Good day, ladies and gentlemen, and welcome to TCI Express Limited's Q3 and FY 2024 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 this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Navin Agrawal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. It is my pleasure to welcome you on behalf of TCI Express and SKP Securities to this Q3 FY 2024 financial results con call of TCI Express Limited. We have with us Mr. Chander Agarwal, Managing Director, along with his colleagues, Mr. Mukti Lal, CFO, Mr. Pabitra Mohan Panda, COO, Surface, and Mr. Hemant Srivastava, COO, Express Business, Non-Surface. We will have the opening remarks from Mr. Agarwal, followed by a Q&A session. Thank you, and over to you, Chander .
Good evening and welcome, everyone, to Q3 and nine-month financial year 2024 earnings conference call of TCI Express Limited. I would like to thank you all for joining us here today, and I hope you and your family are staying safe and healthy. We have already circulated our earnings presentation and press release on our website and stock exchanges. I hope you all had a chance to review it. To start with, I will give you an overview of business trend and performance, and then will hand over the call to our CFO, Mr. Mukti, to brief on our financial performance for the quarter and nine months financial year 2024. Let me begin by providing a brief overview of the economic landscape in which we are operating during the third quarter of financial 2024.
The operating environment in the third quarter remains challenging as we continue to face headwinds stemming from muted festive demand and an extended holiday season. Despite these challenges, TCI Express has demonstrated resilience and agility in navigating the market dynamics. With a combination of a strong customer mix base along with an unmatched network and efficiency, we have maintained stable profitability and margins, outperforming industry peers. In line with our shareholder-friendly capital allocation policy, the board of directors has recommended the second interim dividend of INR 3 per share. This brings the total dividend for the nine months financial year 2024 to INR 6 per share. We are representing a payout of 300% of the face value, really affirming our commitment to delivering value to our shareholders. Moving to a brief update on business developments. Among our newly launched services, Rail Express has gained substantial traction from customers.
We have successfully expanded our customer base to 4,000 covering 125 routes to meet the growing demand. These services are expected to contribute positively to our top line in the coming quarters, enabling us to achieve higher margin levels in growth. I am delighted to share that the ongoing construction of the Pune sorting center is progressing as planned and is set to become operational in March 2024. As far as our future focus is concerned, we will continue to invest in technology and automation to drive a more efficient operation and provide superior customer service. Over the nine-month financial 2024, we have incurred a total CapEx of INR 25 crores. The CapEx was mainly spent towards expanding our branch network, automation, and ramping up our IT infrastructure.
During nine months financial 2024, we expanded our footprint by adding 15 new branches in the West and North regions to cater to the growing demand with unplanned services. Our strategic investments in technology and infrastructure have been instrumental in streamlining our operations, ensuring that we remain in the forefront of the industry. Furthermore, I am happy to share that we were honored to be selected as Dun & Bradstreet Additionally, we have received recognition from the CII in civil logistics for our exceptional implementation of AI, that is artificial intelligence, in our business operations, earning the prestigious CII SCALE Award 2023 in the Express Courier category. This accolade underscores our unwavering commitment to innovation, technology advancements, and sustainable practices.
In our continued effort and pursuit of people-first approach, we have been again certified a Great Place to Work for fourth consecutive year, and it is a true validation of our commitment of fostering a positive open work environment. As we look ahead, the sector is poised for good growth and propelled by government infrastructure and policy initiatives for the development of transportation infrastructure, particularly in relation to major trade routes, logistics parks, and road, railway, and highway connectivity. In this favorable industry trend, we are confident in our ability to capitalize on the exciting opportunities in the Indian logistics market and to create long-term value for our stakeholders. With this, I would now like to hand over the call to Mr. Mukti Lal to talk about our financial performance for the last quarter.
Yeah, good evening, everyone. Now I would like to discuss the financial performance of the company. Our Managing Director has already highlighted the development of during this quarter, and I will delve into the financial aspects. During the quarter, our revenue from operations stood at INR 312 crores for Q3 2024, as against INR 320 crores in the Q2 of this year, and INR 314 crore in the same quarter of last year. Despite continued headwind on account of muted festive season, festive demand and long holiday season during the quarter and the high base effect also playing out this year from a year-on-year number perspective. Though we maintained profit margin intact, the EBITDA for the quarter stood at INR 48 crore with a margin of 15.1%.
Our profit after tax for the quarter stood at INR 32 crore with a robust margin of 10.3%. Overall, in the nine months of FY 2024, our revenue from operation was INR 937 crore as compared to INR 915 crore same period last year, registering a year-on-year growth of 2.5%. The EBITDA for the period was INR 148 crore with a margin of 15.7%, and profit after tax was INR 100 crore with a margin of 10.6%. As a result of continued focus on revenue quality and profit growth, we ended the quarter with generating a cash flow from operation of INR 75 crore and then continued to generate solid cash flow to fund our strategic growth plan. Our commitment remains rooted in balanced growth and revenue quality.
With the additional automation unlock and flexibility across our network, we remain confident in our ability to capitalize on opportunities and solidify our leadership position with industry-leading services. Thank you very much, everyone. Now I would like to open the floor for question and answer. Over to you, moderator.
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 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. Participants, you may press star and one to ask a question. The first question is from the line of Jainam Shah from Equirus Securities . Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, the first question is related to a few data points. If you can provide the volume number for the current quarter.
Yeah. Volume numbers are 2.5 lakh tons for this quarter and 7.42 lakh tons for the nine months figure.
Okay, sir. Got it. Sir, we have done CapEx of around INR 25 crore in the nine months. What we are targeting for the fourth quarter and for the next year? Are we intact for INR 500 crore of CapEx over FY 2023 to FY 2028?
Yes. Basically, we have taken a target of five year in FY 2023. It is including FY 2023, which we spent INR 125 crore.
In this year, we hopefully, I think we will spend around INR 15 more crore. So INR 40 crore total for this year. It become INR 165 crore and remainder part of INR 335 crore we will spend in next three years, FY 2025, 2026, 2027.
Okay, sir. And sir, contribution from the newer services would be how much percentage this quarter?
This quarter, contribution from this newer service is also remains same as around 17.5%, what we have in last quarter as well.
Okay, sir. And sir, coming to the margin part, our margin has dropped sequentially during this quarter. Any specific reason to that as we were guiding some
Basically, if you see revenue numbers, if you compare with the last year, there is a slightly less revenue, so utilization level of truck is usually drop. So in this quarter, we have 83.5% utilization level. And that's why if you compare with the last year's same quarter, we enhanced this EBITDA margin by 10 basis points. So that way is okay.
Okay. And sir, overall medium to long-term target for the margin, how we are expecting? Because this nine months number is somewhere around 15.5%.
So again, we are hopeful to be Q4 must be on a good note, and we are seeing the traction in January and February month, but we are not much hopeful like double-digit kind of growth, obviously. So the similar way. This year is a challenging year. If you see, everyone face the challenge on volume growth. But good thing in our company, revenue is we grown 2.5% in nine months, but we also intact our margin level, whereas every industry player has taken a big hit on their margin levels. They have fallen down heavily.
Yes, sir. Correct. And sir, just last question from my side. In medium to long term, how we are projecting our revenue or rather volume growth, given that the first quarter for the next year will be more of a election quarter. So post that, how we are expecting the ramp-up in the volumes over a medium to long term?
So I refer this question to our MD, Chander, sir. Can you just reply on that, please?
So, if you look at the next quarter, it is quite clear that looking at the way the economy is moving, we will be expecting it. I think the numbers will be the same, and there could be an uptake of maybe half a percent or more. I do not see a large uptake because, again, the situation on the ground is very different from how it is shown on television or wherever. So, yes.
Okay, sir. Okay. And sir, are we having that 2x of GDP growth target going forward as well?
Yeah, that is not going to change. I have always mentioned that looking at the economic situation of that particular year, in that time period, one has to always monitor. And our fundamentals are always intact. And that is why we are able to maintain double-digit margins for so long. So I do not think there is any problem structurally or a micro problem that we have. It is a problem of just economy and its demand.
Okay, sir. Got it, sir. That is it from my side. Thank you so much, sir.
Thank you.
Thank you. Next question is from the line of Alok Deora from Motilal Oswal. Please go ahead.
Hi, sir. Good evening. Just a couple of questions. First, similar to the earlier question. Sir, this year has been pretty challenging as we see for the industry as well as for us. Next year could it be a case where we gradually improve on this and then we go back towards our double-digit kind of a growth target? Is that a very much possibility now considering that we will be entering the election year and things could be slower in the first half of the year and then ramps up in the second half?
We have to consider three things. First of all, inflation rate, how much it comes down. Then the interest rate, most important. Number three is the fuel charges. All these, even though the fuel charge is passed on, but ultimately someone is not really benefiting from it. It is not like the airline where you only have two players or one player where they can just charge what they want and get away with. I think, in our case, we have to also see and understand how the demand picks up, what the government is turning out in terms of its fiscal policy, post-election and all of that. I think it is a wait and watch situation.
Very early to comment because gone are the days when we would know for a fact that this is how things are going to play out, this is how things are going to be laid out. It was very predictable, but now things are very different.
Sure. On these margins, we have seen almost flattish sort of a quarterly revenue, QoQ revenue, and the margins have come off by nearly 150 basis points. Is there any one-off in this? Or can we expect it to go back towards a 15.5% sort of a range? I am talking about excluding other income, 15.5% sort of a margins in Q4 onwards, or any comment there.
I think half a percent and more will be achievable in this quarter. There is no problem.
Sure. Just one last question. Earlier we had mentioned that the new segments as they ramp up, we will see the overall margins also improving. Does that remain or is it a little more competitive scenario now where margins would be kind of restricted in the 15%-16% range? That is all from my end.
Margins are not affected because of any competition. It is only affected because of the demand and the economic situation. So I think getting back to the same scenario would be possible as the fiscal policy of the government also eases and it kind of changes. So I think it will happen. It is not like it is all shut and things won't change.
Got it, sir. That is all from my side. Thank you and all the best.
Thank you.
Thank you. Next question is from the line of Amit Dixit from ICICI. Please go ahead.
Yeah. Hello, good evening, everyone. Thanks for the opportunity and congratulations for a stable set of numbers in a very challenging environment. I have a couple of questions, sir. The first one is if I, again, harping on the same volume question. If I look at nine-month volume growth, it is almost 1.6%, and you had echoed that the next quarter would also be in the similar lines. What do we expect volume growth for this year to be roughly 2% or something and next year because of the election in the first quarter itself. Can we pencil in a volume growth, let us say, of 5%- 6% or something like that. Or do you see some other tailwind helping you?
Yeah, Mukti?
Yeah. So basically, in this year too, we are seeing more than 3%, 4% kind of volume growth in this Q4. Obviously, we are not also asking for the rate hikes. This is challenging scenarios. Next year, yes, it is too early to comment on first quarter. Obviously, there is an election on a whole year. This challenging in like, if you see in north India now, the farmers are on a road. They blocked everything. So it is kind of challenges also coming. So sometime we are not able to even see. In last quarter also, it is interesting, last day of the month. This December month is always a better one for every industry player, and we get the highest business on the last day. In this quarter, last day was a Sunday.
That Saturday, Sunday, those are the long holidays, so we ultimately impacted the kind of volumes. In this quarter, yes, we will be anticipating again low single-digit kind of growth, and obviously finish the year, obviously in the range of 4%- 5% volume. Next year, we are anticipating in the range of 11%- 13% as a volume, and revenue may be like more than 1% or 2% price hike in general. Due to that high inflation, we will be asking customers. Let's see how this will be played out, because again, depending on the demand scenario and various factors.
Okay. Very clear, sir. The second question is essentially what kind of operating environment you see in different segments that you operate. Are there any sweet pockets you see or there are challenges throughout or some segments that had temporary slowdown that you can share? Just a segmental flavor would be nice, sir.
Chander sir, you would like to answer?
Sure. The most important thing is that the favorable segment is obviously surface segment, that we are doing. Other segments which are really catching up are, for example, the Rail Express segment. The impetus will be only on the surface segment where we are market leaders. At the same time, our growth plans are to further expand into other locations within India, to expand more offices and have a higher base of salespeople. Essentially what it means is that unlike other companies which rely on franchise and everything, we will be able to have a wider scope of control across our customers and our people. I think this will be a really helpful factor going forward. We have already started working in terms of how the business has to be kind of attained from other competition.
In fact, we will be launching another new service in the next one week or something, where we will publicly announce about it.
Okay, great. That is it from my side. Thank you and all the best.
Thank you.
Thank you. Next question is from the line of Ravi Naredi from Naredi Investment. Please go ahead.
Thank you, Chander Agarwal. Sir, my main concern about TCI Express is there because I am shareholder since last many years. Our bottom line is stagnant since December 2020 quarter. It is going around INR 30 crore bottom line. So asking when growth possible, because in last year GDP and size of our country GDP has been rises, and we did Gurgaon sorting center started and Pune is about to start, but growth is not coming.
Mukti?
Yes, sir. I think you mentioned like quarter December 2020, right, sir?
Yeah.
I have not the number with me, but 2020, that year was COVID year. I really not seen the number that was with like around INR 30 crore, but yes.
Sir, I have number. 34 in December, March 43, again June 21, 24, September 34, then 35, 36, 31, 38, 32, 38, 32, 36. Now these are the stagnant net profit in between INR 30 crore- INR 35 crore, in spite of our three years our GDP has rises. Our everything you are doing in a right direction, but bottom line is not coming.
No, basically, if you see like margin levels are almost same. We are not able to improve. That is a reason, like revenue basically is not growing due to these all this year, whatever happened. Otherwise, this all are like intact. We tried hard to get branch addition, we tried hard to like expansion and a new similar kind of services. We will keep continue that story.
But story is there, but bottom line is not coming. That is my main concern. We did INR 2,000- INR 2,050 buyback also, and you see what is the share price now. You are giving good dividend, but it is not working in the system to our net profit rises.
I can say on that sense, we are the most consistent company. Other companies like doing one quarter good one and next quarter may be fallen down like 40%. But our company's operations, our company's revenue, our company's customer base is intact and in all, even on challenges time, we maintain that. That I can say in this time only.
Okay.
We are still, if you see the graph, our PAT level margin, no competition even near to us. That level sometime, yes, you rightly said, because I think in one single year, in COVID year, we grown our margin level from 12% to 16% in a single year. That was also like supposing we grown on 100 basis points in each year, and that year we did well and grown like 400 basis points and then subsequently maintained that. You can say the sustainability is also important on sometime. Obviously, this year was specifically had been in a business and there is in a growth scenario was not so good for everyone. Still, we are in this year, everyone's margin has fallen down heavily in the range of 40%-50%.
Our team has did very well and we even in this challenging time, in the same kind of revenue, in spite of increase in manpower cost and slightly other costs and depreciation, we are able to maintain our PAT level margin. This is showing a different testament for our company and sustainability we giving to market.
I remember before three or four year before, Chander Agarwal has expected our company will grow 3x- 4x in next year or four year, but it is not happening. That's why I'm asking, what is going on in the company? These are my—
Yes, Naredi. I would like to comment that, first of all, we are, of course, like I always mention, depending on the economy, how it's going, and I think you are well aware also that the economy is not doing as well. See, GDP growth and stock market growth are two different things. Within the—
No, I'm not concerning with the stock market growth. GDP is there, GDP is going, GST collection is going.
GDP growth is negative. Then it came to 2.5%, then to 5%. Then what the number will be at the end of the year, nobody knows. I think you have to really look at the, if you go in detail, what part of the GDP is increasing. Manufacturing is not increasing. Consumption is increasing. Services is not increasing. Farming is increasing. You have to really break down and then see where is it that we can really have the opportunity, going forward. Thank you.
Okay.
Thank you. The next question is from Krupa Shankar from Avendus Spark. Please go ahead.
Good evening, and thank you for the opportunity. My first question would be on the express business. Just wanted to understand, in the October month, we had roughly a load factor of about 85%, but towards the end of the quarter, 83.5%. Just wanted to understand, was there over capacity of trucks which we had deployed on the network due to which the margins have declined sharply? Because last year, I think, around third quarter, we had mentioned that that was one of the reasons. Is that the case?
Your voice is not clear, Krupa Shankar. Can you just kindly repeat again? Your voice is not clear.
Is this better, sir?
Yeah. Just slightly now better.
Yeah. Thank you. Just wanted to check that our load factors had come off from 85% in October to overall for the third quarter at around 83.5%.
Yeah.
Given that last year, I think we had similar challenges wherein we had deployed a higher capacity on trucks and that went underutilized. Was that some sort of event this time around as well, wherein we have faced some challenges with respect to utilization in the month of November and December?
Yeah. So you rightly said, yeah. I got it now. Basically, November again after Diwali, that was in a reduction in heavily on business volumes because western part of Gujarat is closed down, completely shut down for five to seven days and other part of country also, there is in a low volume.
And then, surprisingly, this time December was also not picked up the volume and that's why this utilization level is in the range of 83.5%-84%.
Got it. So if I were to look at while you had mentioned earlier that the newer services has, especially Rail Express, done well, while the contribution is more or less, I would say, not changed that material. Is there any trend of what is the growth in that business you can highlight?
We are not giving the figure because these are not significant amount, but yes, it is contributing. That's why if you see my margin level, in spite of flattest growth, margin has been maintained. Otherwise, there is in a drop in margin because there's in a two or three reason for that. One is contribution from these new services, which is higher profit. You can say similar kind of margin level which we have in surface and other one, like air business also growing. So that is also help us to be. And simultaneously, interestingly, SME business, in this time, big customers business is slightly less dispatches in comparison to SMEs, and SMEs has a higher composition, so in this quarter, we have maintained a ratio of instead of 50/50, it is around 52% to 48%. So that will also help us to maintain the margin level.
Okay. But sir, if I were to just look at the disclosures with respect to receivable days and net working capital days, I think that has gone up. That is why SME proportion being higher. Is it fair to assume that the competitive intensity has gone up quite substantially because there is lack of pricing power, there is limited tonnage growth in the underlying industry. Is it possible that sort of a trend continuing going ahead as which may put a pressure on your guidance for FY 2025?
No. I am just giving comment on that. It is not that much actually, it is very simple. Actually, these last two days was a holiday in this quarter. Usually, we are getting the highest money in last days. So that is the only reason. It is already normalized in January month, so nothing is kind of that. Because our cash flow issue since last two decades, you see, is very robust. There is no challenge on that.
So that is already normalized and hopefully that the same way, 50 days, receivable days would come in March.
Competition has got into the, they are already there or whatever there for 15 years. They are already losing money and lost money or whatever it might be.
They are not at the same express level. They are at the lower level. They do more of the FTL and all that. I think, one should always understand that there are two things. Why the difference in our yield, our margins compared to other customer is because we are in the high-value segment. Number two is because we have the experience for being in the business, in the formal business or rather the organized segment for a long period of time.
Understood that, Chander Agarwal. My thought process is, and correct me if I am wrong, there has been a massive emphasis placed by the industry on cracking the SME code over the last two years. In light of that, we would have anticipated that a substantial increase in the competition given everyone is expanding branch and as such. Just wanted to check if that would be one of the reasons why the tonnage growth has also come off.
No, see, again, tonnage growth and all is again, function of economy, which is a function of inflation and high interest rate. We must keep that in mind. Number one. Number two, the consumption, consuming people that drive the demand are not just you and me. They are majority of the population who are not able to really make ends meet. So we have to really see, dig down, and if you dig down and see where the opportunity lies and how we will capture it, and how we are capturing it. One important thing is to note is that what you mentioned that I do not think that the demand or the emphasis is ever on, rather the emphasis is not on just the pricing. It is also the service level. What level of service you are able to give. How fast you are able to give.
By getting a 50-footer truck, I do not think service level changes because, again, what you mentioned about the number of branches. If you really go out in the field and you see who has the branches, who does not have the branches, who claims to have branches, is all evident. I think today, thanks to the government, we are able to see everything is in the open, everything is highlighted, what is actually present and what is not present. Some companies have INR 3,000 crore, INR 4,000 crore lying in their bank account from their investors. So they earn interest on that, and they show profit from that. There are multiple factors, but yet they are not able to pay dividend. There are multiple factors that come into play. Realistically for sustainability, all that little bit of here and there is not going to help anyone long-term.
Understood. Last question, if I may. Just wanted to check, is there any way in which we can provide zone-wise growth? Because we have been adding branches in the North and the West regions. So what would have been the contribution about three, four years back versus now? Is that possible to be provided on the call?
Basically, zone-wise, we always try to make a balance otherwise my utilization level of truck will be fallen down. That's why we never like increasing any kind of disbalance on a business. Again, 85% business is coming from three zones, West, South, and North, and 15% from Eastern zone as you are aware, like Eastern zone is nothing producing and just they're consuming. So more business is originating from these three zones.
But still because we have huge branch, our own branch network, that's why we are able to generate the business from SME customer. This is a key to generate the business from SMEs like branch network, own branch network. Supposing somebody has the franchise, then they are not interested to do the small businesses. They are targeting big customer and big volume. That's why in our case, we have our own branches and that's why we are able to maintain the kind of this still is above the industry level, this utilization level of this our fleet utilization basically. So this is very important to generate the business from SME, we need a kind of branch network.
Yeah. Thanks for answering my questions. All the best.
Thank you very much. Participants are requested to limit themselves to two questions. In case they have more questions, requested to rejoin the queue. Time permitting, we will come back to you. The next question is from the line of Vishal Agarwal from Leo Capital. Please go ahead.
Thanks for the opportunity. Sir, alluding to that as a response to last question. For the MSME and retail business, do we give any credit in the market? That's question one. Second, what has been the reason why we have been very successful there? Because a lot of competitors, like you said, talk about building the SME business, whether it is a newly listed Tata or the legacy players, but they haven't seen much success. So what differentiates us there and what will keep us there? If you can answer both of those.
Chander sir would like answer?
Sure. Legacy players like us, we have the experience and we have the knowledge. So I think that makes a big difference. We never needed massive amounts of capital to really get the business going on the ground. I think it's a matter of not rupees and paisa, but it's a matter of experience and knowledge. So I think that really makes us the leader in this line of business.
And for MSME, do you give any credit in the market?
MSME—
We don't.
Yeah. We giving out of the 50%, we giving just few customers of 30% out of 50. We're giving the credit, which is also short credit, and remainder part we're receiving either at the time of delivery or at the time of booking.
30% of the 50, which means 1/5, 15% of the overall you give credit, then the 50%, which is key account, you have to give credit.
Yes.
Short credit meaning how many days of credit?
Like below 30 days.
Got it. How many routes do we currently operate in the express business?
How many routes? I think we have already given in our presentation there. There is a different kind of routes from branch to hub and then express, that we had given there.
Yeah. I think you had 500 express routes and 2,000 feeder routes in one of the earlier presentations. Is that the right number?
Yeah, that is the right number.
And so 500 express routes. And what was this number say three years back? Have you added routes in the last three years?
No. If you see, that landscape is not increasing. Maybe 4%, 5% maybe okay, but numbers is almost same because route is We are 20-year-old company and we already established a network. So we are going denser but not increasing that route. Volume is increasing on that route, basically.
Understood.
Branch expansion happening on going denser in a city, tier two, tier three or tier one. But routes are also like same.
I understand. And one last question-
Vishal, sorry to interrupt you. Please come back for a follow-up question. A request to all the participants. Please stick to two questions per participant and join the queue again for a follow-up. The next question is from the line of Mayur from Wealth Managers. Please go ahead.
Hello. Good evening, sir. Am I audible?
Yeah.
Sir, I understand—
Mayur, your voice is coming little feeble. Can you please speak through the handset?
Yeah. I am on the handset itself. Now is it audible?
There is a slight disturbance from your line, Mayur.
Now is it okay?
Yes. Go ahead.
Yeah. Sir, just I understand that due to low growth, we are slightly on the defensive side and based on what we have been guiding. Again, just first question on mind is, sir, we had the call in the Q3 itself after a month of that passing. That time also, you were pretty confident about the H2 being much better than H1. The SME growth was taking off.
Our CapEx plan, even for H2 was INR 60 crores cumulatively we had planned. Now we have only put INR 5 crores in Q2 and we are saying INR 15 crores only in the next quarter. So it is only INR 20 crores. This is only the change within three months, I am saying. Our FY 2025 target was also INR 1,700 odd crores after downgrading it substantially. Now we are talking of only 10%-11% growth. That also standing today on a low base.
So sir, what has changed in these three months which has led to such a sharp fall in the growth outlook and you being on the cautious note?
Yeah. So this is a good question, basically. I will clarify one by one. First, I will take the CapEx part. CapEx part, you rightly said, we plan to buy one land parcel and that yet not actually materialized. That's the only reason we have not able to put anything into place. That's the only one reason. Remaining CapEx we plan for the automation of Pune sorting center. This is already on line with. We will start this. It started operation in March month, and then subsequently we will streamline the operations of that. Second part, like October, you rightly said, October, I think we met like 17 October, we were on a con call, and that was pre-Deepavali month, and everything looks very rosy, and growth was very good on October.
But again, in the subsequent month, like November, there was again a sharp reduction in volumes. Interestingly, as I mentioned in the last question also, December was surprisingly, volume had not picked up. Because last week of that month is also washed out because there was no last Sunday, Saturday and all there, and long shutdown of all factory and all. So big customers' volumes or dispatches has been dropped out, heavily dropped, and SMEs was maintained. That's why our revenue was intact, and margin level is also intact. Q4, again, because that pattern is going on, that's why we are not excited about more optimistic about the uptake in any volume in this quarter. That's why we are slightly cautious because this pattern is not improving overall in manufacturing side. You see the factory output number, and you see the other numbers related to that.
So scenario is like that and next year, yes, there is an election year, so we are more cautious about that because it's too early to say something on that part. That's the only reason we have.
Sir, this is not a question of clarification for the moderator. But sir, when you say cautious approach, you mean 10%-11% growth or you mean even lower than that?
For next year?
Yes.
Yeah. We will get double-digit growth in next year.
Okay. Great. Sir, the second question from my side actually to Mr. Agarwal, actually is a slightly more broader question. Sir, logistics as a percentage of GDP is expected to fall because of efficiency, right, broadly. But the scale for organized players and opportunity will grow up. We understand that, right? But sir, on a slightly broader basis, do you believe that at some point in time we will have to relook our strategy of growth versus margins? We understand you are the top launch at the margin of 10% net profit margin. Very few, I do not know, but no logistics player has achieved and for long you have been doing that. But then there are top-line growth some companies are still showing. I am talking of operational growth, forget other income and profits, but top-line growth.
Is it that at some point in time with efficiency customers would ask for lower pricing? We understand that inflation is there. Do you think there will be a case for us to relook this strategy of growth versus margins over the next two, three years?
Let me start by saying that logistics cost is, whatever reason you said, is not a function of that. Logistics cost is a function of the cost of fuel. India, cost of fuel will always be high. Please always keep that in mind. Number two, we are not substituting profit for top-line growth. I want to be very clear, and I want to be extremely transparent about it that we are not doing any of that. The point is that India saw good economic growth after GST was launched in 2016. Since 2019 it has fallen, number one. Number three, if in India you give up your margin, it will never come back. 15 years, companies are trying to make profit, they have not made profit. Eight years, companies which were acquired here, they have tried to turn around, they are not able to turn around.
I don't think it's a direct correlation of top-line growth and bottom-line growth. It's a question of the state of affairs of the economy. We can be a normal, regular FTL player and have INR 20,000 30,000 crore revenue as a group, it's no problem, but what will be the margin? It will be lesser than what we are making. We have to be very cautious in not diluting what we want to achieve as a company and as shareholders.
Thank you very much. Mayur, I'll request to come back for a follow-up question. I request to all the participants, please stick to two questions per participant. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Sir, thank you for taking my question. Sir, in line with your answer which you just gave, what has to change in this sector for companies like yours to both grow reasonable as well as generate the profitability that you are doing? Do you think something needs to change in the industry? Do you think it is just a function of some weaker hands going away and everybody else getting better pricing power? It is very high level, but what do you think needs to change? Because it is never both growth and profitability coming together, so what would be your answer?
What needs to change is that the unorganized segment, their share has to come down, which is happening. Which is happening very strongly, which is being controlled by the government.
I think this will be a major factor for the benefit to come in. I do not think that any company or any organization would like to give up either or. In essence, you have some companies which have been trying to do everything and possibly acquisitions and all that, and yet not even INR 1 they are able to make. I think where we want to be is something that we have already planned out, and numbers can, of course, come down and go up only because of the fact that the environment that we operate in. All the large logistics groups also in the country are not posting any very high 10 double-digit growth or anything like that. We should be always mindful of the real reasons behind what is happening.
Sure, sir. Sir, maybe I can follow up with one more question. In light of that, obviously, you spoke about growth in terms of GDP versus what market is building and could be very different. As you are doing your capacity planning, say, for the next two, three years, in light of all this talk about manufacturing growth in GDP and things like that, how are you looking at how you want to grow your capacity over this period?
What do you mean by capacity? Capacity of what? Sorting centers or trucks? I am not sure.
Yes. So sir, trucks, sortation centers, like overall your.
I do not plan on trucks. We do not plan on trucks because that is not part of our asset proposition.
We do not own any trucks. We do not pay emphasis. We do not lay emphasis on an asset which is money losing. We pay emphasis on how our capital value can be increased by doing automation in our existing sorting centers. I think already it is mentioned that we will be automatizing about 10 sorting centers going forward.
Okay. Thank you, sir.
You should come and have a look at the one that we have in Delhi, so you have a fairly good understanding of exactly what how the logistics landscape is.
Sure. Will do that, sir. Thank you.
Thank you.
Thank you. Next question is from the line of Lokesh Manik from Vallum Capital Advisors. Please go ahead.
Yeah. Good evening to the team. My question, Chander Agarwal, was on your initial remarks on the subdued environment, macro environment. Would you be able to share as to which sectors are seeing subdued growth? Is it more concentrated to a particular sector or is it more broad-based in nature? If you can share something on that, it will be great.
Yeah, Mukti Lal and Pabitra Mohan Panda, please.
Basically, we are seeing that except pharma and engineering, all sectors impacted by this subdued environment. Like if you talk about electronics, if you talk about textile and lifestyle products, because discretionary purchase is still not happening and—
Okay.
Yeah, similar way. All sectors impacted except these two sectors. Otherwise, all remaining sectors are impacted. Yeah.
Great. That's it from my side. Thank you so much.
Thank you. The next question is from the line of Vishal Agarwal from Leo Capital. Please go ahead.
Sir, thanks. Asking the question again. How much is the yield difference for hub between the MSME accounts and the key accounts? Are these accounts both served by the same team and the same branch network, or is the branch network mainly for MSME clients and key accounts are handled centrally?
This is very good question. Basically, network is both customer is same on longer haul, obviously. These are going like we have the hub-and-spoke model where we plug the cargo at branch level and then consolidate that and then forward to origin sorting center. Then longer haul, we're sending this longer haul and then from that location to delivery location and then customer. That fundamentally is same kind of network we are operating. Obviously, there isn't a huge price difference or you can say like sometimes more than 20% price difference in between these two kind of customers.
Understand. Because the middle mile is common, because on the long haul it is the same, but in terms of sales representatives or in terms of pickup infrastructure and all, is that different for both of these?
Yes, you rightly said. Basically, branches are the main source to be like make the marketing for the small customer because they need to go door to door in a nearby area and ask for the business and visit all the small factories and everything. For big customer, we have the big team at all the level of controlling level, region level, and this corporate office level. They are like really pitching to big customers and everywhere.
Understood. How many branches do we have and how many sales team members do we have in the central team for the big customer?
We have the branch network is of 950 branches we have, and central team put together like at around 200 persons we have.
Got it. I think the sales mechanism is very different—
Sorry to interrupt, Vishal. I will request to come back for a follow-up, please. Thank you. The next question is from the line of Akash from Dalal & Broacha Stock Broking. Please go ahead.
Yes, sir. Thanks for the opportunity. My question was—
Akash, your voice is not coming.
Is it better now?
Yeah.
Yeah. My question was regarding EBITDA margin guidance that you all had given that, with a lot of automation and operational efficiency coming through the new sorting centers, our margins will eventually improve to almost 17.5%-18%. But now, I think we have changed our stance. I would like to know the reason, sir.
Your voice was not clear. Can you come again, please? I am not able to understand the whole question that you asked.
The line for the participant dropped. We will move to the next participant.
Yeah.
The next question is from the line of Anshul Agrawal from Emkay Global. Please go ahead.
Hi. Thank you for the opportunity. Our FY 2025 target for new services as a percentage of contribution to top line is 25%, while we are currently at around 17%, 17.5%. How do you plan to reach there, is my question, and if you could just give some understanding about the margin profile of these new services. Are they intact at around 20% currently?
No. Basically, if you see, higher margin level is almost 2%, 2.5% higher than other services. Specifically, air and Rail Express is a higher margin in comparison to surface. I think that would be share of services may not increase more than 20% in next year. Yeah.
Great. Sir, last question from my side. After Pune, which other hubs are we planning to automate, and by when? That would be all from my side.
Yeah. Basically, next would be Ahmedabad and Mumbai, Chennai. Ahmedabad construction will soon start. I think next year, FY 2025, we will start the construction and then we will put the CapEx there, the automation. Then obviously, subsequently followed by Chennai and Mumbai.
Chennai and Mumbai will start in 2026?
Yes.
Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. Next question is from the line of Ronald from Sharekhan. Please go ahead.
Yeah. Hello. Good evening, sir. Sir, I wanted your views on the kind of growth we are seeing. Like we have been-
Ronald, your voice is not coming clearly. Can you please speak through the handset?
Now is it audible? Yeah. Sir, I just wanted your views on the kind of growth we are seeing. We have been seeing more of a government-led CapEx and manufacturing CapEx has been slow or private CapEx has been slow. So one thing on that growth, whether we can cater to this kind of government CapEx related growth maybe into infra segments or say EV segments or such kind of segments where government-led investments are there. Second one on the growth versus the consumption pattern. We have been seeing consumption at malls or say at those points remaining high for lifestyle or garments or those kind of things, but small MSME shops or SME shops are not showing that kind of growth. So how can you maneuver these things with respect to private and government CapEx and a premium luxury mall, catering to those and mom-and-pop stores?
Yeah. Chander Agarwal, would like to answer?
Chander Agarwal, I believe your line is on mute.
In general, I think the growth that we have seen now, the profitability that has also come is because of the SME sector. We have been fortunate that the margins were maintained because of that. In general, what I also understand that going forward, the trend will remain the same. The customer that is a small customer SME, always has this one desire that his material reaches on time, reaches safely, and reaches without damage and there is someone who can listen to them. That customer base will always remain. I think this will be, and with our ever-expanding branch network, and as per what we had planned, they will have a very important role to play going forward.
Okay. Your view on government and private CapEx?
The CapEx, as you very rightly said that it's not at all happening. No new industries are coming up. Even the current manufacturing people are not expanding the manufacturing base.
We have heard about the PLIs and all that, but on the real ground, it is very different. I think going forward, even what the government has planned is to first build the basic infrastructure of the roadways and the highways, and then they will look at essentially, possibly, hopefully, looking at even lowering the cost of fuel, which I think will be the major reason for overall economic growth and prosperity.
Okay, sir. Thank you, sir. Understood.
Thank you.
Thank you very much. Ladies and gentlemen, we will take the last question for the evening from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thank you for giving me the opportunity. Sir, a few questions from my side. One is, what would be the average fleet size that we will be using in our mid-mile segment, the larger trucks I mean, from hub to hub?
Majorly, I am answering on that. The maximum size of that truck is 18 ton and on few routes we also. You can take average like 15 ton or 16 ton average on mid-mile.
No, sir. I mean, when we say 83.5% utilization, what would be the number of trucks that we would deploy on the mid-mile side of our business?
Yeah. We give a number on our presentation, is around, I think 2,000 numbers of trucks which we put on that mid-mile.
Okay, sir. Sir, next question is on the line of, given our mixed model investments within our fixed assets that we are doing for the first time, which is in terms of sortation centers, the conveyors. Let's say we have just done one and then second is underway. Once at least 10 of them are automated, to our mind, what is the kind of return on this investment that we envisage in terms of could be INR 400, INR 500 crores that we invested, we get operational efficiencies, but then when it's close to the bottom line, is it 20% kind of return on our capital employed? Is it 30% kind of return? How do we measure that? What is the evaluation aspect of it?
Yeah. This is very good question. Basically, these all are the sorting centers. New age sorting centers are basically backbone of all our operation, and we want to be improved, like more efficiency and want to reduce the turnaround time for cargo from across India. Because now as just we dealing with only one center and now the second is underway, you rightly said. After that, we will be seeing the more benefit because then probability of correctness, probability of time is there, because we will be, as we mentioned in last time, there is a reduction of halting time has been heavily, we reduce almost 60% time in this center. Next center will be also helping and once we will be reach on these 10 center, then we'll be in a much better way we'll be execute the cargo.
That sense and another aspect of this, because we building up this center for 15, 20 year, not for the short term or medium term of five to six years. Obviously near term, returns are slightly less, but ultimately we want to be like payback period of six to seven year max for these centers. These centers of life is 15- 20 year at least for every center.
Okay, sir. I understood. We are looking at it from a long term point of view, long term benefits of the investment point of view. Okay.
Yeah.
Sir, can I squeeze one last question?
Please.
Sir, would there be any differential in growth rate in terms of volumes in last three years, with the industry leaders, the closest industry leaders, and why would that be? That is all from my side. Thank you.
Sorry. Come again. We could not last.
Sir, would there be any differential in growth rate, in terms of volume, in last three years, with our industry leaders, the one serving the same segment? Would there be a difference in growth rate, volume terms, in last three years, and why would that be, in your reading or your observation?
I'm really not able to understand what you want to try to ask, actually.
Sir, given our volume growth in last three years, would it be substantially different from volume growth of the industry leader operating in the express segment?
Yeah, it is. Yes. Basically, if you see what kind of environment we are operating like in an express segment, which is part truck load business and express, that is completely different and we seen the growth in like in FY 2022, we grown around 28%, and FY 2023, we grown 16%, and this year is only challenges. We can say yes, and obviously like our MD has said, we are in a running in a both way. We need in a growth handle as well as profitable growth. We are not compromising on a margin level. In that sense, in a challenging time and other guys like going up and then going down heavily and then come up way again and then. That's why we are not going, we are consistently.
Our strength is our employee network, our branch network, which is owned by us, and sustainability of all complete. Supplier side, we are also having the long relationship with them. Our relationship with our SME customer is intact, like other rightly someone has rightly said, no one is really able to maintain their level of business with them. They're facing lot of challenge, but we not, because since last two decades, we have a good relationship with them, and that's why we are opening other branches. If we deal with only law or big customer, then we don't need the branch at all. In that sense, yes, we are differentiate ourselves in many terms. Other biggest aspect, everyone is talking about IT improvement, but we are talking about operation efficiency.
That's why in this B2B industry, we are the only one to putting this automation in the sorting center. I can say, yeah.
Thank you, sir.
Yeah. Thank you.
Thank you very much. Ladies and gentlemen, we'll take just one last question from Akash from Dalal & Broacha. We will not be able to take any more further questions. Akash, please proceed with your question.
Yeah, thanks for giving the opportunity once again. Just wanted to ask, regarding the EBITDA margins. A couple of quarters back, we were promising that due to the automation centers and operational efficiency of the sorting center, we would be able to scale those margins to 17.5%-18% in the longer term. Now we have changed our stance. I just wanted your comments on that.
Yeah, you rightly asked. Basically, our cost reduction due to that automation, we have taken a target of 35-40 basis point reduction, and we already did of 25% reduction in cost. These two things are simultaneously. Obviously, supposing we could not have this automation, then we will not be able to even what kind of margin we right now have. Even to maintain the kind of margin level of 16% is really challenging in this year. You can see drop of these other players is heavily drop of 40%, 50%. Other aspect of that, the service level, what we are providing to customers. Our resilience with this, all kind of customer due to this efficiency we created through this automation is really fantastic and customer admire that.
That is why I think we are able to, in spite of that, there is a flattest growth, we are able to maintain margin levels. I can say. Again, Mr. Chander Agarwal has mentioned in time to come, obviously, we want to be back to that trajectory of 17%-18% margin back.
Thanks.
Yeah.
Thank you. That was the last question for the evening. For any unanswered or follow-up questions, you may get in touch with Navin Agrawal at SKP Securities. I would now like to hand the conference over to Mr. Agarwal for closing remarks.
I must thank everyone for participating TCI Express town call for the financial year 2024, quarter three. We have been experiencing a tough quarter and year. Yet we have maintained our margins, and we strive to always keep our shareholders and our vendors, and our customers, our top priority. With that, I must thank you all.
Thank you, everyone.
Thank you very much. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.
Thank you, sir.