Ladies and gentlemen, good day. Welcome to the TVS Supply Chain Solutions Limited Q4 and FY 2024 earnings conference call. As a reminder, all participants' lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. J.S. Sivakumar, Head of Investor Relations at TVS Supply Chain Solutions. Thank you, and over to you, sir.
Thank you, moderator, and good afternoon to all. We welcome you to the TVS Supply Chain Earnings Call Q4 and FY 2024 full year, ended March 2024. We have with us today, Mr. Ravi Viswanathan, Managing Director of the company, and Mr. Ravi Prakash Bhagavatula, Global CFO. Our financial results and investment presentation have been posted in the stock exchange website and also the company website. We now commence the call with opening remarks from our management team, followed by an open forum for question and answer. Before we begin, I would like to point out that some of the statements made or will be made during today's call may be forward-looking in nature and must be reviewed in conjunction with the risk that the company faces. A disclaimer to this effect has been included already in the earnings presentation that has been shared.
Now, I hand it over to Mr. Ravi Viswanathan, Managing Director of the company, to make opening remarks. Over to you, sir.
Thank you, J.S., and good evening to all of you. Welcome you once again. We would like to discuss our Quarter four and our full year FY 2024 performance. I will share with you the highlights of our performance, and my colleague, Ravi Prakash, the Global CFO, will then take you through the analysis of our numbers. We look forward to interacting with you as part of the Q&A. Before I begin, I think, I will provide a brief background of our company for the benefit of those participants who might be joining our 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. We operate in two segments, the Integrated Supply Chain Solution segment, which is called ISCS, and the Network Solutions, or the NS segment.
Our presence spans 4 continents, Asia, Europe, North America, and Oceania, with a diversified customer base spread across multiple sectors. Our customer contracts are fairly long-term in nature, with an average relationship span of 12 years for ISCS segment and 11 years for the NS segment, reflecting the mutual trust and collaborative nature of the relationship. To summarize, TVS Supply Chain Solutions is an Indian multinational with strong local and global footprints in a competitive space with the best-in-class in the industry. The management focus is on capability, capability-driven customer growth with profitability. We pride ourselves with the fact that we have over 78 of the Fortune 500 companies as our customers, which has increased significantly from 61 just 2 years ago. With the growth of multi-customers, positions us favorably in our stated goal to be among the top 50 logistics companies worldwide.
With this short introduction, I shall now move the performance highlights for Q4 and year ended 31st March, 2024. We had a strong quarter and a strong year in the Integrated Supply Chain Solutions segment, with good growth, both on revenue and margins. The ISCS segment delivered sequential growth of 8.4%, and on a full year basis, it grew by 14.4%. ISCS segment revenues growth were broad-based across all our key geographies, namely India, Europe, and North America, through expansion of current customer engagements and new business wins, and this momentum will continue in FY25. The ISCS segments margins for the quarter were 9.6%, which was a 40 basis points improvement year-on-year, and on a full year basis, ISCS segment margins were 10.2%, which is 130 basis points higher compared to the year ended March 2023.
The Network Solutions segment or the NS segment, within that, the Integrated Final Mile revenues saw steady revenue growth on a quarter-on-quarter basis. The segment, however, faced margin pressure due to extraordinary inflation levels, mainly in the U.K. and Europe, which has started easing now. The Global Forwarding Solutions or the GFS business, which is the second segment within the NS, saw revenues for quarter four increase, reflecting the uptake and the demand after the slowdown on sea observed in the last few quarters. Ocean freight rates for the quarter were nearly at the bottom end of the curve, with near-term rate outlook being positive. On a full year basis, site volume, however, reflected the global industry trend and was weak across all our trade lanes. On a year-on-year basis, our NS segment revenues were 26.9% lower.
Our margins on the NS segment were consistent on a quarter-on-quarter basis at 4.5%. In IFM, we are currently implementing pricing revisions with our customers and executing operational efficiency initiatives aimed at margin improvement. In GFS, our focus has been on procurement efficiency and operational efficiency, which have helped soften the impact of low rates. Additionally, we have also taken specific cost reduction measures across both these subsegments. Between both the ISCS and NS segments, business development contributed 9% of the quarterly revenue and has been consistent with previous quarter growth. On a consolidated basis, revenues for the quarter was 9.2% higher sequentially, and 4.5% on a year-on-year basis, with Adjusted EBITDA margins for Quarter Four at 7.2%.
On a full-year basis, our consolidated revenues were down by INR 7.4 crores, a reflection of the rate decline in the global freight. We grew our EBITDA, however, by INR 25 crores in spite of this significant reduction in the revenues. On a full-year basis, revenues were down by 7.9% year-on-year, while Adjusted EBITDA improved by 80 basis. With this background, I'll hand it over to Ravi Prakash, our Global CFO, who will take you through a detailed analysis of the numbers.
Thank you, Ravi. Good afternoon, everybody, and thank you for joining our earnings call. I'll take you through the highlights of our financial performance for Q4 and the year ended March 2024. Q4 FY 2024 marks an important step on our journey to establishing a consistent growth and margin trajectory. We have reported revenue growth on a consolidated basis after a couple of quarters, and that is on the back of the ISCS segment continuing to remain strong. The power of a strong portfolio coming through very well, and most importantly, we have delivered positive profit before tax. The company has demonstrated a consistent turnaround in profit quarter-on-quarter sequentially. I'd just like to remind the participants, Q1 PBT was a loss of actually -10.7. Q2 was -4.5.
Q3, we broke even, and Q4, we are a positive of INR 5 crore. In FY 25, we expect to further build on this momentum and deliver improving results quarter-on-quarter. Along with the release of our annual results, we have provided additional geography and segment-wise financial information. This is something we hope to do on a periodic and definitely on an annual basis. We hope that this detail will provide appropriate context to our performance. As you review this material, a couple of specific call-outs from our side. All parts of our ISCS business have been growing at a 17%-18% CAGR over the past 3 years. As we grew, we have diversified our customer base by adding more Fortune 500 clients.
In terms of revenue drivers, as we have mentioned in the past, the, in our case, it is the ability to penetrate more customers, increasing volume share that matters, and not strictly the GDP of the, of the countries that we operate in. We expect to periodically update these and revisit the disclosures for any further information. With that, let me walk you through an analysis of the key line items in the financials. Q4 FY 2024 revenues stood at INR 2,426.3 crores, compared to INR 2,221.8 crores in the previous quarter, and INR 2,321.6 crores in Q4 FY 2023, resulting in a year-on-year growth of 4.5% and a quarter-on-quarter growth of 9%.
Revenues from business development maintained their momentum, with INR 218 crore being dropped in Q4 and Q4. For full year, FY 2024, revenue from operations was INR 9,200 crore compared to INR 994.4 crore last year. Despite an approximately INR 1,600 crore decline in the GFS business on account of pricing, annual business development services of INR 81 crore and momentum in the ISCS segment has enabled us to deliver a INR 9,200 crore revenue. Other income for the quarter was INR 6.8 crore compared to INR 21.6 crore in Q3 and INR 10.9 crore in Q4 last year. Other income comprises mostly of interest income from bank deposits and other deposits, and a little bit of exchange gain.
With this, the total income for the quarter was INR 2,433.1 crore, which was a growth of 8.5% sequentially and 4.3% year-on-year. For the full year, it was INR 9,245.8 crore, down 8.1% year-on-year. A brief explanation of how our major line expense line items have evolved. Freight clearing, forwarding, and handling expenses reduced significantly, driven by the decline in freight rates and improved procurement efficiencies. This expense line item for the quarter was INR 637.9 crore, a reduction of 7.5% year-on-year, and INR 2,327.8 crore for the full year, down 37.6% year-on-year.
As you can notice, the number has reduced more than the revenue, and that is because of the procurement efficiencies and the operational discipline, which are reflected in the variable margin, which has improved by almost 300 basis points, both for Q4 and full year. And that has been called up in the earnings presentation. The other major line I'd like to talk about is employee benefit expenses. For the quarter, it was INR 568.3 crores versus INR 491 crores in the prior year, and INR 552.3 crores in the previous quarter. On a full year basis, it was INR 243.2 crores versus INR 2,010.6 crores last year.
As we have mentioned in our past calls, the year-on-year rate increase in employee benefits is on account of ramp-up in customer engagement in the ISCS segment, requiring manpower deployment. The quarter-on-quarter increase was because North America operations reverted to normal after the UAW strike in Q3. Most of these cost increases are absorbed in the gross margins of the respective business segments. We have provided the segmented results for ISCS and NS segments on pages 21 and 26 of the investor presentation. Consolidated Adjusted EBITDA for Q4 was INR 134.5 crore compared to INR 173.6 crore in the previous quarter growth, and INR 170.8 crore in Q4 last year. Adjusted EBITDA for full year was INR 710.2 crore, compared to INR 685.1 crore previous year.
Once again, I'd like to call out that despite a 7.94% growth decline in revenue, we have managed to grow EBITDA from INR 685 crore to INR 710 crore. Lastly, an important step which we've been talking about through the year was completing the debt reduction exercise. We have completely used the IPO proceeds as well as funds from internal sources to repay all our long-term debts and a substantial portion of our working capital borrowings. As a result, our interest expense, which was running at about INR 41 crore per quarter in Q1, has now come down to INR 16.6 crore, and that is what we expect to-- That is the range in which we expect to be in the next few quarters. Finally, we achieved a PBT of INR 5 crore compared to a breakeven profit of 0.6 last time.
As I said, we are not second to turnaround. This concludes the summary of the financials. I'll now hand it over back to Mr. Ravi Viswanathan.
Thank you for the analysis, Ravi Prakash. Our business development continues to contribute 10% of incremental revenue across both the ISCS and NS segments, and for quarter four, the business development contribution was INR 218 crores. For details, please refer our investor presentation, page 7. We have significant new customer wins in both the segments. In the ISCS segment, a type we won in India, a diversified equipment manufacturing company and a commercial vehicle OEM, and an engine or a generator manufacturer in India. We won new deals with a defense contract in U.K. and a water utilities company in the U.K. On the network side, we won a tech or a solutions integrator.
We won a large engagement with a tech solutions integrator in the U.K., a communication equipment manufacturer in the U.K., an auto component or a battery manufacturer in India, an engineering and product manufacturer in the U.S., and a clothing and apparel manufacturer in APAC. Our pipeline of new opportunities is strong and currently presents a revenue opportunity in excess of INR 4,000 crore. In addition to business development initiatives, continuous customer engagements provide us newer opportunities as part of our encirclement strategy, where the objective is to enhance the share of revenue from the customer through effective cross-selling. Here it is pertinent to mention that recently we were awarded partner-level status by John Deere, which is a recognition of our dedication to providing products and services of outstanding quality, as well as commitment to continuous improvement.
It also provides us an excellent platform to explore more opportunities within the customer ecosystem. Also, we have a very long relationship with an American auto OEM. We've been working with them for over 30 years. During the year, we won a contract to provide a logistics solution, in a second site, in addition to the site that we have been engaged in. The reason I say this is it comes on the back of a very strong, what I would call, a global account management initiative, wherein we are trying to significantly grow our revenues and our large customers through active account planning. As we exit FY 2024, we are strategically placed to participate in large opportunities.
When we won the Centrica contract, which was worth over INR 2,000 crore, I mentioned that it is an inflection point where we would be invited to participate in opportunities of that size. I am glad to announce that we have quite a few such large deals now in the pipeline, and the teams are confident that we would convert a couple of them through the course of this year. We are actively engaged in AI solutions, and today we have AI deployed. Our AI and artificial intelligence deployed at scale in U.S., U.K., and in India, and we continue to drive our solutions through active technology intervention. In summary, we moved from position of reporting losses after taxation at the end of Q1 and Q2.
We then turned into breakeven profit in Q3 FY24, and finally, the single-digit profit in Q4 FY24, thanks to multiple on-ground operations and strategic initiatives. Going forward, we are confident of delivering double-digit PBT numbers in the quarters ahead. With that, I would like to open the floor for questions.
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 telephone. If you wish to remove yourself from the question queue, you may press star and two. ... Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Krupal Maniar from Edelweiss. Please go ahead.
Good afternoon, and thank you for the opportunity. Congratulations on steady improvement in the profitability I witnessed during the quarter. My first question was on the ISCS business. While you have stated that there have been multiple business wins, what would be the timeframe of when it will start contributing materially to our revenues? And you know, the robust order pipeline, which we have stated has INR 4,000 crore, what proportion of it is from the ISCS business? If you can share on that.
Hi, this is Ravi Prakash here. I just want to make sure I've heard the question correctly. I think your question was, what ISCS business, what proportion is going to contribute? Today, the integrated supply chain business or ISCS, is 65% of the company, and it's about INR 5,500 crores in revenue. That is actually the major part of the company, and that is the reason it's important that it keeps growing at the 14% that it has been growing. I hope that clarifies it. And in terms of-
No, my question was... Sorry. Sorry, Ravi. My question was, actually, you have started, you talked about the business development efforts and the business wins in the ISCS segment. I was wondering when it will ramp up and contribute substantially to our top line, on, on the one which has been displayed on page 11 of the presentation.
So, this is Ravi Viswanathan here. So what Ravi Prakash is saying is that it's a continuous process, so it is a deal pipeline, we get converted, which has delivered the 14% growth year-on-year in the ISCS segment. And when I said that we are very confident of growth in ISCS, and, and, I will keep my record and say we are very confident of a double-digit growth in ISCS on the back of these pipeline deals that are getting converted. Typically, ISCS pipeline takes about six to nine months to rectify. So today, the INR 4,000 crore pipeline is in various stages of conversion. So some of them, you know, in our parlance, this would be in stage five, stage six, or stage seven.
Stage seven being the stage when it gets converted to a contract and gets executed. And we typically have lead times of anywhere between 4 weeks-10 weeks, depending on the complexity of the engagement for them to start. I don't know if that answers your question. I hope so.
I just want to also add a little bit. See, it's not like a point in time, it's like it's not like a stop-start engine. At any given point in time, if you look at our deal pipeline, you'll probably think the same thing, and you'll have deals coming through all the time. And that is what we are messaging when, in the investor presentation, we said that this year we were able to add INR 81 crores of incremental revenue because of business development. That is actually a portion of the deal pipeline, which would have existed in the prior year, and that's how it goes all the time.
Understood. Understood. That's, that's very clear. And, and second question, also on, on the INR 1,000 crore order pipeline. Now, given that we are in the services sector, how do you, how do you arrive at this particular order pipeline, number? Is it, is it based on the pre-agreed, customers contracts, which we have signed and, that should translate, to the next... How many years does this then, translate into our top-line growth?
So, this is visibility of INR 4,000 crore of revenue. So if let's say I convert all of them today, that's the visibility I have for the revenue. But this could be potentially from a total contract value, a much higher number. Okay? So 4,000 crores is not the contract value, but it's the opportunity to convert them to the revenue, this current year. So, we're not yet, we're not yet, you know, declaring the TCV, but hopefully we'll get there in a few quarters' time. How do we arrive at this number?
Is based on what the customer has told us in terms of volumes, in terms of movements, in terms of number of parcels, packages, which is based on which we have given the estimate or, or proposals, and that's how we arrive at the numbers.
Understood. Understood. So were there any capacities which were already set up, based on this order? And then the ramp-up would also drive a kind of margin expansion in the ISCS business. Is that assumption?
We have some amount of contract which we will utilize existing infrastructure and network, especially the network business. That's how it will be. But in the Integrated Supply Chain Solutions , where we are designing complex solutions for the customers, most of the time it would... That's why I said the lead time will change anywhere between a few weeks to 10 weeks, depending on the kind of contract. So, for example, the large deal that we announced in the U.K., it took almost 8 weeks to boost that, because we need to make sure that we bring in the people, the facilities, all of that.
... So, every contract has that complexity built in. But I would say the Network Solutions side, typically the ramp-up is much faster. And the ISCS segment, it takes anywhere between 4-10 weeks for the ramp-up to start.
Understood. The last question from my side would be on the network solution. We have seen seven years growth in container freight rate on key routes. Now, how does it place us for the near term with respect to... Because last time, you know, there was such a large gap in demand supply. We could see that the margins in the business had jumped up to close to about 7%. Is there a possibility of a margin reversal because it is sustained?
So, you know, this time what we have done is in the investor presentation, since you asked this question, we've actually given 3 years, 24 years revenue, 21 to 24, and we have specifically called out the quote, unquote, "incremental pricing impact" because of the cold pricing, right? And if you look at that, and at the bottom, we've also given our volume data. What I can now say is, in terms of rates per container or rates per ton of air freight, more or less, we are back to what I call 21 levels, which were probably, pre-COVID levels, just before the COVID, hit kind of levels. In a way, this is, this represents a normalization of the trade lane economics, in the network per segment.
The only aberration now is the Red Sea, the incremental cost as well as price because of the Red Sea, but it is not on the same scale that we saw during COVID. Having said that, if you look at our EBITDA margins in the GFS business, we've actually been able to hold the margin percentages because we are. And that's where I talked about the variable margins doing much better, because we've been very good with our procurement efficiencies. So going forward, in the next three, four quarters, the outlook would be that we are focusing on volume improvement. We expect prices to move in a narrow band, and with the help of volume, and we have taken some very stringent cost containment measures, we expect to see improving profitability.
Got it. That's it from my side, and all the very best.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Achal Lohani from JM Financial. Please go ahead.
Yeah, absolutely, thank you for the opportunity. Excellent presentation, I would say, a very detailed one. Just few clarifications. First, on, you know, the guidance what you have given. I presume that this is at $527, the margin guidance, what you have given 4% PBT margin. Is this $2.5 billion revenue? Have I understood it right?
So, Achal, it's, we are talking about a mid-teens growth rate of volume year on year, Achal.
Okay.
Right? Right. So we have not called out a number in terms of, revenue. Yes, INR 2.5 billion is our, vision, but the guidance that you see in page 18 of our investor presentation is that by FY 2027, if you keep growing revenue at about, say, 15% year-on-year, this is where we expect to hit by FY 2027.
Understood. What is the mix here we have assumed, because the difference would be there would be difference between the NS and the ISCS PBT margin. So what is the revenue mix we should assume here? It is the main theme, is that right?
So you should, at the minimum, assume ISCS at 55% and then probably, maybe a few percentage points better. The IFM business would probably be between 18%-20%, and the balance would be the GFS business.
Understood. On the ISCS piece, if you could help us understand, you know, the challenges, what we went through, what the solution can be, outlook, if you could specifically talk about this particular segment too.
Yeah. What I'll do is I'll talk a little bit, and then I'll probably request Ravishankar to talk about the business outlook. Look, this time we have specifically disclosed the ISCS business revenue separately, and the reason we've done that is to actually put out that the ISCS business has been growing revenue consistently. It's an INR 1,800 crore business today, as we speak. So the challenge we've had is actually on the cost side in ISCS, and that is because in the last two years, the ISCS business, a significant portion of its revenue is from the UK. UK went through an extraordinary set of circumstances: inflation, which was never seen before, between 11%-12%, energy prices, which sometimes went up almost 20%-25%. Then on the third, minimum wage increases, which almost over the last couple of years have gone up 20%-25%.
All of them hit at the same time, and then the government also withdrew some of the rate benefits that they had given to properties which they had given during the COVID. So in a way, it was almost like an event which we had never seen that before. It took us time to transmit a lot of these prices to our customers this huge cost inflation. It coincided, like we talked earlier, with the ramp down of the very profitable contracts that we had in one of- on the health sector in the U.K., delivering COVID vaccines. So we kind of the combination is what to measure on the cost. It's actually a cost type problem that we have. We've been working on it for the last couple of quarters. We have taken significant steps to reduce our fixed costs.
We are looking at all elements of our infrastructure, whether it's property, whether it is routes, et cetera, to kind of bring it to a more optimal level while also working on pricing. We have seen improving results in Q3 and Q4 of this year. We expect to see continued improvement in Q1, and by the time we close Q2 of FY 25, it is our expectation that we will hit the run rate profitability that we would like to get to in IFM.
So just to add that, IFM continues to win significant deals. So from a business development and a pipeline perspective, I would say it's very healthy. Like Ravi Prakash said, our focus really is now to pass on some of these cost inflations back to the customer. We have succeeded in quite a few, and we are still in the process, like I said earlier. And, of course, ensuring that we are, you know, consolidating a lot of our assets to see how we can get it better. So I think this is, like Ravi Prakash said, by Q2, we should hit the target run rate, for IFM. But it is work in progress.
Understood. Just a quick clarification on that. You know, in terms of the customers, in terms of revenue, how much of the customers we have already passed on these cost inflation, I think in terms of the revenue sizes, or if not, in terms of number of customers, percentage where, how much is already passed on, or, you know, customers accepting those cost inflation?
Well, actually, a significant number of customers have taken at least one round of price increase.
Okay.
And we are working with a few large ones for a second round, because, see, as you can imagine, right, typically in an economy like the U.K., you would normally say about 1 or 2% price increases because of linked inflation, whereas this is almost like a reset of the contract, right? Because of the property and the other price increases. So we have done one round, which has been passed through, and we are in the process of doing a second round. And that's why we gave out Q2 as the target, because by then we hope to complete most of the pricing actions.
If I were to ask you, sir, what is the blended cost inflation, and, you know, first, on how much is already passed on? I'm just trying to figure out in terms of the margins, what kind of delta we could see from IFM. In IFM and also at the total level.
So maybe, like, let me put it this way. We are... Because, see, we don't give margin breakup by probably at this level, Achal. But like, if you think about, if you can go back to some of the numbers that I've quoted, costs have gone up by almost 10%-7% in most part of the, what you call, business, right? And we are kind of trying to recover that in a couple of price increases.
Okay. Got it. Another question I had was, you know, in terms of India growth, if you look at the growth, particularly for the fourth quarter, the supply chain business seems to be little weak. Can you help us understand what is happening here, you know, specifically for India business, I'm saying? For both the supply chain and the network solution, if you could talk in both, both fashion and what is the outlook here?
Right. So if you look at the supply chain segment, it seems flattish, Achal, Q3 to Q4, while on a year-on-year basis, I guess there's been a slight decline. Actually, if you look at the market itself, I would say it's been fairly sluggish, this fiscal year. And it probably, if you do a benchmark comparison, you'll find from a supply chain perspective, we are probably, you know, better than the median number in terms of growth. So, many of our large customers are, you know, probably waiting for post-June, I hope, but we expect those things to change post-elections. But, FY 2024 marked a resurgence in the India supply chain business, not just for us, but also for our peers.
On the Network Solutions side, I would say that the decline was sharper, and that came on the back of, of course, a very significant decrease in the freight rates. However, I would say that Network Solutions side in Q4, we saw a significant increase linearly. That is, from Q3 to Q4, we saw a significant growth, and also on a year-on-year basis, we saw a significant growth as we saw a couple of customers export volumes go up significantly. So I would say India geography, ISCS, flattish, and GF, and the Network Solutions predominantly driven by freight, showing very, very good recovery in Q4.
Understood. One of the comments you had made in the interview today in the morning was about the working capital improvement. Can you, can you talk a little bit about that? What are we trying to achieve here?
I lost you. What was it? You said you-
Can you, can you talk a little bit about the working capital improvement? Because, that is also one of the contributor to your PBT margin expansion.
Yes. So, Achal, I think if you... We are looking at it in two splits, Achal. The first one was to bring the overall debt levels down. We've also moved out of some expensive financial instruments that we had deployed in the past. We've actually reduced the amount of factoring, et cetera, that we do. And therefore, the interest cost has come down from a run rate of INR 41 crores in Q1 of this year to INR 16.6 crores in the Q4. And therefore, we've actually shown what the pro forma P&L could look like, with the new interest rate that is going on. In the interview, we had messaged that the gross debt today is about INR 794 crores. All of it is working capital debt. We expect to grow our revenue without materially changing that working capital debt.
It may, there may be short-term blips, ups and downs, but we want to fund most of the working capital, revenue growth through internal sources. And therefore, what we would like, we see, we expect to see the interest rate not move very much beyond the numbers that we talked about. It may move a little bit up and down, depending on quarter-on-quarter, but in general, we'd like it to be in this range.
Understood. And, sir, a couple of clarifications, one on the-
Thank you, sir.
Okay, I'll call back in the queue. No problem. Thank you.
Thank you, sir. The next question is from the line of Aman Pirani from J.P. Morgan. Please go ahead.
Yes, hi. Thanks for the opportunity and for the details in the presentation. I had a, you know, a very high-level revenue growth question. If I look at your slide 7, where you've given the revenue waterfall, now, you know, new business development has been quite consistently, I think, in the INR 220 crore, INR 250 crore, INR 250 crore range. And this year you had a very big decline coming from price and volume impact on global freight. And, you know, price and volume growth in other businesses actually should also be better this year, looking at your commentary.
So, you know, if I just add this and assume a positive impact from price and volume in global freight, would it be fair to say that we could look at actually more than a 15%-20% revenue growth on a consol basis? Is that a fair way to think about it?
I mean, you're quoting something, true, but let's just say that we are optimistic. We are cautiously optimistic about the Network Solutions segment. We are cautiously optimistic about the growth in revenues, but I wouldn't want to put a number. I think I said that in the morning interview to one of the channels, that as far as GFS is concerned, I would watch the space. I would watch the Network Solutions space before I put my head out. But on the ISCS segment, I would confidently say we are gunning for a double-digit revenue growth. On the GFS, I will hold till we see some stabilization, especially on the Red Sea and the volumes picking up.
The key for us, I mean, is the volume growth in-
Mm.
In the freight business. Volumes have been fairly stagnant, and this is not just TVS Supply Chain Solutions. Our peers, the volumes have been fairly moving in a very, very narrow range, and that is going to be the key, and that really depends on global trade volumes picking up. The war is not helping, but, you know-
Mm.
We will hold our commentary on the Network Solutions growth, especially on the freight business, until we see things coming back normal from a volume perspective. Rates are slightly higher now because of Red Sea, but that's again a transient, and that's something which we don't want to get into a forecast situation. But for us, the key is going to be volume more than anything.
Okay, okay. And you also, you know, mentioned that you know, you had actually talked about the variable margin, so even on the GFS side, I think you managed to control costs. So now as rates are rising, and you know, hopefully some volumes come in, will you be, I mean, able to continue to control costs? Are there any cost headwinds you are seeing this year?
So, the main cost headwind. So there are two parts to it. Let me first address the main question on the freight, I mean. The-- If you see, you know, Q4 versus Q3, you see actually the variable margin has dropped a little bit in the network segment. That is because the Red Sea costs, we have not been able to 100% pass on, because these are being levied as surcharges. Okay?
Mm-hmm.
So if you ask me, the one risk factor at the moment is, I mean, it will not make a difference to the dollar per container that we earn, but it will make a difference to the reported percentage margin. Because, right, the, we are not actually in any way moving the needle in terms of the dollar per container because of the increased pricing on Red Sea.
Right.
That's the only risk, right? But and to your broader question of can we expect... Variable margins have more up by almost 300 basis points this year.
Yeah.
I would say that is probably, we are now probably at the optimal level, because in a way, we normalized a very irrational situation that existed last year. Right. So what you see in Q4 is probably a good representation of where the P&L might look like in terms of variable margin and the cost below that at a consolidated level.
Okay, okay. That's helpful, sir. I'll come back.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Nishit Shah, from Kotak Securities. Please go ahead.
Hello, am I audible?
Yes, sir, you're audible.
Yeah, thank you for the opportunity. So my question was in the cash flows. So our operating cash flows have come at INR 128 crore, coming down from INR 734 crore last year. So what was the main reason for that dip?
So, you know, I think, last year we had probably a very... And you should probably normalize it, Nishit, in terms of last year, we had a very, how should I say, unique situation at the end of March 31, 2023. We had taken a number of working capital initiatives, which actually I earlier said we had done that. For example, we had maximized our factoring, which reduced the receivables by almost INR 300 crore last year. We had also taken a few vendor payment initiatives on vendor financing, which also reduced the our payable, I mean, which increased our payables as well. So that kind of drove almost like an INR 350 crore-INR 400 crore improvement in working capital, which we have normalized in FY 2024.
The reason we normalized that is, we have found that as interest rates have gone up, factoring rates are actually proving to be very uncompetitive. Now that we've got the IPO funds, and the leverage is under control, we can go through regular working capital financing. That is the reason. In a way, last, last year's numbers are probably, how should I say, overstated because of this situation.
Okay. So it comes out to around 18.5%-19% of our operating profits flowing into the cash flow. So can we assume that to be around 20% for the years coming ahead?
I can always come back to you in terms of... Because you're looking at the reported number, right? So if you take the FY 2024 number, the next year number should be a little bit better than that in terms of the, if you take the statutory cash flow, and if you are reading off that, next year should be a little bit better than that.
Okay. And another question was like, we have a INR 4,000 crore deal pipeline, so let's say we win an order. So how much of CapEx is required there? Because we are having around INR 200 crore of net debt, and we hope to maintain that in the coming years. So how much is the CapEx that is required if we win an order?
So our CapEx guidance doesn't change. I think we'll still keep it between 1%-1.5% of revenue. The only change to this could be if there's any major deal, how should I say, strategic, 5-10 years, which can give us a bit, we may look at investing. Because in the past, the only time that we have deviated from this 1% CapEx policy is when we've got, how should I say, I call breakthrough deals, which can change the trajectory of a business or a country. That is what we have looked at. Having said that, we will still like to manage it between the 1%-1.5% of revenue, and for the medium term, that is the average that we are working with.
Therefore, I think that's how you probably work through the debt like that.
Okay. Okay. Thank you. Thank you for the answers.
Thank you. The next question is from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.
Yeah. Hi, good evening, sir. I have two questions. One part, I try to understand regarding the Network Solutions. So, how do you ensure the profitability? Because rates will continue to remain volatile. So, basically, is there any scope to create value within the service, or it will be largely function of rate base going forward? And should I ask second question or...?
Go ahead. Please ask the second question as well. We can answer both together.
Of course, sir. Fine. So in case of, if you look at ISCS business, or if you look at further to India, how we can use the global learning to Indian context, or which are the segments or services we can expand in India, as a slightly long-term strategy for us?
Okay. So what I'll do is I'll quickly, I will answer the question, and then I'll request Mr. Ravichandran to say how the global capabilities is influencing Indian, our ability to grow in India. Look, on the network side, right, there are two parts to the business, and this time in the earnings presentation, we have given a separation between both of them. We've called out GFS, which is a freight forwarding business, and then we called out IFM, Integrated Supply Chain, which is a closed-loop spare parts business, which is INR 1,800 crore. The IFM business is in many ways similar to the integrated supply chain business. It is driven by long contracts. It has an infrastructure set up, and as you push through more, demand through that, you actually get better revenue and better margin.
So like I said, in the case of the ISCS business, we have adequate revenue visibility. Our challenge is more on the cost side. Like I was explaining to Achal from JM, in the next couple of quarters, we expect to bring the cost situation to a point where, you know, we probably hit a reasonable run rate. On the freight forwarding side, look, it is not, I mean, it's not- price is not the only determinant. Like we said, I was explaining to the other gentleman, even though prices came down, we were able to manage procurement to actually improve our variable margins. And so we have levers at play. And then on top of that, we do have fixed costs in terms of people deployed at various points in the points of the offices in the, network, which is a...
I mean, which we can actually vary as demand moves, and we have done that as required. So therefore, there are levers in the case of GFS, like you said, procurement is a lever and cost management is a lever. In the case of Integrated Final Mile, the throughput is a lever, cost management is a lever. I'll ask, request Ravi to talk about how the global capabilities have influenced our Indian business.
Right. So, let me say, you know, there are two major elements that we are benefiting from, the global operations. One is bringing some of the capabilities here. For example, today we are an aftermarket leader in India, and that comes from a very strong aftermarket capability that we were able to transfer from the U.K. So our growth in some of the new segments, both in aftermarket and also in the IFM business, has come on the back of a very strong capability replication from what originated in the U.K. A lot of what we do in our in-plant warehouse, in terms of automation, et cetera, is coming from some of the global capabilities that we have built.
The second, and I think probably what is most important, is the ability for us to work with some of our large customers, globally, who are either setting up operations in India or who are present in India. And therefore, we are able to get into what I would call strong account mining, whereby, building on the execution that we have had in the Western market, for example, the ability for us to, replicate those services here and, deep mine those customers. So global customers and, specific global capabilities that we have brought to India, it has expanded both our ability to service the customer and grow the revenue.
Got it, sir. So in service side, I got clarity, but in terms of sector-wise, are there any sectors opening up for these kind of ideas, or it will be more like existing customers where we will try to get those wallet share higher, and then probably, it will take some time for other sectors to really go for these kind of services? Are they like ready to kind of accept these kind of services for on products or sectors, or there are only few sectors which we like to introduce, are they?
No, we... Right, we actually operate in multiple sectors. If you're talking about industrial sectors that we operate in, we probably have a very, very diversified portfolio of sectors that we operate in. And what we have been effectively been able to do is to take this know-how and be quickly able to put processes for different sectors. So, for example, we started our journey long back in the industrial and engineering side of the business, but we have moved to consumer durables, we have moved to utilities, we have moved to technology services, to consumer retail, and so on. So I think from a sectoral diversification, we have a very, very strong sectoral diversification, and we continue to explore new sectors both internationally and in India.
So I think from a sector diversity perspective, we have a very strong distribution of our business across multiple customer segments. I think it's there in page nine of our investor deck.
Got it, sir. Thank you very much.
Thank you. The next question is from the line of Arif M, who is an individual investor. Please go ahead.
Hello, sir. Good afternoon.
Sorry to interrupt you, sir. May I request you to please use your handset?
Yeah, I'm using my handset.
Can you come near to the mic and speak, please?
Yeah. Can you hear me better now?
Thank you.
Yes. Yeah. Sir, just to follow up on the previous question from the participant, I want to ask you, what are the-- what is the exact time on, on Indian opportunity? And, can you tell us how do you differentiate yourselves from your competitors in Indian landscape? I want to know how organized is Indian market and how... What is the value addition we are adding compared to our competitors in India?
Right. Arif, right? Arif, it's a good question. I think, India is an evolving market. We would like to see India evolving into a outsourcing market, which is where we do a lot of our work outside of India. So here I would say it is more relationship-based. It is really based on the ability for us to connect to the customer. The differentiation comes from us being a full-scale player. When I say a full-scale player, we are a company probably uniquely positioned to manage global freight, integrated final mile, and of course, multiple components within the integrated supply chain solutions. So, when it comes to in-plant warehousing solutions or aftermarket solutions, we have a very, very strong differentiation.
The second differentiation comes from the fact that we have our own IT stack, which we try to deploy in many of our customers, which easily integrates with standard software like SAP and so on. So that gives us an edge. And third, specifically for multinational customers, because of our presence in multiple countries, we probably have built strong relationships or at least early inroads into these relationships before they move to India, and therefore, we are able to manage early wins with these MNCs who are coming and setting up shop in India. So differentiation comes from multiple layers. One is specific capability, which we have, which we differentiate, like I said, an aftermarket or an integrated final mile.
Second is in terms of the ability for us to provide an end-to-end solution from global freight to transportation to, a complete, reverse logistics kind of, setup. And the third is the strength that we bring on multinational. And all of this is tied very strongly with our own tech stack, which differentiates us in the market.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
All right, thank you. First of all, I'd like to thank all the participants for being part of this discussion on our business performance and the outlook. This is the first annual results submission of the company as a listed company. In our investor presentation, we have laid out a clear vision in terms of where we want to be as a global logistics company. Our action plans will be guided by the goal and which will lead us to profitable growth. Once again, let me thank all of you. It was a pleasure interacting with you and look forward to speaking with all of you very soon.
On behalf of TVS Supply Chain Solutions Limited, this concludes this conference. Thank you for joining us, and you may now disconnect.