Rating Rationale
October 19, 2018 | Mumbai
TCI Express Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.100 Crore
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its rating on the long-term bank loan facilities of TCI Express Limited (TCI Express) at 'CRISIL AA-/Stable'.

The rating continues to reflect healthy operating efficiency, an established market position, and a strong financial risk profile. These strengths are partially offset by a small scale of operations, low cash flow diversity, and exposure to intense competition.

Key Rating Drivers & Detailed Description
Strengths
* Healthy operating efficiency

The asset-light model (where vehicles are leased and not owned), coupled with the ability to pass on fuel price hikes has kept the operating margin steady and the return on capital employed (RoCE) strong. Operating efficiency is also aided by flexibility to pay for leased vehicles on a per-kilometre basis, strategically located hubs, and a longstanding relationship with a diversified clientele. Further, the company plans only modular capital expenditure (capex); this should sustain the RoCE at over 30% over the medium term.

* Established market position
The company continues to enjoy synergistic benefits with Transport Corporation of India Ltd (TCIL; rated 'CRISIL AA-/Watch Developing'), 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 a reputed brand, and the two-decade experience of its promoters. There was a compound annual growth rate (CAGR) of 8% in revenue in the express cargo (XPS) business, as a division of TCIL, over fiscals 2012 to 2016; revenue grew by 17% in fiscal 2018. The growth should sustain over the medium term, supported by the favourable demand scenario, driven by pick-up in industrial output and expected shift in business to the organised from the unorganised sector, after implementation of the goods and services tax.

* Strong financial risk profile
The capital structure is comfortable and capex is minimal. Efficient working capital management has reduced reliance on external debt. Receivables remain moderate at around 60 days. Hence, the gearing was low at 0.2 time as on March 31, 2018. The liquidity buffer was limited with a cash balance of Rs 12 crore as on March 31, 2018, and bank lines of Rs 70 crore which were utilised at an average of 70% during the 12 months through August 2018. However, cash accrual should comfortably cover the moderate annual capex over the medium term.

Weaknesses:
* Small scale of operations and low cash flow diversity
Despite the healthy CAGR of 10% in revenue over the five fiscals through 2018, the scale of operations remains modest with a turnover of Rs 885 crore in fiscal 2018 and a networth of Rs 205 crore as on March 31, 2018. Further, over 85% of revenue is derived from road transportation of express cargo. Due to high dependence on a single line of business, cash flows remain vulnerable to any slowdown. However, the key industries caters to, auto components and pharmaceuticals, are less impacted by recession. This has ensured stable performance even during economic downturns. Further, the customer portfolio is fairly diversified. The top 10 customers contribute to less than 10% of revenue, while small and medium enterprises account for around 45%. Nonetheless, any slowdown in key client industries, adversely impacting revenue and profitability, will remain a key monitorable.

* Exposure to intense competition
Intense competition in the express cargo industry, from both large organised players such as Gati Ltd, and unorganised players, restricts growth in market share and limits the ability to fully pass on price increases to customers. Ability to sustain healthy revenue growth amidst intense competition will be a key rating sensitivity factor.
Outlook: Stable

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

Upside scenario
* Significant scaling up of operations along with maintenance of profitability and a healthy financial risk profile

Downside scenario
* Lower-than-expected operating profitability and revenue growth
* Weakening of the capital structure due to large, debt-funded capex.

About the Company

TCI Express started its independent operations on April 1, 2016, in line with TCIL's strategy of demerging the XPS division 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 parcel 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 grown to 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.

For the quarter ended June 30, 2018, net profit was Rs 16 crore on operating income of Rs 248 crore, against Rs 12 crore and Rs 203 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators
As on/for the period ended March 31  Unit 2018 2017
Revenue Rs crore 885 754
Profit After Tax (PAT) Rs crore 58 41
PAT Margin % 6.6 5.4
Adjusted debt/adjusted networth Times 0.2 0.2
Interest coverage Times 24.59 27.88

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size (Rs crore) Rating assigned with outlook
NA Cash Credit NA NA NA 60.0 CRISIL AA-/Stable
NA Bank Guarantee NA NA NA 10.0 CRISIL AA-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 30.0 CRISIL AA-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  90.00  CRISIL AA-/Stable      21-08-17  CRISIL AA-/Stable  07-12-16  CRISIL A+/Stable    --  -- 
                29-11-16  CRISIL A+/Stable       
Non Fund-based Bank Facilities  LT/ST  10.00  CRISIL AA-/Stable      21-08-17  CRISIL AA-/Stable  07-12-16  CRISIL A+/Stable    --  -- 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 10 CRISIL AA-/Stable Bank Guarantee 10 CRISIL AA-/Stable
Cash Credit 60 CRISIL AA-/Stable Cash Credit 60 CRISIL AA-/Stable
Proposed Long Term Bank Loan Facility 30 CRISIL AA-/Stable Proposed Long Term Bank Loan Facility 30 CRISIL AA-/Stable
Total 100 -- Total 100 --
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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