Ladies and gentlemen, good day and welcome to the Shadowfax Q4 FY 2026 earnings conference call. 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 Zero on your touch-tone phone. I now hand the conference over to Mr. Abhishek Bansal, MD and CEO, Shadowfax. Thank you, and over to you, sir.
Thank you, Rutuja. Hi, everyone. Good evening. My name is Abhishek Bansal. I'm the Co-founder and CEO of Shadowfax. Today, welcoming all of you for the fourth quarter FY 2026 earnings presentation. Along with Praveen, our CFO, we also have on the call today Sachin Dixit, who has recently joined us to lead corporate strategy and investor relations. Many of you might already know Sachin. He spent several years covering Internet at JM Financial, and he brings deep familiarity with our business and the industry. Over the next 20, 25 minutes, I'm going to take you through our overview of the business. Broadly, my address is going to be covering three specific sections. What has happened in the last year, where do we see ourself in FY 2027, and what is our view for the long-term?
Starting off on what has happened in the last year, this is first of all, only our second quarterly reporting as a listed company, and the message is clear. We enter FY 2027 with a phenomenal tailwind speed, larger than ever scale, and an unprecedented conviction. Quarter four was a phenomenal quarter for us, showing not only record growth, but also record profitability compared to anyone in the industry, be it our peers or our competitors. For the full year, we delivered 72 crore+ customer orders, recorded a revenue of INR 4,200 crore+, which is almost like a 69% year-on-year growth for a full-year basis. Adjusted EBITDA for us has been close to INR 159 crore, which is almost three times of what we delivered in financial year 2025. PAT, on a full-year basis, has been around INR 112 crore compared to just INR 6 crore last year.
This is the first time as a business, we have recorded INR 100 crore+ of PAT for the full financial year, and we are very proud of the fundamental design of the business we are building. Just alone in quarter four, we have delivered about 22 crore+ orders, generating close to INR 1,237 crore in absolute revenue. This is about 74% year-on-year growth and 6.7% sequentially over Q3. If you remember our last earnings call, we had indicated that Q4 will be slightly softer than Q3 because that's how the historic festive pattern has been. This is the first time we are seeing for the industry that our quarter four has even beaten the festive quarter, and this is happening for the first time. This growth that we are seeing has come in through margin expansion.
Adjusted EBITDA was INR 58 crores, which is about 4.7% margin for the quarter, compared to about 4.3% in Q3, and merely 0.7% last year. PAT has grown to INR 56 crores, which comes at a record margin of 4.5% for the entire core business. It definitely has been our most profitable quarter ever. An important point to note and to understand the business is that while we are growing fast and while we are reporting this record profitability, as a business, we are not compromising on the future growth opportunity. If you look at our earnings presentation, you will find between September end and March end, our real estate space has gone up by 35%. In a business like Shadowfax, we today take real estate in our last mile centers and in our middle mile sortation centers, largely on a leasing basis. That real estate has gone up by 35%.
For the full year basis, we have spent about 4.5% of our revenue as CapEx. We believe the operating leverage is yet to come, and this is again reflective to the investments we are making in the organization. We believe Shadowfax, through our unique investment strategy, will continue outpacing industry growth, continue improving on profitability, and this positions us as a fairly unique asset in the entire industry. Deep diving a bit, we will quickly talk about the three segments of business that we operate. The number one segment, which is the core backbone of our business, express parcel, is now about 75% of our revenue. We have continued to gain market share through new client wins, deeper engagement with our existing customers, and by improving service quality.
Just to remind everyone in this group Shadowfax for the industry stands for building these unique value-added services, be it same-day delivery, next-day delivery, reverse logistics. These differentiated services continue to position us differently in the market. We believe over the next eight to 12 quarters, we will continue gaining market share. As we see consolidation happening in our space where the weaker players continue to lose market share every quarter, we believe we are set on a very unique path, and we will continue outpacing the industry growth when it comes to express parcel business for us. Hyperlocal continues to be a place which is the second business line where we have demonstrated market leadership in the past. Hyperlocal has grown more than 50% year-on-year, grown 16% sequentially. Quick commerce volumes have meaningfully picked up in quarter four.
One very important announcement, we have also commenced operations with Amazon now on their quick commerce business. This is an important milestone for the company, and we expect significant wallet share gains as they expand. The third line of service is other logistics services, which contributed about INR 80 crores, out of the INR 1,200 plus crores of the business. As discussed last quarter, we are deliberately reshaping this segment towards higher value critical logistics and winding down some of the experiments we were running. As on quarter four FY 2026, the wind down is largely over. Between all these three segments, there is one underlying thesis that I have little bit spoken about, but what is also happening is we are continuously doing real estate and geographical expansion.
Between September and then now, our number of touch points have gone up, which are basically the last-mile facilities that we run, has gone from 4,200 to 4,700 in a matter of six months. There is rapid and fierce expansion at a geographical level that we are doing. We are opening about 120 to 150 PIN codes still every month. This is real investment, and the return is expected in due time. Newer touch points means relatively underutilized trucks, underutilized routes. While we are expanding, we continue to stay extremely bullish around the underlying macro which we are serving in this country today. I think that's broadly at a high level around the business that has just happened and what kind of investments and returns we have seen. Shifting a bit of gears and talking a bit about what we foresee for FY 2027.
FY 2027, we have all entered in a very tumultuous geopolitical environment. What has surprised us in India is the core consumption story, which remains stronger than ever. In quarter four alone, we saw growth probably in every segment. We have sequentially grown from Q3 to Q4. There is not one client or one element of the business which has grown faster than the other. We have seen our growth coming equally across the board, be it direct to consumers, be it our large enterprises, be it our quick commerce division. We believe every digital platform will probably be recording their best quarter ever thanks to the underlying growth in our economy and the growth in digital penetration that is happening. Our view is that India's digital penetration will continue growing 120 to 150 basis points every year. This was merely 78% in FY 2025.
Our view is this will go to 14%-15% by FY 2030. This is the opportunity we are after. If customers order online, we as a model agnostic platform will be the clear winners in this sector, be it 10 minutes, be it 30 minutes, be it one day, be it five days, we do it all. Knowing what I've just told you, within this larger ambit of digital penetration, we have shortlisted five key strategies that are going to drive growth and focus for Shadowfax. We are going to talk about those five strategies now in brief. The number one strategy over here, which is the single largest focus of the organization, is D2Cs and SMEs. Just a few weeks back, we announced a platform called Shadowfax 360, through which any small seller, any small retailer can get onboarded and start shipping across the country directly with us.
In India, there are about 15-16 lakh sellers who are selling online either through marketplaces or directly. About 20% of them today take orders directly through their own front-end platform. As this funnel opens further, we believe direct ordering will be the single biggest focus for us. Just to give you an update on our D2C business as well. Over the last year, between FY 2026 and FY 2025, we have grown 2.5x In our D2C business. This outcome has been delivered through constant focus and our investments in the same dimension. We have expanded our sales team today to more than 100 people. We have opened sales offices in tier 2 cities and are strongly investing now in brand development.
The interesting fact is that these D2C and SME customers come at a significantly higher incremental margin, as the pricing is typically 15%-20% higher than what we charge as enterprises. That D2C, the SMEs continue to remain one of the strongest focus for the organization. The second key lever where we will continue investing is what we call as large shipment capability. Think about suitcases, washing machines, furniture. Today, Shadowfax has started delivering large shipments in about 6,000 odd PIN codes. We have a view to open 10,000 PIN codes in FY 2027. The complexity in large shipments is significantly higher than small shipments, and investing over here gives us an extra advantage. Also, this is not a market where we are fighting for share. The demand is actually pulling us in.
Most of our existing customers are asking us to expand coverage, expand categories, and take on white goods as well. When you combine strong demand, higher realizations, higher entry barriers, this segment simply becomes something that we need to go after now. Our large shipment business has grown three to four times compared to FY 2025. This continues to remain a key focus area for FY 2027, and every incremental PIN code we will add here is direct market share gain. The third element in our business, and we have briefly spoken about it, continues to be coverage and PIN code expansion. We have hit 15,600 PIN codes out of the 19,300 available PIN codes in India. We'll be hitting about 17,000 odd PIN codes by end of FY 2027. Our mere presence in some of these PIN codes unlocks volumes and market share gains.
In states like UP, Haryana, we have actually reached 99% + PIN code coverage already, and we have seen how comprehensive presence in some of these places gives you a competitive advantage. We stay true to our strategy of covering the entire country by FY 2028. These are the three strategies which we have been working about. The fourth one is something which I would say is one of the most audacious bet that we have probably taken in the last few years. This strategy is not going to be about market share win. It is about category creation. We all know quick commerce has become a norm in the country. What we are seeing and feeling now is verticalized quick commerce becoming the newest game in town. Think about every category today is moving the quick commerce way. It has become the go-to lever for digital penetration right now.
We today are working with very young customers who are dealing in premium grocery, gourmet food, childcare, fashion, even some audacious items which have always been offline, like building material, hardware shops, spare part material, are actually moving online and trying to deliver in 30 minutes. We can tell you there's a lot of excitement both in the venture capital world as well as the customers about this interesting new segment. What we've learned from our pilots is that vertical quick commerce platforms offer significantly higher value per engagement than horizontal fulfillment. Capital is also very limited for these players, and building in-house logistics just does not make sense. Like how horizontal e-commerce evolved over the last decade, we believe vertical quick commerce is going to be having 3PL as a natural answer.
As part of our strategy, after learning and piloting over the last 12 months, we are making an important announcement today that we are going to set up about 100 dark stores in this financial year, specifically for vertical quick commerce. That's the fourth lever of growth where we are investing in today. The fifth lever is about an acquisition that we made more than a year back. We have done 100% acquisition now of CriticaLog. They serve more than 500 customers, especially in the high-value segment, jewelry, luxury apparel, electronics, where traditional parcel solutions have not had a credible outcome. We are now in process of integrating brand and technology. We believe CriticaLog will strengthen the overall vast portfolio we offer to our existing customers.
Now, across all these five initiatives that we have spoken about, there is one thread which remains common, which is our relentless focus on continuously building value-added services. Value-added services have been the key element which has kept us apart and helped with our profitability in the past. We believe investing in these unique services, be it same-day delivery, next-day delivery to critical logistics, help us basically become a more profitable as well as a high retention sort of an organization. While we are doing all of this, our focus truly remains on serving the digital economy, on serving the end customer, you and me, over there. And that is, again, that's the way we started with. We are focusing on the digital penetration, and we'll continue doing that. Now, this is broadly what one should expect over the next 12 months.
Now comes an interesting point around our long-term outcome. There are two specific things we are going to talk about now, which are the elements that gives us the conviction in our right to win. The first thing we are going to talk about is AI, and the second element is we are going to talk about, again, a very interesting point around what is the right network design for any end-to-end player. Now, these are the two areas where we are obsessed about as a team, and we continuously think on how to create long, durable, competitive advantage across this. Now, talking about AI. At Shadowfax, AI is not a side project. It is probably becoming one of the core operating layers of the company, and I believe very few sectors are going to benefit from AI like logistics will.
As an organization, we are a young organization, and the pace at which we are adopting AI today will probably place ourselves in the top 1% of the companies in India on AI adoption. Over here, AI is no more an option. This has become a sort of a way to work. We don't have an AI leader, but we have every individual who's transforming to use AI to become efficient and bring efficiency to the organization. The profitability gains in the midterm and long term from AI are going to be meaningful, but that's probably a smaller story. The larger benefit that we are going to expect, we can broadly divide that again into two elements. One is we believe AI is going to unlock crazy demand in the country digitally.
Think about the next 300 million customers who essentially have to be moved online to start placing order online. Things like voice-based vernacular solutions or accelerated digital marketing solutions. Think about the fact that any small SME, any small D2C, can set up shop online, launch their marketing campaign without writing a piece of code. The technical barrier which existed for the last five, 10 years has suddenly collapsed. We believe more of these sellers are going to come online, which essentially means more demand, and they all are going to need efficient logistics. On the supply side, on rather the operations side, AI is already improving utilization for us. Be it routing, be it rider acquisition, be it marketing efficiency, be it just the speed of shipping new solutions, the paradigm has completely shifted for us in basically building outcomes.
Today, a super majority of our code base is now being written by AI, the AI platforms we are building on top of that is going to further accelerate that. However, there is one part of the business we are very, very confident that AI is never going to replace. It is the humble delivery person. The supply chain solution, the last mile interaction, the problem-solving in the moment will always remain human. AI is just going to make the back-end engine smarter and efficient. The frontline always remains human. Coming probably to the last 10% of my address today, I've kept the best for the last, is around what's the right network design. I know a lot of you have been obsessing over that over the last year. We internally have been building financial models.
We have been running simulations around what exactly is the model which can help a company like Shadowfax scale 10x and bring the right cost advantage at scale. Thanks to AI, our network simulation models are now far more robust, our decision-making on top of that in doubling down what we think is right is just becoming more and more faster. There are three key outcomes of the network design which essentially determine the long-term cost of ownership, these are the three key operating strategies that we are going to double down after having invested over the last few years. The first strategy is that everything under the roof, be it last mile hubs, be it sortation centers, or be it even in the future dark stores, must be self-owned, run by your own employees. You need to put state-of-the-art automation.
You would have seen we have invested in one of the largest sorting centers we have had over the last quarter, called One NCR. We have already started seeing benefits of some of those centers. Such high CapEx centers create operating leverage in the long term and offer us the opportunity to create a better customer experience. These are the assets one needs to invest, that is where our infra bets over the next few years are going to continue. As a matter of fact, over the last three years, more than 60% of our CapEx spending is only happening in sorting centers. Between sorting centers and last mile hub, probably 85% of our CapEx spending is only happening in these centers, so we are going to double down on that.
The second key outcome of the exercise we have done is what we have realized that having too many nodes in the network, especially on the last mile, can be really, really counterintuitive. While in the short term, having many nodes can give you an advantage in nodal cost, your total cost of operations, because of the transportation optimization, always goes for a toss. The right model is to have the right number of nodes to avoid errors to manage your transportation cost. Larger nodes offer you an opportunity to have a fairly optimized mesh grid, which is efficient as well as optimized for speed. We have realized the way we are expanding of having a strategy of limited defined last mile nodes is going to be the way forward, this is something which gives us a lot of operating leverage on the last mile.
The third key strategy that we are again doubling down on is that while everything under the roof has to be asset heavy, conversely over here, everything on the road has to be asset light. Roughly 50% of our cost today is partner expense, which is the sort of crowdsourced network that we have created. Roughly about 18, 19% is our trucking expense. We believe in a country like India, if 70% of your cost is on the road, you need to have a variable model. In the future, we believe some of these assets are going to have an oversupply in the country. Our trucking is becoming far more efficient. Our road speed is becoming faster. Having an asset-light sort of a model on the road helps you stay lean and gives you a cost advantage in the long term.
Some of these designs which I've just spoken about is something which we have been working on. We are happy to take questions on that later and maybe address even in smaller audiences. We believe that once we continue building on this, it compounds. Right architecture gives you the right to win in this sector. I think that's a very sort of an important element and realization that we have had over the last few quarters. I think just to close, maybe let me just close with this. FY 2026 was just a demonstration that we have arrived and we've just got started. India's digital economy is still very nascent. The next wave is going to be faster. We'll need solutions which are there for more fragmented sellers and operationally things are only going to get more and more complex.
Frankly, this is the environment that we are built for. We have the momentum, we have the capital, we have the right operating discipline to turn this opportunity into extraordinary value. In FY 2027, we will raise the bar. Thank you. Thank you everyone for listening in.
Thank you very much.
We can begin the question and answer session.
Yes. 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 the touchtone 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 Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi, Congratulations on strong numbers. Thanks for taking my question. My first question is on market share gain. If you could little bit elaborate on where are you gaining share from. Is it a share gain from within the 3PL market? Is it a share gain from the captive market of the large customers? Secondly, the share gain is also driven by our continued investment and expansion in pin codes and building out various value-added services. At some point in time, this expansion will kind of also stabilize, as you mentioned, by fiscal 2028, right? Should one assume that the market share gain kind of stabilizes at that point in time, and then growth becomes in line with that of industry around that number?
I'll take that question, Gaurav. Thank you for asking. Let me break down the market share journey for you. Okay. I think if you look at the overall 3PL market, we believe as an overall market of 3PL versus insourced, over the last few quarters, there's been a lot of stability. While we also believe that there have been some market share gains for the 3PL industry as our customers or some of the guys who had sort of so-called insourcing arms, tend to optimize their cost and become more rational in looking at for the most cost-effective sort of solution. Yes, there will be some bit of that as well. I think within the 3PL industry, only as part of the 3PL industry, I would say we have hit about. This is an internal estimate.
It's going to be about close to 28%-29% market share for the full quarter on our estimate, which is like one year back, which would have been about close to 17%-18%. Within the 3PL itself, we have also gained a lot of market share year-on-year. We would typically say that what is happening in the industry is the top two players continue to gain market share, and the market is becoming more and more consolidated. A few years back, the market was far more fragmented than versus what it is right now. I think our market share gain is happening from some of the traditional three players, some of the, I would say, inefficient people who are essentially losing business today. That's where most of our market share gain is happening. I hope I answered your question.
Got it. Yeah. Thank you. Second question on, I saw the CapEx comparison that you gave for FY 2026 and the total CapEx that you've made from your inception till FY 2025, and it's a meaningful jump in your investment that you did in FY 2026. Our understanding is that a lot of these investments also have some element of OpEx that comes through the P&L. Despite that, fiscal 2026 has seen a good margin expansion. The question is that as these CapEx normalizes, which is what you kind of mentioned in your presentation, and some of the operating leverage plays out, do you think that the fiscal 2026 margin expansion would look much better in the coming years, because the investment intensity will reduce?
That's a great question. I think in our industry, we have had probably the highest CapEx spends ever, and we are just doubling down on the strategy of everything under the roof. We want to automate, we want to set up sortation centers, we want to set up some of the best-in-class facilities out there in the country. You're absolutely right, I think there's a lot of operating leverage which is yet to come. There is a lot of OpEx cost we have incurred today, for which the return probably is going to maybe come in FY 2027, 2028, over the years. I think we are coming from a year where in H1 we had to rapidly invest in CapEx, looking at how the market was behaving and how much growth the industry wanted us.
I think in H2, when we started investing, we realized that probably FY 2027 is also going to be a formidable year for us, and we need to invest in advance. I think probably some of the investments that I also spoke about in my address are linked to some of the capacities that we want to set up for the coming years. Yeah, if we were not investing in some of these capacities, I think the business mix that we have arrived into, we would probably had some benefit in our overall profitability had we not done that. I think moving forward.
Thank you and all the.
Yeah. Sorry.
Please. Yeah, please go ahead.
No, no. I think moving forward, we are continuing to be bullish about setting up sort centers, automating a lot of our work inside these sort centers. We have hit a critical volume where if we invest in sort centers further, our breakeven is going to be significantly faster as well.
Understood. This is super useful. Thank you. All the best.
Thank you. The next question is from the line of Abhisek Banerjee from ICICI Securities. Please go ahead.
Hey. Hi, Abhishek. Thanks for the opportunity. Just a couple of questions from my side. First is on the CapEx question, right? Your original thought process was, you do manually till you reach a certain scale, then shift to an automated facility. Is that also changing because you're also expanding your pin code footprint, right? Whenever now you go, you will have an automated facility from day one. Is that the new thought process?
Abhisek, thanks for asking this question. The strategy hasn't changed. We are very clear that we will run a dual system which has some manual, some automated setup, so that once we invest in CapEx, we get the return on that fairly faster. That strategy hasn't changed. I think what has changed is the level of automation once we realize that this facility needs to go for an automation. I think the intensity of taking those bets, getting more audacious on investing and getting ROI within the facilities once we know that we need to invest is just, I think, getting more aggressive and confident. That philosophy hasn't changed, just to clarify your question. We are still very focused on driving high ROCE in our cash spends.
Got it. Very clear. On the hyperlocal business, you alluded to getting Amazon now on board. Are we seeing any change in the profitability in that business? With an increasing number of larger players in the QC business, does that mean that your ability to price your services has gone up a little bit?
Again, this is a multifaceted question. I'll try to answer as much as I can because we don't typically disclose our client-level profitability at all. See, what is happening in quick commerce today, there are two kinds of customers. One is the large enterprises, which again, there are multiple of them now. The second is what we speak about as vertical quick commerce. Typically, vertical quick commerce companies end up depending a lot more on 3PL, and hence the profitability profile is slightly better than working with the horizontal guys. The great thing about, I think quick commerce today is that unlike horizontal e-commerce, there are not just one or two players in this segment. It's a six, seven-player sort of a market. We are probably working with each one of them.
There is a very good client distribution across each of the platforms which are delivering to the end customer. We believe, again, there's not sort of a leverage that any one partner has on 3PLs. Given we are the largest guys over there, I think we've been able to maintain the pricing even as we are scaling up.
Got it. On the overall profitability bit, has there been a move, or are you seeing some margins from there?
Yeah. I think while our entire profitability has moved up, as you would see year-over-year, quarter-over-quarter, I think we continue to stay extremely efficient inside the organization. What we have also been able to now do is, especially if you talk about quick commerce as a business, I think we have been able to rapidly cut down our overheads, whatever they were, in managing this business through rapid use of AI.
Got it. Fine. Just one last thing. We are all worried about how the next six months kind of pans out given the geopolitical situation. Right. Of course, I understand your thought process on the overall year, given the kind of traction we are seeing in e-commerce. Could you give some kind of color as to what crude inflation, how it can kind of impact your business, and what are the levers you have to kind of mitigate that impact? That would be really helpful.
Yeah. Again, that's a very sensitive sort of a conversation and something, again, a lot of volatility globally that's been happening on this. See, if you look at the space, okay, I'll explain on two sides. One is on the demand side, the other one is on the supply side. Okay? On the demand side, typically, whenever such kind of global volatility happens, somehow the e-commerce grows in the country, the digital penetration grows in the country because a lot of spends that customers would anyway might be doing in hospitality, travel, essentially end up now getting translated into more consumption spends at home. Home delivery tends to go up. Typically, summer months, which are sort of very lean months because everybody's traveling and spending money over there, probably can be very different this year.
We saw this something in COVID, as well, where we saw a big boom. I think the consumption looks pretty healthy. On the supply side, if you look at our business today, I think probably about less than 10% of our cost is linked to or less than 10% of our cost is actually fuel cost. Okay. Fuel costs are going to be there, it's probably going to also impact the entire industry. It's not going to create a competitive disadvantage between anyone out there. Typically, in our contracts, the way we sign, so both on supply side as well as with our customers, you have a fuel surcharge as a component. It's a pretty standard thing in the industry. We don't anticipate any sort of cost or sort of a problem in our profitability.
Yeah, I mean, logistics can potentially get expensive for our customers if there is a rapid rise in fuel cost.
Got it. Great. That's very helpful. Thank you so much, Abhishek.
Thank you. The next question is from the line of Atul Borse from JM Financial. Please go ahead.
Hi, team. Congrats on good set of number. My first question is more of around the express parcel volume growth that we are seeing quarter-over-quarter. There is also a dip in your yield. Is it fair to assume that the volume growth there, if we are seeing quarter-over-quarter, is mostly coming from the insourcing challenges or the lower insourcing that is happening at Meesho?
I think the realization is largely dependent on the volumetric weight of the shipment. What we have seen quarter-over-quarter is basically the average volume of the shipments has actually gone down. Sorry, there's a lot of disturbance we are hearing.
Mr. Atul, may we request you to please.
Yeah. Sure.
mute your line? Thank you. You may please go ahead.
Sure.
What we have seen is, that underlying, actually, our growth has happened across the sector. Probably our D2C segment has actually grown much faster than any other sector between Q3 and Q4. We have gained rapid market share in the D2C segment, specifically between the two quarters. If you ask me, I mean, has our percentage of business coming from the top two, three customers changed? No. It has probably stayed between Q3 and Q4. Every part of the business is actually growing. The great thing where we are happy about, and that is also helping us become sort of profitable faster, is the high-value D2C business growing much faster than anything else.
All right. One more thing, that FY 2026 has been phenomenal for you in both express and hyperlocal. What kind of growth you foresee on a steady state basis in the coming years?
I think for the overall business, I think we continue to maintain that same trajectory guidance of anywhere between 27%-30% overall business growth. Hyperlocal, because the base is smaller, will grow slightly faster at about 45%-50% year-on-year growth, the rest is again going to come from express parcel. That's the view we will continue maintaining as part of our guidance.
All right. Thank you. This is my last question. All the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, we request you to please limit your question to two per participant. The next question is from the line of [Satyam Netgachhi] from [Moat]. Please go ahead.
Hi. Congratulations on a great set of numbers, sir. My first question is, when you are talking about investing more in real estate and the operating leverage is yet to kick in, what sort of margin improvement are we talking about? A broader question would be what sort of margins do you believe are sustainable in our line of business? Thank you .
That's a complex answer, I can tell you. I'll answer the second part first. We believe in a business like ours where we are offering our services to the end customers, there's a lot of complexity around RTOs, CODs. There's a lot of value-added services we have to offer through reverse logistics, same-day delivery, and similar means. We believe in a business like this, early double-digit sort of steady state EBITDA margins are sustainable. That's the view we have. I think in our business, the way we have planned for is that for the next couple of years, we are giving a guidance of 100 to 120 basis points in terms of improving profitability by FY 2028, and this is the time where we'll continue expanding our real estate geographical expansion.
Post FY 2028, we are hoping to hit about somewhere between 200-250 basis points every year for the next few years until we hit steady state EBITDA. To answer your first question, it's very difficult to carve out exactly how many basis points are going to be there, only attributable to some of the investments that we are doing. You can imagine that our profitability growth will become 2x between FY 2028 and before FY 2028 and post FY 2028. Maybe that can help you get an estimate on that. Some of these, again, investments are fairly complex around the network. Once you are setting up a new center with a fully automation sort of setup, you end up giving six months. Six months is a setup time. You end up incurring cost on both the sides, rentals, electricity, and everything.
We set up OneNCR facility which went live just a few months back. It took almost six months where dual costs were incurred for the entire duration, despite us not utilizing that facility at all. I think some of these things continue to happen. Typically, when we open a new last mile facility, it takes about six to eight months because our trucks are running fairly suboptimally in some of those locations. I don't know if I can answer because it's a very complex network sort of a thing that we are looking at, but that's the way we are planning our financials and our guidance.
Understood. Just one or two more questions. One is on one of the listed peers suggests a lower cost advantage due to their presence in partial truckload. What is your view on that? Does it really make a difference? How are we placed? Second is on the hyperlocal growth. Q4 hyperlocal growth was probably lower than what you are guiding for going forward. What could be the reason for that?
No. I think, just to answer your first question. Different organizations have different type of networks and different fundamentals around it. Shadowfax has designed its network on a first principle basis on what we think is going to give us the right answer in the long term. For us, I can talk about us over here. We have built a business which has a very strong mix around crowdsourcing, where we end up doing a lot of last mile businesses, which is essentially a competitive advantage as well. We have also built a specialization around value-added services. In a business like ours, are we going to offer PTL services? Probably, I don't think so in the next few years, at least. That's the visibility we have. Yeah, never say never. I mean.
And-
On the question on hyperlocal. See, you should look at it on a full year sort of a basis. I think a full year growth continues to stay very strong. Last year, Q4 was extraordinarily better, and that's why the year-on-year growth might be looking a bit slow. Sequentially, I think we are growing as per the plan. One needs to look at year-on-year growth in businesses like this for getting the real trend. I think with a new customer acquisition, with vertical quick commerce and dark store enablement coming into the play, I think the growth is going to be formidable, and we are pretty sure on what we are guiding.
All right. Thank you, and all the best.
Thank you. The next question is from the line of Dhruv Jain from Ambit Capital. Please go ahead.
Hi, Abhishek. Thanks a lot for the opportunity and congratulations on very good numbers. My first question is on the dark store expansion piece that you spoke about. You spoke about 15 dark stores and that going to 100, and it seems like a new vertical entirely for Shadowfax, right? If you could just talk about how does the unit economics in this business stand, what kind of scalability that you are looking at, and you seem pretty excited about it. I would be very happy to hear your thoughts on this one, and then I'll take my second question.
Yeah. We first ventured into dark stores probably two years back. These 15 that we have been running, 90% of them we have just been running in one city. We spent a lot of time learning how they work, learning how the profitability needs to work, building the underlying technology, both on dark store management, people management, last mile, and at the end of the day, how do we make it profitable. Today, our top stores, okay, would be running at about 20% plus gross margins with a further space to expand as the dark store volumes goes up.
There is a healthy profitability profile that we have proven, and we have spent enough time before we have come out and said, "Okay, we are going to go aggressive on this sort of a model." That confidence on building this out over the last few years is there with us. The second thing in terms of how this model typically works is, again, we are not working with the horizontal platforms that all of us typically know. This is meant for the vertical guys, and think about a specialized apparel player. Think about specialized beauty players. Think about sports gear. Okay. There are specific companies, and we have a list of about 15 odd customers right now who are actively working, where they can't have a supply chain solution over there on their own.
They just don't have the capability of doing that, and they rely largely on 3PLs like us. Us being a leader in the space, us understanding how last mile should work in, we are sort of a natural go-to partner for some of these platforms. The idea is to work with very specific people, companies which have stronger balance sheets. The radius that we offer over here is not necessarily five to 10 minutes. The radius that as part of the solution is what we are looking for, a 30 to 45 minutes sort of a solution. Think about dark stores which will be there in about, let's say, seven-kilometer radius in some of the metros. Pick and pack time continues to remain, I think, very similar to how horizontals run it, but the radius might be slightly higher.
Got it. Just on this part. How should we think about the peak revenue per store, or how does a typical store mature in your view? Year one should be this, year two should be this, and so on and so forth.
I think we have been very financially savvy in setting up these dark stores and planning our commercials. It takes roughly about three to four months for a dark store to start making money for us. Average revenue per dark store can be anywhere between, depends on who you are working, but can be anywhere between INR 8 lakhs-INR 15 lakhs per dark store.
This is per month, right?
Per month. Yes, sorry. Per month. Yeah.
Sorry to interrupt. May we request Mr. Jain to please rejoin the queue?
All right.
Thank you. Participants are requested to please limit your question to two per participant. The next question is from the line of Alisha Mahawla from Trust Mutual Fund. Please go ahead.
Hi, sir. Good evening. Great set of numbers. Just picking up from the previous caller was asking, what is the kind of investment that will be required for these dark stores and what is the ROIC that you're expecting for this?
Sorry, you're asking for the CapEx investment?
Yeah, for the dark stores.
Again, I can't give a split of dark store versus overall, but our guidance for FY 2027 will remain, on an absolute basis, very similar to FY 2026, which is in the range of about INR 180-190 crores, which essentially is going to be a sort of a flat in terms of absolute count. Dark store, again, think about it, the way we have managed, it's going to be probably less than 10% of our CapEx.
What is the kind of ROIC you were expecting on the dark store vertical?
Yeah. See, as we scale up, we just run 15 dark stores. I think it's too early to say exactly this is the ROIC that we'll get when we actually scale it up. Right now, the model looks good, the profitability looks good. The incremental margin that it adds to our overall margin is also good. The investment that we have done right now because these were on a pilot basis are very small to calculate a realistic ROIC. We'll, I think, keep updating you as and when it scales up and we have meaningful numbers here to discuss.
Sorry to interrupt. May we request Ms. Mahawla to please rejoin the queue. Thank you. The next question is from the line of Dhvanit Shah from PL Capital. Please go ahead.
Hello.
Yeah.
Hi, sir. Thanks for the opportunity and congrats on a good set of numbers. Sir, my question is regarding the lost shipments and quality check cost. I see it has increased to close to around 7% of the total revenue, and it has increased year-on-year and year-over-year. You can attribute it to any segment, or was it because of hyper local or express business? Also, can you give a categorization whether the apparel business is suffering or the appliance business? And how would you juggle the lost shipment cost with [contribution margin], now that you are entering into the white goods space? I believe the white goods space is margin accretive.
Okay.
Let's just say if our lost shipments stay the same on a steady state basis or yeah, how would you juggle these two things? Thank you.
Dhvanit this is Praveen, I'll take that. Let me give you a brief about what this lost shipment is. Actually, this entire value of 6% that you see for the quarter is not lost shipment. It's split into two. Historically, this number used to be about 5%-6%, closer to 5%, actually. Roughly half of that is what we call as quality check debits. This comes essentially from a reverse product. I think we have explained this also in the past, where in our reverse product, we have a doorstep QC check for which we charge a premium. Despite doing a QC check, if we pick up a wrong shipment, we underwrite the value of the parcel to our customer. That's the cost that comes in there. Despite this cost, it's a decently profitable vertical for us. That's included in this line item.
The other cost is about roughly the other half of it, which is essentially actual lost shipments, where either a shipment gets lost or gets damaged or that breach and things like that. It is not entirely true. It's consistently gone up. If you look at it, this quarter it's come down. What had happened is last year it was 5.7%. In the first half, it went up because we've said that when we launched our large parcel business, we saw the losses going higher, and then we had taken sufficient steps to bring it down. Q3, again, it came down to about 6.3%. Q4, it's come down further to 6.1%. Our view is in the longer term, we actually felt even 5% was a high number. Our long-term goal was to bring it down to about 4%-5%.
This is at 6% threshold, our endeavor is to bring this down to our long-term average. On what kind of steps we have taken, Abhishek will also add a few things on that.
No, I think we've been obsessively building a lot of technologies around, be it improving our scanning technology, be it building image recognition systems to improve our reverse logistic losses. Just the last quarter, we actually did a massive upgrade on our image recognition at the doorstep, which has started to show some brilliant green shoots in our business. Moreover, I think as you mentioned, we've ventured into large logistics. Initially, first couple of quarters, we saw a lot of damages happening over there, and that's a thing we have been fixing over in H2. There is a good bunch of ideas and things. Typically, what you will see is that as companies mature, this is sort of a very different kind of a leverage that comes in as you become more and more efficient and the losses come down.
Thank you. The next question is from the line of Nikhil Chowdhary from Toro Wealth Managers. Please go ahead.
Yeah. Hi. Congratulations on a great set of numbers. Am I audible? Hello?
Mr. Chowdhary, there is some kind of a disturbance from your line.
Yeah. Is it better now?
Yes. Please go ahead.
Yeah. Hi. Just wanted to understand, as a % of total revenue, what would be the B2C and SME CapEx as of FY 2026? Second is, lately we've been hearing about Amazon Shipping has now probably opened their network globally. Although they were in India and they are across 4,000 plus, 15,000 plus-
I'm sorry to interrupt you, Mr. Chowdhary, your line is not clear, sir.
I think we got the question.
Is it better now?
Yeah, it's better. We got the broad questions here.
Yeah. Just wanted to get your sense on probably since they have an active seller base of around 12 million SMEs and they could probably subsidize pricing also. How does our 360 differentiate against this offering? Yeah, these were the two questions.
I think on the Amazon side, I think what you are hearing right now is probably a global news now, but the same thing has been active in India for more than two years. I'll give a generic view on this, because we have been observing some of these captive arms coming in and trying to build 3P as a business. There are two kind of customers. The large customers will never work with them because of data security. The small customers, maybe in the short term, they try working with them. What happens is that once peak day comes, when the peak months come, I think external customers get massively deprioritized by these kinds of supply chains, and that's why there's never been a meaningful business. With Amazon, I think they've been experimenting in India for the last few years. Nothing is new in this.
They've been experimenting for the last few years. We don't think these kinds of models will work in India. That's our sort of a view. Regarding your first question, I think B2C and SME, it's a meaningful double-digit sort of a number for us. We can't give you the exact split of that because, I mean, that's not a KPI we have been reporting, slightly sensitive in nature from a competitive dynamic standpoint.
Thank you. Next question is from the line of Vinayak Kariwal from Xponent Tribe. Please go ahead.
Hi, Abhishek. Thank you for the opportunity and congratulations for a great set of numbers. Just wanted a reiteration from your side on Gaurav's question. What you're saying is growth going ahead will be a variable of market share wins and there is nothing as sort of outsourcing that you are seeing from your customers.
Sorry, I didn't get the question. Can you come again?
I just wanted to understand the variables of growth going forward. Do you think the growth going forward, the only variable of that growth would be market share wins or do you think there is something going on the part of your customers where they are outsourcing back again, that cycle is playing out. Are you seeing any sort of that thing playing out or just the market share wins would drive the growth forward?
I mean, think about it like that. Whatever we are growing today. Okay. Whatever we are forecasting about, I think 50%-55% we are attributing to the underlying market for 3PLs growing, which might happen largely because the underlying economy of this country is growing. The remaining 40%-45% might be coming from market share gains. Whether some of the large guys are going to outsource more or not, I don't think we are planning on that. If they end up outsourcing more, there's an upside possible to the guidance that we are giving. Right now, we have done a basic assumption, assuming things remain same, then what is going to happen. Again, we are seeing the market to become far more rational, and people who have cost advantage are essentially gaining market share.
I think that theme sort of continues where everybody's trying to be more and more efficient. If our customers end up outsourcing more, I think that's an upside you can expect.
Okay. Going forward, the growth we are seeing this year won't be seen in the next coming year. Is it fair to build a 30%-40% growth on your business going forward for coming two, three years? Or you could have overshoot that?
No, we are not guiding for that. I think we are still guiding for about 20%-30% maximum growth from our future guidance standpoint.
Okay. Cool. My second question was on margins. When you say 120 basis points increase in margin for the next two years, could you help me understand, are you guiding these margins on the service EBITDA level or are you guiding this margin on the adjusted EBITDA level? Because if I keep the service EBITDA same, you would be able to get those margins without increasing the service EBITDA itself because of the operating leverage on your corporate overhead cost.
Yeah. We are only talking about adjusted EBITDA. That's the only EBITDA I think as an organization today we look for. I think some part of it will obviously come from operating leverage at our corporate level. Yeah, a lot of it will actually come from some of the underlying service EBITDA, what typically the industry calls a service EBITDA, maybe some of that. See, as we are saying that, we are also saying we are going to invest heavily into expansion, new categories, newer customers. Those expansions won't stop and that's why we are giving a limited view of 120 basis points where post FY 2028 when some of those investments are going to get more saturated, that's when we will see the real aggressive jump in EBITDA.
Your service EBITDA should remain at the same levels going forward in like two, three years at least where I guess they are at 16%, 17%.
We don't talk about service EBITDA. We don't look at service EBITDA. We only look at adjusted EBITDA and that's what we are guiding everyone for.
Vinayak, the improvement will come from both places essentially.
Okay. Sure. One last question if I may. You have this crowdsourcing platform model for your Hyperlocal segment. What part of that business comes from that platform that you have created where people could come on your platform, get their gigs. The second part to that question is, what is the competition you are seeing on your crowdsourcing platform? What we have seen to know that there are many platforms which are doing the same thing, where they are doing the crowdsourcing thing which a platform like LoadShare also does and they have partnerships with Amazon now. What is the entry barriers to such a platform that you have created because many players could be doing that.
I hope this is the last question from you. I'll try to answer that in simple ways. 100% of our last mile today is crowdsourced. Every single order that we do is done through our individual who's being paid on a per order basis. That's sort of a unique thing for our platform. 100% of whatever last mile we do, which is like for 99% of our revenue we do last mile. Everything happens through this crowdsourced sort of a network. This crowdsourced network is a very unique competitive advantage we have built. Actually, there is nobody like us in the country, okay, where 100% of your deliveries are happening through a per order sort of a model. While, some of our competitors, some of our even customers have captive arms who focus on a single category.
If you look at our network, today our delivery partner can do e-commerce as well as a food delivery, as well as a quick commerce order on the same app. There is nothing like that that exists in our country. I think that remains sort of a competitive advantage. While there'll be companies coming and building in a certain category and we can't stop that competition. Logistics is never a winner-take-all market. You always want some sort of competition. I think the model that we have created is sort of a very unique one.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Abhishek Bansal for closing comments.
Thank you, Rutuja. I think, thanks everyone for being so patient on this call and patiently asking so many questions. Looking forward to seeing all of you over the next earning call over the next few quarters. Thank you.
Thank you. Ladies and gentlemen, on behalf of Shadowfax, that concludes this conference. Thank you for joining us and you may now disconnect your line.