IDirect TCIExpress IC

Initiating Coverage
January 25, 2018
Rating Matrix TCI Express (TCIEXP)

Rating : Buy
Target : | 660 | 540
Target Period
Potential Upside
:
:
12-18 months
22%
Speed, agility, delivery!!!
TCI Express (TCIEL) was established as a multi-specialist only express
Financial Parameters (| crore) cargo company with its own distribution set-up across India servicing
| Crore FY17 FY18E FY19E FY20E more than 40000 pick up and delivery points. With over two decades of
Revenues 755.2 857.1 1,012.9 1,183.8 experience, TCIEL commands 3% market share of the | 25000 crore
EBITDA 67.6 83.3 112.0 139.8 express logistics market (unorganised 50%). In the past two decades,
Net Profit 40.7 53.5 66.8 83.6 TCIEL has designed one of the largest pan-India networks of 28 sorting
EPS (|) 10.6 14.0 17.4 21.9 centres and 550 branches offering time-definite solutions to 670 out of
675 districts in India. Post de-merger, TCIEL charted aggressive expansion
Valuation Summary
plans sharpening its focus on owning & modernising sorting centres and
FY17 FY18E FY19E FY20E
strengthening IT infrastructure that would garner revenue, PAT growth of
P/E 50.8 38.7 31.0 24.7
16%, 27% CAGR in FY17-20E to | 1184 crore, | 84 crore, respectively.
Target P/E 62.0 47.3 37.8 30.2
EV / EBITDA 30.9 25.2 18.7 14.9 GST-era calling need for specialised players like TCIEL…
P/BV 12.9 10.3 7.7 5.9 The routing network (hub & spoke), developed, tried & tested over several
RoNW (%) 28.8 29.6 28.4 27.0 years, remains the backbone of the express business that manages
RoCE (%) 35.1 34.9 36.9 36.7 prompt movement of cargo generating higher yield per route. We believe
the GST ideology would lead most business decisions to be focused on
Stock Data
supply chain efficiency rather than state-wise tax benefits. Subsequently,
Particular Amount
the need for specialised players would accelerate demand for organised
Market Capitalization (| Cr) 2,068.2
players like TCIEL. We expect revenues to grow at 16% CAGR in FY17-
Total Debt (FY17) (| Cr) 31.6
Cash and Investments (FY17) (| Cr) 9.5
20E, faster than its historical (FY12-17 CAGR of 9%) to | 1184 crore.
EV (| Cr) 2,090.3 Multi specialist offerings leading to diversified business model
52 week H/L 645 / 284 With services like surface express, domestic air express, international air
Equity capital (| Cr) 7.7 express, reverse express, TCIEL has positioned itself as a multi-specialist
Face value (|) 2.0
logistics player. About 95% of its business is derived from B2B while the
FII Holding (%) 3.2
remaining 5% is derived from B2C. In sectors per se, SMEs contribute
DII Holding (%) 10.2
majority (50%) of overall revenues, automobile spare parts: 13%,
Comparative return matrix (%) pharmaceuticals: 11%, lifestyle retail & engineering: 7% each and
Return % 1M 3M 6M 12M telecom & consumer durables: 6% each. Also, no single client accounts
Blue Dart Exp. 0.3 12.9 (3.3) 3.7 for more than 1% of overall business. We believe this diversification
Gati 2.0 19.6 2.6 13.4 would allow TCIEL to keep its utilisation optimum (85% on each route)
VRL Logistics (3.7) 13.2 27.8 36.2 enabling it to command consistency in EBITDA margins (~8-9%). Lower
TCI Express (4.0) (6.7) 14.5 81.4 rentals (own sorting centres) coupled with GST efficiencies would result
in margin expansion of 300 bps in FY17-20E to 12%.
Price movement Focused asset allocation; robust growth trajectory; assign BUY…
12,000 700 Having outperformed the overall industry in FY17, TCIEL is planning a
11,000 600 capex of | 400 crore (over five years) staying committed to enhancing its
10,000
9,000 500 handling capacity and improving efficiencies. Prudent asset allocation has
8,000 400 led TCIEL to deliver one of the best return ratios (after BlueDart) in the
7,000 industry. On the back of low leverage, robust growth trajectory and high
6,000 300
5,000 return ratios (>25%), we expect TCIEL to continue command premium
200
4,000 valuations. We assign BUY on TCIEL, ascribing a P/E multiple of 30x on an
3,000 100
estimated EPS of | 22 (FY20E) and arrive at a target price of | 660.
2,000 0
Jun-17 Jan-18 Exhibit 1: Financial Performance
(Year-end March) FY16 FY17 FY18E FY19E FY20E
Price (R.H.S) Nifty (L.H.S) 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
Research Analysts
EPS (|) 7.4 10.6 14.0 17.4 21.9
Bharat Chhoda P/E (x) 72.2 50.8 38.7 31.0 24.7
bharat.chhoda@icicisecurities.com 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
Ankit Panchmatia RoCE (%) 34.6 35.1 34.9 36.9 36.7
ankit.panchmatia@icicisecurities.com RoNW (%) 23.9 28.8 29.6 28.4 27.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research

Shareholding pattern (Q3FY18) Company background
Shareholding Pattern Holdings (%) TCI Express (TCIEL), headquartered in Gurugram, was established in 1996
Promoters 66.1 as one of the foremost divisions of Transport Corporation of India (TCI).
Institutional investors 13.4 Having achieved financial and growth stability, TCI de-merged this
Others 20.5 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
Institutional holding trend (%) and was separately listed on the bourses.
The de-merger was done to sharpen TCIEL’s focus on express delivery
12 10.3
services and offer time definite solutions for customer’s requirements. In
9.7 10.2
10 terms of market share, TCIEL commands ~3% of the market share of the
8 7.1 7.3 overall express logistics market, estimated at | 25000 crore. However,
5.1 5.3 from a broader perspective, with total logistics industry (transportation,
6
(%)
3.2
warehousing, value added service and inventory in-transit cost) pegged at
4
13% of overall GDP ($300 billion), TCIEL claims to carry goods worth $7
2 billion (in value) arriving at an indicative market share of 2-3%.
0
Exhibit 3: Express zones…
Q4FY17 Q1FY18 Q2FY18 Q3FY18
FII DII
Exhibit 2: Revenue bifurcation zone-wise…

% of revenue
States
contribution
North Zone
Punjab, Chandigarh, Haryana, Uttarakhand, 29%
Delhi, Uttar Pradesh & Rajasthan
West Zone
Maharashtra, Goa, Gujarat, Madhya 28%
Pradesh, Daman & Diu, Dadar & Nagar
Haveli
South Zone
Andhra Pradesh, Karnataka, Tamil Nadu & 28%
Pondicherry
East Zone & Special Zone
Bihar, Jharkhand, Chhattisgarh, West
Bengal & Odisha, Himachal Pradesh,
Arunachal Pradesh, Assam, Nagaland, 15%
Mizoram, Meghalaya, Sikkim, Tripura,
Manipur, Jammu & Kashmir, Port Blair &
Kerala
Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research
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.
ICICI Securities Ltd | Retail Equity Research Page 2

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 Exhibit 5: B2B remains core to business
Surface
express, 86%
Air express,
8% B2B, 95%
International
air express,
1%
E-commerce
B2C, 5%
express, 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…
Transportation Storage Services
Company Name Express/ Supply
Road Air Rail Water Warehousing CFS/ICD Cold Chain Bulk Liquid Multi-modal E-commerce
LTL Chain/3PL
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 - - -
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
Exhibit 7: TCI Developers robust revenue growth… Demarcation to bring focused approach; high growth phase for TCIEL…
TCI Developers
In CY16, Transport Corporation of India (TCI) completed the de-merger of
12.0 its XPS division in the ratio of one share of TCIEL for every two shares
10.0 38% CAGR
held. Post this, the shares of TCIEL were separately listed on the bourses
8.0
in December 2016. Post de-merger, FY17-18 was the first operating year
wherein TCIEL operated as a separate independent entity declaring
| crore
6.0
9.3
10.3 separate business goals and targets. Due to under-investments and
4.0 8.4
different business verticals, TCIEL under the consolidated entity grew at a
2.0
1.5 2.0 2.6 3.1 sluggish pace of mere 9% in FY10-16 compared to the industry, which
0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
grew >10% over the same period.
Revenue
Exhibit 8: De-merger to accelerate revenues for TCI Express…
Source: ICICIdirect.com Research
9% CAGR over Acclerating its
2500 FY10-16 growth post de-
TCI Developers was de-merged from parent Transport merger
Corporation of India (TCI) in 2010. The same was 2000 600 663
separately listed on the bourses in April 2011. Post de- 556 659
495 13% YoY
merger, revenues of the company grew at a CAGR of 24% 1500 460
in the next seven years from | 0.5 crore to | 1.9 crore
| crore
386 699 628 407

583 679 615 361
1000 393
248
366 432
500 839
727 812 788 796 826 816
440 474
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 H1FY17 H1FY18
Transport Division Supply chain TCI Seaways division XPS division
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…

20.0%
16.4% 15.7%
15.0% 12.2%
11.6%
10.2% 10.0%
10.0% 10.3% 7.2%
6.3% 6.6%
% growth rate YoY
5.7% 7.4% 7.3%

3.3% 6.0%
5.0%
2.0% 0.4%
1.6%
0.0% 0.7%
-1.1%
Q1FY17-1.3% Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
-4.0%
-5.0% -5.4%
-7.7%
-10.0%
TCIEL Gati KWE Bluedart VRL Logistics

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…
1400.0
1200.0 16% CAGR

14%
1000.0 YoY
800.0 6% CAGR
| crore
1183.8
600.0
1012.9
857.1
755.2
400.0
663.2
658.6
600.0
555.7
200.0
0.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Revenue
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…
200.0
3.9
150.0 12.6
20.7 64.5
14.4
| crore
100.0 27.6
4.3
6.1 77.6
5.7 22.5
50.0 65.2
36.5
24.1 55.6 41.6 95.7 17.9

0.0
FY13 FY14 FY15 FY16 FY17
Hub Centres & small warehouses Wind power Ships & Containers Trucks & Cars Others

Exhibit 12: Focused capex to lead to profitable growth Ups ante in capital expenditure, TCIEL on accelerated growth path
Capital expenditure FY17 2017-18
Given the focused approach coupled with aggressive capital outlay, we
(| crore) Assets Proposed FY18 Assets
expect TCIEL to continue to post industry leading growth rates. Majority
Sorting Centers 88.5 50.0 138.5
(| 200 crore) of the capital investment outlay of | 400 crore involves
Cars 2.5 1.0 3.5
Plant & Machinery 6.2 2.0 8.2
replacement of all leased sorting/distribution (S&D) centres with the
IT 3.4 2.0 5.4
company owned sorting centres. The S&D operations would
Office Equipment 2.4 3.0 5.4
reduce/eliminate errors, labour and cycle time while increasing accuracy
Furniture & Fixtures 3.3 2.0 5.3
and improving service. These S&D centres would be multi-specialist,
Total 106.3 60.0 166.3
highly mechanised, which would be capable of generating faster
Source: Company, ICICIdirect.com Research 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.
Exhibit 13: Sorting centres space to double from FY17 to FY22…

2.5
12% CAGR 2 mn sq.ft
2.0 1.6 mn sq.ft

16% CAGR
0.7
1.5
mn.sq.ft
1 mn sq.ft 20% CAGR

0.7
1.0 39% CAGR 0.7
0.7
0.7 1.3
0.5 0.9
0.7
0.5
0.4
0.0
FY 17 FY 18 FY 19 FY 20 FY22
Owned Sorting centreContracted
space
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.
Exhibit 14: Reduction in rental expense, efficiencies to drive EBITDA…
160.0
140.0
120.0
100.0
80.0
| crore
60.0
40.0
20.0
54.6 67.6 83.3 112.0 139.8
0.0
FY16 FY17 FY18E FY19E FY20E
EBITDA
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.

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.
Exhibit 15: Revised distribution strategy for quick turnaround, better efficiencies…
Elimination to result
faster and efficient
distribution model
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.
Exhibit 16: Improved efficiencies to result in uptrend in margin…
14.0
11.8
12.0 11.0
9.4 9.7
10.0 9.0
8.2
8.0
% of sales
Benefits to accrue over

6.0 Optimisation of distribution the estimated time
strategy resulting in margin period
4.0
improvement
2.0
0.0
FY16 FY17 H1FY18 FY18E FY19E FY20E
EBITDA margins
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%).

GST, e-way bill - Structural impetus to organised segment…
Exhibit 17: GST rate card - Logistics players… Traditionally, due to a multi-point taxation system, logistics activities were
Tax rate Amended Tax rate operationally challenged by complicated transport networks and high
Sector coordination costs. The goods directly supplied to dealers attracted state
earlier under GST
5% - No input tax VAT. To avoid the same, logistics service providers (LSPs) operate a hub-
Road transport 4.5-6%
12% - With input tax and-spoke model in most states wherein transfer from warehouse was
5% treated as stock transfer. The strategy led LSPs to set up a number of
Rail & coastal shipping 4.5-6%
(With input tax) warehouses across states resulting in warehouses operating below
Container rail 6%
12% capacity. With the abolition of multiple taxes, the GST regime has led
(With input tax) most businesses to redesign their supply chain network leading to cost
Express, warehousing & other 18% efficiencies compared to the erstwhile network, which was based on
15%
value added services (With input tax)
state-wise tax benefits. The logistics industry is expected to witness an
Source: Company, ICICIdirect.com Research era of higher turnaround and improved efficiencies as illustrated below:
Exhibit 18: Impact on supply chain mechanism post GST…
FTL model – Covering Last mile or

greater distances Express/LTL
<500-2500 kms <100 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 Total
time (in km) to decline nearly 5- distance
10%. However, the role of Express/LTL <3000
model kms
express/less than truck load (LTL)
<500 kms
players like TCIEL would increase.
Inbound activities like just-in-time
inventory and outbound activities
like time to market would gain Source: Industry interactions, ICICIdirect.com Research
momentum leading to demand for
time definite logistics services Exhibit 19: Established and valued added service range…
Last mile or
FTL model Express/LTL
<500-1500 kms <100 kms
Total
distance
Express/LTL <2600
model kms
<1000 kms
Source: Industry interactions, ICICIdirect.com Research
A recent, post GST study conducted by Ministry of Road Some of the other benefits are expected to be as follows:
Transport & Highways reveal that trucks have started  Idle time for truck fleet is expected to reduce 20% due to
covering 300-325 km/day (vs. earlier 225 km/day).
Efficiencies were on the back of time saving accrued from elimination/rationalisation of check post between states (more than 20
border checkposts, lower congestion and abolition of toll states have already removed check posts)
centres from certain states
 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 20: E-way bill mechanism… Earlier, different states prescribed multiple transit passes that made
compliance difficult resulting in bottlenecks at check posts. Electronic way
Distance E-way Bill Validity
(e-way) bill aims to replace separate transit passes with a uniform way bill
Less 100 Km 1 day rule, which will be applicable throughout the country. The hindrances
100-300 Km 3 days
encountered in a conventional check post system would be withdrawn
and replaced by a transparent IT mechanism.
300-500 Km 5 days
Exhibit 21: E-way bill flow: parcel movement…
500-1000 Km 10 days
Transporter
updates e-way
> 1000 Km 15 days Consignor/
bill for any Arrival at delivery
Shipper generates
invoice change of hub
Source: Company, ICICIdirect.com Research vehicle/ mode of
transport
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
Transporter Transporter
Transporter
generates generates
generates e-way
Intrastate E-way intrastate e-way
for long haul
bill bill
Arrival of goods Sortation and

at Transporter Long haul Delivery of goods
Hub movement
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.

Specialist logistics services like express delivery to gain momentum
Exhibit 23: Global ED business - Oligopolistic nature..! 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,
Source: ICICIdirect.com Research 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…
25
Customer centric Raw material centric
20 15-18
12-15 12-15
15
% growth
10-12
8-10
10
5 2-3
0
FMCG Apparel Pharma Auto Polymers Mining
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.

Express - “Business class” of logistics industry…
Exhibit 26: Express market by market structure The specialised and priority nature of the business, positions the express
industry as a premium segment in the logistics industry. The industry is
10%
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
20%
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
70% 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-
B2B B2C C2C commerce, etc. These players remain sensitive on time-to-market thereby
Source: Ken research, ICICIdirect.com Research having higher propensity to pay. Consequently, per tonne realisations for
express services remain one of the highest in the industry.
Exhibit 27: Express remains premium category of logistics segment…
Multi-modal Road freight
Transit time Express cost
Route (Rail + Road) cost (|) per
Sr. no (hours) (|) per tonne
freight cost tonne
From To Rail + Road Road (|) per tonne

1 Delhi Chennai 144 94 4136 9053
2 Delhi Hyderabad 120 79 3531 6472 |12000 to
3 Delhi Banglore 144 91 4197 7922 |25000 across
4 Delhi Kolkata 120 84 3344 3560 India
5 Delhi Guwahati 360 121 4110 5310
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 28: Key drivers of express industry…
E-commerce trade Enables faster collection
catching up in tier-2 for traders offering cash
cities on delivery
Moving goods Designed to suit high

faster in time volume and high value
bound manner 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… Exhibit 30: Business with decent visibility…
Garments and
Textiles , 7%
Energy and Repeat, 25%
Power , 9%
SME's, 45%
Engineering and Contractual, Business

Tele- 60%
Communication,
associates,
11% 15%
Motor vehicle
Pharmaceutical, parts, 14%
13%
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.
Exhibit 32: E-commerce revenues to remain <10% of overall revenues…
140.0 12%
<10%
120.0 10%
100.0
8%
80.0
| crore
5% 6%
60.0
3% 4%
40.0
20.0 1% 2%
5.6 19.9 37.8 118.4
0.0 0%
FY13 FY16 FY17 FY 20E
E-commerce revenue
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 33: PE funding ushering competitive intensity in e-commerce logistics…

600
500
400
$ mn
300
200
100
425 81 207 132 436 501
0
2012 2013 2014 2015 2016 2017
PE investments - Transport & Logistics sector
Source: Grant Thornton , ICICIdirect.com Research

Route optimisation – Sorting centres located strategically…
Exhibit 34: Technical assistance to improve efficiency 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.
Exhibit 35: Pan-India presence to keep up competitive positioning…
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.

Fleet management remains core to business model...
Exhibit 36: Expanding its reach…
700 645 660 TCIEL operates a unique asset light business model where majority of the
610
600 550 investments are channelised in expanding its handling capacity (72% of
500
500 the gross block in land & buildings). For trucking, TCIEL refrains from truck
400
ownership by entering into near to long term contracts with truck owners
thereby booking a dedicated space. Approximately 95% of the fleet is
300
managed through vendors while the remaining 5% is hired on a spot
200
basis. The long haul with 1700 trucks remains the backbone of managing
100
the scheduled running plying between sorting centres. These are
0
2012 2013 2014 2015 2016 contractual agreements mostly renewed at the end of every year. As
No of District served these trucks cover majority of the distance, the same are paid on distance
Source: Company, ICICIdirect.com Research 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 38: TCIEL remains best in industry to collaborate with…
50
45
45 41 41
40 38 37
35 35
35 30
Payable days
30 25
25 20
19 18
20
14 14
15 11 12 13 13 11
10
10
5
0
FY13 FY14 FY15 FY16 FY17
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… Exhibit 40: Volumes/value on uptrend…
Capacity and utilisation levels Volume/Value mix
1200000 86% 1000000 13500
1000000 85% 85% 85% 12920 13000

800000
800000 84% 84% Utilisation % 12500
| per tonne
600000 12304
in tonnes
in tonnes
600000 83% 11946 12000

400000 11598
400000 82% 82% 11500
1083435
650000
721118
920920
827351
879412
984941
764706
200000 81% 200000 11000
0 80% 0 10500
FY 17 FY 18E FY 19E FY 20E FY 17 FY 18E FY 19E FY 20E
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…

Revenue growth
1400 20.0
18.2
1200 16.9
15.0
1000 13.9 13.5
Growth rates (%)
800
| crore
10.0
600
400
5.0
200
755 857 1013 1184
0 0.0
FY 17 FY 18E FY 19E FY 20E

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…
0.7 0.3
1.4
0.6 MSP led and
Ownership others
Automation model
% of sales
Operating benefits
efficiencies 12
9
FY17 Freight Faster Handling Rent expenses Other initiatives FY20E

expenses
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
160.0 EBITDA and EBITDA margins 14.0

140.0 12.0
11.8
120.0 11.0
9.7 10.0
100.0 9.0
8.0
| crore
80.0
%
6.0
60.0
4.0
40.0
20.0 2.0
67.6 83.3 112.0 139.8
0.0 0.0
FY17 FY18E FY19E FY20E

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

90.0 PAT trend 8.0
80.0 7.1 7.0
6.6
70.0 6.2 6.0
60.0 5.4
5.0
50.0
| crore
4.0
%
40.0
3.0
30.0
20.0 2.0
10.0 1.0
40.7 53.5 66.8 83.6
0.0 0.0

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…
30.0 29.6 38.0

28.4
36.9
28.0 36.7
27.0
36.0
26.0 25.5
34.9
%
35.1 34.0
24.0
22.0 32.0
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…
80.0
70.9
70.0
59.9
60.0 55.7
50.0 49.5
50.0 46.8
41.1
35.8
| crore
40.0
30.0
20.0 13.2
9.9 8.1
10.0 3.1
0.0
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…

50.0 0.30
40.0 0.23
0.20 0.20
30.0 0.17
| crore
(x)
20.0 0.11
0.10
10.0
31.6 46.9 46.9 39.4

0.0 0.00
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.
Exhibit 48: Sensitivity of EPS estimates to utilisation…

Change in Utilisation levels
EPS 75% 80% 85% 90% 95%
sensitvity FY19E 13.1 15.5 17.9 20.3 22.7
FY20E 16.3 19.1 21.9 24.6 27.4
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:
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
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.

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.
Exhibit 50: Express remains in top quadrant of growth/RoCE matrix…
40.0
High
35.0 Express industry
30.0 Freight Contract Logistics

forwarding/NVOCC
25.0
Container logistics
RoCE
20.0
15.0
10.0 Cold Chain

Road transport
Low
5.0
0.0
0.0Low 2.0 4.0 6.0 8.0 Growth
Revenue 10.0(FY12-17
12.0
CAGR) 14.0 16.0 18.0 High
20.0
Source: FSC DRHP, ICICIdirect.com Research, *Size of bubble represents industry size
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 51: Valuation compared to peers

Figures (| crore) FY17 P/E
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

Appendix
Sector Snapshot
Exhibit 52: Freight transport modal contribution Exhibit 53: Modal share – Tonnes carried
Indian Logistics industry
25000 100
20 15 21
10% CAGR 20000 26
20000 80
15230
15000 60
| billion
12% CAGR
9100 85
10000 40 80 79
74
5170
5000 20
0 0
FY12 FY17P FY22E FY25E Transportation Warehousing Others Overall
Market Size
Unorganised Organised
Source: ICICIdirect.com, Research Source: ICICIdirect.com, Research
Exhibit 54: Freight dynamics across modes… Exhibit 55: Service contribution around logistics
8% 1%
8%
6%
31%
24%
62%
60%
Road Rail Water Air Transportation Warehousing Freight Forwarding Value Added Services
Exhibit 56: Average profitability across services… Exhibit 57: Express industry bifurcation…
45
35-45 EBITDA margins (%) 14000 12675
40 35-40
35 12000 10834 11211
30 9260 9582
10000
25 20-22 7830 8190
15-25 7050
20
8000
| crore
13-16
15 10-13 6000
8-13
10
3-5 2-4 4000
5
0 2000
CFS Cold Chain & warehousing Container Rail
0
Shipping Trucking (LTL) Supply Chain
2014 2015 2016 2017
Express Distribution Freight Forwarding Trucking (FTL)
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)

Parameters as a percentage of sales:
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%

Assessment of typical logistics parameters:
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
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.
Exhibit 59: Logistics start-up watchlist…
Source: Industry, ICICIdirect.com Research
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 60: TCIEL product offerings…

Logistics Peer Comparison…
Exhibit 61: Logistics peer valuations…

Mkt Cap Sales PAT RoCE RoE P/E
Company
(INR cr) 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
Mkt Cap Sales PAT RoCE RoE P/E

Global Players
(USD bn) 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

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

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises
them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
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;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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Initiating Coverage

January 25, 2018

Rating Matrix TCI Express (TCIEXP)

ICICI Securities Ltd | Retail Equity Research

Exhibit 2: Revenue bifurcation zone-wise…

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

ICICI Securities Ltd | Retail Equity Research Page 2

Source: Company, ICICIdirect.com Research

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

ICICI Securities Ltd | Retail Equity Research Page 3

386 699 628 407

Transport Division Supply chain TCI Seaways division XPS division

Source: Company, ICICIdirect.com Research

Exhibit 9: TCIEL delivering industry leading growth rates…

5.7% 7.4% 7.3%

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 4

1200.0 16% CAGR

Source: Company, ICICIdirect.com Research

24.1 55.6 41.6 95.7 17.9

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 5

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

2.0 1.6 mn sq.ft

1 mn sq.ft 20% CAGR

Source: Company, ICICIdirect.com Research

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

Source: Company, ICICIdirect.com Research

Improved efficiencies coupled with a decline in rental expenses would

ICICI Securities Ltd | Retail Equity Research Page 6

Source: Company, ICICIdirect.com Research

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

Benefits to accrue over

Source: Company, ICICIdirect.com Research

Recent efforts coupled with benefits of route optimisation would accrue

ICICI Securities Ltd | Retail Equity Research Page 7

FTL model – Covering Last mile or

Given the benefits of GST and

Source: Industry interactions, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 8

Arrival of goods Sortation and

Source: Industry interactions, ICICIdirect.com Research

Exhibit 22: Transparency in parcel movement…

Source: Industry interactions, ICICIdirect.com Research

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

ICICI Securities Ltd | Retail Equity Research Page 9

Source: FSC DRHP, ICICIdirect.com Research

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

Source: Ken research, ICICIdirect.com Research

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

ICICI Securities Ltd | Retail Equity Research Page 10

From To Rail + Road Road (|) per tonne

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

Moving goods Designed to suit high

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

Engineering and Contractual, Business

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Approximately 60% of the business is contractual process adopted by

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 12

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

Source: Company, ICICIdirect.com Research