Ladies and gentlemen, welcome to the Q2 and H1 FY25 earnings conference call of TVS Supply Chain Solutions Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions, and expectations of the company as of the date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star and zero on your touch-tone telephone. Please note that this conference is being recorded. Now, I hand over the conference to Mr. Girish Shivakumar of TVS Supply Chain Solutions Limited. Thank you, and over to you, sir.
Thank you, Lindsay. Good evening and welcome all to the TVS Supply Chain earnings call for Q2 FY25 and H1 FY25. I hope everyone had a chance to look at the earnings results and investor presentation, which were recently posted on the company website and also in the public channel. We have with us today Mr. Ravi Viswanathan, our Managing Director, and Mr. Ravi Prakash, our Global CFO. We'll commence the call now with opening remarks from our management team, followed by an open forum for questions and answers. Before we begin the customary remarks, I would like to point out that some of the statements made during this call may be forward-looking in nature and must be reviewed in conjunction with the risks that the company faces. A disclaimer to this effect has been included in the earnings presentation, and I now hand it over to Mr.
Ravi Viswanathan, Managing Director of the company, to make the opening remarks.
Thank you, Girish, and good evening to all of you. Firstly, let me welcome all of you once again to our earnings call to discuss the performance in the Q2 fiscal year 2024-25 and for the first half of the fiscal year 2024-25. I will share with you the highlights of our performance, and as always, my colleague, Ravi Prakash, our Global CFO, will take you to the analysis of our numbers. We look forward to interacting with you as part of the Q&A session. Before I begin, it is customary that I provide a brief background to our company to the benefit of those participants who might be joining the analyst call for the first time. TVS Supply Chain Solutions is a tech-led and asset-light supply chain solutions provider with capabilities across the value chain.
The company has two main business segments, namely Integrated Supply Chain Solutions, or the ISCS segment, and Network Solutions, or the NSS segment. Our presence spans two continents: Asia, Europe, North America, and Oceania, with a diversified customer base spread across multiple sectors. We offer bespoke and tailor-made solutions to our customers, so our customer contracts are generally long-term in nature, and our customer services are predominantly in the 3PL space. In an evolved overseas market, we also offer 4PL service in the ISCS space. To summarize, TVS Supply Chain Solutions is a company with a strong regional base and a global presence, offering best-in-class supply chain solutions across the globe. Let me give a brief business overview, followed by the operational highlights and financial performance in Q2 FY25 and H1 FY25, and our focus areas for the remainder of the year.
The ISCS segment continues to drive the overall profitability of the company through robust customer contracts and pricing benefits. In the freight forwarding segment, the company grew its revenue impressively despite the macro both in the ocean side and mainly the ocean side of freight traffic. Firstly, the Red Sea situation is continuing, where quite a few carriers are being diverted via the Cape Route, thereby limiting their effective carrier capacity, triggering longer voyages, increasing fuel consumption, and therefore running costs. Secondly, this quarter also saw dock workers' three-day strike in U.S. ports, which impacted 36 ports in the Eastern Coast of the USA. This strike impacted routine clearance and caused unusual delays in freight clearances across the eastern seaboard.
As informed in the previous call, the Integrated Final Mile, or the IFM segment within the Network Solutions segment, is in the turnaround phase, where we are witnessing the benefits of process excellence through digitization initiatives and smart cost reduction measures. We expect by the end of H2 FY25, the IFM segment will be back to run rate proper limits. Now, moving on to the performance highlights for Quarter 2 of fiscal year 2024 and H1 of FY24-25. Firstly, we continue the momentum of the quarter-on-quarter profit-led growth for the successive quarter as envisaged. Q2 FY25 consolidated revenue remained flat in comparison with the previous quarter, while it grew by 11% on a year-on-year basis. In terms of segmental performance, both ISCS and NSS segment grew on a year-on-year basis. Business development continues to be robust across the segments and contributed 12.4% of the Q2 FY24 revenue in this quarter.
The company reported a PBT of INR 17.9 crores for the quarter, reflecting strong resilience and orderly performance. Now, a quick look at the H1 FY25 performance. Consolidated revenue for H1 FY25 grew by 11% compared to the corresponding previous year. PBT for the same period H1 FY25 was INR 31.6 crores, reflecting progressive turnaround compared to the loss in the corresponding year. With this brief background, let me hand it over to Ravi Prakash, our Global CFO, who will then take you through a detailed analysis of the numbers.
Thank you, Ravi. Good evening, everybody. An opening comment: the Q2 results reflect the benefits of sustained revenue growth and our ability to manage our borrowings in a very tight band. That's what's driving the PBT performance. Let me walk you through line by line. Q2 FY25 revenue was INR 2,512.9 crores compared to INR 2,269.9 crores for the same period last year. This represents an 11% growth year-on-year. And this growth was quite driven primarily by the network segment, but also a pretty strong performance in the supply chain segment. The ISCS segment grew 6.2% on a year-on-year basis. The network segment grew impressively. It delivered a quarter-on-quarter growth of 4.6% and 17.2% on a year-on-year basis. This was driven by healthy volume growth in the forwarding business, which is also supported by higher ocean freight rates.
Revenues from business development maintained their momentum, with 280 crores being clocked in this quarter. This reflects a pretty healthy order pipeline. We have shared the numbers in our earnings presentation. The pipeline today stands at about 4,500 crores. So the combination of volume, ISCS momentum, and business development helped sustain the revenue performance. Other income for the quarter was 28.6 crores, and that was primarily due to interest from bank deposits and forex deals. With this, the total income for the quarter was 2,541.5 crores, which is an 11.9% growth on a year-on-year basis. When we look at H1 performance versus H1 of last year, the revenue performance is quite similar. We again grew 11%, pretty much in line with what we have been indicating in the past. So the number was about 5,552.3 crores, so the corresponding number of 4,551.8 last year.
Segmentally, ISCS grew 7.2%, while network segment revenue grew 16%. Now, I'll quickly move to an explanation of how some of the major expense line items have evolved. Material costs for the quarter were about INR 434.3 crores. They reduced on a quarter-on-quarter basis, but increased on a year-on-year basis. The simple explanation is this is due to the change in the business mix in some of our overseas entities, which actually carry inventory as required on some contracts. However, any fluctuation in the inventory costs has been offset within the gross margin through either operating leverage or efficiencies. Freight clearing, forwarding, and handling expenses have been variable in nature, increased due to the higher volume of freight handled in the GFS business, and that is due to additional surcharge levied by ocean carriers on account of the Red Sea situation.
That's the reason that this expense line was up by almost 30.7% year-on-year basis and 1.6% on a quarter-on-quarter basis. Employee benefit expense for the quarter was Rs 576.2 crores. It's kind of flat both year-on-year and on a quarter-on-quarter basis. This reflects the fact that we are deploying additional manpower only as required within the gross margin of incremental contracts, but otherwise having a pretty tight rein on our employee costs. On the EBIT, Q2 EBIT numbers probably are better read after normalizing for the impact of forex losses and business transactions to the extent of about Rs 7.51 crores. Normalizing for that, that would reflect a 6.9% growth year-on-year.
In conclusion, the ISCS segment continues to drive overall profitability, where you can see that EBITDA margins have increased almost 11%, and PBT margins have improved 100 basis points versus the same period last year, leading to INR 17.9 crores PBT. We expect to build on this momentum in the ensuing quarters. I'll be happy to provide further detail during the question and answer session, and I'll hand it now back to Mr. Ravi Viswanathan.
Thank you, Ravi Prakash, for the analysis. Let me touch upon business development and key engagements. The sustained quarter-on-quarter profit led by growth is backed by strong BD. Our BD contributed about 280 crores for Q2 FY25 and Rs 526 crores for H1 FY25, reflecting robust performance. We have those details in the investor presentation, pages 11 to 13. We informed in the last earnings call how the company is able to win large deals in the mature markets, both in the UK and in the US, after winning transformation deals in the UK and USA. During the quarter, we won a significant new contract with a large industrial customer in North America. This is a multi-year transformation engagement with a total contract value in excess of 2,200 crores.
This long-term transformation engagement is a testimony to TVS SCS' specialized capabilities in complex assembly and automation and the value that we bring as a supply chain outsourcing partner. Further, in the ISCS segment, we had a global auto OEM based in the USA, a leading beverages company in the U.K., an engine manufacturer based in India, a global agri-equipment company based in the USA, and also from a kitchen equipment management company in the U.K., where we have one fresh business. Some of the new customers in the network solution segment included a global engineering equipment manufacturing company, a system integrator IT services company, a two- and three-wheeler manufacturing OEM in India, and a global digital equipment manufacturer based in the U.K.
As in the past, the pipeline of new opportunities continues to be strong, and we are building on that strength quarter on quarter, and currently presents a revenue opportunity annualized in excess of Rs 4,500 crores. In the last quarter, we announced a seven-year strategic multi-supplier framework contract with a UK agency for providing critical systems, spares, and support, ensuring enhanced availability and operational readiness for their customers worldwide. TVS SCS UK continues to be a key contributor for meeting the aspirational needs of the UK government agencies towards value creation. We also secured a new business contract from a leading manufacturer of earth-moving and construction equipment for managing their in-plant warehousing and logistics operations at their facilities for three years. This contract further signifies the growing contribution from the company to customer needs over the last two decades.
The company, with its widespread geographical presence, has been catering its bespoke solutions to multiple marquee customers. Through our global account management program, we have embarked on tapping across selling opportunities within each of the identified marquee customers. Currently, we have more than 190 proposals across these global accounts, valued at approximately Rs 1,800 crores, which are in multiple stages of contract structuring and negotiations. This capital base augurs well for revenue maximization and growth in the ensuing quarters. We continue to focus on delivering state-of-the-art IT-enabled solutions and security features enabled for every business area. We delivered an end-to-end IT solution on order to cash and procurement to pay for a key auto OEM based in Singapore as part of our customer value enhancement during this quarter. As part of our security enhancement, we successfully moved to ISO 27001 standards in Singapore and USA with minimal/no open non-conformances.
Deploying AI at scale is something I spoke about earlier and is a key focus area. In this regard, I'm glad to call out the following initiatives. We have an AI pilot project with a large language model being used to support new business bids. We have a Polarized Light Damage Detection deployed for beverage clients in the UK and an Auction Price and Target Bidding Module deployed for courier lines in the UK. In summary, the Q2 results demonstrate our ability to sustain growth momentum in both revenue and profit amid ongoing macroeconomic challenges. New business wins have added INR 280 crores of revenue for the quarter. Our global account management strategy helped us close large deals. That gives us the confidence of sustaining the growth momentum.
Overall, when I look at the ability for the company over the last three quarters to close large deals, coupled with the fact that our pipeline is steadily increasing, and given that there is a significant bias in this pipeline from our global accounts that we work with, it gives us tremendous confidence going forward that our revenue engine is chugging very, very efficiently. Ravi Prakash spoke about the ISCS margins, and we are at about 11% margins in the ISCS business, and with the Network Solutions segment getting its improvement measures that we have implemented and confidence that the IFM will return to run rate profitability by the end of this fiscal, we are extremely bullish about what happens going forward. Overall, the results reflect our resilience in navigating a complex environment, and we remain confident about our profitable growth in the coming quarters.
With that, let me open the floor for questions. Thank you.
Thank you very much. You can now begin the question and answer session. Participants present on the audio bridge who wish to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vaibhav Shah from JM Financial Limited. Please go ahead.
Thanks for the opportunity. For T1 margins this quarter, are these margins for especially ISCS business at 11% sustainable in the second half and even in the next couple of years?
Vaibhav, any more questions, or can I just go ahead and take the answer?
Yeah. Second question is that for the new order that we won, INR 3,200 crores, so how bigger is the contract, and how would the revenues flow over 2020 and 2027?
Yeah. So Vaibhav, first on the ISCS margins, look, we've always been guiding that the margin around 10%, 10%-10.5% would be our target margin for this segment. So I would kind of say that is what probably we would look forward to in the next few quarters. The 11% is kind of we had a very strong quarter where two, three factors came together. A couple of contracts, we were able to invoice some of the startup, what do you call, consulting-related services and stuff like that initially. So I would say a more sustainable level is probably around 10.5%. That's what you should look forward to in the remaining quarters. In terms of the large contract that we talked about, we have started the build-up of the contract. The initial invoicing has started, but it will ramp up slowly.
The full benefit of this contract will be seen from Q2 of FY25. That's when we'll hit the expected run rate revenue for this contract.
Can you say about the contract by revenue annually, and how long is the duration of the contract?
Let me take that, Ravi Prakash. Let me just say it's multi-year, more than five years. I'm restricted due to confidentiality on the term, but let me just say it's multi-year and more than five years in terms of contract duration. We expect the steady-state revenue to be around about $30 million. You can do the math there.
Okay. And sir, lastly, on the exit segment, we saw the margin increase to 2.3%. So can we expect around 4.5%-5% margin in the second half? Is it going to take some time to recoup maybe in the next quarter?
So look, 4 and a half, I would say. Probably an exit this year is probably where we'll try and hit 4 and a half. So look, we looked at the NS margin in two steps, Vaibhav. The last quarter, we were doing about 4 and a half. So the first step is to get back there, and that I would expect probably Q4, we have a chance of hitting that. But the ultimate goal remains at 7, and that probably in the next three to four quarters, we'll get there. I'll also offer a comment in terms of what's driving the margin this time, why we've got a hit on the margin. The Red Sea situation has added about 80 crores of revenue with literally no margin to the top line. So that is one factor. The second one is in the IFM business.
We had messaged earlier that we expect the turnaround to be completed by Q3 and Q4 for the company to help business to hit run rate profitability. We are still on the same track. The IFM situation is all the cost measures and pricing measures we have taken are helping. We expect that by the end of this calendar year, those should be completed, and we should start seeing the benefits in Q4. That's why I'm saying that Q4, we should probably get back to initially about four, four and a half, and later on then aim for a more sustainable seven in the later part of next calendar year.
Okay. Thank you for the summary and the end of Q3, 3.5%. Somewhere between the Q2 and Q3 margins.
Maybe we don't want to put a number on that, but I think I've given you a trajectory that should help you.
Okay. Thank you, sir. Those are my questions. I will get back to you.
Thank you.
Thank you. The next question is from the line of Graham Shah, Robert Miller Securities Private Limited. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yes.
Yeah. So this question firstly, so the ISCS revenue India, if you see, probably last seven or eight quarters, the revenue has been quite stagnant. I guess in the first quarter, the comment was that because of the election and all, the revenue has been hit during that particular quarter. But if you see, this quarter also, it is down on a sequential basis. So what is happening in the ISCS India business, the kind of run rate we can expect going forward from this particular quarter?
Okay. Any other questions, sir?
Yeah. We can go one by one, I guess.
All right. So yeah, you're right. The first quarter was more to do with the macro. I would say the macro didn't significantly change, but we also took some significant correction in our business mix. So we exited some of, I would say, not-so-profitable revenue items in this quarter. So hopefully, we'll get back to hitting the trajectory from Q4 in our model, that's the way we look at it. So this quarter, predominantly, we focused on profitability and exited significantly, I would say, a couple of significant customer contracts which were impeding our profit growth.
Got it. In terms of the network segment, as we are targeting 7% margin, if you can explain a bit how we would be going to that number. And what I understood from a normal industry perspective is that we can have additional margin in IFM business, but forwarding, we might be having similar margin going forward as well, and Reg C is also going out, and our revenue might be impacted because of the lower ocean freight rates. So how we would be reaching 4.5% exit rate this year, 40% in less than next one or two years' time, what would be the things that we would be doing specifically in the freight forwarding segment that might be, as you know, is it just IFM that we are looking at the margins?
So let me take that question. I would think of two levers. See, the Red Sea situation is, at some point, I mean, if you think of the P&L of the freight forwarding business without the Red Sea, you would already probably add 40-50 basis points to that segment because you'll slip away unnecessary revenue and unnecessary costs, which are just inflating both lines. So that's the first step. The second step is, I think, as we have seen over the last couple of quarters, freight rates in general have normalized except for the Red Sea. So therefore, margins are returning to a more normal level, which if you went back in history, we were able to do about 7% in the margins in the freight forwarding segment. So we are actually not very far away from that on the freight forwarding segment, right?
Now, on the IFM, honestly, what is really pulling us back at this stage is the IFM margins, which also used to be in the range of seven or upwards if you went back a few years, those are tracking significantly below where we expect them to be. We had talked about it in the past. It is because of a number of reasons, a few profitable contracts that we had that were wound down, inflation in the UK, because of then there is increase in minimum wage in the UK, energy inflation so a number of factors which have come together. We have put in place measures to address all this, both pricing as well as cost measures. I always said that by end of Q3, we should be able to hit a more reasonable number there, and I believe we are on track for that.
Q4 should be the first step, so the IFM business, which is almost INR 1,800-1,900 crores of revenue on a run rate basis, the moment it hits reasonable margins, already you'll see the impact on the network segment, and that I expect to happen in Q4, and afterwards, when it hits its more normal run rate, that is a second step towards getting back to the seven, so that's the two steps that I see in this segment.
Got it. So from a longer-term perspective, we see from the next two to three years' perspective, we are having a really good order inflow as well as a really strong quarter pipeline as of now. What we are foreseeing in terms of the top line growth, what kind of percentage revenue growth we can expect in the three years' perspective, or maybe let's say the general perspective on a percentage basis?
We are pushing to have a double-digit growth, and we are targeting somewhere in the mid-teens. That's the range you can think of as the rate of growth over the next two to three years.
Okay, so just one clarification question. What has been the freight forwarding this quarter? It was Rs 7.51 crores, if I'm not—
Huh?
No. So at this point, you reported around 28 CR. What was the forwarding gain out of this 28 CR?
About INR 14 crores.
Okay. Interest would be around 78 CR?
Yeah. That would be the number.
Okay. Got it, sir. This is how much it is. Thank you so much, sir.
Thank you very much. Participants, if you wish to ask a question, press star and then one on the touchtone telephone. The next question is from the line of Ritesh Poladia from Girik Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. Sir, my question pertains to the supply chain side of the business. India, as you explained, there is a disconnect. So how is the future going forward? The growth will be led by the new customers, or it will be volume growth from the existing customers? Also, which sectors we are targeting from India side?
India is a very interesting situation in India because there is definitely a lot of interest for a lot of companies to look at the China Plus One strategy or the India strategy, right? And therefore, that is remaining a potential opportunity for us. We expected that to materialize sometime this year, but the velocity of that is not as much as we anticipated. So going forward, we clearly see that as an opportunity. We clearly see a lot of MNCs moving their part of their production based or their procurement based to India. That will give us opportunities both in the ISCS segment and the GFS segment. We are in dialogue with a couple of our large global accounts who are looking at that as a strategy, and clearly, that will represent an opportunity for us too. So I would call that as new revenue.
Then for us, the sectors that we look at, clearly, we look at distribution, FMCG. This is a sector where we are seeing a lot of opportunities. We are already participating in some of that, and therefore, we look at that growth continuing to deliver, so that will be more what I would call an incremental opportunity. As the volumes go up in each of these businesses, we will tend to grow. And of course, we have a fair exposure to auto and oil, and it is a good mix of two-wheeler commercial vehicles and passenger vehicles. We see a clear uplift in the two-wheeler segment. The other two segments are still, I would say, flat to tepid. We expect those two sectors also to deepen as we go forward over the next two to three years, maybe even in the next four to five quarters.
We expect these two sectors also to start showing significant departure from their stagnant position.
For India business, can I have a flat revenue at least towards the end of the year, or the decline will continue?
What was the question again?
Turnaround again for the year-on-year basis, can we see the flat revenue on year-on-year basis, or there will be a decline even on full-year basis?
So there will be a marginal improvement, but on a year-on-year basis, it may probably remain flat.
Okay.
Yeah.
Also, in the rest of the world business, you have delivered about 15% growth. But how do we see in the rest of world business, given your aspirational revenue target of 15 trillion rupees? What can be the growth going forward?
That's why I was saying that for us, the growth number should be in the mid-teens as a company because as we return to normalcy in the network segment, as you can see, network solutions are already now at about 17% growth. The ISCS business, we think, will be in the 12%-13% growth as a company. That will be aided both by, I mean, the rest of the world and India business. The rest of the world is, if you look at the pipeline, it is split exactly in terms of how the revenue split is. It's about 30% India and 70% non-India in the ISCS business. The rest of the world will continue to keep its growth trajectory. Yeah, we continue to push ourselves to get to that number, which is an estimated number of 2.5 billion.
Yeah. And last question would be, there is a new contract of INR 2,200 crores with the USA customer in North America. So what's the duration of this contract?
I just mentioned to a previous question that we have bound the contract not to disclose the duration, but I did also mention there's multi-year, and you can put a number greater than five years, and our annual billing would be about $30+ million, so you can probably look at it that way. Yeah.
Okay. Yeah. That's what we want to say. Thank you, sir.
Yeah.
Thank you very much. Part of this is to ask a question. You may press star and then on the touch-tone telephone. The next question is from the line of Vishwan Dhudia from Ashika Institutional Equity. Please go ahead.
Good evening, Joanne. So my first question is, I want to actually understand the interest cost and debt. So last year, we had a decline in our debt and a 45% decline in interest cost. And this year, if I see our debt has increased in the first half, so what are we looking at as an exit for FY25 in terms of debt and interest cost?
So from our interest cost, Q2 should represent pretty much where we are going to be for the next couple of quarters. I think from our actual interest, it was about around Rs 18.1 crores, and that's where we expect it to be for the next couple of quarters. In terms of gross debt for the company, I think we will probably be pretty much where we are today. I would say the gross debt, just give me a second in terms of the number. It has gone up by about Rs 100 crores in the last quarter. We expect that maybe in the next couple of quarters to fund a couple of working capital initiatives, maybe another Rs 50 crores. So we might end around 900-950. That's the range.
But then rates are coming down, interest rates, so that's why I would kind of keep the interest cost at the same level, around 18 to 18, around 18.
Sorry, guys. Next second question is, in the last few quarters, we have been seeing several contracts, and I want to understand what is, I mean, in what stage are those contracts currently? Are we recognizing revenue from it, or is it still pre-revenue stage? Like last quarter, we had certain new contracts. This quarter, also, we have a new contract, so just wanted to understand the same.
So, see, this quarter, the supply chain segment actually benefited from some of what you would call the pre-revenue stage because even in the pre-revenue stage, we do get some fees from the customer for the initial planning and the setup cost. So that's one of the reasons why I said in my answer on the supply chain margins, we've got very elevated margins because we did get some unforecasted revenue from this large contract that we were messaging about, okay? The actual, I mean, what I call proper project revenue, like we said, for this contract will probably be Q2 of FY26. Now, this is an extraordinarily large contract, but in general, what you will find is that we have a standard life cycle for our contracts between three to six months from the time we actually win the contract to execution, and that's when we start recognizing revenue.
So last quarter, we were discussing about an agricultural contract based on U.S. or U.K. So are we recognizing revenue from that contract in this quarter?
Yeah. I mean, look, whatever we had messaged as last quarter, I think we are recognizing that revenue for this quarter.
All right. Okay. Thank you. That was it from my end.
Thank you very much. To ask a question, please press star one on your touchtone telephone. The next question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Hi. Thanks for the opportunity. I have a couple of questions. Sir, we have stated our vision for profits of $100 million, that is 800 crores in next three years. Whereas currently, we are still doing 10 crores of profits quarterly. So what do you think we can close this year at, and by when we can reach our vision of 800 crores of profits?
So look, the vision we had stated was that on our $2.5 billion revenue, we want to go 4% PBT margin, which is about $100 million, and that is profit before tax, not profit after tax. So I just want to clarify that. In terms of our profit, the way I would look about it is if you look at our trajectory for the last few quarters, we hit break-even in Q3 of last year. We hit about Rs 4.5 crores in Q4 of last year. Then we hit about Rs 13 crores in Q1 of this year, and now we are at Rs 18 crores. The endeavor of the company is to keep building this profit run rate sequentially quarter on quarter and obviously also build a profit margin also accordingly.
At the moment, we are just around about 0.5% margin, and we keep kind of if you keep building about. We always message that about 50-200 basis points is what we like to see as an improvement in every four quarters. If we stay on the track, we should be able to get to that run rate that we are talking about.
Okay. So gradually, maybe next year, we can have 2 percentage points and then the latter year 3 percentage points and then 4 percentage points.
Yeah. I mean, that actually is the outlook. Without actually putting numbers to every year, every quarter, we would like to do better than what we did in the last quarter, and we've been able to do that for the last three quarters.
Okay. And sir, almost all of our profits are eaten away by interest and depreciation cost. So are we planning to reduce this gradually or year-on-year as per our business model, this cost will keep on increasing?
No. In fact, we always said that the asset turns that you take, if you look at our asset turns over the last three or four years, you will see that consistently, and if you take the total fixed assets in the balance sheet, including our right-of-use assets, you'll find that the asset turn has been steadily improving. I mean, one of the calls, I still remember talking about the fact that there is further scope for improvement. So one thing is for sure, the rate at which our revenue and gross margin is growing, definitely the assets are not growing at the same rate. So there is operating leverage available there, and therefore, that would be one of the levers to actually improve the EBIT and the PBT.
Okay. That's it from my side. Thank you and all the best for future quarters.
Thank you.
Thank you. To ask a question, press star and then one. The next question is from the line of Sania Desai from Elevate Research Marketing. Please go ahead.
Good evening, sir. Thank you for the opportunity. I had a couple of questions lined up. My first question is, so you have mentioned that we won a large contract in North America in excess of INR 1,200 crores. Can you let us know the tenure of this contract? Also, is it equally spread across the years, or we will gradually pick up?
So Sania, I think as we'd already said, confidentiality prevents us from talking about the exact tenure. It is definitely more than five years. The revenue from the contract, a part of it, the pre-revenue, as we said, the startup part of it, we've already started recognizing. That's one of the reasons why the ISCS margin is elevated in this quarter. What we expect is between now and Q2 of 2026, FY26, we would be recognizing little bits of revenue as we get ready for the contract. The first full run of the contract revenue you'll see in Q2 of FY26, and probably by the end of calendar next year, the run rate will be achieved.
Okay. Sounds good. Also, what are the strategic priorities for investment? Do we focus on revenue enhancement, or we would want to stabilize the margins and the cost of our revenues?
Let me just take it, and then Ravi Prakash can add more. So clearly, for us, the focus has been in ensuring that we bring the NS segment into a target profitability. So there are two subsegments, the global freight services and the GFS and the IFM segment that is Integrated Final Mile and GFS. So in the GFS, the focus is really on saying, "How do we get better procurement and drive the margins?" On the IFM, it has been work in progress. We message that we are in good shape currently, and we expect that we hit a target run rate profitability by Q4 of this fiscal year. So the focus is to first return to profitability. We don't want to compromise revenue, but if it comes to that, that would be the focus. We have to prioritize profitability right, which is where we are currently.
Just want to message that trajectory is as planned from our internal perspective.
Thank you. You want to add anything?
I'll just add on to that. Look, we do believe that it is possible. We do believe that it is possible to add 1,000-1,200 crores of revenue in a profitable manner. I'm talking about overall as a company. That is what we've been trying to do. We are committed to this 50-100 basis points improvement in margin across the company at an EBIT level every four quarters. It is profitable revenue growth. That is what we are after.
Okay. Sounds good. That answers my question. Thank you so much. I'll get back to you.
Thank you very much. That was the last question. I would now like to hand the conference over to the manager for the closing comments. Thank you, and over to you.
Thank you, and thank you for your questions. In summary, I would just like to say, look, Q2 has been a good quarter. We continue our growth momentum. We have had significant large wins and also significant BD, which has enhanced our revenue capability and trajectory. Our ISCS margins are better than what we had planned, so we hope we can continue on that same trajectory. On the Network Solutions, clearly, there are challenges in the macro as far as the GFS is concerned, but I think we are riding that tide very well. There are headwinds coming from the Red Sea and other aspects, but it's a question of how well the management has navigated that. On the IFM, work in progress. We have reached a stage where we are well on track for business to return to profitability.
That tendency we can see from Q4 this fiscal and going forward, and like Ravi Prakash said, our target profitability or margin for the IFM business is about 7%-7.5%, and therefore, for the Network Solutions segment too, so I think when I look forward from a growth perspective and from the ability for us to manage the margins, we are well positioned as we exit Q2 of this fiscal. Thank you.
On behalf of TVS Supply Chain Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.