Ladies and gentlemen, good day and welcome to the Allcargo Logistics Q2 and H1 FY 2025 earnings conference call hosted by B&K Securities. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone.
Please note that this conference is being recorded. This conference may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risk and uncertainties that are difficult to predict. I now hand the conference over to Mr. Shailesh Raja from B&K Securities. Thank you, and over to you, sir.
Yeah, thank you, Shlok. Good afternoon to all. On behalf of B&K Securities, I would like to welcome you all to the Allcargo Logistics Q2 FY 2025 earnings call. From the management side, we will be hearing from Mr. Ravi Jakhar, Chief Strategy Officer, and Mr. Deepal Shah, Group CFO. Without taking much time, I will hand over the call to Mr. Ravi for the initial remarks, and post which we will open up for the Q&A. Over to you, sir.
Yeah. Thanks, Shailesh. It is a pleasure to be on this call and talking to everyone. The second quarter for the financial year 2025 has been quite an eventful quarter in many ways. I would give a bit of a perspective on what is happening across each of the businesses, and then I will invite my colleague, Deepal, to take you through the financial highlights and talk about the key numbers. Basically, if you look at, there are three businesses that we have been operating, the international supply chain and the domestic supply chain, which comprises express and contract logistics business.
On the international supply chain business, we have had the most challenging few quarters until recently. I would say this is possibly the bottom, which could be over the last two decades, perhaps only a couple of such instances have happened in terms of the market environment that we faced. I am really glad that we have been resilient, and we have been able to come out well of this period. When we look at some of our competition and industry benchmarks, we see that there have been immense challenges in maintaining the profitability.
However, we have done much better, and that has primarily been driven by being very proactive on cost reduction initiative, on technology initiatives and constant service delivery to the customers, which has allowed us to maintain and grow the market share, and that has really helped us through tough periods. Now, as we look forward, we have seen the beginning of the better times as we have been reporting on a monthly basis and also for the quarter. We have seen improved volumes over the last quarter as well as over the last year.
With the global economic environment improving, we could potentially see the trends to follow. There are, of course, several geopolitical events happening around us, and they would shape the future of world trade. But prima facie, we believe that global trade will only continue to strengthen from here. From a company perspective, we have a very, very sharp regional focus and a unique strategy for each region. We have in the past been talking about growing our presence in Latin America, where we have been historically having limited market share, and I am glad that this was the quarter where we actually took significant initiatives.
So between July to September, this quarter, we onboarded an entire new team in Argentina, Paraguay, and Uruguay, which will add to the business in the region. It is already doing well in the first two months of operations, having grown the business significantly, almost doubling the business in two months itself. This is the quarter when we finalized our joint ventures in Colombia and Ecuador, which will bring in local expertise and combining with the global network, we expect these markets to also grow faster.
This faster growth in new products and volumes would lead to impact on the financial performance as well as in these countries, particularly considering that at this point in time Colombia and Ecuador combined were not contributing anything on the bottom line. This partnership would lead to that scenario changing. We have more initiatives to be taken, but I am glad that six important markets in Latin America were acted upon with strategic initiatives in this quarter.
When we look at European markets, where we have historically enjoyed market leadership for a long period of time, particularly in Western Europe and Northern Europe, we saw a continued strong performance in Northern Europe, in U.K. and France and Scandinavia region as well, which has bounced back well. The larger part of Europe still remains a bit challenging because the economic environment is still subdued, and it might take another six months before the economic environment starts to improve and we would see how the Russia-Ukraine conflict plays out with the changed geopolitical dynamics, and that could potentially lead to revival of European trade.
Meanwhile, what we are trying to do is we recognize that Europe in particular is a high-cost environment. We are trying to standardize the operating processes further. We had spoken in the last quarter about our outsourcing from U.S. into Mexico, and we are looking at how we could centralize some of the core operations in Europe and move them into a low-cost nearshore country, not very far off, so that the timelines could be managed.
So that should be our strategy to improve profit margins in Europe since, as far as the core business is concerned, in this region, we do not see very high growth rates what we could potentially see in Asia, Latin America, Middle East, or to an extent, U.S. and China, where our market shares are relatively smaller. Closer to home in India, all the businesses have done fantastic, and both LCL and FCL continue to grow steadily.
We maintain our market leadership by far in the LCL business, and we are climbing up in the FCL business significantly as well, now comparing with the top three in India. On the Asian side, we recognize that there could be changes with the dynamics of U.S.-China trade changing, but we have seen that in the past as well. About five years ago, or five and a half years ago, we had seen that there were tariffs and sanctions and certain initiatives being implemented, and that had led to an increased trade from China to Vietnam.
We were seeing imports into Vietnam also growing and also exports out of Vietnam into U.S. So we believe that structurally, trade flows will continue. The trade lanes can change, but as a company, we are well present across the world, and that should work out well for us. Today, when we look at the competitive landscape, there is nobody close to our entity ECU Worldwide from a technology and network perspective, and that's something which should continue to create the flywheel of success, wherein these capabilities lead to higher volume and market share.
Higher volume and market share continue to keep us more competitive, and we continue to drive growth. As the economic environment is now starting to improve, and we remain hopeful of a better environment in the calendar year 2025, I think that business is well-placed to continue to show momentum and growth. On the second business in Express, we are now already at par with the best in the industry as far as the cost of operations is concerned. We have recently announced a general price increase which will align us to improve the revenues and therefore improve the profit margins.
A lot of the turnaround work which was done over the years is now concluded on the operational side, and we have had some great leaders joining in the business to drive commercial operations, and we remain very confident of Express business, which has constantly shown significant improvement in the EBITDA over the last three quarters. If we compare the December quarter versus the September quarter, net progress is already visible and the impacts can be seen. The third business of contract logistics.
In that business, we built on a legacy chemical contract logistics business and expanded into new horizons, new domains. Today when we look at the split of business, we are very pleased to note that despite continued growth, chemical logistics today comprises only 23% of our business, which means that company has been successful in expanding its business into new domains, auto and engineering, which is now as big as the chemical in terms of the total revenue mix. The largest section for us now is our e-commerce business.
This is a business which is high-growth business. At the same time, we are not compromising the profitability. So this is a business wherein largely at any customer level, at any location level, we remain positive. We are investing in the capacity, which means that historically our white space was possibly in the range of 3%-4%. Now that is 10%-11%, but that is required as we drive growth and momentum. But in terms of the businesses, it is aligned with the fast-growing industries. Today, we manage significant capacities in warehouses and back stores for some of the fastest-growing quick commerce companies.
We are also working for various e-commerce companies. So this is a business which is now aligned very well to the growing e-commerce markets while remaining with strong foot in chemical business where we retain the market leadership in India, and a rapid growth in auto engineering as well. It is a business which has seen a considerable growth. If you look at the performance on a quarterly basis, we have grown from a revenue of about INR 76 crore- INR 111 crore year-on-year, which is a significant growth.
And we believe that this momentum can continue for the next few years because the opportunities are significant to expand the contract logistics business footprint, particularly in e-commerce, auto engineering, and other industries that we are now expanding into. So on an overall basis, if I look at various businesses, the management is confident that we are well-placed vis-à-vis competitive landscape. We believe that the market environment is either good in Indian businesses or significantly improving in the global business.
We believe that our investments in technology and focus on cost reduction, operating costs in case of the Gati business and SG&A costs in case of ECU Worldwide, the international business, should work well for us. On the corporate side, we are also glad that this quarter has seen movement in our restructuring scheme, which we received the no objections from the exchanges, and the scheme has now been filed with NCLT.
So we believe that we would conclude the process in the estimated timelines, and by April 2025, we should have the international and domestic businesses de-merged and listed separately. So that is the broad summary. I would now request my colleague Deepal to take you through the financial highlights, and we would then open the floor for questions. Thank you. Over to you, Deepal.
Thank you, Ravi. I will now discuss the performance for Q2 FY 2025. The consolidated revenue for Q2 FY 2025 stood at INR 4,301 crore as compared to INR 3,307 crore for Q2 FY 2024, representing a growth of 30%. For the Q1 FY 2025, the revenue stood at INR 3,813 crore. The consolidated operating EBITDA for Q2 FY 2025 stood at INR 135 crore as compared to INR 118 crore for Q2 FY 2024, representing a growth of 14%. For Q1 FY 2025, the same stood at INR 133 crore. The company has reported a profit after tax of INR 38 crore during the quarter, representing a growth of over 130% as compared to the same period last year.
The consolidated net debt for the quarter ended September 2024 stood at INR 553 crore. The net debt has gone up mainly on account of working capital increase. Moving to the segmental performance, I'll start by discussing the performance of the international supply chain business. The LCL volume. The less than container load volume for the quarter ended September 2024 stood at 2.37 million CBM, depicting a 4% growth over the quarter ended September 2023 and 5% over the previous quarter, that is, the June quarter 2024.
FCL volume for the quarter stood at 164,000 TEUs, up 7% over the same period last year, and 5% over the quarter ended June 2024. Air volume for the quarter ended September 2024 stood at 2.65 million kgs. This represents a growth of 14% as compared to last year, and a marginal decline of 4% as compared to the last quarter. Volume growth also witnessed during the quarter on the back of improved global trade and company's growth initiatives. A seasonal decline was experienced across regions towards the end of the quarter.
For Q2 FY 2025, the ISC business reported a revenue of INR 3,770 crore, representing a growth of 35% as compared to the same period last year. For the previous quarter, ISC segment revenue stood at INR 3,320 crore. EBITDA for Q2 FY 2025 stood at INR 79 crore as compared to INR 55 crore during Q2 FY 2024, representing a growth of 22%. In Q1 FY 2025, the same stood at INR 81 crore. Moving on to Express business operating under the GSECPL company. The volumes for Q2 FY 2025 stood at 317,000 tons as compared to 333,000 tons during the same period last year.
For the quarter reported, revenue stood at INR 374 crore as compared to INR 385 crore in the same quarter last year. The EBITDA for the quarter ended September 2024 amounted to INR 19 crore as compared to INR 15 crore for the same period last year. Moving on to the contract logistics business, which sits under the Allcargo Supply Chain company, a wholly owned subsidiary of Allcargo Logistics. Contract logistics revenue for Q2 FY 2025 stood at INR 111 crore as compared to INR 76 crore for the same period last year, representing a growth of 45%.
For the Q1 FY 2025, the revenue stood at INR 91 crore. The growth has come on back of new client additions. EBITDA for Q2 FY 2025 stood at INR 32 crore as compared to INR 36 crore during Q2 FY 2024. For Q1 FY 2025, the same stood at INR 29 crore. In line with best disclosure practices, we have been consistently providing other key comparative financial performances and operational indicators in our investor presentation. One can refer back for more details. With this, I would like to open the floor for questions and answers session.
Thank you, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. We will wait for a moment while the question queue assembles. The first question is from the line of Radha from Gargi Investments. Please go ahead.
Hi, sir. Thank you for the opportunity. My first question is that, in this quarter, we are giving geography-wise gross profit contribution for the international supply chain business. We appreciate the better disclosure efforts of the company. However, can you please help us with the similar numbers for H2 FY 2024 as well as first half FY 2024 results as well?
Yeah. This was requested by several shareholders and analysts, and that is why we thought of including in this, because we want the information to be distributed equally to everyone, and therefore, we have shared the geographic split. We can possibly share the historic split as well. I will ask the team to take note of this and add the trends and contributions of regions as well. We will include that going forward.
Okay.
From a broad perspective, I can share the comment that historically Europe used to be a significant contributor of gross profits and in the subdued environment, we have been finding that Europe has not contributed that well. Within Americas, Latin America has remained steady, but the U.S. contribution has gone down, which we expect to revive.
I would believe that Americas and Europe should see growth in the. Sorry, Americas, rather, should see some growth in percentage because Europe may still not grow at the same rate as which other countries would grow. I would imagine Europe should remain steady. It would remain low compared to what it was last year or two years ago. Americas, with North America now improving, should increase and we need increase in Latin America as well.
Okay. Sir, second question is that, in this first half, we can see that the short-term debt in this quarter is INR 1,200 crore, which is the highest it has ever been if I see the numbers on a full year basis. It is even higher than full year FY 2022 levels, wherein freight rates were all-time highs. Just wanted to know why has short-term debt increased and by the year-end, what could be your net debt target?
Deepal, if you would comment on the short-term debt and provide a perspective on how it is.
Sure. You mentioned that the short-term debt has gone up to INR 1,200 crore. That is not correct. The gross debt is INR 1,362 crore. Short-term debt is around only INR 850 crore out of it. Almost INR 495 crore is long-term debt. I do not know where you got the INR 1,200 crore of short-term debt number. Secondly, yes, like we mentioned, I did mention in my speech that there were freight rates which had gone up, for which some additional working capital was used. These are temporary. These kind of go back-to-back with the freight rates.
Once the freight rates deflate, I mean go down, the working capital debt will also deflate. That is what we had seen also through 2021, 2022, where short-term debt had gone up for working capital and then towards the end of 2023, it had again deflated. The freight rates are cyclical in nature, and the short-term debt kind of apes that from an amount perspective. Ravi, sorry, go back.
Just to add, directionally, we should see this net debt number going down towards the end of the year. Broadly, my personal estimate would be around 20% lower than where we sit today.
Yes, Ravi, we are seeing some freight rates also kind of come down a little in some of the trade lanes. Yes, you are right. It can possibly go down.
The cash generation of the business will also bring this down with some money further to come with the non-core asset disposals.
Yes, that is right.
That is all.
Yes, sir. Regarding the non-core asset disposal, the stake in HORCL we are selling, I think, around INR 115 crore. How would you utilize the monies received from there?
Sorry, I think you are asking the impact on HORCL, though I could not hear your question completely clearly.
Sir, the capital allocation plans for the money that you receive from stake sale in HORCL.
As you are aware, all the businesses are asset-light and do not require any significant capital. We have been using capital to retire debt or to provide dividends to the shareholders, and the company has maintained distribution of cash flows by way of dividends, as you would have seen in the quarters gone by as well. There are no significant CapEx plans. Even on the expansion, one significant change which has happened, I would say, in a way in our strategy is that we are now investing in people, in a way, rather than acquiring companies.
Therefore, some of those investments also in a way flow through the P&L. What I mean to say is, for instance, instead of acquiring a company, we have now onboarded this entire team. I was talking about an example in Argentina, Paraguay and Uruguay. This certainly means that in the first couple of months, entire SG&A goes out without any business and then as the business starts to come in, it is still a build-up phase.
That is the kind of investment which we are putting in to drive the business growth. That flows through the P&L itself, because all those investments are now in staff costs and expenses as compared to acquiring any company. Therefore, from a CapEx point of view, there is no significant CapEx beyond the ordinary CapEx that we have been doing from a layout perspective.
Okay, sir. Thank you. All the best.
Thanks.
Thank you, sir. The next question is from the line of Sunny Gosar from MK Ventures. Before taking this question, we would like to remind all our participants, if you wish to ask questions, you may press star and one on your touchtone phone. Mr. Sunny, please go ahead.
Yeah, thanks for taking my question. My first question is regarding the international supply chain business. Basically, this quarter saw a good bounce back in terms of the volume performance, and also the corresponding improvement in the gross profit. However, the flow through to EBITDA could not be seen, and it looks like that part of that impact is from the acquisition maybe that you have done in Latin America or South America.
Is it possible to give some perspective in terms of how much negative drag on EBITDA was there from the acquisition? What we could also see from the P&L is that your employee cost has increased by INR 32 crore on a QoQ basis. Is this relating to that acquisition? Any perspective on this will be really helpful.
Yeah. The increase in staff costs is primarily driven by, one, like you rightly mentioned, onboarding new people, such as about 30+ people in the Argentina region that I mentioned about, and a few more people in other geographies as well, which have been onboarded for growth. The second impact is a lot of countries have July to June cycles wherein the bonuses are paid in the July to September quarter. That is the second contributor as well. And the third is there have been also one-off severance costs. We have had the severance cost in letting go people.
I am not able to exactly quantify how much of this quarter, but over the last two quarters, the severance cost of key leadership changes that we have done itself should be in the magnitude of over $2 million. We are talking about roughly about INR 18 crore, INR 20 crore kind of an impact distributed over the last couple of quarters on the severance cost paid as well. These are some of the costs which are reflecting in the increased staff costs. Having said that, like I mentioned earlier, there is a very sharp focus to retain these costs at the optimal level, and that is where we are looking at outsourcing, centralization of European operations.
And we have already rolled out the financial system, which was required to centralize finance. But that is something which we contributed recently across key markets, and now we are already working on a program to bring down the finance costs by way of outsourcing some of the financials as well. Our intent is to not allow the staff costs to grow. Whatever investments we need to make for growth would be counteracted upon by reduction in staff costs by way of outsourcing or tech automations, et c. That is the broad strategy at our end, so that whatever growth we can achieve in volumes and gross profits can flow down through the EBITDA. But there would be time delays in account of impact of cost saving actions versus investments that we put in.
Got it. That is quite helpful. Two questions relating to this. Is the severance cost largely behind or could there be more in the coming quarters as well?
I would say we could have more severance costs, but what we would do is we would provide perhaps going forward a specific carve-out on the severance cost number. The way we look at the severance cost is it's not a liability, but an investment. I explain what I mean by that. If we have a situation wherein we've been able to drive tech automation, or we believe that the business can be made more efficient, or for whatever reason we can reduce the headcount in a particular country. As you would know, in Europe and Latin America and some of these countries, the severance costs could be significant, particularly for long-serving employees.
The way we look at this is even if we are paying six months to 12 months to even say 18 months in some cases worth of payments for severance, it is almost like an investment which pays back within 6- 18 months and therefore is a great investment. We would continue to reduce headcount wherever possible, wherever we see it's not a replacement of cost, but it is an actual saving, and there could be a 6-1 8 months timeline which could be there, but that's the investment we need to make to make the company more efficient in the long run. Like I mentioned, next quarter onwards, we will carve out the severance cost to provide clarity on that.
Got it. That's helpful.
Just to add on, severance cost is $1 million for this quarter. Almost $1 million.
Yeah.
Just to add to that number.
Got it. That's helpful. Going forward, how should we look at the fixed cost on a quarterly basis? The base is somewhere around INR 600 for the international supply chain business. It is about INR 600- INR 610 crore. Is this for at least the next quarter, kind of a peak number and any improvement in gross profit from here on will go through to the EBITDA, or there could be some more additions to the fixed costs in the next few quarters?
Like I said, there would be no additions to fixed costs, but it is almost like the intent is to keep them in equilibrium so that the gross profit can flow down. The negative impact, in terms of from a cost perspective, would be the investments in people. The second would be severance costs and restructuring. The third negative impact would be appraisals and linked payroll improvements for people, which means higher costs for the company.
The way to offset that is outsourcing tech automation and the business that comes from investments in people. That is how I would see that the intent would be to not allow the cost to grow at a higher percentage. Intent would be to control it to the similar base levels, and therefore the gross profits will flow down. There could be gap of a quarter here or there in terms of how it plays out.
Yeah. One last question before I get back to the queue. You mentioned about non-core asset monetization and the sale of one asset, which realized about INR 100 crore-INR 110 crore. Are there some identified pool of non-core assets, and is it possible to quantify, assuming that they get liquidated over the coming quarters, what could be the quantum of non-core asset realization?
Across Allcargo on a consolidated basis, which includes Allcargo and Gati as well, broadly, there could be non-core cash flows coming in to the extent of INR 75 crore-INR 100 crore. That's the broad estimate.
Got it. That's helpful. I must appreciate that the level of disclosures has improved significantly over the last many quarters, and I hope it keeps improving going forward because it helps us to understand the business much better.
That's the way we would continue to work on that is if we see a request from one or two persons, we try to answer them on the call or during the meetings. If we see the same request from more than five or six key people, we include that in the presentation and we'll continue with that.
Yeah. Thank you so much, and all the best for the coming quarters.
Yeah. Thanks, Sunny.
Thank you. A reminder to all our participants, if you wish to ask your questions, you may press star and one on your touch-tone phone. The next question is from the line of Rajesh Agarwal from Moneyore. Please go ahead.
When and how do we get an operating leverage in terms of EBITDA going down to the bottom line?
Across each business, the operating leverage is going to play out more on the international business than the express business. Contract logistics is more of a similar margin profile to continue. On the express business, like I mentioned, the staff costs and the G&A cost is already accounted for in terms of the future growth, and therefore we do not need to invest further in that. Therefore the increased gross margin and the revenue is leading to operating leverage. If you see the last three quarters, it has consistently played out, and we have seen improved EBITDA over the last two, three quarters. This would continue as we increase the volumes.
We have made a monthly disclosure that October was the highest ever monthly volume for the express business, and therefore we remain that trend should continue, and therefore that should play down to the EBITDA. We are talking about impact already being visible. As far as the international business is concerned, we have seen the past, in better markets, how the staff costs and the fixed costs remain consistent while the improvements in gross profit have flowed down to the bottom line. Last few quarters were bad. We have only seen the recovery in the last two quarters beginning.
Okay.
As I was mentioning just in my previous response, the improvements in gross profit here on should come down to the bottom line.
Okay. But the improvement will be substantial or what is the time period for that? What is the time period we are targeting for?
I would refrain from a specific guidance, but like I had mentioned over the last two quarters, and we have delivered on that guidance, is that we would see sequential improvement.
Okay. Sir, how do you see, suppose there is a shortage of container and everything, you do not feel the tendency of the customers moving more to LCL business, which is a good high-margin business for us. Are you seeing the changes in that?
Typically, the way it operates is whenever customers have not enough load to fill in the container, they operate on the LCL. There are situations wherein if there is lack of availability of containers on a particular trade lane-
Okay.
See, when they try to move to LCL, we also have to accept the booking. If somebody comes in with a 40 cubic meter booking, we generally do not accept that booking because for our business, the business is profitable when we have 3 cu m- 4 cu m, kind of an average shipment size. Because your money that you make on documentation per bill of lading, et c, is justified that way. FCL business cannot truly translate into LCL, but we have people ship in smaller loads and therefore the LCL business, in such cycles, does grow more.
And sir, last question. Suppose Trump has come to power now. If a tariff is imposed on China and other emerging countries, how do you see the traffic, international cargo moving and the volumes, gross profit volumes, which we are doing in U.S.A. now, is it for export from U.S. or import to U.S.?
Yeah. I am happy to share my personal perspective on it. There is no company view on what the geopolitical environment could shape up, but as far as our U.S. business is concerned, it comprises both export and import. As I was mentioning earlier, we believe that any tariff restrictions which come in particular to a certain country, those tariff restrictions could lead to diverted tariff flows. We might see more cargo coming in from other countries as compared to China, for an instance. We have seen that in the past also when such measures were adopted, with more cargo flowing through Vietnam, Indonesia, and some of the countries near China.
From a long-term perspective, most companies have anyway been diversifying supply chain, so that should work well. In terms of any of the manufacturing itself moving into U.S., we believe that it is not the entire ecosystem which would move. Any manufacturing would still mean that the raw material components would still be coming in. If there was assembling to be done in U.S., you would still have components flowing in.
We have seen over a period of last three, four decades, if you go back, changes in manufacturing locations haven't really reduced the trade flow, they have only increased the trade flow because your supply chains become more spread out. The only key impact, in the worst-case scenario for cross-border trade could be Mexico to U.S. trade, but that is largely road trade and we do not participate in that as yet.
Okay, sir. Thank you. If there are any other questions, I will come back to the queue.
Sure.
Thank you. A reminder to all participants to press star and one if you wish to ask your questions. The next question is from the line of Sarah, an individual investor. Please go ahead.
Hello. Thank you for the opportunity.
Please speak closer to your microphone. Thank you.
Hello. Thank you for the opportunity, sir. Sir, if we do a quarter-on-quarter comparison, that is from second quarter versus the first quarter of FY 2025 for the international supply chain business, the company had achieved all ten quarterly volumes in second quarter with 5% volume growth. The product mix was also favorable towards LCL.
Realizations have also gone up 8% quarter-on-quarter. Container utilization index has improved quarter-on-quarter. 40 ft container usage has improved quarter-on-quarter. All dynamics seems favorable for the company, and additionally, the company has done a lot of cost-cutting measures from the last few quarters. However, the EBIT by TEU has come down 17% quarter-on-quarter. Please help us understand what has led to this drop.
Yeah. So, two points there. One, let me comment that, yes, there has been a continued improvement in utilization in all these sectors, but, you are looking at a 12-month trend, and we are recovering from the lows. We believe that if the trade flows become more robust, we should see continued upward movement on utilization and ease, because utilization is the most critical part that drives the fundamental profitability in our business.
As far as the EBIT is concerned, I would not break it down per TEU because the LCL and FCL business operate on CBM and TEU in a different way. But from an overall perspective, as you have seen, the volume, if you compare, has gone up 4%, similar quarter year-on-year on the quarter-on-quarter, while the gross profit has gone up to about 7%-8%, which means that there has been improved profitability as well on the back of comparatively better utilization.
However, as I was explaining to you, there have been some one-off costs, such as $1 million in severance costs and a few other investments in people, which are also flowing through the P&L, and some bonus payments, et c, leading to higher staff costs, and therefore the EBIT numbers coming down. What we anticipate from here on over a longer term perspective, I am talking about, say, a one year out, when we look at the same quarter next financial year, we should see improved volume and gross profit, while we should fundamentally see similar cost levels, and therefore the operating leverage should kick in.
Okay. Okay, sir. Thanks. That was helpful. Sir, my next question is, sir, as an investor, this company has so many subsidiaries and associates operating so many geographies, and there is no correlation between freight rates also. The only way for us to estimate future number is on the basis of your guidance in con calls. In last quarter, you had mentioned that there is a lag effect of four to six weeks, and hence margins should have improved in the second quarter. However, it has not played out that way. So sir, why can not we see improved performance in terms of profitability?
Yeah. I will take the second question first and then comment on the first one. As the second part is concerned, the profitability in the business is gross profit per unit of volume of trade that we carry. I was just explaining that the gross profit has grown at a faster and higher percentage than the volume growth, which means that there has been an improvement in the gross profit per cubic meters in LCL or the gross profit per TEU in the FCL business as well. That the first part. So there has been an improvement in that.
You are only looking at the EBIT, which has been paid out by SG&A, where we believe, like I mentioned, we should see an improvement on the back of improved overall FCL gross profit while retaining the SG&A cost at the same level. Coming on the first part, as far as various subsidies are concerned, these are operating units which are required to be established in these countries to conduct business. We cannot operate with limited entities across the world. We are present in more than 65 countries with our own offices, and therefore these operating units are required.
From a structural point of view, as you are aware, the scheme of rearrangement is under progress, and that would lead to all the international business coming under one entity. As far as the domestic business is concerned, there is no need to have these subsidies because you can operate all the businesses under one operating unit. Therefore, we would just have one listed entity which will also be the operating entity. So all these subsidies will disappear on the domestic business side because there is only one country that we operate in.
On the international side, we have no option but to retain operating entities across the world. In terms of following up, I would say that there are multiple factors that you could look at which impact our business. You can follow the global economic environment, which has a bearing on the global trade. As the inventories build up, we see continued increased flow of trade. That has a significant impact on the volume side. The impact on the cost side is largely driven by inflation. We have several countries in Europe, for an example, wherein remunerations have to be increased in line with the inflation indices.
So I would say the growth in global trade is a common indicator of our business opportunity, and inflation is somewhat a reflection on the cost side. Within these two, we are always trying to see how we can compensate for inflation by way of technology, and how we can compensate for any volatility in the market environment by expanding market share.
So these are the two company-specific initiatives where we are happy to provide guidance, but on the broader basis, you can always follow how global trade is doing and how inflationary trends are being there. There are several container indices available, published by various research agencies, which also provide a perspective on the container freight rates and the volumes which are being moved through global trade corridors.
Sir, that was helpful, but subsidies in associate in many geographies are okay, but you haven't mentioned or guided same thing in the last quarter that you've been bringing severance and expenses in the second quarter or forthcoming quarters.
Like I mentioned, these severance cost decisions are taken based on the restructuring or investment decisions that we make, like we've done in Latin America. We have spoken about the severance cost in the past as well. I'm not sure if it was the quarter last one or the one before that, because we have had such severance costs in the past as well. Like I mentioned, I would like to reiterate or in conclusion, we would continue to look at staff cost reduction wherever we see it's a significant return on investment for us on the back of severance cost, which leads to a reduction in SG&A costs. If the payback is attractive, and if we're able to drive that with technology, we would continue to do that.
Okay. My last-
Like I mentioned earlier, we'll provide a separate carve-out number on that.
All right, sir. So my last question. We are hearing from sources that promoter is wanting to sell his stake in the company. Why is he planning to do this, sir?
I cannot comment upon hearsay, and there is no comment that I can provide on that.
Yeah, we cannot comment on behalf of the promoter-
Okay.
...in the company at the moment.
Okay. How is the outlook in terms of demand for third and fourth quarter?
I already answered that we expect the strong demand environment in some of the select countries to continue, and Europe may take more than two quarters to revive. Globally, there is a better momentum in the market.
All right, sir. Thank you so much.
Yeah. Thank you.
Thank you. Participants, you may press star and one to ask your questions. The next question is from the line of Shivaji Mehta, an individual investor. Please go ahead.
Hi, thank you for the opportunity. Sir, we are seeing a huge increase in the number of ships that are getting added to the global capacity in the current combined with the fact that global. If you kind of add to this with the fact that with the new U.S. president, if the Middle East wars would probably come to an end somewhere, say, in 2025, and the Red Sea ports would kind of normalize, do you think that the freight rates can take a hit going ahead?
We believe that freight rates will remain range-bound. There are various things pointing towards an upward momentum and things pointing to a downward. Some of them you appropriately mentioned. What we follow from various maritime research projections is that there is also a lot of capacity coming up for scrapping. On an overall basis, Drewry, which is a leading maritime research company, publishes its expectations on the freight environment and the capacity. What we read through is that net-net, the trade demand should absorb the entire capacity coming in. That's the narrative we've been reading through and taking note of.
Right. That was helpful. My last question is on the EBIT per TEU. I know you've added the FCL business recently, but if I just do a like-for-like comparison, say, 2019 or 2018 when you had an EBIT for LCL of about 1.45-ish, is that something that we would target going ahead also just on the LCL business? If you strip out the FCL business out of the international segment, are you trending towards those numbers?
I would say we do not see our business in EBIT per TEU because business is conducted in different units and there is not a measure followed in the company internally. I cannot relate to those numbers or comment upon them. But like I said, the simple intent going forward is to create volume growth which exceeds the market growth. We have seen a flat market wherein we have been growing at about 4%-5%.
We have, in the past quarter, seen a declining market where the market declined by 12%-15%, and we had gone down by 7%-8%. We have been kind of consistently maintaining a delta of 4%-5%. Historically, if you look at the long-term averages, the global trade on containerized trade has been growing at 3% and LCL at about 5%-6%. Our intent is to maintain the delta of 4%-5% on these global trade growth rates. As the trades revise, our growth rate can move into double digits for LCL. FCL, we have consistently grown at close to 18%-20% if you look at even the last six, seven years of a compounded annual growth rate.
That was very helpful, and wishing you all the very best.
Thank you.
Thank you. A reminder to all the participants. If you wish to ask your questions, you may press star and one. I repeat, participants, if you wish to ask your questions, you may press star and one on your touch-tone phone. Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Shailesh Raja from B&K Securities. Over to you, sir.
Yeah. Thank you all for attending this session. We especially thank the Allcargo Logistics team for their time. Ravi, sir, any closing comments you would like to make?
No. Thanks, Shailesh, for hosting us, and thank you everyone for joining in. Like I mentioned, we intend to provide as much disclosure as we can. Wherever there are confidentiality concerns, keeping competitive dynamics, we try to find a workaround and provide at least the lead indicators. We are happy to get more queries from you from our investor relations team and happy to provide you as much perspective as we can. Hope today's call was helpful in this direction, and thank you very much once again for joining in.
Thank you.
Thank you.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines. Thank you.