Ladies and gentlemen, good day and welcome to the Allcargo Logistics Limited Q2 and H1 FY 2024 earnings conference call hosted by Dolat Capital. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Jain from Dolat Capital. Thank you, and over to you, sir.
Thank you, Dorian. Good afternoon, everyone. On behalf of Dolat Capital, I welcome you all to Q2 FY 2024 earning conference call of Allcargo Logistics Limited. We thank the management for providing us the opportunity to host the call. From the management side, we have with us Mr. Ravi Jakhar, Group Chief Strategy Officer, and Mr. Deepal Shah, Group CFO. I hand over the call to Mr. Ravi for opening remarks followed by the question- and- answer session. Thank you, and over to you, sir.
Thank you, Abhishek. Good evening, and a very warm welcome to everyone on our Q2 and H1 FY 2024 earnings conference call. Let me take this opportunity to wish you all a very happy New Year. The New Samvat 2080 may it bring prosperity and happiness to all. We have uploaded our results and earnings presentation on the stock exchanges as well as the company's website, and I hope everyone had an opportunity to go through the same, which includes the results as well as the investor presentation. As mentioned, today, I am joined by my colleague, Deepal Shah, and we would endeavor to provide you brief highlights from the quarter and the half year gone by and also respond to your questions with the utmost sincerity. To begin with, let me speak a bit about the macroeconomic environment. The global economy is expected to slowly recover from the pandemic.
However, the global trade flows recovery has been relatively even weaker than what we had expected, and this is in line with the economist expectations. We have seen that several factors continue to raise concerns, such as the muted Chinese trade outlook, geopolitical tensions posing an upside risk to fuel prices, and weaker than expected pickup in pre-Christmas stocking, which is usually seen leading to increased shipments from July end. That uptake has been relatively sluggish as well. China, a country that plays a major role in global trade, is also grappling with its internal real estate crisis and diminished external demand. Chinese exports for the month of October shrank 6.4% year-on-year.
As per Reuters report, we also understand that China's official purchasing managers index last week showed both new export and import orders shrank for an eighth consecutive month in October, which basically continues from the Chinese New Year gone by. This suggests that manufacturers are struggling to find buyers overseas and ordering fewer components domestically as well. Among the other major economies that impact global trade, such as the U.S. and U.K., two are facing sluggish demand growth. Although on a positive side, the risk of banking stability has softened, but the trade outlook remains cloudy. The International Monetary Fund for 2024. Coming to Allcargo Logistics and our business operating under various subsidiaries, I would like to share a few business updates. First, on the corporate action side, as you would have noticed, the board has approved the issuance of three bonus shares.
This decision is aimed at improving the liquidity and allowing for broader-based participation of shareholders in the company. Besides, this shall also facilitate the strategic restructuring plans that we have been pursuing. The company has built significant reserves over the years, and the issuance of bonus shares will use less than 15% of the available reserves, which is a sign of company's health. The company also recently demerged two businesses, which were listed in the quarter gone by on August 10th, and the board considered it appropriate to issue bonus shares once the demerger proceedings were completed and this board meeting for the quarter ending September 2023.
The company has exhibited strong performance over the last several years and taken significant initiatives to deleverage the balance sheet, which has resulted in a very low net debt as of September 30th, and my colleague, Deepal, will talk more about it. If you look at it, this is remarkable considering the recent spree of acquisitions. We acquired the balance shares from minority shareholders in Gati Express and Supply Chain, as well as in Allcargo Supply Chain. We also recently increased our shareholding in Nordicon to 90%, besides the acquisition in Germany earlier during the year 2023. All of this has been enabled to a large extent by strong internal accruals from the businesses.
On the international supply chain side of the business, while the current macroeconomic environment has unexpectedly led to significantly lower performance in recent quarters, the company is hopeful that the prudent approach by the company over the years that led to a very strong balance sheet will provide a strong base for future growth. The business, which sits under the company's flagship subsidiary, ECU Worldwide, is driven by a completely asset-light approach, with digital strategy being the fundamental pivot for future growth. And I am glad that all our digital initiatives are tracking well on schedule. Further, ECU Worldwide continues to strengthen its global market leadership in the LCL consolidation business on account of significant efforts in investments and acquisitions, acqui-hiring, and transformation of the business on an ongoing basis, despite all the challenges and headwinds.
I would like to highlight here that most leading international forwarders have reported a volume decline ranging from -4% to slightly lower in the quarter two FY 2024. This was accompanied by a decline in yields ranging from -25% to -38%. In comparison, our LCL volumes are down 3% year-on-year, and FCL volumes have remained flat. In terms of the LCL volumes, we estimate that our key competitors operating globally are significantly lower on a year-on-year comparison. We have highlighted that a recovery might not be visible immediately, but we continue to focus on our market share efforts along with cost efficiencies. In line with our improved disclosures, we shall continue to keep our various stakeholders updated on the near-term market developments through our monthly operational release. As we have stated in the past, the international supply chain business operates on a January to December calendar year budgeting.
Therefore, we are also in the stage of budgeting for the next year, and in the due course of next couple of months, we would also have a better forecast and visibility on our next year's budget and the three years business plan, based on which we also intend to share our revised guidance in the coming months. Moving on to our express business. The company is making remarkable strides, consistently delivering top-notch service levels while continuously striving to enhance operational efficiency. It was somewhere around the early 2023 that our operational indicators started to fall in line on the back of transformational initiatives and also the suitable infrastructure coming up. The company has achieved strong performance in Gati Express and Supply Chain in terms of volumes driven by increased demand, driven by infrastructure amplification, sales acceleration initiatives, and also on the back of good domestic festive season demand.
You might be aware that we have recently launched the Bengaluru Superhub and remain on track on the infra rollout front, a majority of which is already accomplished. Additionally, the company remains steadfast in its commitment to improving EBITDA on the back of operating leverage through increased revenue and volumes, and that should improve the overall profitability as well. That outlook on Gati Express Supply Chain, which is the operating entity, continues to remain strong and is backed by the demonstration of strong volume and growth in the quarter two FY 2024. Detailed in highlights and have already been provided in the Gati call, Gati already being a separately listed entity. Coming to the contract logistics business, which is housed under Allcargo Supply Chain and is now 100% subsidiary of Allcargo. I am glad to note that their business continues to deliver robust performance.
Recently, the company has set up a state-of-the-art grade A chemical warehousing facility at its mega multi-user chemical warehousing complex at Uran in Navi Mumbai. This has been set up for one of the largest chemical companies in the world and is a hallmark of quality excellence in the country. The business, besides the niche chemical segment in which it continues its market dominance, has now started to grow rapidly in the e-commerce space, as well as other opportunities in warehousing, ranging from auto components to furniture and other CDIT domain opportunities. In facilities where we store hazardous chemicals, it requires strict adherence to highest safety standards and statutory compliances of international standards, which demonstrates the capabilities underlying in the Allcargo Supply Chain business.
We continue to manage a little more than 5 million sq ft warehouse, and we have seen a good pickup in volumes, revenue, and profitability in this business. Compared to last year, there was also a portion of business which was a low margin, 3PL kind of an opportunity, which was pursued for a period of time for specific reasons, which is not continuing, and that is why the expansion in profit margins is seen to be healthier as compared to the revenue margins. A part of it is also contributed by capitalization of lease expenses. In terms of the future prospects, we see strong demand. We have a robust pipeline in this business, and we are now already invested in people capabilities for solution design perspective.
We are participating in greater set of opportunities, and we have a very healthy pipeline, which provides good visibility for continued growth in the coming quarters. That was a brief snapshot of all the three businesses operating under Allcargo Logistics. I will now hand over the call to my colleague, Deepal, for his comments on the reported financials, and then we can get back to further discussions in form of Q&A. Thank you. Over to you, Deepal.
Thank you, Ravi. Good afternoon, everyone, and a very happy Diwali and a happy New Year to you all and your loved ones. I will now discuss the performance for Q2 FY 2024. Our revenue has declined on a yearly basis owing to a much stronger base and a different macroeconomic environment. The consolidated revenue for Q2 FY 2024 stood at INR 3,307 crore as compared to INR 5,055 crore in Q2 of FY 2023, and INR 3,271 crore in Q1 FY 2023. The consolidated EBITDA for Q2 FY 2024 stood at INR 118 crore as compared to INR 129 crore in Q1 FY 2024. The muted profitability along with the slightly higher depreciation has led to the PAT, profit after tax, for the quarter ended September 2023 declining to INR 16 crore as compared to INR 195 crore for the same quarter last year.
One to note is that our balance sheet remains very healthy with a net debt of INR 120 crore as of September 2023. Now moving on to the business segment-wise performance. I will start by discussing the performance of the International Supply Chain, which is the largest business. The demand scenario continues to remain weak, like Ravi said, and competition remains high. We continue to focus on outperforming the industry amidst muted demand. LCL volumes for the Q2 FY 2024 stood at 2.3 million cubic meters as compared to 2.4 million cu meters for Q2 FY 2023. On the FCL front, the volume of Q2 FY 2024 remained flat year-on-year and stood at 152,800 thousand TEUs. The ISC business reported a revenue of INR 2,795 crore as compared to INR 4,614 crore for FY 2023, and INR 2,823 crore for Q1 FY 2024.
The EBITDA for the same period stood at INR 65 crore as compared to INR 111 crore for Q1 FY 2024. Moving on from the ISC business to the express business under Gati. The segment continues to deliver strong performance with higher emphasis on improving operational efficiencies. The volumes for Q2 FY 2024 stood at 333 KT, as compared to 283 KT in Q2 FY 2023, a remarkable 18% year-on-year growth. Revenue stood at INR 385 crore for Q2 FY 2024 as compared to INR 370 crore for the previous quarter.
EBITDA stood at INR 15 crore for Q2 FY 2024 as compared to INR 21 crore in Q2 FY 2023. An important milestone for the express business was successful launch of its Bengaluru Superhub. Moving on to the contract logistics business, which sits under the Allcargo Supply Chain Private Limited. Contract logistics revenue Q2 FY 2024 stood at INR 76 crore as compared to INR 83 crore for Q2 FY 2023.
EBITDA stood at, for the quarter September 2023, stood at INR 36 crore as compared to INR 29 crore for the same quarter last year. We are confident that this positive momentum will persist in the medium to long term given the rising demand for warehousing across various segments. We have been consistently providing other key comparative financial indicators in our investor presentations. One can refer to that for more details. With this, I would like to open the floor for questions- and- answers. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. 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. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Radha from B&K Securities. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, firstly, I would like to state that in the opening remarks, we lost you in between, and there was no intervention from the operator as well. I would just request you to add those sentences in the transcript if possible. Sir, my first question was that we had taken many initiatives like digitization, direct sales and other many cost reduction measures as well previously, so that whenever there is a fall in realizations, our EBIT per TEU is still maintained at a certain level. This quarter, we could not see those benefits reflecting in the numbers. Could you give us some kind of analysis as to why, and how do you expect to see the EBIT per TEU levels in the coming quarters, considering the weak macroeconomic outlook?
Right. I will respond to that. Meanwhile, just to reconfirm, Deepal, were you able to hear me while I was speaking in the opening remarks?
Yeah. Ravi, I could hear you, but then opening remarks was fine, but somewhere in the middle, I also got dropped out. So, you know
Yeah. I would request the team to make sure that the transcript is duly recording everything that was spoken, so that if anything is missed out by any participant, that can be referred to later. Coming to your question on the EBIT per TEU, I would break that down into two components. It comes down from GP per TEU and then down to EBIT per TEU. First part, which is GP per TEU, is driven by a combination of how we maintain our trade lane dynamics and how the operating market environment is. Like I mentioned, the operating market environment has been muted, which impacts the gross profit. At the same time, on the trade lane side, we did take initiative to expand into some new trade lanes in strategic locations.
For an example, some of the Latin American countries into European markets, and Asia into Latin America, and a few other strategic trade lanes, which as you build them out, tend to be loss-making. At the same time, they are quite strategic from a long-term growth perspective. So some of those initiatives we have continued to pursue. We did not choose to drop them. To give you a scale of sense, if I was to talk about all the 2,500 trade lanes that we operate, and we carve out all the loss-making trade lanes at the gross profit level, that number for the quarter could be close to about $1 million . Some of the non-strategic ones might contribute to about 25%, which we could temporarily bring down, and that should create some positive impact.
Not significant, but majority of that cost we would continue to take as a hit in terms of developing the new strategic trade lanes. The macroeconomic environment, as it improves, typically tends to help us with better utilization. As you could see from our operational updates in the investor presentation as well as the monthly updates, we have continued to see dropped utilization, dropped ratio of 40-foot containers, which are all operational parameters, which should improve on the back of improved demand. As the markets have corrected, one thing which we have been able to do is we have fallen relatively less as compared to the competition. That means that as the recovery kicks in, we should be the fastest to recover as well.
That is something which is a combination of a bit of strategy on the trade lane dynamics, but largely driven by the operating environment. However, where we potentially should have done better is on the line items between gross profit and SG&A. During the first half of the year, largely through the first quarter, we were anticipating that the trade environment should improve. There was a little bit of a minor pickup in the month of March post Chinese New Year, and that kind of created a belief that the trade could be normalized, which, however, did not happen. We only started acting on the cost side below the gross profit from August onwards. That endeavor has continued now through the last few months, and we would conclude most of the cost initiatives by end of December.
Some of these require strategic restructuring in the organization. Some of them are about eliminating some positions by way of automation. Some requires relocation. Typically, most of these activities have a lead time of three to six months. During such time, there are also severance costs, switch costs, et cetera, associated. As we conclude these initiatives till the end of December, there could be a continued impact until February or March. Beyond that, we should see an improved state on the cost side, which means that the SG&A cost as a percentage of revenue or gross profit should come down. That is something which we expect should be visible from the month of March, April onwards, as this point of time would have some bit of severance cost as well.
However, what we would be in a position to do is, possibly for the quarter of December, when all these initiatives would have been completed, we could potentially provide a ballpark indication of the quantum of one-off severance impact, which should not continue beyond the January to March quarter, and that would give an idea about the impact on the SG&A cost improvements. In hindsight, the organization could have been more proactive from the early part of the year as compared to starting some of these cost initiatives in August, which could have basically helped us maintain healthier EBIT per TEU. However, now that we have taken some of the cost initiatives, we believe that should contribute to some extent. As the trade volumes rebound, as the utilization starts building up, we believe that the EBIT per TEU should improve.
I would say putting these in perspective in terms of timelines, we should see EBIT per TEU improve from April onwards. We could still call out some of the exceptional costs in the January to March quarter. October to December is likely to remain similar. I hope that provides a decent perspective on how it is playing out and what we are trying to do.
Yes, sir. Sir, secondly, you mentioned that till the Chinese New Year, we are expecting that demand to remain muted. Given that last two quarters we have seen significant impact due to the lower demand, and we have seen a drop in our profitability levels. Going forward, especially in Q3 and Q4 partially because of the Chinese New Year, do we expect to remain profitable or do you see any kind of scenario because of the SG&A cost and then lower demand to go into losses?
No. I don't see us going into losses, any of those scenarios. Also to further carve out, some of the performance is also muted on account of two big countries which have actually been in the losses, which is U.S. and Germany. In these two countries, we have already seen some degree of reversal on the trends because some of the outsourcing and cost reduction initiatives are already started around August, September, like I mentioned. In keeping that into mind, unless the economic environment was to deteriorate further, we should only see an improvement from this quarter onwards. If there was to be continued deterioration in the economic environment, then we could see it being flat. We do not foresee a scenario of the performance going further down from here. But it may not see a significant uplift over the next two quarters.
Like I said, the impact of cost reduction initiatives as well as the improvements in the macroeconomic environment should potentially start from Chinese New Year around mid-February, end February. That's where we should possibly start seeing some degree of an upward movement. That's our anticipation right now based on what we see on the ground.
Sir, for the third quarter, given that now we are past 45 days for the third quarter, are you seeing any kind of an uptick in demand as compared to the second quarter? If so, even if we can maintain a similar volume, can we assume that this is the lowest for our EBIT per TEU?
I would say that we are not seeing any demand uptick. The environment continues to remain flat in terms of the overall demand outlook in the market. In terms of EBIT per TEU, our best estimate is that it should remain flat and should grow on account of two initiatives, one cost reduction below GP, and second is the turnaround in macroeconomic situation. The third factor is reversal in performance of specific countries in our business portfolio. A combination of these three things should help. On the first one, on the cost reduction, I have a more definitive visibility because those are completely controlled internal initiatives and should be completed by December with some severance and off costs still being there in the January to March quarter. April onwards should be a clean improvement.
On the macroeconomic environment, our estimate is beyond February, Chinese New Year, things should improve. That is something which is based on an assessment of ground reality and what we also hear from global trade experts and economic experts. On the loss-making offices turning around, we have seen positive momentum over the last couple of months, and that trend should continue and should also help improve the bottom line. All in all, if you read into these three trends, the performance should remain range-bound for the next quarter and then perhaps start to improve primarily from the April quarter onwards, is how we look at the situation right now. Of course, these are based on various estimates, like I mentioned.
Okay, sir. Sir, could you give us any insights on the realization front for this International Supply Chain business? This quarter, we are at INR 114k per TEU, and we are given to understand that given that freight rates have already come down to pre-COVID levels. Because of lower demand scenario, do you see the realizations going down further? If there is any pricing pressure or anything, could you give us any insight on the realization front?
Yeah. So we were anticipating that there will be an impact on the ocean freights on account of trade disruptions getting normalized. This is, I am referring to 12 months ago. However, as the economic slowdown also kicked in on the back of the trade disruptions going away, the freight rates have dropped significantly. Now going back to not just pre-COVID levels, in some trade lanes even below the pre-COVID levels.
However, as we have maintained, that impacts the FCL business largely. On the LCL business, the challenge is that when freight rates become much lower, some of the volume from customers can switch to FCL, which leads to further pressure on the volume side. LCL profitability is still largely driven by the utilization in the box and how much of 40-foot boxes can we carry. And that is something which has remained almost close to 10% below the last year's levels.
And that is where we believe the improvement is likely on the back of volumes when the trade recovers. In terms of realization, I would recommend that when looking at the LCL business, we do share data on the LCL in CBM, and that can possibly help you get a better perspective as we charge revenue on a per cubic meter basis.
Sir, if there is a scenario for realization but we-
We request you to please rejoin the queue for follow-up questions. The next question is from the line of Jiya Shah from Wealth Securities. Please go ahead.
Hi. My question is regarding the plan that you have mentioned for a more simplified structure involving Allcargo Gati and Allcargo Supply Chain. Could you provide any update on the progress or offer a potential timeline for the same?
This is something which has been under consideration and like we have provided an update in the past, the board advises to engage with advisors on potential structures and various advantages or disadvantages the same. It is still a matter under discussion. We cannot provide any specific updates since the discussions are still underway and there is no concrete decision at this point in time. However, like we have mentioned in the past, any outcome would be towards simplification of the structure. We have continued to build synergies between the Express and the Contract Logistics business, which now also are under the common leadership. To that extent, strategy is clear in terms of the approach and structure. Things are still under discussion. Like I said earlier during my comments, the recent initiative of providing bonus shares should also potentially aid the restructuring plan.
Beyond that, it is not possible to share any further details at this point in time. As we make any progress and make concrete decisions approved by the board, we definitely come back to all shareholders and stakeholders.
Okay. All right. Thank you.
Yeah.
Thank you. The next question is from the line of Darshil Zaveri from Crown Capital. Please go ahead.
Hello, sir. Am I audible?
Yes, you are.
Yeah. First of all, happy Diwali, sir, and thank you so much for taking my question. Just wanted to get a sense, I think you partly answered my question. If I can get the correction, our H2 will also be range bound such that H1 will be on the similar trajectory as H1 and we can see volume pickup in FY 2025, right? Is that a fair way to look at it, sir?
That is largely correct. Our anticipation is that typically the Chinese New Year, which falls in the month of February, is typically a low season after which the pickup starts. December usually also has been the demand forecast. We can typically see two months out because when you are booking cargo and considering the ocean voyage. We are already in mid of November, so it appears that the next few months, two, three months, would remain muted on the demand side and therefore post-Chinese New Year, which is end of February onwards, we should see pickup. That is our anticipation. That of course, yes, means that the Q4 would also be largely a similar trend. From April onwards, we should see recovery. That is what is our estimate at this point in time. You are correct.
Okay, sir. Sorry, sir, for the disturbance. Just also wanted to I think I got cut in the middle in the call. Why has there been a sudden spike in our depreciation, sir?
I would request my colleague, Deepal, to take that question. Deepal, you would like to take that up, please?
Mr. Deepal Shah, your line has been unmuted. You may proceed. Can you hear us?
Yeah. Am I audible now?
Yes, you are audible, sir.
Sure. If you remember in the last quarter we had acquired the balance 38% in the contract logistics business, which made the ASCPL subsidiary into a 100% subsidiary, allowing us to consolidate line by line. That acquisition happened end of May. Last quarter, it was only one month of depreciation from that business, which was added. This quarter, we have all the three months depreciation added from that business. Contract logistics business operates through leased warehouses across India. Because of the lease accounting, the Ind AS 116, the higher amount of depreciation from the contract logistics business has got stuck into the current quarter. That's the reason the depreciation has bumped up.
Oh. So sir, our Q2 numbers of leases would as well, our interest and depreciation are not one off. They'll continue at these rates. Correct, sir?
So Q2 will continue. The Q2 will be post-acquisition. Q2 numbers will be
Yeah. Q2.
Yes, that's correct.
Yeah. And sir, just one last query, sir. So with this, our margins have been severely impacted on a PAT basis. So do we see a possibility that it could further deteriorate? Because at around INR 17 crore PBT, that would have a higher impact on us. You would have very less margin in terms of our EBITDA also, right? So is there a possibility that this could further deteriorate currently? And how confident are we that FY 2025 would start on a better note? Or is it just that we feel that bottoming out has yet not happened? That is only question that I have. If I could make sense.
Yeah. Yeah. I just responded to the same question actually, but I would just summarize again. The improvement in performance would be led by our internal initiatives on cost reduction, which is a clear 100% visibility internally. That's something which is showing results, and net of severance costs, et cetera, should definitely make positive contributions from April onwards. On the macroeconomic environment, we are hopeful of a recovery. We cannot say for certainty, but we definitely do not see the situation deteriorating with the inflation falling in control and with the economic indicators suggesting that the trade could see normalization in the following months. We believe that the trade should normalize.
In terms of the performance, what we see, we believe that some of the factors on external side might remain flattish, while internal initiatives could drive up the cost initiatives, and therefore, there should be a positive moment, which should fully reflect from April quarter onwards. That's what I was just responding to in detail. Our team would share the transcript. I would request you to refer to that for further detailed insights as well. Thank you.
Okay. Perfect, sir. Thank you so much, sir. All the best, sir.
Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Hemesh Desai from Dolat Capital. Please go ahead.
Hello, am I audible?
Yes, sir.
Yes.
Yeah. Right. I just have a couple of questions. The first question would be on the International Supply Chain business. How is the share of India compared to U.S. and Europe?
Yeah. The share of India in terms of the top line has marginally increased on the account of Indian business holding better than the rest of the economies. In terms of profit, the share has gone up significantly on a relative basis because India continues to do better as compared to some of the Western Europe and Americas. Like I was mentioning, a couple of large countries had also been on the loss side, which means that the share of India would have gone up. We believe this share would remain on a higher level and should possibly also normalize as other countries recover in terms of trade volumes and therefore improve performance for us as a business as well.
Would we be having an absolute number in terms of percentage as an idea?
We don't share in that sense. However, you could look at the standalone performance of Allcargo. Basically, since the express business and contract logistics businesses are under the subsidiary, standalone business is effectively the business of International Supply Chain operating in India and some of the corporate costs sitting in there. If you look at the standalone numbers, you can do some analysis on that. That would be my recommendation.
Okay. Thank you. On the exports part, a lot of the dealers have already completed their inventory destocking. So how do we see volume growth going forward?
Like I mentioned, it appears that from a timing point of view, we haven't seen much pickup for December. Then towards end January, February, you have Chinese New Year, which typically means a relatively slower trade movement. We believe that the trade pickup should happen post-Chinese New Year, which is towards the end of February, early March. That's our expectation at this point in time. That should also mean a few more additional months of the inflation cooling off in Western economies, and that should improve the demand outlook. Inventory destocking has already happened as it is visible from ample warehouse space available easily across Europe, Americas, and even parts of Asia, which was not the case 12 months ago.
Okay. Which would be your top five countries, and could you help us with the market share over there?
We are very strong in Western and Northern Europe. We have more than 40% market share in Nordic countries and an extremely high share in Belgium, also close to 40%. In U.K. and France, also we have a high share. India, of course, we are market leaders in the international supply chain business. We are also rapidly improving our market share in lot of Asian economies such as Indonesia, Philippines, Vietnam, and even the main market of China. In terms of the size of the market, clearly India, China, U.S., and some of the bigger Western European countries would form the biggest part of our revenue and volumes in this business.
Okay. Just the last question. Are there any progress of new acquisitions in Fair Trade, Germany?
No. So we continue to integrate and rationalize the costs because unlike other acquisitions which were plug-in, this is an acquisition which is also a merger in a way with our German operations and the Fair Trade operations finding synergies, and that process continues. No further developments beyond what has already been shared.
Okay. Thank you.
Yeah. All right. Thank you.
Thank you. There are no further questions. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Marcel. I am sorry, that is Nirav Savai with Abakkus Asset Manager. Please go ahead.
Most of my questions are actually answered. Just a couple of ones. You said something about non-strategic trade lanes. Can you just help me out with the contribution in terms of volumes and how much does it contribute at EBITDA level?
Like I mentioned, non-strategic trade lanes could be roughly about - $200,000 for the quarter. These are basically trade lanes, which are business trade lanes, but not strategically important to be continued any loss, and therefore, there could be some opportunities for rationalization.
Okay. They are about $200,000 in terms of loss at EBITDA level, right?
Trade lanes, you would typically look at the gross profit level because the manpower cost or admin cost doesn't change with trade lanes.
Right. This contributes what percentage of overall volume?
This will be very minuscule portion.
Very minuscule. Lastly, on this 38% stake which we acquired in our supply chain business, what was the outflow there behind that? I think the announcement had happened in the month of March, but as you said, it happened actually in the month of May. So what has been the cash outflow in front of this acquisition?
Sure. Deepal, you would like to respond to this? Operator, can you check if Deepal's line is unmuted?
Deepal, sir, you are not audible if you are speaking.
Yeah. Am I audible now?
Yes.
Yes. It is okay.
Yeah. Sorry. Yeah, it was around, at the gross level, the total net outflow was around INR 120 crore because it gave away the CFS business. So yeah, that was around the net outflow.
All three put together, if you see KWE, supply chain and the other one which
Around INR 405 crore. So INR 525 crore is what, between three and Contract Logistics business is the outflow in the Q1 and YTD Q2, I mean.
Okay. Also with increases taken Nordicon right to 90%. So was it about INR 180- INR 200 crore there?
Just to add to that, like Deepal mentioned, about INR 525, INR 530 crore in the domestic acquisitions and the international acquisitions of Fair Trade in January and Nordicon later in the year, put together would be approximately INR 250 crore. All put together, we are talking about roughly about INR 750, INR 800 crore of acquisitions.
This has all happened in the first half of 2024 only.
Correct.
All right. That is it from my side. Thank you.
Thank you. The next question is from the line of Marcel, an individual investor. Please go ahead.
Hello. My question is regarding this express distribution. I hope this is a Gati business in India mainly.
Yes, the express business is the business operating under Gati Express and Supply Chain, which is a subsidiary of the listed entity, Gati Limited.
It is very disappointing to mention that, in India, all courier business are flourishing. I know some of the business who are actually my distant relative, they are making crore of rupees, whereas their business size is much smaller in terms of the capital investment and so on. Here, on this business, we are losing significantly, number one. Number two, in the September quarter, we have added about INR 140 crore additional segment assets in this segment. And consequent there is increase in segment liability of INR 30 crore. So net of liability, we have added another INR 110 crore. So we have invested almost INR 1,450 or INR 1,400 crore, and our result is almost flat. There is no increase in the revenue, although there is every six months when every when you are by the courier company.
Plus on the top, if you see the segment result, we have lost last year INR 24 crore, and this year we are going to lose about maybe INR 18 crore we already lost, maybe we lose INR 40 crore. So what is your game plan to reduce the cost of this segment, number one, and what is the game plan to increase more, you can say, for example, this is a corporate customer, what is the target given to your sales personnel to enroll more the corporate customer and how to turn around this division? Otherwise, this is bleeding from here.
Yeah. So your observations on the impact on the financials in terms of the capital investments invested in Gati and the underlying subsidy and the current business impact in terms of the bad contribution are valid. However, I would like to bring to your attention that the strategy at Gati has always been to turn around an enterprise which was loss-making, losing market share with rundown infrastructure, with a magnitude of problems. A lot has been achieved in the last over two years of transformational initiatives at Gati. All the hubs have been redeveloped. In the quarter gone by, we saw a significant increase in volume, which also indicates market share expansion for the first time in perhaps last close to eight years of Gati losing its market share. The management team has also been able to drive significant digital initiatives.
The volumes have come back in, the infrastructure is now in place. We are quite optimistic that the company should start delivering profits as well in the quarters to follow. It is our belief that has led to the second tranche of investment as well, which we made earlier this year in the underlying subsidiary. Considering that Gati is also a listed company and to be fair to all shareholders, we generally refrain from getting too deep on the Gati discussions. I would also encourage you to look at the commentary shared on the extreme details in the business around strategies for key enterprise accounts, expansion of the MSME segment as well in the Gati Limited's earnings call as well. But in terms of the performance of the company, like I said, the operational parameters started to improve earlier this year.
The volumes have started to show trend in the last few months, showing a great quarter ending September in terms of the volumes. We believe that the performance should improve in the coming quarters in terms of the profits as well as the operating leverage plays out.
Ravi Babu.
Yeah.
Ravi Babu, thank you for the generic response. I do not need a generic response. The point I'm drawing is that even if I consider the about INR 15 crore increase in the revenue during September quarter, and now it's INR 441 crore. Even if I extrapolate it by four, it makes only INR 1,768 crore, which is even less than the last year. Last year, we achieved INR 1,723 or like this marginal increase, like INR 2,068. By this way, I think we are only passing time. Let me be a bit sharp here, because I'm surprised that even on a quarterly turnover of INR 441 crore, we are not EBITDA positive. I'm not even talking about net positive. There are courier companies which are not even doing INR 200 crore per quarter, and they are making good profit, hefty profit they are making there.
So it is very clear that your fixed cost base is very high here. Because, see, if you are just going to wait for this turnover increase and revenue share and volume, it is not like as if we are just trying to just fix some corner and bottom like this. By this way, it is not going to help out. The cost structure in this business is very high because I am surprised I am not even talking net positive. I am talking only EBITDA positive. At the same time, if you see, for example, our profitability at the console level has significantly gone down, but we have increased the salary by INR 30 crore. Like during this quarter our salary budget has gone by INR 30 crore.
There are many companies that listed our Indian, like you said, because the listed company is India, wherein the profit was slightly lower than last year, the senior management has not taken any increase. Here we are increasing salary, which becomes sort of a permanent cost. There is a humble suggestion and recommendation and feedback that something drastically, this technique must be done here in terms of cost overall, in terms of reducing fixed cost. Otherwise, see, INR 1,700 crore turnover and we are the EBITDA negative, something is drastically wrong. Otherwise, in this kind of turnover, at least we must make INR 200 crore, EBITDA positive the way other companies, the way other courier companies do. You can name any company, you can say for example, Flyking, you can say for a professional courier, you can say the company DTDC, they all making good profit.
Please need some sort of surgical operation needed here. Kindly advise. Kindly update.
Your comments are really noted, and we will pass on to the management team of Gati as well. I would just also recommend that you look at the performance not at the console level in Gati because there are other businesses such as fuel stations sitting in the parent listed entity and a few other businesses historically which have been closed down, which are loss-making. I would recommend that from the Express business perspective, you could look at the underlying operating entity, Gati Express and Supply Chain Private Limited performance. I would also recommend that you could potentially get more insights and direct responses from the Gati management during our earnings call for Gati Limited. Having said that, we will pass on your comments and observations to the management team. Thank you.
Thank you. We have the next question from the line of Abhishek Jain from Dolat Capital. Please go ahead.
Sir, as you mentioned that there is a slowdown in the business in Germany and China. So what was the contribution in supply chain business one year back of these countries, and how much the current contribution?
Yeah. So I responded on that earlier that the contribution of India has gone up because India has been a relatively better performing market. And there are a few other countries which have seen growth from last year, but they are on the smaller size countries such as Brazil and the Latin Americas. We have also seen in terms of the decline on profitability, we have seen some of the Western European countries, U.S. and China as the most impacted countries. Exact percentage shares on a country basis we do not share, but we will see if we can provide some indications in the upcoming investor presentation so it can be accessed by everyone. We will take that into consideration.
Okay, sir. My next question is from the contract logistics business. So share of the e-commerce is increasing now. Despite that, the margin is very much strong in the second quarter. Will this be sustainable?
The margin in this business should be sustainable. As we are already investing in wide spaces which are already at an optimal level, it is not that we have a low wide space. In terms of the staff cost also, we have well provided for the growth initiatives. This is one business which, like I have always maintained, has continued to remain strong for us over the last six, seven years and continues to both grow well and hold reasonable profit numbers as well. We see the trend continue in the coming quarters as well.
My last question on the CapEx side, how much the CapEx you have incurred in the first half and what is your plan for the full year FY 2024?
Yes. Our strategy is to be asset-light, and therefore, we do not see any significant CapEx besides some of the technology initiatives. I would also request my colleague Deepal to add on the CapEx during the last six months and the coming six months. Deepal, over to you.
Deepal, sir, you need to unmute your line, I think. You are not audible.
Yeah. Hi. Hello. You are right. We have an asset-light strategy, so we do not have any significant CapExes during the first half of the year. The only additions, if any, have come from the Contract Logistics merger. Except for maintenance CapEx and routine IT CapEx in terms of maintenance and buying new laptops or anything, or servers. Other than that, we do not have large CapExes. A couple of real estate in terms of refurbishing some of the premises, et cetera. Other than that, we do not have any CapExes for the year planned.
Okay. Thanks, sir. That is all from my side.
Thanks.
Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Yeah. Thank you all for joining in, and I hope we were able to respond to your questions, providing clarity and insights as much as we could. I would encourage you to stay in touch with our investor relations team, reach out for your queries, feedback, and suggestions. It is your suggestions and questions that help us continue to improve our investor communication. Wherever we see a sustained demand for a particular kind of information, we try to include that in our investor presentation for the benefit of all stakeholders. On that note, wish you continued great festive joys, and thank you very much for joining us today.
Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.