E FY 19E FY 20E

Utilis

atio

n %

in tonnes

Capacity and utilisation levels


Exhibit 40: Volumes/value on uptrend…

650000

721118

827351

920920

11598

11946

12304

12920

10500

11000

11500

12000

12500

13000

13500

0

200000

400000

600000

800000

1000000


| p

er tonne

in tonnes

Volume/Value mix


SMEs are expected to continue their major contribution in overall

earnings with a contribution of ~43% of FY20 overall revenues. However,

rising consumption across tier-III, tier-IV cities and TCIEL’s focus on

increasing its pan-India reach are expected to result in faster growth

(~20% CAGR) for auto and garments & textiles segments. In categories

per se, TCIEL would continue to maintain its higher contribution (>90%)

from the B2B segment, consciously maintaining its profitable earnings

(<10%) in the highly competitive e-commerce (B2C) segment.

Consequent revenue growth for TCIEL is expected at 16% CAGR (12%

volume, 4% pricing) in FY17- 20E. We expect TCIEL to report net sales of

| 1184 crore in FY20E vs. | 755 crore in FY17.

Exhibit 41: Consolidated revenues to grow at CAGR of 16% over FY17-20E…

755 857 1013 1184

13.913.5

18.2

16.9

0.0

5.0

10.0

15.0

20.0

0

200

400

600

800

1000

1200

1400


Grow

th rates (%

)

| c

rore

Revenue growth



EBITDA to outperform sales growth with 27% CAGR in FY17-20E

A shortening of the distribution chain coupled with adoption of MSP

pricing strategy makes a strong case for margin expansion. As TCIEL

operates on a contractual trucking agreement, an increase in diesel prices

would have a lower impact on the company’s profitability. Apart from a

delay in revision of freight rates, the entire price fluctuation is a pass-

through. However, TCIEL having bargaining power benefits from higher

volatility as the benefits of price hikes from customer are not completely

passed on to truck suppliers. Apart from operational benefits from

implementation of GST, TCIEL remains committed to focusing only on

profitable growth thereby limiting its investments on e-commerce related

transportation business, which is marred with high competition and

predatory pricing. For its e-commerce division, TCIEL intends to seek

business opportunities only in those geographic areas/routes, which can

command 15-18% threshold EBITDA margins. In addition to the same,

focus on owned sorting centres would result in a decline in rental

expenses from current 2.7% of the topline to 2% of the overall topline.

Exhibit 42: Decline in operational expenses to remain margin accretive…

12

9

0.6

1.40.7

0.3

FY17 Freight

expenses

Faster Handling Rent expenses Other initiatives FY20E

% o

f s

ale

s

Operating

efficiencies

Automation

benefits

Ownership

model

MSP led and

others


Given its focus on profitability, we expect operational levers to turn in

favour of margin expansion of 300 bps in FY17-20E to 12% by FY20E.

Impressive revenue growth coupled with margin expansion would result

in buoyant EBITDA growth at 27% CAGR in FY17-20E to | 140 crore in

FY20.

Exhibit 43: EBITDA margins expected to improve 300 bps over FY17-20E

67.6 83.3 112.0 139.8

9.0

9.7

11.0

11.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

FY17 FY18E FY19E FY20E

%

| c

rore

EBITDA and EBITDA margins



PAT growth driven by better operating performance

PAT for FY18 would remain impervious to lower taxation (25% of PBT)

due to a reduction in the basic income tax (25%) announced in the FY17-

18 budget for small companies with an annual turnover of up to | 50

crore. TCIEL being an independent entity reported FY16 earnings of |

25416 and loss of | 140877. As the company would fall in the full basic

corporate tax bracket (30%) from FY19 onwards coupled with higher

depreciation due to capex and minimal interest cost, this would lead PAT

to grow in tandem with EBITDA. Consequent PAT growth is expected at

27% CAGR in FY17-20E to | 83.6 crore in FY20 from | 40.7 crore in FY17.

Exhibit 44: PAT expected to nearly double in FY17-20E

40.7 53.5 66.8 83.6

5.4

6.2

6.6

7.1

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0


%

| c

rore

PAT trend


Return ratios to remain one of the best in the industry…

The capital expenditure outlay of | 400 crore over five years is expected

to keep return ratios range-bound over our estimated period (FY18E-20E).

With incremental assets, the asset turnover is expected to moderate from

the current 4x to 3x by FY20E. The return on equity (RoE) and return on

capital employed (RoCE) in FY17-20E are expected to continue to remain

healthy above 25% and 35%, respectively. Albeit range bound, return

ratios are expected to remain one of the best in the industry (after

BlueDart). However, a rapid stabilisation of assets resulting in a steep

improvement in return ratios post completion of expansion would remain

an upside risk to our estimates.

Exhibit 45: Return ratios to remain rage bound…

25.5

29.6

28.4

27.0

35.1

34.9

36.936.7

32.0

34.0

36.0

38.0

22.0

24.0

26.0

28.0

30.0


%%

RoE RoCE



Healthy CFO to internally fund capex requirements…

Given the historical investments, capital expenditure over our estimated

period (FY18-20E) would continue to be in the range of | 40 to | 55 crore.

Majority of the capex would entail fixed assets (including land and

building) and modernisation of sorting centres. TCIEL while focusing on

receivables improved its debtor days from 59 days in FY16 to 55 days in

FY17. Moreover, leveraging its goodwill in the market, it has extended its

payable period from 12 days in FY16 to 19 days in FY17. The resultant

working capital cycle improved by eight days from 45 days in FY16 to 37

days in FY17. Ideal working capital management coupled with improved

fundamentals would result in higher cash flow from operations (CFO). We

expect CFO to remain in the range of | 50-70 crore with which the capex

would be internally funded.

Exhibit 46: Capex to be funded internally…

50.046.8

59.9

70.9

35.8

41.1

49.5

55.7

9.9

3.1

8.1

13.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0


| c

rore

CFO Capex FCFF


Debt averse; higher profitability to result in steady decline in debt/equity

Amid a steady improvement in profitability coupled with internal funding

of capex, we expect no meaningful change in absolute debt levels in

FY18E-20E. Given the debt averse nature of the management, we expect

net debt to remain at current levels of | 40 crore by FY20E, quoting a

healthy financial leverage of 0.1x.

Exhibit 47: Debt to equity to remain below 0.3x…

31.6 46.9 46.9 39.4

0.20

0.23

0.17

0.11

0.00

0.10

0.20

0.30

0.0

10.0

20.0

30.0

40.0

50.0


(x)

| c

rore

Debt Debt/Equity



Risk & Concerns

Risks to capacity utilisation assumptions…

TCIEL currently operates at an average utilisation level of 85%. Utilisation

levels in H1 are usually low at 82%. However, H2 remains strong with

utilisation scaling up to 88%. The current capacity of 765000 tonnes is

expected to reach 1 million tonnes by FY20E. Moreover, these capacities

are static (company owned) for which due to fixed overheads (OHs)

utilisation remains crucial. Under-utilisation would be a double whammy

for our estimates as a decline in topline would be accompanied by margin

compression resulting in a steeper decline in our profitability and EPS

estimated, adversely impacting our target price.

Weakening of competitive positioning…

Delhivery, Ecom Express and Rivigo received the maximum funding for

FY17 in the logistics PE space. The funding spree of Rivigo backed by

marquee investors like Warburg Pincus and SAIF Partners has made the

company the fastest start-up to achieve Unicorn status (startup company

valued at over $1 billion). Following the success story, the logistics sector

which was plagued by poor manpower skills, inefficient fleet utilisation

and fragmented infrastructure remains an opportunity for a startup. Age-

old traditions and business methodology are replaced by new age

technologies to achieve global standards. The start-ups are addressing

challenges across logistics segments like cold chain, warehousing,

trucking, 3PL, etc. Some key competitors in start-ups are as follows:

With the sector flush with funds, capex plans of these players would be

phenomenally higher (2-3x higher) than the capex planned by TCIEL. The

direct impact would result in overcapacity leading to subdued realisation.

Exhibit 48: Sensitivity of EPS estimates to utilisation…

75% 80% 85% 90% 95%

FY19E 13.1 15.5 17.9 20.3 22.7

FY20E 16.3 19.1 21.9 24.6 27.4

EPS

sensitvity

Change in Utilisation levels


Exhibit 49: Startup watchlist…

Name of the Start-up Services Approximate Funding in CY17 (|

crore)

eKart Captive arm of Flipkart 2600

Rivigo Trucking & 3PL services 600

Blackbuck Fleet aggregator 600

Delhivery B2C e-commerce services 600

Xpressbees B2C e-commerce services 600

Amazon Transporation Services B2C services 337

LEAP India Pallet and container rental 88

4tigo Freight & trucking solution 78

Elasticrun B2C fleet solutions 46



Valuations

Preeminent business model to command expensive multiples…

The wide variety of services provided by express players makes it difficult

for a single entity to manage. Following this, players like Gati KWE,

BlueDart and TCI Express have focused on client management, line haul

circuit, value added services and technology. Alternately, these players

have leveraged their goodwill in the market thereby collaborating with a

number of regional players outsourcing majority of its non-core activities

like trucking, last mile delivery. The strategy has given these players

enhanced coverage while at the same time keeping their balance sheet

light. Moreover, higher EBITDA is the consequence of higher realisations

on the back of speed and accuracy. The dual benefit positions the express

business in the top quadrant of our logistics business model matrix,

which represents high growth and high RoCE.

At the current market price of | 550, TCIEL is trading at 15x on EV/EBITDA

and 25x FY20E EPS. Near-term financials, in our view, do not entirely

capture the high revenue growth opportunity and huge potential for

improvement in TCIEL’s profitability metrics. Considering the structural

changes, strong competitive positioning, focused growth approach and

future growth prospects, we believe TCIEL is the next best after BlueDart.

We ascribe 30x on FY20 EPS of | 22 (implied EV/EBITDA at 18x) and

arrive at a target price | 660 with a BUY recommendation.

Exhibit 50: Express remains in top quadrant of growth/RoCE matrix…

Express industry

Contract Logistics

Cold Chain

Container logistics

Road transport

Freight

forwarding/NVOCC

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

RoC

E

Revenue Growth (FY12-17 CAGR)Low

Low

Hig

h

High

Source: FSC DRHP, ICICIdirect.com Research, *Size of bubble represents industry size

Exhibit 51: Valuation compared to peers

Figures (| crore)

Company Price Sales EBIDTA OPM PAT PAT % FY18E FY19E FY20E

TCI Express 540 755.2 67.6 9.0 40.7 5.4 38.7 31.0 24.7

Bluedart 4,700 2,689.5 341.7 12.7 137.0 5.1 75.9 62.9 50.0

VRL Logistics 435 1,803.1 218.2 12.1 70.5 3.9 34.0 25.9 20.6

Gati 135 1,691.0 111.8 6.6 29.5 1.7 24.9 30.0 26.0

Average P/E 43.4 37.4 30.3

Valuation metrics

Target P/E multiple 30

2020E PAT 83.6

2020E Market Cap. 2,526.0

No. of shares (crs) 3.8

Target Price (|) 660

CMP (|) 540

Upside/(Downside) % 22

FY17 P/E



Appendix

Sector Snapshot

Exhibit 52: Freight transport modal contribution

5170

9100

15230

20000

0

5000

10000

15000

20000

25000

FY12 FY17P FY22E FY25E

| b

illion

Indian Logistics industry

Market Size

12% CAGR

10% CAGR

Source: ICICIdirect.com, Research

Exhibit 53: Modal share – Tonnes carried

8074

8579

2026

1521

0

20

40

60

80

100

Transportation Warehousing Others Overall

Unorganised Organised


Exhibit 54: Freight dynamics across modes…

8% 1%

60%

31%

Road Rail Water Air


Exhibit 55: Service contribution around logistics

62%

24%

8%

6%

Transportation Warehousing Freight Forwarding Value Added Services


Exhibit 56: Average profitability across services…

35-45

35-40

20-2215-25

13-16

10-13

8-13

3-5 2-4

0

5

10

15

20

25

30

35

40

45

EBITDA margins (%)

CFS Cold Chain & warehousing Container Rail

Shipping Trucking (LTL) Supply Chain

Express Distribution Freight Forwarding Trucking (FTL)


Exhibit 57: Express industry bifurcation…

7050

8190

9582

11211

7830

9260

10834

12675

0

2000

4000

6000

8000

10000

12000

14000

2014 2015 2016 2017

| c

rore

Organised Unorganised



Each manufacturing company is estimated to spend ~5-10% of sales on

transportation, inventory handling and warehousing, raw material

procuring, order processing, etc.

Exhibit 58: Sector-wise savings in logistics costs on GST implementation…

e

Sector FMCG Consumer durables Pharma Automobiles (MHCV's)

Current logistics costs 8-9% 7-8% 5.5-6.5% 5-6%

Direct logistics cost reduction post GST 0.8-1.2% 1.5-1.9% 0.5-0.9% 0.1-0.5%

Additional savings in logistics costs with checkpost dismantling 0.6-0.7% 0.5-0.6% 0.4-0.6% 0.5-0.7%

Total potential savings in logistics costs 1.4-1.8% 2.1-2.5% 1.0-1.4% 0.7-1.1%

Typical no. of warehouses for leading companies* 50 to 60 25 to 30 25 to 35 20 to 25

No of warehouses post likely consolidation 35 to 45 10 to 12 17 to 27 15 to 20

Assessment of typical logistics parameters:

Parameters as a percentage of sales:

Source: Crisil, Company, ICICIdirect.com Research

The fragmentation of the industry is around road transportation, which is

the largest mode of transport. The shift from pure play warehousing and

transportation to outsourced logistics will result in differentiated business

models in the last-mile reach of various available players. The traditional

version included logistics operations handled by manufacturers thereby

deviating from their core business. However, with changing demand and

needs of the new business, the new logistics model has evolved. New

transportation businesses like project logistics, outsourced warehousing,

3-PL and 4-PL, cold chain have started to derive higher value. As the

logistics service provider (LSP) moves up the pyramid as illustrated

below, they will derive higher value. Across each segment, from 1-PL to

4PL, the degree of specialisation and administration would intensify.

Any combination within the pyramid is possible. Some of the e-

commerce companies have their own captive units while also undertaking

contracts with other players where they do not have a reach. The

combinations could go up to 7PL (4PL + 3PL). The top of the pyramid

represents an asset light, planning oriented strategy.

Exhibit 59: Logistics start-up watchlist…

Source: Industry, ICICIdirect.com Research


Exhibit 60: TCIEL product offerings…



Logistics Peer Comparison…

Exhibit 61: Logistics peer valuations…

FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 FY 15 FY 16 FY 17 FY 18E FY 19E FY 20E

Coverage Companies

TCI Express Ltd 2098.2 658.6 663.2 755.2 26.5 28.5 40.7 41.9 34.6 35.1 24.4 23.9 28.8 39.4 31.5 25.2

Blue Dart Express Ltd 11142.6 2272.2 2562.9 2689.5 127.2 196.8 139.8 23.9 34.7 32.2 42.5 51.5 32.6 75.9 62.9 50.0

Gati Ltd 1507.6 1648.1 1667.0 1691.0 41.4 36.8 29.5 11.2 11.4 9.5 6.3 6.6 5.2 24.9 30.0 26.0

Transport Corp of India Ltd 2138.4 1550.5 1734.8 1954.9 50.5 44.6 65.8 15.6 9.2 10.7 12.8 7.8 10.2 25.5 25.5 25.5

Gujarat Pipavav Port Ltd 7254.0 867.0 660.0 683.1 389.2 227.5 282.2 21.7 13.0 14.0 20.9 9.2 11.5 28.0 24.7 20.2

Container Corp Of India Ltd 36267.6 5573.7 6278.2 5971.1 1,047.6 966.8 852.7 12.0 11.7 9.8 13.7 11.2 9.4 36.9 28.4 22.9

Median 18.6 12.4 12.4 17.3 10.2 10.8 32.5 29.2 25.3

Average 21.0 19.1 18.6 20.1 18.4 16.3 38.4 33.8 28.3

VRL Logistics Ltd 3626.5 1706.4 1803.1 1803.1 102.3 70.5 102.1 23.2 19.9 16.9 27.5 23.5 13.4 32.2 25.0 18.9

Mahindra Logistics 3495.6 2063.9 2666.6 2666.6 36.5 45.6 77.6 20.6 13.0 16.9 20.2 12.9 14.0 41.3 31.1 24.2

Navkar Corp Ltd 3033.0 347.3 370.9 370.9 95.1 85.6 112.7 9.9 8.3 6.7 11.6 9.2 6.2 25.9 17.9 16.4

Allcargo Logistics Ltd 4956.9 5640.5 5583.4 5583.4 239.9 231.8 248.0 23.3 22.2 19.9 13.0 13.2 13.1 17.7 15.1 13.9

Future Supply Chain 2735.8 408.0 519.9 561.2 24.6 29.4 45.8 16.4 15.0 15.1 11.3 11.9 15.6 56.8 NA NA

Gateway Distriparks Ltd 2571.4 387.9 393.4 393.4 123.2 74.4 90.2 17.9 18.5 25.7 21.3 12.7 7.3 26.1 20.4 15.7

Adani Ports 90759.5 7108.7 8439.4 8439.4 2,897.2 3,911.5 3,691.3 17.6 20.7 23.1 23.7 24.0 25.5 24.7 21.4 18.5

Median 17.9 18.5 16.9 20.2 12.9 13.4 26.1 20.9 17.5

Average 18.4 16.8 17.8 18.4 15.3 13.6 32.1 21.8 17.9

CY14 CY15 CY16 CY14 CY15 CY16 CY14 CY15 CY16 CY14 CY15 CY16 CY17E CY18E CY19E

United Parcel Service Inc 114.7 3553.8 3744.2 4092.1 185.0 310.8 230.5 14.5 24.3 17.6 70.4 210.1 238.7 22.1 18.5 17.0

FedEx Corp 73.5 2794.5 2927.9 3324.1 128.6 64.8 120.1 9.2 4.9 7.6 12.8 6.9 12.6 23.0 20.3 16.4

Deutsche Post AG 50.3 4589.4 4218.0 4263.7 167.8 109.7 196.2 33.7 25.4 38.6 21.6 15.1 23.9 26.1 18.5 15.9

Union Pacific Corp 111.2 1464.0 1399.4 1339.8 316.1 306.1 284.4 12.2 10.7 9.3 24.4 22.8 20.8 23.3 17.7 16.0

Kansas City Southern 11.4 157.3 155.2 156.8 30.7 31.0 32.1 8.2 7.5 7.1 14.1 12.6 12.0 28.7 22.8 20.6

CSX Corp 51.4 772.9 757.6 743.7 117.6 126.2 115.2 8.0 7.7 6.6 17.8 17.3 14.7 27.6 23.8 21.3

Norfolk Southern Corp 43.3 709.4 674.3 664.3 122.1 99.8 112.1 8.4 6.6 6.9 16.8 12.6 13.5 34.1 25.8 22.6

Old Dominion Freight Line Inc 12.2 170.1 190.7 201.0 16.3 19.5 19.9 15.4 15.4 13.4 19.6 19.2 16.7 27.1 21.5 19.0

Median 10.7 9.2 8.5 18.7 16.2 15.7 26.6 20.9 18.0

Average 13.7 12.8 13.4 24.7 39.6 44.1 26.5 21.1 18.6

CompanyMkt Cap

(INR cr)

RoCESales PAT

Global Players

Mkt Cap

(USD bn)

Sales RoCE RoEPAT P/E

RoE P/E



Financial Summary (Consolidated)

Exhibit 62: Profit & Loss

(Year-end March) FY 17 FY 18E FY 19E FY 20E

Net Revenue 755.2 857.1 1,012.9 1,183.8

Growth (%) 13.9 13.5 18.2 16.9

Operating expenses 576.3 654.0 769.8 899.7

Employee Cost 58.8 63.3 69.7 76.6

Repairs & Maintainence 4.1 4.3 5.1 6.8

Adminst & other Exp 48.4 52.2 56.4 60.9

EBITDA 67.6 83.3 112.0 139.8

Growth (%) 23.9 23.1 34.5 24.9

Depreciation 4.3 5.4 6.9 9.2

EBIT 63.3 77.9 105.1 130.7

Interest 1.9 2.6 2.3 2.0

Other Income - - - -

PBT 61.4 75.3 102.7 128.7

Growth (%) 41.2 22.5 36.4 25.3

Tax 20.7 21.8 36.0 45.0

Reported PAT 40.7 53.5 66.8 83.6

Exceptional Items - - - -

Adjusted PAT 40.7 53.5 66.8 83.6

Growth (%) 43.1 31.2 24.9 25.3

EPS 10.6 14.0 17.4 21.9


Exhibit 63: Balance Sheet


Source of Funds

Equity Capital 7.7 7.7 7.7 7.7

Reserves & Surplus 152.4 193.8 260.6 344.2

Shareholder's Fund 160.1 201.4 268.2 351.9

Secured Loan 0.5 0.5 0.5 0.5

Unsecured Loan 31.1 46.4 46.4 38.9

Total Loan Funds 31.6 46.9 46.9 39.4

Deferred Tax Liability - - - -

Minority Interest 2.9 3.0 3.1 3.1

Source of Funds 194.7 251.3 318.2 394.4

Application of Funds

Gross Block 114.7 151.9 195.5 238.9

Less: Acc. Depreciation 18.0 23.4 30.3 39.4

Net Block 96.8 128.6 165.2 199.4

Capital WIP 7.9 11.8 17.7 30.0

Total Fixed Assets 104.6 140.3 182.9 229.4

Intangibles 1.6 1.6 2.4 2.4

Investments - - - -

Debtors 114.9 122.1 141.5 162.2

Cash 9.5 15.8 23.1 28.9

Loan & Advance, Other CA 22.4 28.0 30.8 35.4

Total Current assets 146.8 165.9 195.5 226.5

Creditors 37.8 34.0 38.0 37.0

Other Current Liabilities 8.8 10.1 11.7 13.4

Provisions 11.8 12.4 13.0 13.6

Total CL and Provisions 58.4 56.6 62.6 64.0

Net Working Capital 88.4 109.4 132.8 162.5

Miscellaneous expense - - - -

Application of Funds 194.7 251.3 318.2 394.4



Exhibit 64: Cash Flow


Profit after Tax 40.7 53.5 66.8 83.6

Less: Dividend Paid (1.9) (2.6) (2.3) (2.0)

Add: Depreciation 4.3 5.4 6.9 9.2

Add: Others - - - -

Cash Profit 46.9 61.4 76.0 94.8

Increase/(Decrease) in CL 25.6 (1.8) 6.1 1.4

(Increase)/Decrease in CA (22.5) (12.8) (22.2) (25.3)

CF from Operating Activities 50.0 46.8 59.9 70.9

(Add) / Dec in Fixed Assets (38.2) (41.1) (49.5) (55.7)

Goodwill 0.5 - (0.8) -

(Inc)/Dec in Investments - - - -

CF from Investing Activities (37.7) (41.1) (50.3) (55.7)

Inc/(Dec) in Loan Funds (9.2) 15.3 - (7.5)

Inc/(Dec) in Sh. Cap. & Res. (3.6) (12.1) - -

Others (1.3) (2.4) (2.2) (1.8)

CF from financing activities (14.1) 0.7 (2.2) (9.3)

Change in cash Eq. (1.9) 6.4 7.4 5.9

Op. Cash and cash Eq. 11.4 9.5 15.8 23.1

Cl. Cash and cash Eq. 9.5 15.9 23.2 29.0


Exhibit 65: Ratios


Per share data (|)

Book Value 41.8 52.6 70.1 91.9

EPS* 10.6 14.0 17.4 21.9

Cash EPS 11.8 15.4 19.2 24.2

DPS 0.8 0.8 0.8 0.8

Profitability & Operating Ratios

EBITDA Margin (%) 9.0 9.7 11.1 11.8

PAT Margin (%) 5.4 6.2 6.6 7.1

Fixed Asset Turnover (x) 3.9 3.5 3.2 3.0

Debtor (Days) 53.2 52.0 51.0 50.0

Current Liabilities (Days) 19.3 19.0 18.0 15.0

Return Ratios (%)

RoE* 28.8 29.6 28.4 27.0

RoCE 35.1 34.9 36.9 36.7

RoIC 21.3 21.5 21.2 21.4

Valuation Ratios (x)

PE 50.8 38.7 31.0 24.7

Price to Book Value 12.9 10.3 7.7 5.9

EV/EBITDA 30.9 25.2 18.7 14.9

EV/Sales 2.8 2.4 2.1 1.8

Leverage & Solvency Ratios

Debt to equity (x) 0.2 0.2 0.2 0.1

Interest Coverage (x) 33.9 30.2 44.8 66.4

Debt to EBITDA (x) 0.5 0.6 0.4 0.3

Current Ratio 2.4 2.7 2.8 3.1

Quick ratio 2.4 2.7 2.8 3.1



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ratings to its stocks according to their notional target price vs. current market price and then categorises

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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

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ICICIdirect.com Research Desk,

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