Ladies and gentlemen, good day and welcome to the Allcargo Logistics Limited Q1 FY 2024 earnings conference call hosted by B&K Securities. 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 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, 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 and then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand over the conference to Mr. Sailesh Raja from B&K Securities. Thank you, and over to you, sir.
Yeah. Thank you, Jai. Good afternoon, everyone. On behalf of B&K Securities, I welcome you all to 1Q FY 2024 earnings conference call of Allcargo Logistics Limited. We are pleased to have with us management team represented by Mr. Ravi Jakhar, Group Chief Strategy Officer, and Mr. Deepal Shah, Group CFO. We will have opening remarks from the management, followed by Q&A session. Thank you, and over to you, Mr. Ravi.
Yeah. Thank you, Sailesh. Good afternoon, everyone, and thank you for joining in for the call. It is our privilege to be talking about our company's quarterly performance, and thank you all for attending in. The quarter gone by from April to June 2023 has been filled with significant headwinds on the international trade, and that has led to what we would term as a disappointing quarter. There is optimism as we look ahead, and at the same time, we do not still foresee the sharp rebound in the trade that economists were expecting until a few months ago, and we were also expecting for a normalized second half of 2023, which is July to December. However, the volumes continue to remain under pressure, and that the overall sentiment on the International Supply Chain business, which is the Flagship business.
I will try to share key commentary on all the businesses and then hand over to my colleague, Deepal. We have also tried to incorporate all the comments and inputs that we received from our shareholders and the research analysts in trying to provide additional information. So I would also request you all to look at the investor presentation which has been shared, which captures more details this time. For an instance, we have provided the breakup of industry segments in contract logistics business to provide a better clarity. We have also shared more financial details about that segment, which is now important being 100% owned by us as compared to being a joint venture in the past.
We have also shared the gross profit information for International Supply Chain as was sought by many participants in the last call. We have given further such details which can help you understand the performance of the company in a better way. Starting with the contract logistics business, this is a business which has continued to perform well on the back of strong macroeconomic environment in the Indian context, which has continued to see good consumption and demand, formalization of the warehousing sector, and our strong presence in chemical industry. On the back of which we have been able to also enter significantly in the e-commerce, auto, and a few other segments over the last seven years since we entered into this business. Quarter on quarter, year on year, the business has continued to demonstrate robust performance.
For this quarter as well, we have seen a similar trend. We also foresee continued strong performance considering the pipeline in terms of orders in hand and the ones we are competing for. We believe that this business will continue to perform well in the near term and the long term. On the Express business, wherein we had also acquired additional 30% shareholding from our Japanese partners, in that business, we see two significant strengths. One, on the operational front, now it has been more than five, six months that we have seen consistent high operating parameters delivered by the company in line with the best in the industry, and that is a reassurance of operational capabilities of the business. That is also reflecting in the increasing revenue in the business. We are also considering that Gati is separately listed.
We have also shared more details on Gati in the earlier earnings call on Gati. I would not get into much detail, but even the volume data shared for the month of July indicates continued momentum on the revenue. With the improved operating performance and more revenue coming in, we believe that we are in the right direction to improve the performance of the company, both on top line as well as in terms of improvement in the margin. As of today, with the acquisition of 30% having been completed in the month of June, effectively, Allcargo Logistics owns approximately 65% of this Express business, 30% directly through the Gati Express and Supply Chain Private Limited, which is a company which was earlier called Gati Kintetsu Express, and 35% through 50% holding in Gati, which holds the remaining 70%. So effectively, Allcargo Logistics holds 65% of this business.
On the contract logistics, again, with the transaction consummated, now we own 100% of the business. However, since the transaction was completed midway during the quarter, we still have not consolidated the numbers into the consolidated performance. Therefore, in the investor presentation, we have provided a combined view. While the consolidated numbers may look slightly different since the consolidation from an accounting standpoint was only done for one month, going forward, with all the acquisitions and the shareholding transfers completed, we would see the consolidated numbers as the right numbers. There is no need to provide the additional combined numbers. Coming to the flagship business, which is again 100% owned by us, operating in India under Allcargo Logistics and operating worldwide under different subsidiaries, which are all subsidiaries of Allcargo Belgium, which is a 100% subsidiary.
In that business, in the best of the times, when the global trade was booming with inventory levels being at all-time high, ware houses being filled. In that kind of an environment, we were seeing extremely robust performance with our quarterly EBITDA crossing INR 300 crores on a quarterly basis. As a headline statement, I would say that with the weakening of global trade, with all the other headwind impacts, we still estimated that we should still be able to perform and be able to manage costs and gross profits in a manner whereby we should be perhaps looking at INR 180 crores -INR 200 crores kind of a quarterly EBITDA.
However, clearly, beyond the macroeconomic forecast being wrong, I believe, and let me admit that our own anticipation and expectations on the impact on the performance of the competitive pressures and the weaker volumes has not turned out to be correct, and which is why we see a much weaker quarter than what we would have liked to see in the April to June quarter gone by. Primarily, there are two factors driving this. On one hand, the macroeconomic environment means lower volumes and higher competitive intensity with everyone competing for that. That is a parameter on which we are performing well. If I look at the top 20 countries where we operate, in 18 or 19 countries out of those 20, we have gained market share with only one exception, where we had lost about 1%-1.5% market share.
We have continued to outperform the competition in terms of being able to do more business. But there has also been a competitive pressure on the pricing and with utilization numbers remaining low in terms of the container utilization, what we were doing about 12 months ago, today, each container is perhaps 8% - 10% lesser filled, as you can again see from the container utilization index we have shared. The combination of all these factors, the gross profit has been impacted. One could see that the gross profit which we have shared this time on a year-on-year basis is down approximately 19%, while we would have anticipated it to be down lower in terms of rupee per cubic meter. On the LCL business, we would have endeavored to keep it constant, but that has also dropped about 6% - 7%.
And these impacts on the gross profit when translates into EBITDA impact base get more pronounced with the scale impact. The other highlight to look at this is also there have been some specific countries where we are focusing on, and I would say if you look at, like I said, potentially in our estimation, with all the adverse headwinds, with all the challenges, we would have still liked to do perhaps INR 65-70 crores more than what has been delivered in the International Supply Chain segment. And if you look at it, possibly half of that gap can be accounted to one single country, United States of America, where we have seen a significantly weak performance and we are working on improving there.
If I combine Europe and Americas, these two regions, which represent largely the long-haul trade also, with a lot of trade happening between Asia to these destinations, and also the more developed Western economies, which have been under more severe pressure in terms of trade flows. What we observe is that these countries put together, Europe and Americas, was a year ago, if you look at the first half of 2022 calendar year, they were contributing to perhaps almost anywhere in the range of 40%-50% of the EBITDA for International Supply Chain. While that contribution in the first half of this year, January to June, is perhaps in the range of 10%-15%. We have a significant impact in these two regions. In terms of mitigating these factors, we are doing multiple things.
One, we remain focused on the volume, which is why despite weak environments, there is published data available for various forwarders and shipping lines listed on international exchanges talking about 8%, 9%, 10% kind of decline in volumes. We know from our competitive landscape that we estimate our competing LCL consolidators to have lost volumes to the degree of maybe 14%-15%. In comparison to that, we have been able to increase market share and thereby perform better in volumes there. We foresee a similar trend in the month of July as well, where we should be able to win on volumes, and we should be able to share July data in the next three to five days. We are able to hold on to volumes, and this means that the expanded market share should help us when the market environment improves.
We should be able to grow volumes. As volume grows, hopefully, that would mean better container utilizations. Therefore, that's one plan we have in terms of staying focused on volume and market share to improve performance as the macroeconomic environment improves. The second aspect we've been focusing on is now looking at the cost line items more closely, expediting some of the initiatives which could be either around automating certain mundane processes, or it could be about executing the outcome of some of the transformation programs we've been running, which now have standardized the process and therefore allow us to move certain positions from high-cost countries into lower-cost countries to reduce the cost. On one hand, we are trying to stay focused on volumes and market share.
On the other hand, we are now more consciously looking at the cost as well with an endeavor to get back to the EBITDA levels that we believe would be sustainable in adverse situations. As and when the global macroeconomic environment improves, we should be able to further gain. On the FCL side, the market again has been weaker and that has prevented us from exhibiting the growth rate that we have seen over the last seven, eight years on a sustained basis of 20%. The volumes on FCL are also flat. In the FCL business, we have always spoken about decline in ease with the freight rates coming down, which has happened. While we anticipated that to be compensated by expanding volumes, we have found expanding volumes in FCL business to be more challenging, even though our market share in FCL is minuscule.
In the FCL business, the company's strategy is to focus on select markets. We are building team capabilities in some select markets and trying to work with these focused markets to drive growth and volume. In summary, the company's approach on International Supply Chain business would be to improve performance even with the adverse conditions continuing. Should the conditions improve, we should be able to see a significant improvement. In some sense, when we look at the profitability as well as the cost, taking into account all the inflationary adjustments and the appraisals which happened in the first quarter in some countries, which is around December to January, and some countries in the second quarter, which are mostly effective from 1st April. This quarter of April to June essentially accounts for all cost escalations, also accounts for competitive intensity.
Therefore, from an International Supply Chain business perspective, this is the bottom performance. Our endeavor is to improve from here. Not just hoping for better macroeconomic environment, but also with various initiatives which I highlighted. We would also look at strengthening our own internal business forecast mechanism in highly volatile environments so that we can endeavor to, just like how we've been trying to provide more and more better clear information, also try to provide more and more accurate forecasts on how we see the coming few quarters. With that, I would say International Supply Chain business has seen its toughest times. On the other hand, on the domestic side, we continue to see favorable environments for the contract logistics and the Express logistics business. Both those businesses are heading in the right direction.
Apart from these three businesses, all the other businesses of the company have already been demerged. Therefore, the business is focused on these asset-light, digitally enabled businesses. In terms of technology advances, we are making good progress. Our data science programs have been yielding impact. If you look at the impact on network optimization for the Express logistics business, which is being done by data science today. We are also using generative AI to improve efficiencies in answering quotation emails, which allow us to gain more volumes, which is important for International Supply Chain business. In many ways, the business performance that we see is also somewhere aided by technology. Every year to come, we believe technology to play an even important role. Considering that, we would remain focused on technology initiatives which would drive the growth of the company in the long term.
On that note, I would request my colleague, Deepal Shah, to share financial highlights and talk about the financial performance of the business for the quarter. Deepal, over to you.
Thank you, Ravi. I will now discuss the performance for Q1 FY 2024. The consolidated revenue for Q1 FY 2024 stood at INR 3,271 crores, as compared to INR 5,474 crores during the same quarter last year. The consolidated EBITDA for Q1 FY 2024 stood at INR 139 crores as compared to INR 360 crores for the Q1 FY 2023. The company reported a consolidated PAT of INR 119 crores for Q1 FY 2024 as compared to INR 260 crores for Q1 FY 2023. Would like to highlight here that the company has a very comfortable debt position, with the net debt for Q1 FY 2024 being at a very marginal level of INR 12 crores. This is after acquiring 20% stake from KWE, the Kintetsu Partners, for INR 406 crores.
Post-transaction, we have changed the name of the company from GKEPL, which was Gati-Kintetsu Express Private Limited, to Gati Express and Supply Chain Private Limited. Moving on to the segmental performance, I will start by discussing the performance of the International Supply Chain business. As Ravi mentioned, the global trade environment continues to remain soft. The company is facing increased competition for implementing volumes in the market driven by muted overall demand. We intend to maintain our focus on volumes and market share. LCL volumes for the quarter one of FY 2024 stood at 2.2 million cu m, as compared to 2.3 million cu m for the previous year quarter. Owing to our market share for focus, sales and volumes, witnessed a growth of 6.2% sequentially. On the FCL front, the FY 2024 quarter one volumes stood at 143,000 TEUs.
The volumes de-grew by 9% on a YoY basis. For the Q1 FY 2024, the International Supply Chain business reported a revenue of INR 2,823 crores as compared to INR 5,043 crores in Q1 FY 2023. The EBITDA for the same period stood at INR 111 crores as compared to INR 341 crores from the previous quarter. Moving on to the Express business operating under the Gati Express Supply Chain Private Limited. Continued emphasis on the best-in-class service levels and enhancing operational efficiency has culminated in a strong performance. The volumes for Q1 FY 2024 stood at 292,000 metric tons, representing a 5% YoY growth as compared to. Sorry, I was getting a call. Same quarter last year. The Express business will launch Bengaluru hub in August, and the volume momentum is expected to remain strong. Moving on to contract logistics business.
As Ravi mentioned, we have consolidated for one month the contract logistics business, because it was acquired towards the mid of the quarter. And we completed our transaction, and 100% of that business is now owned by Allcargo Logistics, through its subsidiary, ASCPL, which is Allcargo Supply Chain Private Limited. Therefore, the full impact of the contract logistics business will be clearly visible from the following quarters. Assuming 100% ownership in quarter, if you were take to account, the contract logistics revenue for Q1 FY 2024 will be around close to INR 75 crores as compared to INR 77 crores for the Q1 FY 2023. Similarly, an EBITDA for the entire quarter would be close to INR 32 crores as compared to INR 28 crores for the previous quarter last year. In line with the best disclosure practices, we have been consistently providing other key comparative financial performance and operational indicators in investor presentation.
One can refer this 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 Nirav Savai from Abacus. Please go ahead.
Hi. The question is on the MTO business. So last quarter, we had a quarterly one-off provision for about INR 60 odd crores. Is there something exceptional this quarter also?
No. There is no impact of any exceptionals in this quarter. There are, of course, like I mentioned, countries which require more focus, but that is a business concern. There are no one-off exceptional items per se impacting the performance.
Okay. The second thing, you said that U.S. and Europe combined was about 40% of your EBITDA in 2022. In terms of contributions, it has come down to 10%.
First half of 2022, yes.
First half of 2022, it has come down to 10% for the first quarter, right?
First half of 2023, again, like to like comparison. First half 2022 versus first half 2023. It was over 40%, now it is in the range of 10%-15%, is what I was highlighting.
Okay.
There is a greater concern in those markets, and this is what we are trying to address through margin initiatives.
Okay, and the same thing continues for the first quarter as well for the 2024?
Yeah. When I say, I am referring to calendar year. January to June 2022 versus January to June 2023 is what I am referring to.
Right. This is basically more competition intensity or it is completely volumes which have become very weak, or what exactly is resulting in this?
This is largely a concern arising out of reduced volumes. Reduced volumes have a multiplying impact. One, these are the markets which typically have higher cost base in terms of the SG&A cost, people cost are usually higher in these markets. At the same time, profit is also higher because these are longer trade lanes. When you are shipping something from China to Korea, the profit would be naturally much lesser as compared to shipping something from China to U.S. or Europe. These countries work well because they have higher profit and higher cost base. Now, the cost base remains same, if the macroeconomic environment doesn't change. Rather, many of these countries which would have inflationary calendar adjustments of 1% , 1.5% historically have much higher adjustments this time, and many of these countries are even mandated by law.
The cost base continues to be high, but weakening of volumes in these segments creates an impact, and which is why, this multiplier effect comes into play because the absolute decline in gross profit transfers to the absolute decline in EBITDA. In percentage terms, it becomes significant. That is the situation. This is largely the decline in volumes in these markets, and these are long-haul markets which basically impact the profitability more. Lower volumes naturally mean more competition, lesser utilization, all of those things come along with that.
Exactly. Will we continue to see a similar kind of a demand scenario even in the July month, or do you see signs of recovery?
We have not seen the change in macroeconomic environment in July. What we have been able to do is been able to continue our own initiatives, which should help us further improve by 2%, 3% on a perhaps approximate in a month-on-month basis in terms of our own volume. But in terms of the overall macroeconomic environment, we still don't see any significant reversal in demand. But in terms of our own volume, we should see 2%, 3% to maybe around 4%, 4.5%. We need the data next week. We are still compiling it for the month of July. But there is a positive upward trend, which is primarily limited to our performance as compared to the overall environment.
All right. In terms of cost, if we see the conversion cost for MTO business is around about INR 580 crores for the first quarter. Are you saying annualized, but at a rate you can get a sense of how this is moving on for FY 2024, the entire year?
You mean to say the forecast for the remaining three quarters?
In terms of cost, yes. Do we see this similar?
Like I said, this quarter from April to June, in this quarter all the countries, some countries would have seen cost increase on annual appraisals, et cetera, in the first quarter of the year because this business operates from January to December for us from a business standpoint. Therefore some large several countries we operate on January to December see appraisals in January to March. But countries like India see from 1st April, but in April to June, all costs are factored in, is what I was mentioning earlier. From a cost standpoint, consider this as all costs factored in. From here on, as we are able to improve gross profit, that should come down to the bottom line, the overall. That's the endeavor, to improve the gross profit so that it can straight through be passed on to EBITDA.
Okay. The similar cost is something which will continue as far as the rest of the year is concerned on a quarterly basis. Is that right?
Yes. Some initiatives trying to bring it down marginally as well, which should also possibly help us maybe in about three to six months time frame, we should be able to bring about some reduction in these costs.
Okay. Lastly, on the contract logistics side, now we are almost at 95% kind of a utilization. So what kind of growth do we see in this business? Even if it's in a YoY business, there is been a decline in revenue. So how do we see this business for the next two, three years kind of a time frame?
Yeah. In this business, the YoY decline that you see in revenue is only on account of a certain specific kind of business which was not profitable. It was more like a pass-through business being done with a certain client, which we have cut off. This is why, if you would notice, the EBITDA has gone up by almost 15%. The gross profit has gone up by almost 25% year on year. So from a revenue standpoint, is not an indicator. The business continues to remain strong, and this is what has allowed us to grow to 25% on gross profit year on year, and then in EBITDA as well. We are continuing to invest in people and also in this business, it's not like a fixed capacity. So the capacity is very flexible. We keep on taking new warehouses on lease, and we continue to operate them.
Sometimes we take them ahead of demand, which we always maintain certain wide space, which is what you see about 5%, 6%. In some cases, these are built to suit. If say a particular customer has a specific requirement, we would take a particular warehouse on lease and operate it to the customer's requirement. Capacity is not a constraint in that sense. We continue to develop new warehouses as an operator and take on more capacity to service more and more customers.
Okay. In the guidance of the Express business, INR 3,000 crores kind of for revenue by FY 2026 is intact. Is it purely organic or would also involve any acquisitions?
I would refrain getting into the details of Gati business since it is also separately listed and therefore for the benefit of Gati shareholders. We tend to respond to most Gati questions in the Gati's earnings call.
All right. Thank you so much. Thank you.
Thank you.
Participants who wish to ask a question may press star and one. The next question is from the line of Riya Mehta from Aequitas Investments. Go ahead.
Thank you for giving me the opportunity. My first question is in regards with the debt levels. Is this post our acquisition of the contract logistics business? Hello?
Sorry, if I understood correctly, you're asking about the debt?
Yeah, I think what she is asking is that, is this debt level post the acquisition of contract logistics? That is correct. The contract logistics was acquired through internal accruals. So this current debt is post-acquisition of contract logistics business and the acquisition of Kintetsu's stake in the subsidiary.
Got it.
In terms of when we talk about contract logistics, you said that the capacity utilization has not been a constraint. However, we have seen increasing competition over in that space. What is your outlook there and what kind of margins do we see in this business to sustain?
In this business, like I was mentioning earlier as well, this is a business in which we have seen robust performance and good growth over the years. And in the chemical contract logistics, we are the market leaders in the country. But in the e-commerce, we have started only in the last few years and done well. We entered into auto segment and we have done well. There are many other sectors also for us to explore. So from our point of view, we are at an optimal scale and size to leverage benefits. But at the same time, we have a significant headroom for growth. So growth is not limited by competition and we are able to find enough opportunities in the market where we are able to provide the right solutions at the right price. Customers are willing to engage into contracts.
From that standpoint, capacity is more like the number is basically how much of the warehouse is utilized. Typically, we always maintain 5%-7% wide space for an optimal capacity forecasting, based on which warehouses are taken on lease. That is a part of the business and we have been facing almost a similar set of competitors over the years. The business has performed well and we estimate it to continue to do well.
In terms of margins for the business?
In terms of the margins, I would say on a percentage terms as we grow, the percentage margin could be slightly lower because historically this business was at one point in time almost 90% chemical contract logistics, which has been growing but it has been coming down because the other businesses are growing much faster because they were starting from a zero base. Chemical contract logistics is highly specialized and therefore is higher margin. You see this as a combination of contract logistics for chemical clients and other clients. Chemical logistics is also growing well, which is higher margin, but as the other businesses grow more, percentage margin should see a downward trend, but overall margin should continue to improve.
What will be the sectoral breakup for the current quarter?
Yeah. We have shared the sectoral breakup in the presentation as well. Approximately 35%-40% revenue comes from chemical, food and pharma. About the same number, slightly lower, from e-commerce and about 18%-20% from auto and industrial.
Actually, I was talking about earlier what was the trend so as to get what kind of direction?
Like I said, we started off as a chemical contract logistics. The other businesses were incubated over the last few years. At one point of time it was almost 80%, 90% .
That was which year around, if I could just have a sense. 90%.
2016. We started in 2016 as a JV.
Okay.
For the chemical.
In terms of LCL then, I think it's a higher margin business for us. Are we seeing more? We've acquired a lot of Hello?
Yeah, I can hear you.
We had acquired another company lately in last year around. We increased our market share. What kind of outlook do you give on LCL business a year from now or something, despite macroeconomic scenario being weak or current level?
Yeah. In the LCL business we have acquired one company in the last 18 months or so. Prior to that we had acquired Nordicon which was in the year 2021 and what we have done is a follow-on transaction in that. We already own 65% and we have acquired additional 25% recently. That's the same company. It's not a new business. It was already part of the business. The new company which we acquired this year was in the month of January, which is a company called Fair Trade in Germany. For this business, we have seen a volume contribution. However, the business is still not contributing on the bottom line. There's been some marginal volume contribution, which you've highlighted of the degree of about 1%, 1.5%.
On the margin side, we anticipate that the business will take some more time before it can start turning positive on profits. Considering that it was a competing network that we acquired, it had to incur loss of certain business immediately, while the network synergy would only kick in over a period of time. We estimate that business to move from marginal losses, these are not significant losses, to breakeven over the next three to four months. In the overall scheme of things, impact of about 1.5% or so on volume, almost no impact on the bottom line.
Got it. In terms of our trade lanes, like you said U.K. and U.S. form or the losses EBITDA would form almost 50% would come from U.K. and U.S. trade lanes. Could you guide us what are the trade lanes which would impact us more than 10%?
Yeah. Let me also clarify. I did not say U.K. and U.S., I said Europe and America. When we say America, we include U.S., Canada and Central America, which is Mexico and Latin American countries such as Peru, Chile, Argentina, Brazil, et cetera. On the European, we are talking about everything from Scandinavia, which is Denmark, Finland, Norway, to Poland on the East, U.K., Belgium, Germany in the north, Spain, France and Italy. I am talking the whole of Europe and Americas, which is what I referred to. Overall, we have 3,500 trade lanes that we operate, and there is no single trade lane which accounts for 10% of the business.
Okay. India would form how much of part of our trade lane, which includes their counterpart?
India, itself, we have multiple trade lanes across the world, but India as a country would roughly be about 10%-12% of the business.
10%-12%. In terms of sectoral breakup in terms of volume from the LCL business, what kind of sector would contribute the largest?
We are almost sector agnostic, and this is truly representative of global trade. Therefore, there is no sectoral dependence per se. But naturally, LCL business caters to a general cargo which is in smaller size. It does not go in multiple full container load. Typically, these are mostly small and medium businesses, some degree of e-commerce backend supplies, or certain businesses ranging from furniture to textiles to consumer electronics. These are almost quite varied. But you could say there will be general bias towards smaller businesses. You would find more share of LCL among the smaller businesses as compared to, say, if you are looking at large Walmart contracts, they would mostly be skewed towards FCL. But in terms of the sectoral split, there is no specific sectoral split per se.
Because lately we have been seeing comeback of textiles in all those companies. Just getting a sense there, how much would textile form the percentage of our business?
Yeah. Like I said, it would definitely be relevant to say India. India is 10%, and perhaps maybe textiles would be again a certain percentage of that 10%. As such, we have been noticing that since the Indian economy has been doing well, and except for the recent months wherein you would have certainly taken note of India's exports also declining significantly driven by lack of demand in the Western economy. But otherwise, still on a comparative basis, whether we compare to other manufacturing countries such as China, India has sustained the performance much better, and we believe that India should lead the curve in terms of growth as well.
Okay. Thank you. That is it from my side.
Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Uday Prakash from Value Research India Private Limited. Please go ahead.
Hi, sir. I just have a few questions from my side. Since our launch of ECU360 in 2018, at that time, it has grown significantly over the years. We have added more and more features. Sir, can you let me know how much revenue do we derive from ECU360 as a percentage of total revenue?
Yeah.
In comparison with, let's say, two, three years ago.
Yeah. I can share with you that when it comes to export bookings, which is a good indicator of revenue being booked by the company on a global basis. In pre-pandemic 2019, there was a single-digit number, around 7%-8% of the bookings which were happening digitally. Today, with the launch of platform capabilities, we have almost, as of today, will be somewhere in the range of 66%-67% of the global export bookings happen digitally, which could be either somebody logging to ECU360 or even directly an API or API interface between our systems and the client systems. Sometimes they are directly connected to ECU360 by way of an API, so they don't even need to log into ECU360. They can operate in their own ecosystem while being supported by ECU360 in the backend.
Digital bookings have moved from around 7%, 8% to about 66%, 67% on the global exports.
Okay, sir. My second question is on contract logistics. Since we are the leader in chemical contract logistics, and we have developed a certain expertise in that area, and we have now entered into auto also. Do you already have, or do you plan to have any long-term contracts with bigger companies so that we are the ones who handle their goods constantly? Is there something like that, or we do it on a contract-to-contract basis for any company that comes to us?
Yeah. That is the advantage in contract logistics business, that it is not a transactional business. Unlike an Express logistics business where your customer is booking one shipment from origin to destination, or even in International Supply Chain, when somebody is booking 1 cu m or one container cargo, contract logistics business by nature is usually more longer term contracts, which could vary from 12-month contract to some of them could be five-year contracts as well. These are typically long-term contracts awarded by the company for managing their entire inventory in that particular warehouse. These are by nature not transactional, but long-term contracts.
Okay. Adding a major company to our client portfolio would be a breakthrough for this entire segment as such if we manage it.
Almost all the key companies, I would say majority of. If you look at the chemical segment, almost all the top companies operate with us. In the other segment we are getting in, e-commerce, we look at almost all the top companies. In the segment that we operate in, almost all the key top companies already work with us. We have demonstrated our performance, and this is why most of them are also repeat customers signing multiple contracts across different locations.
And sir, can the same be done for LCL business also? I mean, LCL is like a big player logistics business only in the shipping. Can we develop a partnership with particular set of companies that are focused on exports and cater to them? Would that reduce the volatility in volume that we face from time to time due to slowdown demand? Or do we already have that in place?
Yeah. When we see a slowdown, the slowdown would happen at all levels. Shippers will see their volumes going up and down in terms of volatility. That volatility will still remain for a company. Where we position ourselves is we operate as a non-vessel owning common carrier. What that means in brief terms is like Uber of shipping. We operate like a shipping line which doesn't own ships, and this is where we are able to operate in an asset-light manner. But we are mostly working with forwarders as our customers. These forwarders could be large forwarders, such as DHL, Kuehne Nagel, and others. These forwarders could be smaller forwarders. And these are generally long-term relationships, but these are not long-term contracts. In contract logistics, contractually, the business is signed for a long term.
In this case, while the business is transactional, customers are booking one shipment at a time. If you look at the relationship, that goes back long. If you look at our relationship on the vendor side, which is shipping lines, we have been working with almost all the top shipping lines for 20, 30 years. If you look at our top customers, almost all the customer relationships also go back into several decades. These are good, strong relationships built over a long period of time. But at the same time, the business is transactional. It is very similar to Express logistics, wherein auto company or a textile company would be making bookings for a particular transaction, but they would tend to operate with two or three players who they trust most for service and pricing, and therefore, it's a long-term relationship.
That's a similar situation in LCL also.
If my understanding is correct, if a big player, let's say a player that exporting in thousands and thousands of crores, they would rather partnership with a shipper directly, I assume, rather than an intermediary like us, which usually preferred by some of medium to smaller size players.
Yeah. So see, it is clearly very clear, if there is someone who wants to ship 500 containers or 1,500 containers every week from Shanghai to Los Angeles, they would not need an intermediary. They would reach out to the shipping line directly and they'll tender. If somebody is operating 5 cu m of cargo, shipping line would not be able to accept it. They would need the full container. While shipping lines do operate LCL, they've not been able to gain much market share. So they would need a consolidator such as ourselves because we have built this network over a period of time. As you can see from our own financial performance, even 3%-4% impact in utilization can have a huge impact. It's almost like, in some sense, a high utilization business.
Therefore, replicating this network is almost impossible, and this is why you don't find new competition coming in. The market has been seeing consolidation within the existing players on a global basis. The capability would be not about getting large contracts. Business by nature is about working with multiple forwarders. For an example, more than 20,000 forwarders log into ECU360 work with us on the platform. That's the kind of scale we are operating at with more than 2,500 trade lanes right now. That's the kind of competitive advantage as compared to one large contract or one big relationship.
Okay, sir. Now, the disadvantage that we have also, FCL is a very prosperous business, but since we are at the very nascent stage, and disadvantage it has over LCL is that LCL in the nature of the business itself, there is a direct cost pass-through. But here if the container utilization is not up to the mark, then we would have to bear that cost to a large extent.
No. LCL is where we fill the container, and therefore the container utilization has a role to play. In FCL, it is a full container which is booked. So container, whether it is half filled or fully filled, does not make an impact. And what happens is, unlike LCL, which has so much of value addition, customer only has 5 cu m or 1 cu m of cargo. It is- Sorry. Our team, which integrate containers, all these cargos in a warehouse, take them into one container, do multiple transshipments as required. There'll be deconsolidation at the warehouse. It's a much more complex operation and therefore due to high value addition, it is usually a high margin business. FCL business is more transaction-based and therefore when the freight rates come down, the FCL business would see the margins also come down.
That's where FCL business is more transaction while LCL business is more complex with greater value adds from our side and hence more profitable also.
Mr. Uday Prakash.
May we request that you refer to the question queue for follow-up questions, as there are several participants waiting for their turn.
Okay, sure.
Thank you.
Thank you.
The next question is from the line of Kapil Malhotra from Tata Mutual Fund. Please go ahead.
Hi, Ravi. This is Kapil.
Hi, Kapil.
In today's call I wanted to understand what is the utilization level in LCL business this quarter?
Yeah. If you look at the LCL utilization, it is currently at an index level of about 92, which means that if we were at 100 in July 2022, in June 2023, we are at about 92% of that.
Okay. What I'm trying to understand is because obviously our desire to be profitability essentially has been modified and what we have discussed is post-COVID, we have had lot of technological advancement, cost saving activities which we have done, due to which we will be able to maintain our margins. But what I feel is the margins have obviously dipped, right? I do understand this has a lot to do with the utilization, that is why I asked the first question. But do we have any ballpark number in which we say that this looks like a sustainable return margin for you? And also this is the minimum which can be used to achieve that sustainable EBITDA margin. Because for me, it is getting difficult to essentially gauge what will be the accurate number of the margin.
Yeah. I would say that there are three or four factors which contribute to the margin. One, like you rightly said, is utilization. Second is how many 40-ft containers we are using. And both of these are somewhat linked with volume, because if we have more volume on trade lanes, we are able to move more 40-ft containers, and we are also able to utilize the containers better. And sorry. These are more operational parameters. And then also about how many containers are we able to move directly versus transshipment and what sort of value addition we are providing in terms of not just talking port to port, but door to door. These are all the factors which contribute.
In terms of sustainable numbers, I would say that very clearly what we have seen in this quarter, April, May, June, appears to be like the boat hitting the rock on the riverbed. Since all the costs have already been factored in, the volume expansion has not happened because of the macroeconomic environment, and the competitive intensity also means pressure on pricing. All these factors are at play. I would say that while we would need perhaps another few, maybe six to nine months to arrive at a sustainable number, we should only be looking at improving from here on.
Okay. But as you said, the index is at 92 versus 100 last year. What ideally should be the ramping that's there where we can make at least a decent number?
Yeah. I would say that we should definitely return to 95%-96% as compared to 92% that we have today. That would be the broad estimate. As you can see that 3%, 4% increase should translate to better yields and therefore the better profitability. That is the approach with which we are internally planning as well in terms of how can we take that to 95%-96%. That means that requires volumes to come in, and which is where we've been trying to focus more on the market share expansion and getting volumes back. It would also be somewhat linked to the recovery in long-haul trade lanes because that is where the maximum profitability impact is, which is Europe to LATAM, China to Europe, China to America, that's West Route, India to Europe, India to America.
That's where the focus has been on how can we expand these trade lanes. The growth initiatives are more focused on these countries, these trade lanes, getting deeper into China, to expand market share, trying to build better capabilities in Latin America. We've been hiring teams in Brazil and a few other countries trying to further strengthen our base in Eastern Europe. We've been working on various strategic initiatives which can help us grow volumes on these long-haul profitable trade lanes, and those volumes should help us also operate trade lanes with optimal utilization, which like I said, the target internally would be to go back to at least 95%-96% over the next six to nine months.
Lastly, on the similar line, are you able to quantify the cost savings you have been able to do due to the technological advancements you have done in the last two, three years?
We have some internal estimates which we have on the technology impact. The dollar impact is largely measured through increased customer stickiness. We are trying to see patterns in which we are clearly evident that the non-ECU360 customers have lower repeat values as compared to ECU360 customers, for example. We have also seen that the door booking percentage is clearly higher in customers who are using ECU360 and the longer they are in an ECU360, we also find the door component to be higher. All these signs indicate that the customers are booking more often and more services, which means higher volumes and higher yields. That's one example. On the data science projects, we are seeing impact in terms of on the cost side. These are some of the things that we have seen therein.
We also feel that it's not just the impact in terms of ease of doing business, but there is also a dollar impact on top line in the International Supply Chain business in particular and on the cost side in the domestic export business in particular.
Okay. Thank you.
Thank you. The next question is from the line of Bhavya Sangi from Focus Group. The line of Bhavya has dropped. I think due to paucity of time, that was the last question. I will now hand the conference over to Mr. Sailesh Raja for closing remarks.
Yeah. Thank you. On behalf of B&K, that concludes this conference. Thank you for joining us, and you may disconnect now. Thanks.
Thank you. Thank you all.