Rating Rationale
November 15, 2023 | Mumbai
TCI Express Limited
Rating reaffirmed at 'CRISIL AA-/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.100 Crore
Long Term RatingCRISIL AA-/Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

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

 

Operating income increased to Rs 1,241 crore in fiscal 2023, with year-on-year growth of 15%, supported by growth in demand for express delivery. However, growth was seen to be sluggish during the first half of fiscal 2024, with year-on-year growth of 4% due to slowdown in the manufacturing sector. The earnings before interest, tax, depreciation and amortisation (EBITDA) improved to Rs 195 crore in fiscal 2023 from Rs 175 crore in fiscal 2022, supported by pass-through of cost embedded in contracts and cost rationalisation by TCI Express. The company has been able to maintain healthy operating margin of 15.5% in the first half of the current fiscal. Operating margin is expected to improve above 16% over the medium term, supported by increase in rates. The financial risk profile also remained healthy given negligible debt as on September 30, 2023.

 

The company has moderate capital expenditure (capex) of around Rs 100 crore per annum over the medium term, which will be utilised towards setting up and upgrading sorting centres, resulting in improvement in scale and profitability. The capex is expected to be entirely funded through internal accrual. Liquidity was healthy with cash and cash equivalent of Rs 59 crore as of September 2023. The expected net cash accrual of over Rs 130 crore per annum should be sufficient to fund capex and incremental working capital requirement.

 

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

For arriving at the ratings, CRISIL Ratings has taken a standalone approach.

Key Rating Drivers & Detailed Description

Strengths:

  • Healthy operating efficiency: The asset-light model (wherein vehicles are leased and not owned) along with the ability to pass on fuel price increases has kept the operating margin stable and return on capital employed (RoCE) strong. Operating efficiency is aided by the flexibility to pay for leased vehicles on a per-kilometre (km) basis, strategically located sorting centers and longstanding relationships with diversified clientele. Expected capex for improving infrastructure will sustain RoCE at more than 30% over the medium term.

 

  • Strong market position: TCI Express is a group company of Transport Corporation of India Ltd (TCIL; ‘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 two decades in the logistics industry.

 

  • Strong financial risk profile: The capital structure is comfortable and capex, though sizeable, is expected to be funded entirely through internal accrual. Efficient working capital management has eliminated the need for external debt. Bank lines of Rs 45 crore had negligible utilisation in fiscal 2023. Cash accrual will comfortably cover moderate annual capex over the medium term.

 

Weaknesses:

  • Small scale of operations and low cash flow diversity: Despite healthy growth in revenue, turnover was modest at Rs 1,241 crore in fiscal 2023 and networth was Rs 660 crore as on September 30, 2023. Around 85% of 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, key end-user industries such as auto components and pharmaceuticals are less prone to economic downturns, ensuring stable performance. The clientele is fairly diversified, with the top 10 customers contributing to less than 10% of revenue, while small and medium enterprises account for 50%. Nonetheless, any slowdown in key client industries, adversely impacting revenue and 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, as well as unorganised players restricts 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 a key monitorable.

Liquidity: Strong

Expected cash accrual of over Rs 130 crore per annum, over the medium term, will adequately cover working capital requirement and moderate capex in the absence of term debt obligation. Bank lines of Rs 45 crore had negligible utilisation in fiscal 2023.

 

Environment, social and governance (ESG) profile

The ESG profile of TCI Express supports its strong credit risk profile.

 

The logistics sector has a relatively higher impact on the environment because of the inherent nature of assets utilized for the physical delivery of goods. The company though has a social impact because of its large and diverse workforce. TCI Express has continuously focused on mitigating its environmental and social impact. 

Key ESG highlights

  • To reduce GHG emissions, via vehicles, company has taken various measures such as usage of Compressed Natural Gas (CNG) and use of BS VI complaint vehicles.
  • The company has also resorted to installation of solar panels at sorting centres to transition to use to renewable energy        y. Company has made investment of Rs 3.05 crs in installation of solar panels.
  • The attrition rate at the company stood at 9.3% in fiscal 2023.
  • The company has maintained a gender diversity profile of more than 12.5% in the last 3 years.
  • The company’s governance structure is characterized with 50% of its board comprising independent directors and extensive disclosures.

There is growing importance of ESG among investors and lenders. TCI Express’s commitment to ESG principles will play a key role in enhancing stakeholder confidence and access to domestic capital markets.

Outlook: Stable

CRISIL Ratings believes TCI Express will maintain its strong financial risk profile over the medium term.

Rating Sensitivity factors

Upward factors:

  • Significant increase in revenue, with compound annual growth rate of 18-20% over the medium term
  • Improvement in 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 6 offices outside India, and more than 5,000 employees.

Key Financial Indicators (CRISIL Ratings adjusted numbers)

As on/for the period ended March 31

Unit 

2023

2022

Revenue

Rs.Crore

1241

1081

Profit After Tax (PAT)

Rs.Crore

139

129

PAT Margin

%

11.2

11.9

Adjusted debt/adjusted networth

Times

0.00

0.00

Interest coverage

Times

111.38

200.80

 

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the instrument Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs.Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Cash credit NA NA NA 40 NA CRISIL AA-/Stable
NA Bank guarantee NA NA NA 5 NA CRISIL AA-/Stable
NA Proposed long-term bank loan facility NA NA NA 55 NA CRISIL AA-/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 95.0 CRISIL AA-/Stable   -- 09-09-22 CRISIL AA-/Stable 11-06-21 CRISIL AA-/Stable 29-01-20 CRISIL AA-/Stable CRISIL AA-/Stable
      --   --   -- 28-04-21 CRISIL AA-/Stable   -- --
Non-Fund Based Facilities LT 5.0 CRISIL AA-/Stable   -- 09-09-22 CRISIL AA-/Stable 11-06-21 CRISIL AA-/Stable 29-01-20 CRISIL AA-/Stable CRISIL AA-/Stable
      --   --   -- 28-04-21 CRISIL AA-/Stable   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 5 State Bank of India CRISIL AA-/Stable
Cash Credit 10 State Bank of India CRISIL AA-/Stable
Cash Credit 30 HDFC Bank Limited CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 55 Not Applicable CRISIL AA-/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings
CRISILs Criteria for rating short term debt

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