My notes from various annual reports for 2020 – TCI Express – Factsbeyondnumbers

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Continuing with more annual report reading, this is one of cleanest and simple AR I have read. To add, impressive performance history, a good company to keep on watch list in double digit growing logistic space.

 

Notes from AR 2020

Company Introduction:

  • Company is express logistic provider which provides fast, reliable, on demand, integrated, door to door movement of shipments
  • Came in existence through demerger of TCI XPS from transport corporation of India limited.
  • Provides integrated logistics solutions to customers covering 708 districts, 800 branches, 28 sorting centers, 40000+ pickup and delivery points, 500 express routes, 2500 feeder routes and 5000+ containerized vehicles
  • Hub and spoke distribution model
  • Services offered are domestic surface express, domestic air express, international air express, reverse express and e-commerce express
  • Present in sectors like automotive, pharma, IT hardware, textile, retail and e-commerce
  • Technology involves barcoding and RFID, hand held transmission, app-based service offering and GPS enabled vehicles
  • Diversified customer base across corporate and SMEs with none of customers contributing more than 3% of receivables
  • Asset light business model with strong balance sheet (does not own any vehicles)
  • Revenue up from Rs 663 crore to Rs 1036 crore in 5 years and PAT up from Rs 28 crore to Rs 90 crore in 5 years with PAT margin improving from 4.29% to 8.6%
  • Return on capital consistently around 40%
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Key business updates and annual review:

  • Business process includes collection, transportation and distribution. Collection includes shipper, pick up, warehousing, collection.
  • 5 lakh square feet of new sorting capacity added in Gurgaon and Pune
  • Company moved towards 100% paperless supply chain bringing in more efficiency
  • Implemented centralized vendor management system
  • Company has been recognized as a “Great place to work”
  • 70 new branches opened in 2019-20
  • Digital booking replaced manual booking

 

Financial Performance:

  • Topline growth of 0.8% YoY at Rs 1033 crore sales and Rs 89 crore PAT growth at 22% YoY
  • Stable margin profile is attributed to higher capacity utilization, operational efficiency and efficient working capital management
  • Rs 80 crore of cashflow from operations generated and Rs 32 crore of capex deployed towards increasing automation and adding more sorting centers
  • Rs 4 rs per share of dividend to be given
  • Employee cost increased by 10% to attract top talent and retain existing performers
  • Despite of high growth in salary expense, company could maintain margins by effective control on other operating expenses

 

Market Trends:

  • Technology adoption is likely to create and accelerate new opportunities in transportation, warehousing and freight forwarding segments
  • Logistic sector is expected to grow at 10% CAGR in next 5 years which is currently at $215 billion industry
  • Indian express logistics industry is 2% of worldwide express logistic industry and expected to grow at 17% till 2023
  • Challenges are lack of infrastructure, integrated logistic network, slow adoption of technology and lack of skilled man power
  • Currently, logistic cost is 13-14% of GDP which is high relative to 8-10% in advance economies
  • National logistic policy and multimodal logistic park policy to fuel growth in long term
  • In 2019, air cargo traffic turned negative for the first time since 2012 with 3.3% decline which is steepest since 2009
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Guidance:

  • Will continue to occur meaningful capital expenditure towards sorting centers to drive operational efficiencies and reduce turnaround time
  • FY20-21, at least Q1 is going to be impacted due to covid

 

Other Points:

  • 67% shares held by promoter, 6.7% by MFIs, 2.7% by FPIs and 15% by retail. MFIs share increased from 3.1% to 6.7% where as FPIs and retail reduced.
  • Management remuneration has good share of variable commission though remuneration is on the high side being 11%
  • 5% employee salary growth, 17.6% managerial salary growth
  • Total 2905 employees
  • Company maintains good risk management practices by identifying receivables in various risk buckets and negligible amount in moderate risk bucket
  • No single customer accounted for more than 3% of receivables

 

Risks and Open Questions:

  • Why cash balance is low if company has been good cash profit generator. Need to study historical cash utilization of company
  • Freight expense constitutes 70% of expense and it is very important to have control over this cost to maintain margins
  • Rent is other higher cost item apart from freight and employee expenses
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Saurabh Kumar
Saurabh is a finance and analytics enthusiast with professional experience in both fields. He is an avid investor in the Indian stock market and academically interested in the application of analytics in the value investment field.
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