TCI Express Q2 FY26: Margin Recovery Masks Deeper Operational Challenges

The quarter-on-quarter improvement in profitability stems primarily from margin expansion rather than top-line growth. Operating margins (excluding other income) improved to 10.86% in Q2 FY26 from 9.80% in Q1 FY26, whilst PAT margins expanded from 6.79% to 7.75%. However, these metrics remain substantially below the robust 11.82% operating margin and 8.00% PAT margin achieved in Q2 FY25, underscoring the company's struggle to maintain historical profitability levels despite operating in a sector that has witnessed steady demand.

Financial Performance: Sequential Recovery Fails to Reverse Structural Decline

TCI Express reported revenues of ₹308.53 crores in Q2 FY26, representing a 7.60% sequential increase from Q1 FY26's ₹286.75 crores but a marginal 0.97% decline year-on-year from ₹311.54 crores. This lacklustre top-line performance extends a concerning trend visible across FY25, where full-year revenues declined 3.60% to ₹1,208 crores from ₹1,253 crores in FY24. The company's inability to generate organic revenue growth in an economy that has been expanding raises questions about market share losses and competitive positioning.

The margin recovery in Q2 FY26 appears tactical rather than structural. Operating profit (PBDIT excluding other income) stood at ₹33.51 crores, up from ₹28.11 crores in Q1 FY26, but remained 9.00% below the ₹36.82 crores achieved in Q2 FY25. Employee costs rose to ₹35.57 crores from ₹35.15 crores sequentially, reflecting wage inflation pressures. Depreciation charges increased marginally to ₹5.42 crores from ₹5.32 crores, in line with the company's ongoing capital expenditure programme to expand its network of sorting centres and fleet capacity.

Other income contributed ₹4.24 crores in Q2 FY26, up from ₹3.76 crores in Q1 FY26, providing additional support to bottom-line performance. However, the company's core operational profitability remains under pressure, with the five-year EBIT growth rate at a mere 3.22%, significantly lagging the 8.21% sales CAGR over the same period. This divergence signals deteriorating operational efficiency and pricing power erosion in an increasingly competitive express logistics market.

Operational Challenges: Eroding Returns and Efficiency Metrics

The company's return on equity (ROE) stood at 12.50% on average over recent periods, with the latest reading at 10.15%, reflecting subdued profitability relative to shareholder equity. Whilst this ROE is not disastrous, it represents a significant decline from historical levels and positions TCI Express in the middle tier amongst transport services peers. The return on capital employed (ROCE) averaged 29.40% but has deteriorated sharply to 14.40% in the latest period, with the half-yearly ROCE for H1 FY26 hitting a concerning low of 13.59%. This contraction in ROCE suggests that incremental capital deployed is generating progressively lower returns, raising questions about the wisdom of continued aggressive expansion.

The balance sheet reveals a net cash position with negligible debt, which is a structural strength. However, this conservative financial positioning has not translated into superior operational performance. Total shareholder funds stood at ₹764.41 crores as of March 2025, up from ₹703.97 crores in March 2024, primarily driven by retained earnings. Fixed assets increased to ₹432.36 crores from ₹423.06 crores, reflecting ongoing investments in infrastructure, whilst current assets expanded to ₹431.12 crores from ₹382.12 crores, partly driven by higher receivables.

Industry Context: Underperformance Amidst Sectoral Headwinds

TCI Express operates in the express cargo distribution segment, a subsector of the broader transport services industry that has faced margin pressures due to rising fuel costs, driver wage inflation, and intense competition from both organised players and regional operators. The company's 0.97% year-on-year revenue decline in Q2 FY26 contrasts sharply with the broader economic growth narrative, suggesting market share losses or exposure to weaker end-market segments.

The stock's one-year return of -30.85% compares unfavourably to the transport services sector's -7.11% return, representing an underperformance of 23.74 percentage points. Over three years, TCI Express has declined 62.68% whilst the Sensex has gained 37.63%, resulting in a catastrophic alpha of -100.31 percentage points. This sustained underperformance reflects investor concerns about the company's growth trajectory and profitability sustainability.

Peer Comparison: Valuation Discount Justified by Weaker Fundamentals

TCI Express trades at a price-to-earnings ratio of 25.47 times trailing twelve-month earnings, which appears moderate relative to the transport services industry average P/E of 31 times. However, this apparent valuation discount is justified by the company's inferior growth profile and declining return metrics. The price-to-book value of 2.59 times compares favourably to peers such as VRL Logistics at 4.50 times, but VRL Logistics commands a premium due to its superior ROE of 18.30% versus TCI Express's 12.50%.

VRL Logistics, the closest comparable, demonstrates superior operational metrics with an 18.30% ROE and maintains higher dividend yield of 1.77% versus TCI Express's 0.92%. Gateway Distriparks, whilst trading at a lower P/E of 11.69 times, offers a more attractive dividend yield of 3.15% and comparable ROE of 12.90%. TCI Express's zero debt position is a positive differentiator, reflected in its negative debt-to-equity ratio of -0.18, but this conservative capital structure has not translated into superior shareholder returns.

Valuation Analysis: Attractive Multiples Cannot Offset Fundamental Deterioration

At the current price of ₹543.10, TCI Express trades at an EV/EBITDA multiple of 16.60 times and EV/EBIT of 20.44 times. These multiples appear reasonable in isolation but fail to account for the company's negative earnings trajectory. The proprietary valuation assessment categorises the stock as "Very Attractive", having upgraded from "Attractive" on October 03, 2025. However, this valuation attractiveness stems primarily from the stock's sharp 37.57% decline from its 52-week high of ₹870.00, rather than any improvement in underlying fundamentals.

The stock's beta of 1.35 indicates higher volatility than the broader market, with risk-adjusted returns of -0.90 over the past year classifying it as a "High Risk Low Return" investment. The dividend yield of 0.92% provides minimal income support, with the company maintaining a conservative payout ratio of 25.38%. Whilst the balance sheet strength and zero debt provide downside protection, the absence of growth catalysts and deteriorating operational metrics suggest limited upside potential from current levels.

Shareholding Pattern: Stable Promoter Base, Marginal Institutional Interest

Promoter holding remained stable at 69.46% in December 2025, unchanged from September 2025 but marginally down from 69.54% in March 2025. This high promoter stake provides governance comfort and alignment of interests, with TCI Express Consolidated Limited holding 44.40% and the Agarwal family members collectively holding the balance. Importantly, there is zero promoter pledging, eliminating concerns about financial stress or forced selling.

Mutual fund holding stood at 9.39% in December 2025, up marginally from 9.36% in September 2025, with seven mutual fund houses maintaining positions. This modest institutional interest reflects lukewarm conviction amongst professional investors. Foreign institutional investor (FII) holding declined to 0.82% from 0.85% sequentially, indicating marginal selling by overseas investors. Insurance company holdings dropped to zero in December 2025 from 0.02% in September 2025, signalling reduced interest from long-term institutional investors. The total institutional holding of 10.21% is relatively low, suggesting limited institutional support for the stock.

Stock Performance: Severe Underperformance Across All Timeframes

TCI Express has delivered catastrophic returns across virtually all timeframes, with the stock price declining 30.85% over the past year against the Sensex's 8.49% gain, resulting in negative alpha of 39.34 percentage points. The underperformance accelerates over longer periods, with three-year returns of -62.68% versus the Sensex's 37.63% gain, translating to alpha of -100.31 percentage points. Over five years, the stock has declined 42.82% whilst the Sensex has surged 66.63%, representing a devastating alpha of -109.45 percentage points.

The stock trades at ₹543.10, down 37.57% from its 52-week high of ₹870.00 but up 12.82% from its 52-week low of ₹481.40. The technical trend is classified as "Mildly Bearish", having improved from "Bearish" on February 02, 2026. However, the stock remains below all key moving averages, including the 5-day (₹519.98), 20-day (₹524.00), 50-day (₹558.24), 100-day (₹620.56), and 200-day (₹672.54) moving averages, indicating sustained selling pressure. The recent 6.22% single-day surge and 11.47% weekly gain appear to be short-term relief rallies rather than trend reversals.

Investment Thesis: Multiple Red Flags Outweigh Valuation Appeal

The proprietary Mojo Score stands at 45 out of 100, placing TCI Express in the "SELL" category (scores between 30-50). This score reflects a confluence of negative factors: bearish technical trend, flat financial performance in recent quarters, poor long-term growth with sales CAGR of 8.21% and operating profit CAGR of 3.22% over five years, and consistent underperformance against benchmarks. The score downgraded from "HOLD" (64 points) to "SELL" on January 30, 2023, and has remained in sell territory since.

The quality assessment has deteriorated from "Good" (prior to June 2025) to "Average" currently, reflecting the company's declining operational metrics. The financial trend is categorised as "Flat", with the most recent quarter (December 2025) showing no meaningful improvement despite sequential margin recovery in Q2 FY26. Technical indicators remain predominantly bearish, with MACD, moving averages, and KST all signalling negative momentum on weekly timeframes.

Key Strengths & Risk Factors

Outlook: What to Watch