Ladies and gentlemen, good day and welcome to the VRL Logistics Q1 FY 25 earnings conference call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant 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 that 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. Alok Deora. Thank you. And over to you sir.
Thank you. Good morning everyone and welcome to the Q1 FY 25 earnings conference call of VRL Logistics. We have with us today Mr. Sunil Nalavadi, the CFO of the company. So I'll now hand over the call to Mr. Nalavadi to give some opening remarks and discuss on the performance and then we can take up the Q & A session.
Thank you. Over to you, sir.
Yeah, thank you. Good morning to all participants. I'm Sunil Nalavadi, CFO of VRL Logistics. I once again welcome all of you for the earnings conference call for the quarter one of financial year FY 25. We faced many challenges in the current quarter and many disturbances at our operations due to long absentees by the drivers and loading unloading staff during the time of elections. Many of these staff went back to their native places from the workplace.
Further, due to extreme heat wave in northern parts of the country the efficiency of this has drastically reduced in the current quarter. This has resulted in delay in our services in many of our transit hubs and impacted on the growth in tonnage.
Further, the same also resulted in lower utilization of our resources such as vehicles, own staff etc. To maintain our workflow, we also appointed temporary workforce with higher rates that resulted into additional costs. We also increased the rate of driver earnings and incentives in many routes, resulted into additional vehicle running costs. However, these issues have been completely resolved prior to the end of June quarter and again the efficient operation started from mid June.
These things have been temporarily impacted on our revenue as well as segment growth and impacted on the EBITDA margin also in the current quarter. During the quarter, we maintained a revenue growth of around 9% from INR 683 to 742 crores on year- on- year basis. The growth in revenue is on account of growth in volumes by almost 8% from 10 lakh tons to 10 lakh 70,000 tons.
The margin has been improved and improvement in price realization is also around 1% from INR 67,600 to 68,724. This is on account of some of the route mix and the rate increase what we carried out in the June month. The growth in volumes from the enhancements in our branch network improved express business year-on-year basis, we added around 105 branches and these branches contributed around 3.55% to the tonnage.
We continued our initiative to increase the branches in the current quarter and added around 36 branches. Apart from the expansion in branch network, the increase in contribution from the existing customers also supported for our growth for our customers. Further, our customer base has increased from 8 lakh to 9 lakh customers over a period of last one year.
During the quarter there was an increase in total realization and that is on account of some of the route mix and also on account of the rate increase what we carried out in the mid of the year. The EBITDA is decreased by almost 8% in absolute terms from INR 111 to 102 crores and percentage to revenue also decreased by around 2%.
The key reasons for decreasing EBITDA is one with the vehicle running cost which is increased by almost 1.36% to the revenue in absolute rupees, it increased almost around 50% on account of increasing kilometers covered by the own vehicle and also due to increase in rates of diesel and incentives. The another key cost impacted on the EBITDA margin is around employee cost.
This increased around 1.5% to the revenue from 16% to 17.81% and the increase in employee cost is mainly on account of annual increments effected from September 2023 and also internal promotions on selective basis. The number of employees also increased around 1,161 on a year-on-year basis. This is on account of one is the increase in the branch network and also because of increasing some as we appointed additional employees.
The toll charges has further increased in the current quarter as compared to year-on-year basis. The number of toll groups have been increased from 1,258 to 1,438 across India and also the rates of toll service have been increased. Another key expense which impacted on the margins is the rent expense.
The rent expenses is increased on account of rents in the branches and increasing space in key transit hubs during the year we increase the space in key locations considering our expected growth in tonnage for the subsequent period. The same is resulting into lower utilization of space in the current quarter and impacted on EBITDA margins.
Further, the increasing depreciation and interest cost as a percentage to the revenue is mainly on account of increasing rental expenses after the Ind AS accounting. The loading and unloading expenses also increased to some extent on account of increase in loading unloading rates. On the other side, the fuel cost which is a major cost in our operations almost around 30% to the operation cost. The fuel cost has not been increased. In fact it is decreased almost by 1% of the revenue from 30% to say 29%.
This decrease in size of contribution in kilometers covered by the own vehicles. The decrease in fuel cost mainly on account of there is no major increase in the fuel price in the last one year on a year-on-year basis. Further the increase in procurement from the refinery from 31% to 33% up to the same quarter. So that has effectively resulted into decrease in procurement cost from INR 87.5 to INR 86 in the current quarter.
The Lorry Hire as a percentage to the income has been reduced. One is because of the increase in our own vehicles. The dependence on the Lorry Hire outside vehicles have been reduced. That's the reason why the Lorry Hire expenses as a percentage to the revenue is decreased due to decline in EBITDA. The PAT of the company also decreased almost by 60% from INR 34 to 13 crores.
The percentage to the income also decreased on sequential basis. The revenues were decreased by around 4% which decreases mainly on account of decreasing the finance. And the same is resulted into decrease in EBITDA margin. Also the percentage of employee cost and rent expenses are fixed in nature. And reduction in revenue has further impacted on the increase in percentage of these expenses to the revenue.
In quarter one of the current year, we invested almost around INR 50 crores into capital expenditures which is predominantly for the purpose of addition of the trucks. With this, our own working capacity has reached around 86,405 as of 30 June. Even after investment of 49 the debt correspondingly the debt is not increased. The debt is increased higher from INR 262 to 274 crores. This is on account of good cash flows or cash source from our operations.
Considering the increase in costs including the increase in holiday days by some of the states post the election, we increased the freight rates from late June. We increased the rate across all of its revenue segments and expecting the improvement in realization by almost around 5%-6% for the future period. We're also accelerating the increasing branch network further especially in untapped market which will support to increase our growth in tonnage.
We are expecting that these branches are having further potential to increase in growth rate in the coming days on account of expansion in network. Our customers being from rural we are expecting that it is going to increase further based on the current trend of monsoon season. We are expecting good support in growth in commodities which were underperforming FY 24 based on the rate increase in June.
In the price realization, the price realization for tonnage improved by around 6% with a growth in tonnage by around 7% in the month of July. We are hoping that the same trend is going to continue for the remaining period of the year. With this initial remark, I request participants to open for question and answer session. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah, hi. Good morning everyone and thanks for the opportunity. I have two questions. The first one is on volumes. So were your volumes also impacted due to unavailability of labor in this quarter or was the impact only on cost as you endeavor to keep the volumes intact and what kind of volume growth should we expect for the full year? That is my first question.
Yeah, even the volumes have been impacted in the current quarter. See basically what happened there were a lot of delays in the services in some of the key transition hubs. That's the reason there were some delayed services and because of these reasons we were in a position to stop some of the bookings.
Also in some selective areas, especially in Delhi and surrounding area we stopped booking for some short period of time and because of delay in services also the customers have approached some of the other service providers also during this period.
That except for this year sir, as a whole.
The expectation again the close to the double digit what we are expecting and in the month of July the trend is as I already shared with increase in the freight rates. Again our growth is managed growth is around 78%.
Okay. The second question is essentially on the other income we realized profit on sale of land parcel. So, just wanted to understand what kind of land parcel project and whether there are some other land parcels also which might be non-core to business that we might think of divesting.
No, this property basically earlier the part of that property is by that media business also. That's the reason since our dependency or our usage of that property in our operation was very less. That's the reason considering, you know, the low dependency on that particular property, we decided to sell it.
Okay.
But there are no such, you know, some surplus assets which are going to be monetized going forward. There are no such assets.
All right, thank you sir.
Thank you. The next question is from the line of Jainam Shah from Equirus Securities Private Limited. Please go ahead.
Yeah, thank you for the opportunity. My first question is related to the data point question. Basically if you can give the lease portion under the depreciation and interest out of INR 61 crore of depreciation and 23 crore of interest, what was the? Portion of lease rentals that has been booked in this quarter?
Yeah, with respect to depreciation it is around INR 39 crores and for finance cost is around INR 16 crores. These are related to the rental expenses and accounted as depreciation and finance cost on account of Ind AS.
Got it. Got it, sir. And sir, as we have seen that there has been a profitability decrease during the quarter. If we exclude the other income, has there been any impact of this on our CapEx plan for this particular year or we have remained with the same CapEx plan and maybe for next year also we might do some similar kind of CapEx?
Yeah, CapEx considering initially we did in the month of April. Actually, we did a CapEx, but post these disturbances and considering our volume intake, actually we have slow down on the CapEx as of now. Again, depending on the moment or growth in the tonnage, again we will decide to increase the vehicles.
Got it, sir. And so just one clarification. In opening remarks, you told that there. Has been 5%-6% realization increase. Right. And in July month the cargo grown by around 7%. So in total there could be some 12%-13% impact in July. Is this understanding correct?
Correct.
Okay sir, got it sir, that's it. From my side, if I have anything, I'll join. Thank you so much.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead.
Yes, good morning and thank you for the opportunity. Firstly on the price hike that you've taken. Have you seen this being kind of rolled out across all your customers or the net impact of this 5% would be lower because you might not see? All customers accepting this.
Yeah, it is across all our customers. And since we started this exercise in mid of June itself in the month of July, we saw that the relations had improved around 6%. So this will continue. Around 6% is going to continue.
All right. Okay. And secondly in your opening remarks you mentioned that these you had given salary hikes starting September 23rd. So does this quarter have even the prior quarter's impact on the employee cost?
Yeah, see, last year what happened, that is, that was prior to the increments given to the employees on a year-on-year basis comparison. Just, I mentioned the Q1 of last year was before the increments given to the employees.
Okay, now my question is in this quarter INR 132 crores of employee costs. Does this pertain only to this Q1 or is there some one-off element pertaining to the previous quarters which you have taken in this quarter?
No, no, it is related to only being the current quarter.
Only this. Okay, all right, I understood that and one question on your own vehicles versus hired vehicles. When I look at your comparison that you've given in your slides, 1Q 25 versus 1Q 24, we see that lorry hire cost has come down by close to 1% point, but when I look at the other costs that have gone up because of owned vehicles.
like for example your vehicle running repairs and maintenance has gone up by about 1.3% increase. Even your tires flap has gone up by like 0.7%, so it seems like owning the vehicle. Is kind of turning out to be. More expensive for you than hiring. Ideally this should not have been the case. So could you kind of explain this sir?
Yeah, basically, see, when it comes to the kilometer wise, yes, the kilometers dependency on the outside vehicle had come down. And that's why the kilometers covered by the own vehicle increased. The percentage to the revenue is increased because one we increase the driver incentive and the driver cost because of some disturbances. And we want to maintain the drivers at most level.
The increase in driver incentive rate. That is another reason why the percentage is increased. But if you depend you know similar kilometer on the outside vehicle or the cost of operation would have been much more than what we are incurring because of the own breaking. So that understanding the vehicle is expensive is not there. It's incorrect.
Okay, okay, okay. So you're saying that even the lorry hire charges have gone up in this last few months because of all these disturbances.
Exactly.
Okay, understood. And this last bit on your new branch addition, 36 you've added in 1Q, seems like a good number. I mean usually you've trended lower than this. So can we expect this kind of addition going forward as well in these coming quarters?
Yeah, actually we are planning to add around 100 branches for the complete full financial year. The number may go up a little bit but it will not come down. It will not be lesser than that.
Okay. Okay.
In the past you commented that South has been weak and obviously we have a higher exposure to the South. Any change you have seen there South versus non South in terms of volume growth?
Yeah. Now see whatever the 8% growth we did around 7-8% tonnage growth in Q1 across all regions the tonnage is growing and even south region also contributing. Now the reason is there are good monsoon seasons and last time I mentioned about the textile and agro commodities declined. Those performance of those commodities were lesser than the average growth of the tonnage.
But in this quarter even those commodities growth is maintaining. So we are hoping that again the monsoon period, the entire period almost now majority of the portion of the monsoon period is covered especially in southern states. So we are expecting some good growth in the south region as well. Understood?
Understood. All right, so great. Thank you. I'll come back in the field.
Yeah, thank you. The next question is from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.
Yeah. Good morning, sir. So the price hike which we have taken is it sufficient to absorb the cost? Because the kind of pressure we are highlighting, particularly toll and other. So will it absorb the cost or is there any scope for margin improvement? Also, with this price act.
We considering the current again market conditions? Also, this is enough to take care of whatever increasing expenses as of now. Going forward, if any drastic changes in the expenses, again we can rethink about the rate.
Okay. In terms of slowdown in CapEx so what kind of vehicle addition we can expect for remaining months or in terms of amount we'll spend.
See, right now so around INR 50 crores has been invested in the Q1 and going forward on vehicles it will be slow down on vehicle CapEx. We will wait for at least the next current quarter Q2 also and based on that again we will decide on the CapEx but more or less every quarter it is never it will not be more than around INR 45 to 50 crores even we start increasing the CapEx so around 200 could be approximately around 200. Yeah, around 200 CapEx even in with a normal growth and any additional for.
Regarding the kind of funded branches we are looking, so will there be any? Meaningful CapEx.
About branches. The CapEx will not be there but we are looking for some one or two properties if those transactions are materialized then there will be a CapEx again there will be further CapEx apart from this vehicle addition.
So, but just to, I think last question about the volume growth we have been talking much, but any chances that we can, like, typically second half is good for transport, so you can go back to at least 12%-14% volume growth, or will think that 7%-8% will be like at least in short term n ew normal?
No 12%-14% is little higher side because considering since we have increased the rates also and again we are also having a very positive outlook but we have to see but minimum expectation is definitely around 7%- 8% growth is possible.
One close to the 10% is possible, but if anything extra comes then definitely, you know, additional growth you can say.
Okay, thank you.
But good thing is now the monsoon season and all is good and we are expecting that the environment will be across, say, be it agriculture and other where actually we are depending more especially the textile and cloth materials. Now the special season starts so we are expecting that there will be good. Growth in those commodities.
Right? Yeah. Thank you, sir.
Thank you. The next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead.
Thank you for taking my question. I just wanted to understand the hike that we have taken. Is it an industry wide phenomenon? I mean, how are you reacting to it? Or is it just us who are taking this hike? And lastly, how are customers reacting to this?
Commodities, wherever. Basically, the rates mainly, it depends. We will not define based on the commodities but we always go with the demand. For example, wherever actually we are expecting some good growth in return load, there actually we will be compromising the rates but effectively, see, we have taken an increase in rates from 5%-10% in different categories but effectively the realizations are increased almost around 6% plus in July so that trend is going to continue.
Have our competitors also taken such a hike?
The competitors? Yes, there are, you know, in certain cases competitors also increase the rate and some people are waiting and depending on again their margins are under pressure so depending on that again they may increase the rate but in our case, what is happening the competition main competitors are who are the local players, the local geographic player, route wise operator. Those are, you know, the key competitors for us in that case, most of them actually the moment we increase the rate again they will follow and increase the rate.
Okay, so. There may not be significant sacrificing volumes for realization. Basically, if local competitors also increase their rates during the same time. That is the understanding, right?
Yeah.
But 5, 5, 6% sacrifice of volume is understandable. Is that correct?
Yeah, yeah, definitely. Okay, thank you.
Thank you. A reminder to all the participants that you may press Star and one to ask a question. The next follow up question is from the line of Jainam Shah from Equirus Securities. Please go ahead.
Yeah. Hi sir, thanks for the opportunity again. So this question leads to a branch expansion. If we see in last two to three years the branch expansion have been on a quite good side. However, the volume contribution from those branches haven't matched up to the branch addition percentage of our total branches. So of course I understand that penetration. In North and other areas has not been that great.
So what we expect from next like how many years it will take to have good penetration to have the volume growth from those branches as good as volume growth of our old branches?
Yeah, actually those branches those rates are. The growth rate of those branches in tonnage is very high. At least it is around 17%-18% growth is coming from, see, because the base level is very slow, very low. So if we compare with that base level the growth is almost around. It is near to 17-18%. Some cases 20% growth is coming from the new branches. But it will take at least, you know, two to three years that growth will be there, will continue, then it will come to the normal growth.
Got it, got it. And so in terms of this trend, if we see if you can just. Give a detailed volume growth in the? Month of April, May and June is possible. Like we are having 7%-8% growth for this quarter. If you know why this is on a monthly basis, that can be very helpful.
No, basically see, April month was good and again because of this disturbances May month actually it is muted. It was, you know, hardly around 2%-3% growth is there. But again June it has come back with a good growth.
Okay, so sir, can we expect that because of times? I think June and. April were good and our June quarter. July month there's been at around 7% plus despite having a good month. Is it because of. There has been some impact because of. TR, but we are okay with that. Given that our margins will be protected because of that?
Yeah, to some extent. If the customer initially the moment we hike the rate again, because we are having a vast number of customers almost around nine, nine lakh customers. Some customers, you know, see about contractual customers and all. Normally we negotiate and we sign up the document, they will not leave us. But wherever in small cases, you know, the mass of the customers actually temporarily they may go out first because of the rate increase.
And again other people also increase the rates or because of service level deficiency in service level. In other cases again they will come back first temporarily that disturbance will be there. And normally whenever we increase the rates, even in the past historical basis, if we analyze some of the customers temporarily they leave again they will come back.
But for a big customer, if you see say like top 1000 customer or top 10,000 customers directly our people directly one to one interaction will be there. And with agreement only we increase the rate. So that exercise has been already done in the month of June and part of the July also that exercise has been done.
That's a very good explanation. That's it from my side. Thank you very much, sir.
Thank you. Ladies and gentlemen. You may press Star and one to ask a question. The next question is from the line of Alok Deora from Motilal Oswal Financial Services Ltd. Please go ahead.
Yes, sir. So most of the questions were answered, just what could be the volume growth now for FY 26? Because in FY 25 we were expecting to grow at slightly higher number than what you are targeting now because it was a low base and you know, it was pretty weak here. So now FY 26, what could be the number which we are targeting?
In terms of tonnage.
See, in terms of tonnage growth, see always every year at least we expect around 12%-14% growth because the base is increased now see earlier in FY 23 and all our expectations were around 15 or so now since base is integrated, but we are putting effort, but in our case at least our target is to grow at least around 12%-14% even, even in coming years, not only FY 25 for any year for that matter.
Got it. And any color you can provide on what could this depreciation look like? I mean, because since we are adding a lot of the warehouses and you know, the physical infra. So how this could look like? I mean the depreciation cost, including the lease.
No, basically see that most of the places that exits has been already done. But only one or two properties again on a lease basis we are going to add in the current year like in Ahmedabad, we are changing. And again in one or two locations we may look into it. So there will not be much of impact in depreciation on the P&L.
And moreover, wherever the lease terms have been already crossed basically. If it crosses, you know, more than 50% of the lease, then what will happen? Again these costs slowly start coming down. So since in last one year, the 11 and a half years, we shifted to, you know, many locations. That's why the cost is increased. But going forward it may slow down.
Got it.
And.
Just wanted to understand on the margin side, so assuming we are growing at 12 to 14 in FY 26, so the margins which have been in the range of say 12%-14% in the last year and even last quarter was specifically low. But what could be the margins then in FY 26.
Around with the rate increases we are expecting? EBITDA should be around 15%-16% now. So that will continue.
Sure.
Just last question.
Any more rates? Also, you are looking at in FY 24 or is it. We have taken almost entirely what we are looking to take because I think this rate hike was long pending. So, have we taken it in phases or we have taken it all in one go?
No, we took all in one go because the reason is in last two years we have not increased the freight rate. So that's the reason we approach each and every customer and at all commodity levels, we have increased the rate. Now based on this current cost structure and whatever, wherever, you know, they were increasing the cost to pass on these costs.
Actually we did this. Now in future any drastic change in the cost, then again we have to look into the rate increase. But till that time, whatever we have done now, that is enough to take care of increasing the expenses. Sure.
Sorry, just one follow up on that. So the 6% is something which the. Customers have also agreed to, and this is a final blended realization improvement.
Yeah.
It's not something which is still under negotiation.
No, no, no. It's already realized. Got it. The slab rate here around the, you know, 5%-10%.
Okay.
But a lot of actual realization in the month of July is around 6%.
Okay. That's for all the 100% of the customers including everyone.
Yeah. Yeah.
Okay. Okay.
Got it.
Thank you.
All the best, sir.
Thank you ladies and gentlemen. We will take that as last question. I would now like to hand over to the management for closing comments.
Yeah. Thank you. Thank you all participants for their patient hearing and we definitely there was no good interaction especially on the margins and revenue growth. As discussed during the call, definitely we are going to.
Since the rate exercise has been already done, definitely our margins are improved in the coming days with again there is a good environment across especially about poor monsoon which was a major concern in the last year that has been resolved. The environment is good now and we are expecting good volume growth also in the coming days. With this I would like to conclude myself.
Thank you on behalf of Motilal Oswal Financial Services Ltd. That concludes this conference. Thank you for joining us. And you may now disconnect your lines.