Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable’ rating on the long-term bank facilities of TCI Express Ltd (TCI Express).

 

The revenue declined by ~3% on-year (~1.5% decline in volume), in the first half of fiscal 2025, impacted by some demand moderation due to general elections (in the first quarter of fiscal 2025) and prolonged monsoons (second quarter of fiscal 2025) which led to water logging and flooding, causing supply chain disruptions and delivery delays. Additionally, moderate activity in manufacturing, automotive and textile sectors impacted the logistics demand. The topline is expected to remain flattish in fiscal 2025 and thereafter grow at low double digits in fiscal 2026, with expected demand improvement across the end user sectors spurring the manufacturing sector.

 

Operating margin declined to 11.5% in the first half of fiscal 2025 from 15.5% in the first half of fiscal 2024, due to increase in the cost of air business, lower utilisation of fleet and increase in labour cost. The margin is expected to remain at 11.7-11.8% in this fiscal. The margin is expected to increase to 14-15% over the medium term with expected pass on of the increase in air cost and increase in volume which will help in better fleet utilisation. The company is focusing on automating its sorting centres for better efficiency and has automated two major sorting centres till now.

 

The financial risk profile remains strong, supported by healthy networth of over Rs 750 crore (projected), with negligible debt as on March 31, 2025. The debt protection metrics remain strong on account of negligible debt and healthy accrual from operations, and are expected to remain healthy over the medium term. The company is expected to generate cash accrual of Rs 100-150 crore over the medium term which will be sufficient to fund their capital expenditure (capex) plans. The company is expected to incur capex of Rs 40-50 crore in fiscal 2025 and plans to incur around Rs 100 crore per annum over the subsequent three years for constructing sorting centres and increase automation in the existing centres. The capex is expected to be funded through internal accrual. Liquidity is healthy as reflected in cash equivalents of Rs 114 crore as on September 30, 2024, and bank limits of Rs 40 crore against which utilisation remained low at ~2% for the last 12 months through December 2024.

 

The rating continues to reflect the company’s healthy operating efficiency, strong market position and robust financial risk profile. These strengths are partially offset by its modest scale of operations, low cash flow diversity and exposure to intense competition.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TCI Express and its subsidiary because of business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position: TCI Express is a group company of Transport Corporation of India Ltd (TCIL; rated ‘Crisil AA/Stable/Crisil A1+’), which is one of the largest integrated service providers in the logistics industry. TCI Express has a healthy market position in the express delivery business, aided by reputed brand and the promoter’s experience of more than six decades in the logistics industry. The company is among the major players in road express industry and has market share of ~7% (by value of goods transported). They provide diversified express services through road (85-90%), air (7.0-7.5%) and rail (2.0-2.5%).

 

• Healthy operating efficiency: The asset-light model (wherein vehicles are hired and not owned), with the ability to pass on fuel price increases, has kept the operating margin stable and return on capital employed (RoCE) healthy over the years. The operating margin is expected to temporarily moderate this fiscal due to increase in the cost of air business, lower utilisation of fleet and increase in labour cost. The margin is expected to recover to historical levels by next fiscal. Operating efficiency is aided by the flexibility to pay for hired vehicles on a per-kilometre (km) basis, strategically located sorting centres and longstanding relationships with diversified clientele. Expected capex for improving infrastructure will sustain RoCE of around 20% over the medium term.

 

• Robust financial risk profile: The financial risk profile remains strong supported by healthy networth of over Rs 750 crore (projected), with negligible debt, as on March 31, 2025. The debt protection metrics remain strong on account of negligible debt, healthy accrual from operations and are expected to remain healthy in the medium term. The company is expected to generate cash accrual of Rs 100-150 crore in the medium term which will be sufficient to fund their capex plans. Efficient working capital management has eliminated the need for external debt. Bank lines of Rs 40 crore had negligible utilisation for the 12 months through December 2024.

 

Weaknesses:

• Small scale of operations and low cash flow diversity: The turnover remained modest at Rs 1,254 crore in fiscal 2024 and networth was Rs 743 crore as on September 30, 2024. Around 85-90% of the revenue comes from road transportation of express cargo. Due to high concentration in revenue, cash flow is susceptible to any slowdown in the express logistics industry. However, clientele is fairly diversified, with the top 10 customers contributing to around 10% of revenue, while the small and medium enterprises account for around 50%. The company is also fairly diversified across the end user industries. Nonetheless, any slowdown in key client industries, adversely impacting revenue and operating profitability, will be a key rating sensitivity factor.

 

• Exposure to intense competition: Intense competition from large, organised players, such as Blue Dart, DTDC Express, Gati Ltd; and unorganised players restrict the growth in market share and the ability to fully pass on price increases to customers. The ability to sustain healthy revenue growth amid intense competition will be monitorable.

Liquidity: Strong

Liquidity is healthy as reflected in cash equivalents of Rs 114 crore as on September 30, 2024, and bank limits of Rs 40 crore against which utilisation remained low at ~2% for the 12 months through December 2024. Expected annual cash accrual of Rs 100-150 crore, over the medium term, will adequately cover the working capital requirement and moderate capex in the absence of term debt obligation.

Outlook: Stable

Crisil Ratings believes that the business and financial risk profiles of TCI Express will remain strong over the medium term, supported by strong market position in road express, longstanding client relationships and asset light model.

Rating sensitivity factors

Upward factors:

• Significant increase in revenue, with compound annual growth rate of 18-20% over the medium term
• Improvement in the operating profitability while maintaining strong financial risk profile

 

Downward factors:

• Fall in operating profitability below 10-12% and subdued revenue
• Weakening of the capital structure owing to large, debt-funded capex

About the Company

TCI Express started independent operations on April 1, 2016, in line with TCIL’s strategy of demerging the express division (XPS) into a separate business entity. The division was operating as a business unit of TCIL since 1996. TCI Express caters to diverse express delivery requirements, including domestic and international parcel services, with connectivity across road, rail and air.

 

TCIL was established by Mr P D Agarwal in 1958. From a conventional transportation company, it has become India’s largest integrated logistics service provider. It has a network of over 1,000 company-owned offices, with six offices outside India, and more than 5,000 employees.

Any other information: Not Applicable