Please note that this conference is being recorded. I now hand the conference over to Mr. Alok Deora from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Thank you. Good morning, everyone, and welcome to the Q3 FY24 earnings conference call of VRL Logistics. So we have with us today Mr. Sunil Nalavadi, the CFO of the company. So I would now hand over the call to Mr. Nalavadi to give opening remarks and discuss on the performance of the company, and then we can pick up the Q&A session. Thank you, and over to you, sir.
Yeah, thank you, Mr. Alok. Good morning to all participants. I'm Sunil Nalavadi here, CFO of VRL Logistics Limited. I welcome all of you once again for the earnings conference call for the quarter three of financial 2024. During the quarter, the revenues increased by around 8% from INR 686 crores to INR 740 crores. The increase in revenues on account of growth in tonnage by almost 8%, and the tonnage is increased from 1,047,000 tons to 1,092,000 tons in a quarter. The increase in tonnage is mainly on account of increase in branch network of the company. Year-on-year, we added 120 branches, and these branches have contributed around 3.33% to the total tonnage in quarter three FY2024. Our strategy of expansion of branch network is going to be continued, and planning to add around 25-30 branches every quarter, especially in untapped market.
Apart from the expansion in branch network, the increase in contribution from the existing customers also supporting for our growth. Further, we are acknowledging that many of the customers are shifting from unorganized operators to organized operators on account of the increase in compliances under GST law. On the other side, due to poor monsoon spread in southern states during the current year, we acknowledged a lower demand in these states, mainly in agro-related commodities. The southern region is the main market for our tonnage contribution, which is contributing almost around 40%-45% to the total tonnage. The agro-commodities contribution declined in the current quarter by 5%. So the textile and cloth commodities have been picked up in the current quarter on account of festive season and maintained the growth rate of 14%.
However, for the 9-month period, the growth in cloth and textile materials reached 3%, which is below the average growth rate in tonnage. During the quarter, the realization per tonne is maintained around INR 6,670 per tonne. Since the freight rates permanently link with the retail fuel rates in India and fuel rates are constant, we are maintaining the same realization. The increase in other costs other than fuel has not passed on to the customers, and the same is impacting on the EBITDA margins in the current quarter. The EBITDA is decreased from INR 108 crores to INR 97 crores, and percentage-to-revenue is decreased from 15.71%-13%. The year-on-year EBITDA decreased due to increase in employee costs from INR 104 crores to INR 127 crores, and percentage-to-revenue is increased from 15%-17%.
The increase in employee costs is mainly on account of annual increments which are effected from September 23 and increase in employees from 20,300 people to 21,200 people due to addition of new branches. Also, we carried out some internal promotion to the better-performed employees. The fuel cost is increased from INR 204 crores to INR 225 crores, and percentage-to-revenue is increased from 29.7% to 30%. The fuel cost is increased on account of increase in kilometers covered by the owned vehicles in the overall kilometers operated by the company. However, the average fuel procurement cost is reduced from INR 89.34 per liter in Q3 FY23 to INR 88.83 per liter in Q3 FY24. The bulk purchase of fuel from the refineries at a discounted price is increased from 14% to 22%.
Similarly, the vehicle repairs and maintenance costs, toll charges, and tire costs are increased due to addition of owned vehicles and increase in kilometers operated by these vehicles. The increase in these costs has been compensated by decrease in lorry hire charges by 2.86% to the revenue. The lorry hire charges have been reduced on account of low dependency on the hailed vehicles in the current quarter. The toll charges further increased due to increase in toll plazas from 1,204 to 1,367 plazas, and also due to increase in toll rates and loading and unloading charges also increased on account of increase in rates, resulted in increase in variable costs and impacted on the EBITDA margins. The rent expenses, which is still in nature, is increased due to increase in number of branches and increase in space in major branches and branch transshipments during the quarter.
We increased the space in key locations considering our expected growth in tonnage for the subsequent period. The same is resulting in lower realization of space in the current quarter and impacted the EBITDA margins. The EBITDA of the goods transportation segment is reduced by 4% from 9.57%-5.41% on account of increase in depreciation. The depreciation and amortization costs have increased from INR 42 crores to INR 57 crores due to increase in CapEx and also increase in ROU as per Ind AS 116 on accounting of rental expenses for a long-term lease agreement entered by the company.
The finance cost is increased from INR 15 crore to INR 21 crore, owing to increase in net debt from INR 46 crore as of 31 December 2022 to INR 271 crore as of 31 December 2023, and also increase in lease liability as per Ind AS 116 on accounting of rental expenses of long-term lease agreements, rental, and enhancement in branch and transshipment space. The decrease in EBITDA and decrease in EBIT resulted in decrease in PBT, and also same impacted on the profit after tax of the company. The PAT for the current quarter is around INR 14 crore, which has been reduced from around INR 38 crore, and percentage-to-revenue is reduced from 5.5% to 1.85%. On a sequential basis, the revenue is increased by around 3.32%. Again, the increase in revenue mainly contributed by the increase in tonnage. During the quarter, the realization per tonne, again, it is maintained.
The EBITDA is decreased by 1% in the current quarter on a sequential basis from INR 97 crores to INR 96 crores, and percentage-to-revenue is also decreased slightly from 13.6%-13%. The decrease in EBITDA margins on account of increase in employee costs, which is increased from INR 118 crores to INR 127 crores, and percentage-to-revenue is increased from 16.5%-17.23%. The increase in employee costs is due to annual increment effected from September 2023. The remaining costs were compensated each other and not impacted much on our EBITDA margin. The rent expenses as a percentage-to-revenue is decreased. However, the same is impacted on increase in depreciation and finance costs based on the accounting under Ind AS 116.
The EBIT margin is also reduced in the current quarter from 6.38% to 5.41% on account of increase in depreciation from INR 52 crores to INR 57 crores, owing to increase in CapEx and also due to increase in ROU as per Ind AS 116 on accounting of rental expenses. The finance cost is increased from 21 crores to from 21 crores. The finance cost is increased to INR 21 crores from INR 18 crores, owing to increase in lease liability as per Ind AS 116 on accounting of rental expenses of long-term lease agreements. However, the net debt is reduced from INR 280 crores to INR 271 crores. So decrease in, again, EBITDA slightly, and again, the EBIT margins impacted on the slightly decrease in profit before tax, and also same impacted on the reduction in profit after tax in the current quarter as compared to on sequential basis.
During the quarter, we invested into capital expenditure of around INR 25 crore, predominantly for the purchase of additional vehicles. The CapEx is lower in the current quarter considering the slower growth in the tonnage. The net debt of the company reached INR 271 crore from INR 280 crore as of 31 to 30 June 2023. Going forward, in the near term, our growth in tonnage may be in line with the current growth. Going forward in the near term, our growth in tonnage may be in line with the current growth rate of around 10%. However, considering the network expansion, it may reach much higher than the better growth rate as of today. The realization improvement is possible only after the changes in fuel rates. Till that time, increase in other costs will impact on the EBITDA margins. The rent and employee costs are fixed expenses.
The impact of these expenses is much higher in the current quarter due to tonnage growth is not at expected level. Same expenses as a percentage to revenue will gradually decline as against the growth in tonnage in the coming days, and it will support the increase in EBITDA margins to some extent. Please note that increase in depreciation and interest in the current quarter is fixed and periodic in nature. We are hoping that once our tonnage growth reaches better than the current level, these expenses as a percentage to revenue will be reduced, and which will support us to increase in EBIT and PBT margins going forward. With this, I conclude the initial remarks. Now, I request the participants to book a 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. The first question is from the line of Amit Dixit from ICICI Securities. Please go ahead, sir.
Yeah. Hi. Good morning, everyone, and thanks for the opportunity. I have two questions. The first one is on the CapEx. So CapEx, if you look at the 9-month CapEx, it is quite low than what we were targeting at the beginning of the year. So what would be your CapEx target for FY24, and whether there will be a spillover from FY24 to FY25, and hence the target for FY25 as well?
Yeah. Basically, again, our CapEx plan always is in line with the tonnage growth. If we see in quarter one and quarter two aggressively we invest into CapEx, whereas in quarters three considering the tonnage growth, again, we reduced. So we can timely adjust our CapEx. Even though there is a commitment to the OEMs, but this CapEx can be spread in subsequent periods. So that's the reason always it will be in line with the tonnage growth. If we are expecting around 15+ growth in the tonnage, then definitely CapEx will be in that line because always whenever the CapEx will whenever the tonnage will increase to that extent, actually, we need to increase the CapEx because most of the tonnage we wish to cover through our own vehicles.
Yeah. So what would be the CapEx guidance for FY24 and 2025?
The guidance will be around 15% more than currently what we are investing.
Okay. But.
Because for nine months, we invested INR 223 crores. For next quarter, again, it will be in the range of around INR 25 crores-INR 30 crores. On a full-year basis, it will reach around INR 260 crores for the current year. In addition to this, INR 260 crores. In FY25 and FY24, it will be around INR 260 crores. FY25 will be around INR 275 crores-INR 300 crores based on the current trend. If tonnage growth is beyond this limit, then definitely it will be more than that.
Got it. Got it. Very clear, sir. The second question is, since you highlighted that there are several moving parts now with fixed costs getting higher because of the increments and all, and tonnage growth not moving as we expected initially, so what kind of EBITDA margin are we targeting in the current year and FY25?
For 9 months, our EBITDA margin will reach around 14%. Similarly, in the next quarter, again, we are expecting around 13%-14% EBITDA margin. On a full-year basis, it will be around 13%-14%.
For next year, can we expect some improvement because of?
Yeah. Definitely. Yes, we are waiting for the changes in the fuel rates. So till the election, it will continue at the current basis. Then post that, if any changes, either increase or decrease, both aspects will support us. Because the moment it will decrease, there will be no need to pass on that entire benefit to the customer. That is point number one. Because even after from the last one year, actually, we have not seen the freight rates. Even in the case of decrease in the fuel rate, no need to pass on that benefit to customers. If it increases, since the gap of increase in freight rate is very long, so that immediately we can take increase in the freight rates across all the segments. So in that case, definitely it will support for increase in our EBITDA margin.
Yes, we are waiting for the changes in fuel rate.
Okay. Great, sir. Got it. Thank you so much and all the best.
Thank you.
Thank you. The next question is from the line of Manan Shah from Electrum PMS. Please go ahead, sir.
Hello. Am I audible?
Yeah, please.
Hi, sir. Thanks for the opportunity. So my question was, what advantage do we see in being asset-owned rather than being asset-light? Correct me if I'm wrong, but wouldn't our margins be better if we go for an asset-light model?
No, it is not the case because all along, our strategy used to own the infrastructure and operate. So during many times, actually, our margins were much, much higher than as compared to other operators. But during this time also, what is happening in the last one year since we are unable to change the freight rates, that is impacting a little bit on the margin side. But if you see on the capital expenditure side, we are very much controlled on the expenditure situation of the assets, situation of the infrastructure. Those are not at all reasons for the impacting on the margins.
The impacting of the margin is mainly on account of the freight rates versus the increase in expenses. Most of the increase in expenses are related to one is some of the variable costs like toll expenses and other charges. The employee costs, again, there was a huge gap for employment, increase in employee costs. That actually we affected in September. Since it was fixed in nature, then gradually, again, it will come down as a percentage to the revenue. The depreciation and, again, finance costs are increasing because of the Ind AS 116 accounting. On a lease basis only, actually, we expanded many of the premises. There actually what is happening as per the Ind AS 116 accounting, most of the expenses are shifting or accounting in the depreciation and finance costs. That's how the margins are impacting.
But owning of the assets versus the margins, these are not directly we can compare.
Okay. But if we are asset-light, so we can pass all the fuel cost increase and everything to the customers, right?
No, just we cannot do that. Because again, if it is asset-light, again, it will depend on third-party infrastructure. And how third-party will decide the entire margins will depend on that. Here, what will happen, in our case, we will have a control on assets. We are having a control on services. But the only thing actually since the fuel rate is constant and most of the customers what they refer in India, they always link with the retail fuel costs. If fuel rate is not increased, why you are increasing the freight rates? So convincing of increase in other expenses, it is very difficult in this industry.
Okay. Got it. Thank you so much.
Yeah.
Thank you. And the next question is from the line of Krupashankar from Avendus Spark. Please go ahead, sir.
So good morning and thank you for the opportunity. The first question is on the entire pricing philosophy which we have. So given that there have been substantial price increases, and we generally take price hikes, annual price hikes in the month of March while all the escalations happen towards in the third quarter with respect to employee and so on, is there a way in which we can sync it with these escalations itself rather than waiting on absorbing the cost for about 5-6 months given that freight rates is more or less not in our control? So any thought process in the industry freight rates is not under our control. So any thought process behind the pricing philosophy change if the management is thinking anything about it?
Yeah. Basically, see, earlier, the fuel rate used to change only around 2-3 times in a year. Just I'm going back to around 4-5 years back. During that time, what used to happen, so once in a year from April 12th, every year, we used to remove or change in the freight rate. That was the concept. Now, gradually, what happened, the fuel rates started changing on a daily basis. At that time, even our freight rates become daily basis, we started changing. In the sense, once in quarter, once in half a year, or twice in half a year, we were changing the rates. But currently, what is happening in the last one year since the fuel rate is not changing, so again, we are not in a position to increase the freight rates. That's what the scenario is.
But the other expenses, say like employee costs and all, these were due in April 2023 itself. But we postponed for another five months, and we took an increase in employee cost or increment to the employees due to things in September. That is before the festival season. Even we pushed for five years. At that moment, again, if you see the fuel rate, again, it is a constant. Even at that moment, we were unable to change the freight rates. That's how the impact is on the margin side. And we expected tonnage growth, definitely, it will be around 15%-20% in the beginning of the year. And in first quarter, we did that growth. But subsequently, what happened, again, because of the critical monsoon conditions, especially in the southern states, which is a major portion of our business area, that started impacting.
If you see, this region has grown hardly around 2% growth in the year. Since we are carrying out the expansion of the branch network, focusing on the untapped market, we are still in a position to maintain the growth of around 9% tonnage. But even at this growth, it is not enough to maintain or increase the margins. So one is our tonnage growth has to reach at least around 15%+. Then at that time, again, we will reach an EBITDA margin of 16%-17%. Or we have to increase the freight rates now. Freight rate increase, yes, we are waiting for changes in fuel rates. Then immediately after that, definitely, we are going to carry out that activity.
Right. So with respect to the tonnage growth, are you citing that given that if what is the expectation for FY24 as a whole, sir? Was it 10%?
Yeah, around 10%.
So that translates to fourth quarter having a 15% plus growth, right?
Then, fourth quarter, again, it will be similar 9%-10%. The reason is, see, the monsoon will not change from the current period to next quarter. So this will impact of this, the poor monsoon will continue in the next quarter as well. And we are hoping that if things change from Q1, from Q1, actually, we are expecting things to be changed because again, the new monsoon period will start. Then we are hoping that there will be, again, fresh demand from the market.
Right. Right. Then so logically, I mean, looking at your branch expansions continuing, and while we could see that compared to last year, this year, the contribution from new branches has slowed down, anything to read over there? So because you're still hopeful that newer branches' contribution would go up substantially, is there any specific trigger due to which it has been relatively weaker this time around?
No. What will happen if we open a branch in the untapped market? Say, for example, in UP. Again, that branch will not do business only in UP because it depends on demand in other regions also. See, most of the UP materials will move to Karnataka or, say, to the southern region. If there is no demand in southern region, then that will impact the tonnage contribution from the UP branches also. That's the reason the same trend is continuing. See, since southern region is the tonnage growth is slower, then it impacts it even on the newer branches also. So earlier, the new branches used to contribute in the range of around 4%-5%. Now it has been decreased to around 3%. So it is not belonging to one particular place. It depends on the entire region. And again, delivery point is also equally important.
Got it, sir. Got it. I have more questions. I'll get back in the team. Thank you.
Thank you.
Thank you. The next question is from the line of Anshul Agrawal from Emkay. Please go ahead. Hello, Anshul? Hello, Anshul?
Hi. Am I audible?
Yes, you're audible.
Yeah. Great. Good morning, sir. Thank you for the opportunity. I had a couple of questions. First one, when do we start seeing the benefits of owning trucks versus leasing external trucks come or fructify in our margins? My question is based on even in this quarter, sir, we have seen 20-odd% decrease in lorry hire charges, but that has been completely offset by vehicle running expenses and other stuff. So when do we see these benefits of owning trucks kicking into our gross margins?
No, basically, see, as I said, we hire our vehicle or increase the vehicle only when there is a demand. So we will not have an idle capacity and the search for the tonnage. So even in the current quarter, if you see, there is even though lorry hire is increased a little bit, again, the fuel cost is decreased, and there are decreasing other expenses also. So basically, my point here is whenever we add a vehicle, always we utilize those vehicles with 100% capacity. And then only we go for high-end vehicles. See, we do not have a long-term contract with the outside vehicle. Always, we have a contract on a spot basis. Then only we engage the vehicles. So the benefit of owning the vehicles starts from the moment we purchase the vehicles, not that actually we have to wait for a load or something.
Okay. Okay. So what would be our truck utilization levels in the current quarter versus, say, last quarter?
See, current quarter and last quarter, again, the hub-to-hub operation vehicles are operating with a full capacity, the 100% utilization. And again, hub-to-branch utilization levels are around 60%-65%. And we will be always that because those are all scheduled vehicles. Every day, the branch or hub, the vehicle has to operate.
Okay. We are not seeing a dip in utilization levels despite adding capacity. That is what I have tried to understand.
No, no.
And.
And just I want to give you another example. If you see the growth in tonnage on a quarter-on-quarter basis, it will increase around 3%. And similarly, the capacity will also increase by hardly 3%.
Okay. So capacity will also track volume tonnage growth on a quarterly as well as on a Y-o-Y basis as well. It goes hand in hand. Great. And so do we have any planned incremental ROCEs for these new trucks that we deploy? I'm trying to understand what will our ROCE profile look like, say, a couple of years out once we have seen the entire CapEx go through that we are deployed in 2023?
No, basically, in good times, see, our return on capital employed will reach around 25-26%. So whenever we are having good margins and we see our ROC reach to 25-27%. So that is our target to achieve that kind of ROC. And it is possible. So see, for the year, actually, what's happening, the impact is because of the freight rate. But to some extent, volume growth also not at an expected level. But since both will go hand in hand, then definitely, our ROC is in the range of around 25%-27%.
Okay. Sir, our medium to long-term volume targets, volume growth targets would be still 15%?
Yeah. Current year, see, as I said, in the Q4, again, it will continue with the same line of existing growth. And from Q1, we are expecting better growth based on, again, the new monsoon season how it will come up, how the reports will start, especially from the month of April and May, how the monsoon reports and other things. And depending on that, we are expecting our growth will be better in FY25.
Okay. Great. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Dhananjai from ASK. Please go ahead, sir.
Thank you, sir. Just a couple of questions. A, which segments are we seeing good growth from and which segments are we seeing weak growth from?
You are saying the June wise or product wise?
Zone and product and customers in terms of which industries are they focused on?
Yeah. Basically, see, on a 9-month period, we did a good growth in the eastern market and even the north market, north-eastern market, which grown the eastern market has grown almost around 25%. The north has grown by around 17%. The north-eastern growth is 24% since the base is small. And western region, we were grown around 10%. But south is grown by around hardly 2.9%. But south is a major contributor to our tonnage. Almost around 40%-45% tonnage is coming from the south.
Okay. And would this be just because of the cyclone or are there any other factors?
See, I called and talked. There is a dip in the agro-related commodities. It is between almost 5%. And the total contribution from the agro commodities, it is around 8%-9% of the total tonnage. But it is degrown by around 5% in the current quarter. And similarly, the cloth and textile, which is a major, again, contributor in our goods, which is contributing almost around 18%-20%. But the growth of cloth and textile in the current quarter, it is around 14%. But on a nine-month period, the growth is hardly 3%, which is below the average growth rate of the tonnage.
Any particular end customers which have done really well in terms of maybe not company names, but any particular segments which have done well and which you have seen some decline coming from?
See, as I said, these are all in the consignee market only, the cloth, textile, even agro-related. Basically, our customer base is from the consignees in the sense almost around 60%-65% of our business is on a CK basis. Where actually, consignees are customers, the person who is receiving the goods.
Okay. Okay. Sorry.
Within this category, again, the main products which are declined is one is agro-related commodities. Second, then cloth and textile is not at an expected level growth.
Okay. And sir, what about competitive intensity? Is that increase, decrease over time? And how are we seeing that? Have we been able to gain market share maybe from some of the competitors or how is that coming along?
Yeah. Basically, the operators which are operating in these commodities, most of the operator situation is even much worse than our position. But we are gaining market share basically because of the increasing compliance levels and other things. When it comes to other segments in the sense, the newer market where we are entering, the north, the northeast, and the eastern market, there actually, we are creating a lot of new customers. That's the reason actually our growth is much, much higher rate, around 20%-25% growth is coming from those regions. Another thing is the south and western, we are having very strong position. Not only that, our service level cannot be matched with other operators. Because of these external factors, there is an impact on the tonnage.
What we are expecting is once things are changed in this region, definitely, our growth will be much, much better in the coming days.
Sure. And last question for this reason, so then longer term, maybe after FY2024, what kind of growth rates could we see on a steady streak basis?
You are asking overall growth rate?
Yeah. What could we see for FY25 or 2026?
Yeah. As I said, see, even with this impact, actually, we are growing at around 9%-10% in the current year. And definitely, if monsoon and all other changes, then definitely, again, we came back to at least around 15+ growth in the tonnage.
Okay. Assuming realization will stay the same, right?
The realization is, as I said, this is directly linked with the fuel rate. We are hoping that post-election, then definitely, there are changes. We are expecting changes in the fuel rate. Before election also, if government announced something, some reduction on the fuel rate, again, it is going to benefit us because from the last one year, we have not changed the freight rate. Even if fuel rate decreased, then no need to pass on that benefit to the customers.
Okay. Sure. Thank you so much, sir.
Yeah. Thank you.
Thank you. The next question is from the line of Jainam Shah from Equirus Securities. Please go ahead. Hello, Jainam, sir? Can you hear me?
Yeah. Am I audible?
Yes.
Yeah, please.
Yes.
Hello.
The current participant has been disconnected. We are taking the next question. The next question is from the line of Vikas Khatri from Auriga . Please go ahead.
Hi. Am I audible? Yeah, please. Yeah. So thanks for taking that question. My question is, we have onboarded too many new vehicles since last 2-3 years. And new vehicles are more efficient in terms of mileage and the fuel capacity. So how it has converted to our profitability uses of new vehicles? Second question is related to interzone/intrazone. Most of the new branches are coming in north and east. So is there any change in the pattern of interzone versus intrazone business while on the other hand, my overall per-ton realization is constant? Yeah. See, first thing about the efficiency out of the new vehicles, yes, definitely, in terms of mileage and other things, again, these BS6 vehicles are in mileage term, there is no much efficiency of these new vehicles compared to older vehicles. It's more or less same.
But in terms of capacity, these vehicles are different what we are adding today. In the sense, we are concentrating more on a higher payload capacity vehicles. Not only that, we are increasing the space of the vehicles. In the sense, see, we are using a longer bodies. The length of the bodies is almost around 32 feet, which is maximum permissible limit within the strategically permissible limit. So basically, we are looking for the increase in the space of the vehicles plus the adding of the higher capacity vehicles that will lead to less dependency on the more number of the vehicles. And we can point to point, actually, the inflation level will be more or the single vehicle can carry more load instead of engaging multiple vehicles. That's the advantage.
But in terms of operational cost is concerned, one is, see, to some extent, the loading/unloading service, that is one again, it is a variable cost completely. And fuel cost also, again, it is completely related. See, there is not much efficiency improvement compared to earlier vehicles versus the BS6 vehicles. So that's the reason the efficiency is overall, the employee cost and the other fixed cost what we are incurring, to some extent, there is efficiency in those matters rather than the variable cost. So because of change in the newer pattern vehicle, the margin improvements is not much higher yet. Then second thing, as you said, the zone-wise contribution, yes, we are much growing in the northern, eastern, and northeastern regions.
Since the base of these zones are in the range of, say, 10%-15% or even north is contributing 20%, so immediately, change in the overall contribution from the zones is not so high. But what we are doing currently in the east and northeast and north, the interzone contribution is not so high as compared to the western and southern zones. Gradually, still, our network has to expand beyond the existing level. Then only we can concentrate more on the interzone or even interstate tonnage growth. With the current spread of a branches, still, we cannot more concentrate on the interstate or interzone transportation. Okay. So there is no change in the mix of interzone and intrazone in last 2-3 years? Not much. Not much. Okay. Thank you.
But it is that in 1 or 2 years, see, if we add that is a good growth aspect, actually. That is, area where the intra-zone and the interstate transportation still were not concentrating much in those newer zones. But going forward, if we add around, say, at least 25-30 branches every quarter, so that will support us for even to start the interstate transportation in states like UP, Bihar, and even West Bengal. So those are additional area of possibilities of growth in tonnage going forward. See, once network is increased, definitely, we will have a we can have a control on the services. And even we can compete with those local operators. Thank you.
Thank you. The next question is from the line of Krupashankar from Avendus Spark. Please go ahead.
Thank you. My questions have been answered. Thanks.
Okay. The next question is from the line of Anshul Agrawal from MK. Please go ahead.
Hi. Thank you for the follow-up opportunity. Sir, correct me if I'm wrong. Last quarter, we mentioned we are going to take 5-odd% hikes for contractual customers from December. Any update on this, sir?
Yeah. Actually, we approached all contractual customers to increase in freight rate. And the contribution from those customers is around 20%. See, almost around 50-60 customers have been accepted but not exactly 5%. Some customers are accepted 2%, 3%. Some customers accepted even 7%-8% also. See, considering the overall tonnage, that percentage is very low. So that's how it will benefit us to maintain the realizations on an overall basis rather than increase in the realization on a good number.
Okay. A follow-up question to the previous participant's question. Once we sort of densify our networks, won't the interstate increase in loads impact our realizations because our kilometer travel transported per parcel kilometer traveled or transported will decrease? How should we look at this, sir?
Well, basically, even today, the INR 6,700 realization what we are reporting. In the long route, actually, the realizations are, see, there is INR 11,000-INR 12,000 per ton also. Since our density of routes, especially in south and west, we are operating in even short haul basis, there actually, our realization ranges around INR 3,000-INR 4,000 per ton as well. See, within Karnataka, our realization is INR 4,000 per ton. It is contributing major tonnage to our overall tonnage. Like this. So it all depends on our route. But there actually what will happen if we start interstate and intrazone, especially in the eastern and northeast states, there actually, the tonnage growth will be much higher. So instead of the long route, if we are carrying one route in short haul, we can carry 3 or 4 loads, 4 trips within the same time. That's how it is.
Actually, see, on the other side, the tonnage growth will support, but realization will be lower. See, realization always where to go on a route basis, that is more important.
Okay. Okay. Thank you so much, sir.
Yeah.
Thank you. The next question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead.
Yes, sir. Good morning. And thank you for the invitation. My first question is on the pricing that you mentioned that it's getting difficult in terms of increasing prices with your customers. Just trying to understand, sir, is it because of competition, maybe unorganized or organized, or what is the alternate that the customer has basically? See, already, I mean, you had mentioned last time also that unorganized days are probably more expensive than VRL. So why isn't that we have this kind of a pricing power that we can pass through some of these costs? Is there a risk of us losing market share then is the question basically.
See, again, in some of the markets where we are operating, especially the textile and even some of the agro-related commodities, see, there actually, the whole market structure is in such a way that the organized players, again, contribution is around 20%-25%. And still, 70%-75% contribution is coming from the unorganized or small fleet operators. Since even those operators are not in a position, even they are not increasing the rates. And if we increase the rates, again, along with a slower demand, again, further, it will impact on our tonnage. That's the reason, again, we have to go with the market trend in those areas or those markets wherever we are having competition from these operators. But gradually, the competition will come down.
And again, see, most of these operators or most of the customers also, they are having a trend that the freight rates are linked with the fuel rates. That's why we are in a position to take sudden increase in the freight rates and show some good realization.
Right. So basically, if I'm understanding right, it's competition from unorganized that is resulting in this kind of us being unable to.
Yes. Yes. Since everybody is maintaining same rates, we don't want to take the risk by increasing the rates and impact on these volumes.
Got it. Got it. So I mean, just understanding last, say, few quarters, you had been mentioning that unorganized is getting weaker and weaker, and the customer wants to shift to organized because of E-invoicing, etc. I mean, isn't that trend still playing, and still, the customer will prefer an organized over an unorganized, sir?
Yeah. There are certain operators that are decent scale operators, actually, most of them are converting into compliance. And again, see, those operators always I mean, the percentage will come down. See, currently, what they are having, the total industry size of around 70%-75%, that percentage will come down. But overall, there are some decent operators always. They will be in the market. And again, they are shifting. They are increasing their infrastructure in the sense, basically, they are converting into compliance mode.
Got it. Got it. And secondly, we are also kind of inducting a lot of larger vehicles. Are we forced to pass through some of these benefits? Because per unit, obviously, the cost will be lower when you ship through these larger vehicles. So are we also kind of passing through those benefits to the customer?
We are not getting larger.
So if we are using a larger truck, our unit cost obviously comes down, sir. The unit cost comes down. And so are we kind of also reducing the prices accordingly for the customers?
No, no. See, internal, whatever benefit we are having, still, we are retaining it all. Not exactly equally, we are passing it all to the customers. But wherever we are entering the newer market, actually, we are offering very, very competitive rates to the customer. So that's the reason, actually, it is compensating on each other. So in some routes, wherever we are gaining a benefit out of our internal control mechanics, there, we are gaining, but we are passing that benefit to the newer market.
Got it. The reason, sir, we are hopping on this is because it seems to be a sudden change in this. I mean, until last quarter, I think your commentary suggested that the pricing is possible and unorganized is losing. But this quarter, I think the commentary from your side has changed suddenly. So that's the reason to try and understand what has led to this sudden change, so.
Yeah. That's why I told you, with contractual customers, even though there was a long gap, that 100% of the customers are not accepted. But we are not discontinued any of the contracts. But similarly, if we do in a non-contractual customer, then obviously, we will not have a proper control because the whole market will get disturbed. And moreover, none of our operators are changing the freight rates. So with this trend, actually, we don't want to take a risk as of today.
Okay. Understood, sir. Thank you so much. I'll get back.
Yeah.
Thank you. Ladies and gentlemen, please press star and one to ask questions. The next question is from the line of Jainam Shah from Equirus Securities. Please go ahead, sir.
Yeah. Thanks for the opportunity again. Sir, this question relates to the GST. So if I'm not.
Yeah.
So sir, what I've been hearing is that we will be having a window till 15 March to convert it into forward charge. And there might be possibility of having claiming the GST credit if we've converted into that. But there might be chances that we might be some of the customers might not be getting the credit if we convert to the forward charge. So what is the stance on that? Are we moving to forward charge? And if at all we are moving, then how much of GST credit we would be getting which will eventually improve our margins?
No, basically, see, we are having a good scope of input tax credit. But ultimately, what is happening, it depends on the end customer. In our case, what is happening, most of the commodities what we are carrying, those categories are taxable at the rate of 5%.
See, for example, cloth and textiles, majority of the goods are taxable at 5%. Even most of these, the cashew nuts, agarbatti, and even coconut product and betel nut, these are all products actually taxable at 5%. Even leather products, for that matter, which is again major contributor to our tonnage, which is taxing at 5%. Now, actually, what we did, see, continuously, we are putting efforts that whether we can shift to the forward charge because the forward charge is going to benefit us like anything. If at 12% we shift, we are having a lot of input tax credit. In a year, actually, around INR 140 crore-INR 150 crore credit we are having. But ultimately, what is happening, it depends on the end user.
So we inquired with some of the customers and one-on-one basis with the large customers also who are into these categories like cloth, footwear, and even the cashew nuts and all. But none of them are in a position to accept the 12% GST because they are already sitting with some of the credit in their books, and the utilizations are very lower at their end. That's the reason, actually, they are unable to accept our increase in the GST rate. With this kind of input, just we are holding on that decision. So as of now, again, we decided see, in December, we worked out on that. But ultimately, the customer feedback is not in an acceptable manner. That's the reason, again, we are holding on that decision.
Got it. Got it. So maybe near the end, it might not be possible.
Yeah. Yeah.
Because this number, INR 130-140 crore, is quite big number. Might be.
That's quite high because most of the infrastructure is owned by us. Even the purchase of the vehicles, we are paying 28% GST. And even all spare parts, tires, everything, for new tires, we are again paying 28%. But spare parts and all, we are paying 18% GST.
Correct. Sir, correct. Got it. And sir, on the cash EBITDA margins, so how much rental we would have paid in these nine months which have been eventually booked in rental and in the interest and depreciation part. Even yearly number, estimated number would work, which is eventually coming below EBITDA line item.
Yeah. On the interest part, in the current quarter, other than Ind AS, it is around the INR 6 crore.
Okay. Okay. So out of INR 21 crores, INR 15 crores is for Ind AS?
Yes.
Okay. And for the depreciation part?
On depreciation part, it is around INR 36 crores.
36 crores?
Also Ind AS . Yeah.
Okay. So total would be INR 50 crore we would have paid. So sir, our EBITDA number is at around INR 96 crore-INR 97 crore, and we are paying around INR 50 crore for the rental, which is eventually leading to EBITDA margin, pre-Ind AS EBITDA margin, or even pre-Ind AS EBITDA number of only INR 50 crore. So how we are looking at this particular thing, we are expanding the branches, and this expense is increasing. But on the other side, tonnage is not increasing.
No, on the branches side, there is no much of an Ind AS impact because most of the shorter lease agreements will be there. Because we carried out some of the increase in space of the larger transshipment hubs, that actually and the long-term lease, there actually, there is an enhancement in the depreciation and interest part or even the rent expenses. But we are ready, kept ready, all infrastructure facility enhanced spaces in most of the transshipment hubs. So going forward, no need to improve or enhance further transshipment areas. So if we have a further drastic, there will not be expansion at all because we have already carried out that exercise. So this will be fixed in nature at least for one or two years. Then based on that, whatever incremental agarbatti will be there, then definitely, it is increasing the normal agarbatti.
The rental expenses, see, what I'm saying basically, the rent expenses will have its own control because the expansion will not be there in the future. Those expansion exercises have been already carried out, and we are having enough space in most of the transshipment hubs as of today.
Got it. Got it, sir. That's all from my side. Thank you so much, sir.
Yeah.
Thank you. The next question is from the line of Prathamesh Dhiwar from Tiger Assets. Please go ahead, sir.
Yeah. Sir, I just wanted to know the revenue mix on the basis of different states, which states contribute how much to the revenue?
But zone-wise, we are having South Zone is contributing around 40%-45% to the tonnage. This is based on the origination, what I'm saying. And North and West in the range of around 20%-25%. And remaining around 5%-10% is coming from the Eastern and Northeast.
Okay. Got it. And I think, as you said in your opening remarks, the agriculture segment contributes around 40%-45% in revenue. So going forward.
No, no, no. Agro sector contributes around 8%-10%. That is de-grown by around 5%. But Southern Zone contributing around 40%-45%. But that Southern Zone growth is only around 2%-3% in the current nine months.
Okay. So are you planning to diversify into other segments, or what's your plan, if I can get some understanding on that?
No, plan is whatever network expansion we are doing, actually, we are doing in an untapped market, especially in the Eastern, North-East region, and the North regions. It's a newer market, and definitely, we are expecting very good growth from those regions. As I said, those newer regions are growing in the range of around 20%-25%. So definitely, that trend will continue. And most of the branches are again interlinked also. See, for example, if any branch we open in the North, if demand is lower in South, again, origination from that branch also will get impact. So overall, it is integrated to each other. But those branches are showing better performance because these are all newer markets, and base is very low.
Okay. Got it, sir. Sir, I want to talk about the realization front. As you said, I think South gives you the highest realization. So can you give any guidance on FY 2025 and 2026 on the realization basis? I think on volumes, you have given around 10%-15%.
See, this year, we did a volume growth of 10%. If things are normalized in the next year, definitely, our volume growth will be more than 15%. On the realization front, what is happening, it's directly linked with the fuel rates. If fuel rates change after the elections or something, then immediately, we will carry out the increase in the freight rate. That's how the realization will change. But it's all directly linked with fuel rate.
Okay. Okay. Got it, sir. Thank you. That's it from my side.
Thanks.
All the best.
Thank you. The next question is from the line of Kushagra from Old Bridge Asset Management. Please go ahead, sir.
Yeah. Hi. Thank you for the opportunity. Just one question, sir. Can you give us the tonnage breakup between intra-state and interstate in your overall tonnage right now? And how much do you aspire to take? I mean, because you mentioned somewhere earlier in the call that going forward, as in when your branch network expands, probably the intra-state movement might increase. You have in Karnataka, which comes at lower realization, but overall, volume growth was quite significant. So just wanted to understand where we stand now and how much do you aspire to take it forward. Even if you want to give a color, let's say, zone-wise, for example, South would have a higher intra-state. Western and North may not be as much. So a broad color over there and where things are headed will give a good color.
See, for North, East, and Northeast, we do not have much of inter-region services also. Okay? So whatever we are doing from North, East, and Northeast, which is almost around 30% of our business, there actually is completely interstate. We do not have much of an interstate service in those areas. When it comes to the West and South, yes, we are having an interstate. And see, South is around 45% of the total tonnage, out of which around 50%-60% is interstate. And similarly, when it comes to West, which is contributing around 20%, their interstate or intra-region is again in the range of around 8%-10%.
Okay. So just a fundamental question.
On an overall basis, the intra-region, it will be around 35%-40% of the total tonnage. So remaining all is interstate and intra-region also.
How do you see going forward, probably, as in when your branch in North-East expands and West expands further, probably your intra might go higher than your interstate, right?
Yeah. Currently, see, in North, East, and Northeast, we do not have interstate services. So there actually, once the density of branches increases, we will start even interstate and intra-zone services as well.
All right. So apart from the volume growth support, which comes from the interstate, can you give more color with respect to the profitability and the benefit of unorganized to organized shift in terms of consolidation and everything which you have spoken about in the past couple of quarters on this GST requirements, E-way bill requirements, and all? Are these benefits more on interstate than interstate? And so just wanted to get a perspective, why focus more on interstate rather than interstate?
Yeah. See, for interstate services, always the compliance level is very high. See, most of the unorganized, actually, they are not depending much on interstate services because the authorities differ from one place to another. For example, if we want to move material from, say, Bangalore to Delhi, each and every officer's state can be verified our vehicle and verify the documents. For unorganized operating, for interstate services, it is much difficult as compared to interstate. In most of the interstate services, what they do, the service can be completed within 12 hours, 24 hours like this. So there, the non-compliances are still on a higher side. So there, the competition from the unorganized is much higher. Even in the local market, if you see, some people are individuals who are operating Tata 407 vehicles. They are operating point-to-point service within 200, 300 km.
Actually, we cannot compete with such operators. We cannot render our services in those areas because they are having a small vehicle, give point-to-point service, no overheads, nothing. And rates are very, very cheap rates.
Right. Exactly. So this is where the question was. I mean, given the benefits of unorganized to organized and sector consolidation is more on the interstate and longer routes, why not focus more on them rather than the interstate volume? This was the question, actually.
So interstate, see, basically, that's the reason currently what we are doing. See, we are not opening branches in Southern region. Whatever we are having interstate as of today and interstate as of today, we are maintaining it. Similarly, in Western region also, we are not opening much of our branches. The reason is we don't want to do interstate services over there. See, our focus is open branches in the North, Northeast area, and connect with the South, connect with the West, and connect with the North to East like this. So we are more concentrating on the longer route and interstate services. But going forward, if the branch density includes, see, a state like UP, currently, we do not have any interstate service. Currently, we are having around 50, 50, 60 branches in UP alone.
But if that branch spread to around 200 branches in UP, that is possible. In UP itself, we can open another 140, 150 branches. If our density reaches to that level, then we can have an interstate service also in UP. That is an added advantage for us.
Understood. Understood. So this is more like a natural flow of things in your business growth, correct?
Yeah. Yeah.
You are all right. Thank you and all the best.
Thanks.
Thank you. The next question is from the line of Lokesh Maru from Nippon India Mutual Fund. Please go ahead, sir.
Thank you. Sir, my question is more around what is the difference in competition in our home ground, which is Southern areas and the Western, versus what you are witnessing in the newer regions, like you said, North, Northeast, and West? What is the difference in organized and unorganized or the pricing or the general nature of competition?
Yeah. Now, actually, what's happening across all the states in India, there are same compliances. Be it Karnataka, be it UP, be it Bihar, you take any state, there are same compliances. Earlier, each and every state, we were having separate compliances, and people used to take advantage of that. Now, what is happening across India, there are same compliances. It is an advantage for us that, see, people cannot push on the compliances. Earlier, what used to happen in states like Bihar, UP, we were unable to do services. We are unable to open the branches with that much of very high competition or high non-compliances were there from the local operators. Today, that is not the scenario. For the interstate services, basically, the compliances are very high, and the operators are answerable to different tax authorities in the same jurisdictions.
Because of that, actually, even the small fleet operators also, they are very careful while doing the interstate services. And interstate service, still, the non-compliances are existing, and people are taking advantage. That's the reason we are not focusing much on interstate services even in North and Eastern areas. So our focus is currently opening newer branches and concentrating more on interstate services. That's what we are doing, and it is giving good results for us. As I said, the newer branches alone contributed around 3%-4% in the current year. It is a very good contribution from the new branches. So that's the reason our focus is currently only on that aspect rather than, again, starting interstate and all these things in those areas.
Sir, and I understand that a lot of load that we carry, even which originates from South, like you said, would come from maybe the manufacturing hub, etc. So when you take this to, let's say, a Northeast or a West, what are our fill rates or utilization rates? What is the difference in forward and return utilization?
See, what happened in the hub-and-spoke model, hub-to-hub operation always is a complete utilization. So that's the advantage of hub-and-spoke model. We get our structure or our allocable of vehicle will be in such a manner that both sides, we have to get 100% load capacity. And apart from that, why we are engaging the outside vehicles, even at around 5%-6% of the total fleet size, it's only because of to match the load pattern. In the sense, one side, we will have a load; the return load will not be there. At such routes, actually, we are engaging outside vehicles. So always, we will see that our own vehicles should get a load on and off as well as the return loads. And wherever there is a return load issue or something, then we are engaging outside vehicles.
And in some of the in spite of that, we face some of the issues that our vehicles will not get a return load. In that case, actually, we are engaging our vehicles for the full truckload. Currently, the full truckload is, again, 7%-8% of our total revenue. This revenue, full truckload, is not our foray. We are not focusing on the full truckload. But to only send back these vehicles to the original destination, we are engaging these vehicles for a full truckload. This is how the structure is. See, always, we go with the Utilization. See, we are very cautious on that. And that's how the Hub-and-Spoke Model will give support for us to use the infrastructure properly. So even if we open any branch in a North-East or any remote area, it is not that the vehicle Utilization will be lower.
If it is a one-side load, then we engage a smaller vehicle, and it will be an outside vehicle. That's how it is.
Okay. So utilization from hub to hub is complete on both the ways. But it is only from the hub to branch, which will just ramp up with time as we spend more time in the region.
Yes. It is a slower demand and slower market. Spot-wise, we engage outside vehicles, and we bring that goods to the hub.
Okay. Okay. Sir, last question. Just to understand, you have mentioned on interstate and interstate. So within the interstate logistics and within our slow PTL, what kind of competition exists in India? And if you could help bifurcate that into organized and unorganized, how many players are there?
See, most of the interstate competition is in the hands of the unorganized operator, all small fleet operator, I can say. And even today's world, what is happening, most of the individuals are servicing, say, from Bangalore to 200-300 km, the individuals are covering. And even, say, from, say, Mumbai to 200-300 km, most of the individuals are operating with a single vehicle. They can give point-to-point service and in-depth day services.
Yes, sir. Interstate market.
Sorry?
Yes, sir. I meant the interstate market across different states. That market.
The unorganized contribution is coming down drastically because of increasing GST law, GST compliances. There, actually, we are having a lot of scope to grow. Even in the current scenario also, there is a good growth in the state-to-state operations rather than the interstate operations.
What is our edge and our position in that market, in that competition?
Where?
In the interstate market, in the interstate logistics transportation, since it is a large.
Interstate, wherever we are entering the newer market, we are offering a concessional rate as of today. But wherever there are strong routes, we are maintaining our rates.
Okay, sir. Okay. Okay. Yes, sir. Understood. Thank you.
Thank you. That was the last question. I would now like to hand the conference over to Mr. Sunil Nalavadi for closing comments.
Yeah. Thank you, all participants. Yeah. It's good that many of them interacted about the inter and interstate movement, how the structure is in India. So basically, our focus as of today more is on the interstate services. And wherever we are opening new branches and all in the remote area, those are all most of these branches are contributing for the interstate services. And as I said, definitely, the opening of branches is going to give a lot of advantage for us in the coming days. Basically, once the density of the branches increases, we will have a lot of advantage. So states like UP, Bihar, especially in the North, even Punjab, Haryana, so those states, currently, we are not on much of interstate services. So going forward, density of branches is going to support us not only for interstate.
And once the compliance starts increasing further, then definitely, we can concentrate on interstate services also or interregion for that matter. So with that, the structure-wise, we are having the structure-wise; it's the best structure in India what we are operating today. But due to some external issues, especially one is monsoon and other things a little bit impacted on volume growth. And the freight rates, again, we are unable to increase because completely, it is linked to the fuel rates. So we are expecting these changes very soon. And definitely, we are back to good margins as well as good growth. That's what, actually, I want to say again. With this closing remark, I wish to conclude this call. And thank you, everyone. And thank you, all participants, for your patience here. Thank you.
On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines.