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.
Good morning, everyone, and welcome to the Q2 FY24 earnings conference call of VRL Logistics. We have with us today, Mr. Sunil Nalavadi, CFO of the company. 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 take Q&A session. Thank you, and over to you, sir.
Thank you, Mr. Alok. I'm Sunil Nalavadi here, CFO of VRL Logistics. I once again welcome all of you for quarter two earnings call of FY 2024. Just to highlight about the results, during the quarter, the revenues increased by around close to 9% from INR 656 crores to INR 715 crores on a year-on-year basis. The increase in revenue is only on account of growth in tonnage by around 8%, and the tonnage is increased from 966,000 to 1,047,000 tons. The increase in tonnage again is the main reason on account of increase in the branch network of the company.
Year-on-year, we added around 120 branches, and these branches have contributed around 4.45% of the total tonnage in quarter 2 of FY 2024. 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 contribution from existing customers also supported for our growth. Further, we are acknowledging that many of the customers are shifting from unorganized operators to organized operators on account of increasing compliances under GST law. On the other side, due to delay in onset of festive season in the current fiscal by a month, has resulted into lower demand of cloth and textile materials in the current quarter.
The year-on-year contribution of these commodities declined in the current quarter, and we are expecting that this is going to benefit us in quarter three, which covers most of the festive seasons of the year. The barcode and QR code system is stabilized and working smoothly across our booking and delivery processes of the consignment. During the quarter, the realization per ton is maintained at around 6,680 per ton. Since the higher rates predominantly linked with the retail fuel rates in India and the fuel rates are constant, we are unable to increase the price rates. When it comes to EBITDA, it is increased from INR 95 crore to INR 98 crore, and the percentage of revenue is decreased slightly in the current quarter. The year-on-year EBITDA benefited due to decrease in average fuel procurement cost from INR 89 to INR 87 per liter.
The decrease in diesel cost is also due to increase in bulk purchase of fuel from the refineries at a discounted price. The purchase of fuel from the refineries as a percentage of the total quantity is increased from 1.7% to 50.41% of the total quantity. However, the overall cost of diesel is increased due to addition of own vehicles and increase of their kilometers in overall kilometers operated by the vehicles. Similarly, the vehicle repair and maintenance costs, toll charges, hire costs are increased due to addition of own vehicles and increase in kilometers operated by these vehicles. The increase in these costs has been compensated by a decrease in lorry hire charges by around 3% to the revenue.
Lorry hire charges have been reduced on account of low dependency on the hired vehicles in the current quarter. The toll charges further increased due to increase in toll plazas from 1,082 to 1,285 toll plazas, and also due to increase in toll rates and toll rates. The loading and unloading charges also increased on account of increase in rates, resulted into increase in variable costs and impacted on the EBITDA margins. The rent expenses, which is fixed in nature, is increased due to increase in number of branches and increase in space of majority of branches and transit hubs during the current quarter. We increased the space in key location, considering our expected growth in tonnage for the subsequent years. The same is resulting into lower utilization of space in the current quarter and impact around EBITDA margins.
The employee cost increased in the current quarter, because of annual increments effective from September 2023, and also increase in manpower and internal promotions to the staff. The EBIT of goods transport segment is reduced in the current quarter, only on account of increase in depreciation. The depreciation and amortization cost is increased, one is on account of increase in capital, and second thing is on increase in the rate of right-of-use assets, as per Ind AS 116, that is, accounting of rental expenses on a long-term lease agreement entered for enhancement in major branches and transit points change. The finance cost also increased in the current quarter on account of, one is increase in the debt, and second one is, again, amortization of rental expenses, based on the Ind AS 116 accounting policy.
This has resulted in further reduction in profit before tax, and again, that impacted the reduction of profit after tax in the current quarter. Similarly, also the revenue of GT segment is increased by around 5% and mainly on account of increase in the tonnage. And moreover, realization is constant, because again, the realization is mainly linked to the retail fuel price in India. So the retail fuel price has not changed much. We are unable to increase the rates. Just I want to highlight that, during the quarter, we invested around INR 112 crore in the capital, predominantly for addition of vehicles. And on account of this, the net debt of the company reached INR 280 crore, and it was INR 193 crore as on 30 June 2023.
So increase in debt, one is on account of CapEx and also some internal cash approvals have been deployed for payment of final dividend of the company. Going forward, as a reference, I would like to mention here that in October we reached a tonnage growth of 15% year-on-year basis, and the cloth and textile materials alone grown by around 45%, which is a major commodity we are handling. If we do this kind of a growth for the remaining period of the year, that will support to increase the EBITDA margin at around 15%-16% level. We have taken a call to increase in freight rates by around 5%-10% of contractual customers from December, and their contribution is around 20% to the total tonnage.
Our net, network expansion is going to continue, and this, there is a lot of scope to increase our branches, especially in East and North and West zones of India. These steps are giving us to support increase in revenue growth in the coming period. Further, from the expenses side, rent, rent expenses is fixed in nature and impact of these expenses is much higher in the current quarter due to lower utilization of the space. The same space and rent expenses is going to suffice the requirement of space for the enhanced tonnage growth in the future. The percentage of these costs may reduce going forward and support for increase in EBITDA margin. The increase in employee costs from September 2023 is going to remain constant at least for a one-year period.
The impact of these expenses is much higher in the current quarter due to tonnage growth is not at an expected level. The same expenses as a percentage to the revenue will decline once we reach the volume growth by around 15%-16% for the remaining period of the year. Similarly, the increase in depreciation and interest in the current quarter is fixed and periodical in nature, and these costs will not increase in proportion to the increase in revenue and will support improvement in EBIT and EBITDA margins going forward. With this, I will conclude my initial remarks, and I request participants to open our question- and- answer session.
Thank you so much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on your touchtone phone. 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.
Hi, good morning, everyone, and, thanks for the opportunity. I have two questions. The first one is on the contribution of new branches to tonnage. While you have indicated that it contributes 4.48% to tonnage, if you can also highlight the contribution in terms of revenue and EBITDA, it would be helpful.
No, we do not have, you know, the revenue, the realization will be more or less similar. But when it comes to EBITDA level, again, we do not have a, you know, branch-wide EBITDA or something like that. We have a consolidated EBITDA number, because most of the expenses we are incurring at a centralized level. But these branches also, say, for example, the minimum tonnage to reach a breakeven of new branches is around 100 tons per month. Once these branches reach to 100 tons, then definitely will contribute to EBITDA margins. Now, whatever branches, around 120 branches we opened in last one year, so almost all branches are contributing more than 100 tons in a month.
Typically, how much time it takes for these branches to reach 100 tons per month?
See, prior to, you know, earlier, around 4-5 years back, if you see, it used to take at least around 6 months, sometimes 1 year period. Now, that period has been reduced hardly around 2-3 months. In 2-3 months, these branches are reaching to 100 tons per month.
Okay, that's very helpful. The second question is essentially on the overall, guidance. So now, volume growth, if you look, if you look at it and compare to last week quarters, it was, low, and you mentioned it in a few months due to cloth and textile. Now, what is the volume growth that we could, you know, expect in the entire year, 2024?
In next quarter, if we achieve around 16% growth, then overall our growth in tonnage will be around 13% for full year, between plus percentage.
Actually, it will be 13%, that's what you're saying?
Yeah.
13%. Yeah.
Yeah. In this quarter, what, what happened, the cloth, which is contributing almost around 17-18, 18% of our tonnage, which has grown negatively by around 3%. Whereas the same, because, because of, you know, delay in festival season, actually negative by around 4.16%, precisely. And, this tonnage has improved by around 46-47% in October alone on a year-on-year basis. So definitely, this moment is, momentum is going to be continued at least for a-
Okay. Got it. Thank you.
Thank you so much. The next question is from the line of Abhishek from Dolat Capital. Please go ahead.
Thanks for the opportunity. As you have seen on a quarter-to-quarter basis, are you looking to take any price hike to compensate it and that margin at a 16%?
Hello?
Ladies and gentlemen, thank you for patiently holding. We have connected the management line back. And, Mr. Abhishek, could you please repeat your question once again, please?
Thank you. So my question was related to the expenses, which has gone up quarter basis. So are you looking to take any price hike compulsively? And how is the pricing environment right now?
Hello? Is it audible?
Yes, sir.
Yeah, in India, freight rates are mainly linked with the retail fuel price. So since the retail fuel price is stagnant over more than one year period, many of the customers, you know, whenever we go for a rate hike, they refer only fuel rates. But having said that, now, for the contracts with customers, we have not approached even for the last more than one year period to enhance the rates. Now, we have already decided to increase around 5%-10% rates for the contractual customers from first December. So around 20% of tonnage is contributing by these customers, so this is going to support us for some of the enhancements instead of only enhance.
Most probably by the second half of 2024, we'll see some pressure on the margins because of the increase in fuel prices.
If the fuel price is increased, immediately we can increase the freight rate across all customers. That is not at all issue. Apart from fuel rate, whatever costs are increasing, that is, you know, customer acceptance on those parts is difficult itself.
So how is the margin guidance for the second half of FY24 quarter?
Yeah, if we grow by tonnage around 50%-60% for the remaining six months, then definitely we will get to at least around 50%-60% our margin level.
Okay, sir. My next question is on the geography-wise value in the first half. Your north and west has been historically weak versus the other zones. What steps you are taking to increase your presence there?
So the most of these new branches, which contribute around 40% to the overall tonnage, these branches are situated at, you know, in the eastern and northern side of India. And, definitely, the contribution from that zone is increasing. So on an overall terms, it is not significant. Again, even, even in current scenario, the south is contributing almost around, you know, 40% of the tonnage, and, north and west is contributing around, say, 20% each, and remaining 10% is coming from, the eastern part of the country.
Thank you.
Thank you so much. Ladies and gentlemen, if you wish to ask a question, please press Star and One now. The next question is from the line of Mukesh Saraf from Avendus Spark. Please go ahead.
Yes, sir. Thank you for the opportunity. My first question is just looking at your sequential, that is, first quarter to second quarter movement in cost. First question is regarding how the economics change between owned rates and hired rates. This year, lorry hire charges have gone down about 1.5 percentage points, but it seems like your vehicle running, repairs, and maintenance, the tire cost, all these other things are more than kind of compensating this benefit of lorry hire. So is it just because with like initial days that you've just added vehicles and you should start seeing benefit of owning vehicles rather than hiring? Or is there some other you know, explanation to this in terms of own versus hired?
So basically what happened is own vehicle have addition happened, on a period of the year. These are things, you know, it is not added on a first day. So these vehicles are added during the period of the quarter, and subsequently that benefit is going to come in next quarter now.
Right. Right, right. So, the actual benefit of these own vehicles will only come in now, is what we should think?
Yes. So these are added gradually, but as and when tonnage comes, actually, we engage outside vehicle also. And sometimes, we have to do a maintenance of the remaining own vehicles and other things. The capacity is available as of, as on September, that going, that benefit is going to come in the next quarter.
Right. Right. Right. Understood. And, secondly, on growth, you did say that October has been very strong at 15%+ growth. Even if we kind of assume that the second half is going to be closer to the 15% mark, we land at, you know, just below 13%, end of October, 12.5, 13%. So, this seems to be slightly lesser than what I think we were looking at. I mean, our guidance was slightly higher than this, especially given the move from unorganized to organized, etc. So even adjusting for this festive change versus last year, growth, seems to be slightly lower. Is there, you know, are you seeing some weakening in terms of demand trends?
So, are you also going to be changing some of your vehicle procurement plans because this growth is slightly lower? Anything that you could talk on this?
Yeah. So basically what happens, if you see on an overall economic level, there are certain lower demand in certain sectors. See, one is the cloth is impacted because of the festival in the current quarter. Apart from that, on a clear basis, if we take, main, most of the commodities which are linked to agriculture and rural economy, there is some slowdown. Basically, it will be every related stuff, at the moment, actually, we've grown hardly around 7,000. Whereas, some of the rural areas, for example, consumer durables, there also we are having some low growth as compared to the overall average growth of tonnage. So on account of these reasons, the key reason of slower of these demands is on account of, you know, erratic monsoons. Monsoons are not actually good across the country.
That is also another reason why the lower demand is, and especially if you see Karnataka, which is major contribution from our tonnage. In Karnataka, there is a lower demand because of the low monsoons in the current year.
Okay.
So this is impacted on an overall basis of reduction in tonnage, at least around 2%-3% on an overall basis. Whereas the rest of the things, for example, plant growth expansion we are doing, and continuously we are doing a marketing, aggressive marketing across all the sectors. And, not only that, you know, we are about the vehicle utilization part, about the movement of the goods, everything we are consolidating and monitoring it. But sometimes, you know, because of these external factors, on overall basis, around 2%-3% less than the expected level in tonnage. And because of this, the vehicle procurement, again, that will be staggered, and whatever we plan for this current year, some of the vehicle addition may shift to next financial year.
Okay. So, is it fair to assume that what we have done in first half, which will be for the full year, or you will see, we'll still see some addition of vehicles this year?
No, there will be the lesser addition in the second...
Okay. Okay. Got it, sir. And just one last thing, on fuel procurement from refineries. I think last quarter you had mentioned that because you're adding two new pumps, it can go to 40%+.
Yeah.
But it seems like we're still at the 30%-31% procurement from refinery. So, I mean, the reason why this is lower, sir?
No, one is, see, that two additional pumps are not yet started. In Delhi-
Okay.
Actually, it may commence shortly. But on the other side, what is happening, because of the war situation, the Israel war and other kind of things, the crude oil prices have been increased. So because of this reason, what is happening, the bulk percentage price has been increased, and it has impacted in the September, and same is continued in October also. So there will be some lower procurement going forward, on the bulk purchase.
Okay. So it will remain at this 30-31% for now until the purchase prices kind of come down?
Yeah.
Okay.
Thank you.
Right, sir. Thank you so much. I'll get back in case.
Yeah.
Thank you so much. The next question is from the line of [audio distortion] from investor. Please go ahead.
Namaste, sir. My name is [audio distortion ] from Andhra Pradesh.
Yes, sir. Please.
Sir, I have a question, sir. That is, I noticed that the EBITDA margin, September 2020 is 30%, September 2021 is 18%, September 2022 is 14%, and now September 2023 is 13%.
Yeah.
Every September, the EBITDA margin has been decreasing. May I know the reason?
No. In the first initial September, what happened? You are asking September 2021 also. During that period, see, the economy revamped immediately, immediately after the COVID period. And, on account of that, suddenly there is a growth in tonnage. If you see the tonnage growth during that time, we reached, almost around 20%+ tonnage growth. So that will result into reduction of, the fixed percentage margin, as a percentage to the revenue. So on account of those things, actually, the margins have been improved. Now, what is happening? It is, you know, standard, operating, you know, across all the years. So there is, there is no sudden growth. It is a gradual or a normal growth happening across the year.
I mean, earlier those period, you see, there is a sudden demand in the tonnage, there is a sudden growth in tonnage. On account of that, there is a, you know, good kind of EBITDA margin. That's the only reason.
Sir, but every September is same results. It is low.
September, see, this September, we are having a reason, because we enhanced most of the rent, so, rent actually is increased, and employee cost is increased on account of annual increment. Actually, that was due in April itself, but we staggered till September. From September, actually, we adjusted the annual increment, again, it impacted on the EBITDA margin. And I said, again, because of the variance in the festival season also, once in four years, this issue will be there. Now, last year, the Diwali and all festivals, due in the October itself. Now it has been shifted November this year. So, again, the demand of certain products has been fixed for one month.
Yes, sir. I think, I expect, just EBITDA margin, coming up,
Yeah, actually, see, we are taking a lot of steps on that front. One is, we are focusing more on increase in the tonnage. Basically, we want to increase the volume because that will be able to, you know, reduce the percentage of fixed actually, as a percentage to the revenue. And that's the reason, actually, we are expanding the branch network. And apart from that, wherever possible, actually, we are increasing the rates. Say, like, individual customer rates, we are increasing. And, as I told earlier, even, because of the stagnant of these fuel prices for more than one year, that is another reason that we are unable to pass on other, increase in cost. Like toll charges increasing, loading, unloading charges increasing.
We are unable to pass on these costs to the customers because always customer refer only fuel rates and will not, you know, consider increase in other costs.
Yes, sir. Thank you, sir. Thank you very much.
Thank you. Participants who wish to ask questions may press star and one to join the queue. The next question is from the line of Ankita Shah, from Elara Capital. Please go ahead.
Yeah, thank you for the opportunity. Sir, so would you help us understand on the CapEx now, how many trucks are we planning to add in this financial year, and how could be the CapEx for FY24 and FY25?
Yeah, now in half year, we incurred almost around INR 200 crore and predominantly for
Yeah.
Out of the overall plan of around INR 400+ crores, current year, so we may invest, you know, another INR 120-150 crores Capex in the next month. For the next year, at least around INR 250 crores annual Capex.
For FY25.
On the vehicles, right?
Okay.
In FY25, if we plan, you know, to use the surplus money of our cash flow for, one is, see, our focus is to repay the debt. Apart from that, if debt level is, you know, reduced substantially, then we may plan to add, one or two properties, the transshipment hubs, only after, you know, the FY25.
What would be the average cost for a transshipment hub?
That will cost at least around INR 80-100 crores per hub. We may add around one or two hubs.
Okay. Any particular markets that we are seeing where we need to have a transshipment hub present?
This is actually just, wherever, you know, rental costs are on the higher side or wherever we are not getting a proper input, there we are coming. We have not identified this yet.
Okay. So sir, this first half, we've added net addition of around 111 vehicles. The second half will be how many vehicles against the INR 100 crore of Capex, and next year against the-
400 vehicles. Around 400 vehicles we are going to add in second half. 400 to 450 vehicles, yeah. And the scrappage will be lesser in the second half. Basically, most of the vehicles have been scrapped and whatever vehicles are running today, these are running in a good condition, and except, you know, some major accident or something, otherwise, these vehicles will operate for a few years. And on a scrappage side, again, there is a not a mandatory rule as of today, so just we want to continue with our older vehicles.
FY25, how many vehicles will be added?
See, again, for INR 250 crore, so each vehicle will cost around INR 30 lakh rupees.
Okay.
Yeah, around 100 vehicles.
Okay. Sure. That, that's it from my side. Thank you, and wish you all the very best.
Thank you.
Thank you. The next question is from the line of Rahul Soni from ICICI Bank. Please go ahead.
Hello. Yeah, am I audible?
Yeah, please.
Yeah, thanks for the opportunity, sir. Sir, just two questions, mostly on the sector side. So once this scrappage policy becomes mandatory, what will be the impact on the sector and your company?
Yeah, for us, currently around 900 vehicles have more than 15 years as of today. And, as compared to the capacity, it is, around 67% of the total tonnage, in our case. But in the market, if i in the industry, almost around 35%-50% of the vehicles are more than 15 years, especially in the shorter routes. In long route, anyway, because of the National Permit, the life of the vehicle is 15 years. There all vehicles could operate, you know, up to 15 years, we can have a National Permit. Other than National Permit category, especially the vehicles which are operating within state and neighboring state, there actually the maximum percentage of older vehicles are operating as of today. So there it will hit very badly on the market, if it is a mandatory rule.
So you mean the smaller, on the smaller players, the margin, the impact will be higher?
Smaller players, and even in our case, say, for example, we're operating, you know, within southern states, even we are expanding network. So as I told you, where some of the local competitors as of today competing, the competition will become very weak once it is a mandatory rule. And there is a, you know, huge amount of scarcity of the vehicle will be there in the market, and that will lead to increase in the price range. Since we are having a lower older vehicle, that will get us a, you know, price rate on a higher range.
... in the long term, that will be also like a deterrent for us new players also to enter into this.
Sorry?
This will also, like, benefit the bigger players like you?
Yeah.
Okay.
In India, nobody is having their own vehicle, their own infrastructure. Most of the operators are depending on the outside vehicle. So the moment it will become mandatory, there will be scarcity of the vehicle in the market, and the vehicle hire charges are going to increase later. But that, with that, risk will not be there, sir.
Okay, understood. Sir, second question is on the impact after the DFC is operational, so what kind of a volume shift you are expecting from road to rail post the full operational of this DFCs?
One is, we, our commodities are, you know, much different as compared to what DFC can carry. Because most of our commodities are parcels. Small parcels, which ranges from, say, booking business to electricity distribution for a single article. That kind of commodity we are, you know, transporting. And moreover, for example, if the person sitting at Delhi wants to distribute his material across India, then his distribution should be at least around 100-150 locations. So we have to carry his goods from one location and segregate those goods in our distribution center. Then we have to arrange a load from Delhi to different routes. So such customers cannot depend on a DFC, which is, you know, connecting only Delhi to Mumbai route.
Basically, the commodity what DFC is going to carry versus the customer nature and commodity what we are carrying are different, so the impact will not be there on it.
So, won't be that you will lead to increase in the shorter distance travel to provide this gap, which is first mile to last mile connectivity?
For?
It's like DFC, they will not be able to provide the first mile and the last mile connectivity.
Yes.
Once they are operational, so will there be a scenario where the demand for a shorter distance travel will be more? Or the share of shorter distance travel from the logistics operator will increase?
Sorry to interrupt. Mr. Soni, for any further follow-up questions, may we request you to return to the question queue, as there are several other questions?
Okay. Okay.
Thank you.
Thank you.
Next question is from the line of Mr. Rohit Pawar, from RB Investments. Please go ahead.
Good morning, sir.
Yeah, good morning.
My question is, what is the level of OPMs and revenue we are expecting in the context, what level we are ready to take a hit on OPMs to reach higher revenue levels?
Sorry, your voice is not audible. Can you repeat your question, please?
Am I audible, sir?
Yeah.
Sir, my question was, what is the level of OPMs and revenue we are expecting in the context? What level we are ready to take a hit on OPM to reach people revenue levels?
No, two. One is, as I told, see, once we reach at a 15%-16% growth in tonnage, immediately we can maintain EBITDA margin of around 15%-16% level. So in the current quarter, because of, you know, some of the shift of consignment to the next quarter, and again, overall, you know, decline in tonnage, at least 2%-3% on account of overall economic scenario, that impacted on the margin. So if we grow at a 15%-16% tonnage in the remaining years, then immediately we can say it is around 16%.
Yes. Also, sir, the tonnage growth target was of 15%, right? So currently it is of 8%. So when do we expect to reach the target of 15%?
See, now, first half we reached on overall, which is around 10% growth in tonnage. See, for remaining quarters, we are expecting, you know, at least around 16% growth in the, you know, current Q4. So overall, it will result around 13% growth in the tonnage. That 2% gap is on account of this, I told you, because of the monsoon, over monsoon, or periodicities, periodicity of the monsoon is not accurate during the time. There was this is one reason, and that may impact you. On a clear basis, that 2% gap is on overall.
Yes, I got it. My last question-
... If it is normalized, then again, we'll get at least around 13% growth in the next year.
Okay, sir, got it. Sir, my last question is: the wind energy business was sold for INR 187 crore, so which was to be used for the repayment of debt. But now the debt has been increased, so may I get the bifurcation for the debt accordingly?
Please, see, 197, we realized in the last financial, and accordingly, the debt levels have been reduced. Now, what happened in the current year, we incurred a debt of around INR 240 in current year and the collection results into increase in debt. And apart from that, we paid, you know, certain amount for the [NL demand].
NL. Yes, sir.
That also is another reason for increase in the debt in the current half year.
Yes, sir. Sir, the truck utilization percentage currently?
Sir, half of always we are operating with 100% capacity. Up to 4, there is a, you know, around 60%-65% utilization.
Can we expect 80% in the coming future, and till when?
See, volume growth, again, as I said, always supports us. Even if some hub for operational vehicles, the turnaround time will increase. And even hub to spoke capacity, if it is from 60 to 80, it may go around 20%-25%. So always the volume growth will support, you know, to go even to the utilization and reduction in the overall variable and fixed cost. So that's the reason we are more, you know, concentrating on the volume growth.
Thank you.
Yeah.
That's all from my side.
Thank you so much. The next question is from the line of Mr. Mukesh Saraf, Avendus Spark. Please go ahead.
Yes, sir. Thank you for the follow-up opportunity. Just had one question on the pricing. As you mentioned, 10% hike. So, would we kind of start seeing the benefit of this, or the price hike all from January, or does this gradually come into effect through the next year for these 20-25% of your customers?
See, what we are expecting, now that this is already on, some customers are accepting. We have not, you know, having a date per se, but some customers are accepted even for the November month also. But, you know, the benefit will start from December.
Okay. Okay, it will start. And for the remaining, 75-odd% of your customers, I think you took one general price hike last year. So around April, you know, could there be a plan for a general price hike also? So I think once a year or something, you do plan to do that.
That we can plan, and, moreover, again, it is linked to the fuel rate and what is the price. So post-election, if the fuel rate changes, definitely we will take a call on increasing price.
Okay.
So, in that case, what will happen along with the, you know, increase in the fuel rate? We can consider the increase in other costs also and increase the rate.
Yeah, yeah, because your, general intra cost, your intra costs are going up, so hence the general price hike. Okay. Okay, so that, that's not going to happen immediately, but it can happen, after a few months as well.
Yeah.
All right, sir. Great. Thank you, sir.
Thank you so much. The next question is from the line of Mr. Shivaji Mehta, who's an individual investor. Please go ahead.
Hi, thank you for this opportunity. Sir, I had a question regarding these last two years since you have embarked on this journey to expand the branches in north and west, and north and east. So could you give an approximate contribution that these new branches that you've added in these locations in the last two years, how much would they have contributed to the revenue?
Yeah, we gave, you know, the contribution in the tonnage by around 4.5%, on overall tonnage.
Is that for the current quarter, the new branches, or is it for all the new branches that have been added in North and West in the last two years?
No, no, only it is on a year-on-year basis and quarter-on-quarter basis. Say, for example, year-on-year basis, as compared to 30 September of 2022 versus 30 September 2023, we added around 120 branches. These 120 branches have contributed around 4.5% to the overall tonnage.
Right. Right. Makes sense. And the last question from my side, is any split that you can give, in the volume, GK, the exim volume versus domestic volumes?
No, I was more so the volume is related to domestic.
All right. Thank you. That's all from my side.
Yeah.
Thank you so much. The next question is from the line of Nirav Seksaria , from Living Root Analytics. Please go ahead.
Sorry, Nirav, can you hear me?
Yeah, please.
I listened, Nirav. Could you then, could you also repeat the three requirements actually?
Can you explain your question?
Yeah, so I...
Yeah, it is around INR 120-INR 150 crores.
INR 120 crore. Okay. For the CapEx that you have mentioned in the next 25, it will be mostly through external borrowing, or will there be some amount of internal accruals for it?
Yeah, predominantly it is from internal accruals. Wherever there is certain shortfall, then we go for debt. See, roughly, on an annual basis, we are generating around INR 350-400 crores of cash accruals. These cash accruals predominantly used for a CapEx plan. If overall, if we declare, you know, some of the, some of the profit we did in the last year, some accruals will be used for CapEx, and for the purpose of CapEx, we go for debt. But, see, if we do, you know, the dividend and all together, even if we spend around INR 300- INR 400 crores in a year, our debt level will not increase.
Is it possible that there can be some amount of scrappage in at some point in time?
Scrappage until, see, what we decided now, but we did a good amount of scrappage of vehicles in the last 1.5 years. During that, there is a scrappage policy which is going to be implemented or which is going to be mandatory. Now, what, internally we, our management has taken a call is, let, you know, policy to be a mandatory, then only we will take a call on, the scrappage of majority of the vehicles. Till that date, wherever, whatever our earlier policy was there, wherever, you know, major accident happens to the vehicles, which we are unable to maintain again, only those vehicles we are going to scrap. Those number of vehicles which are going to be scrapped, will reduce in the coming years.
You have also mentioned that 900 vehicles are 15 years older. If the policy takes then, the 900 vehicles will be scrapped, or it will be general over the span of 25?
Got it.
You have mentioned that 900 vehicles are 15 years older than 15 years, right?
Yeah. Yeah.
Yeah. So, sir, if the scrappage policy takes in, the 900 vehicles will be scrapped over a period of time, or it will be like within H1 or H2 as such?
So even in the policy, what will happen, even though they made it mandatory, as on that March 20, 2024. So whenever this vehicle has to go for a Fitness Certificate, only during that time they verify. If it is, this vehicle unable to run, then they will not issue a Fitness Certificate, then we have to scrap. That's what the rule is. So it will take one year period, gradually. Some vehicles due for a Fitness Certificate in April, May, June, like that. It will not happen on a single day.
It's not completing that all 900 vehicles will be scrapped, right?
Yeah. It is mandatory, then definitely we have to, and even other operators also.
Okay. Only if it's mandatory. If it's not mandatory, then we have set of the vehicles, those which will be discarded.
Yeah.
Okay. Thank you so much, sir.
Thank you.
Thank you so much. The last question is from the line of, Mr. Alok Deora from Motilal Oswal. Please go ahead, sir.
Yes, sir. Just a couple of questions. Sir, one is the shift in tonnage because of the festive season. So if this different challenge was not there of the, you know, you see these days, so what would have been the volume growth really for Q2, if we would have not seen the change?
Now, the cloth and the textile material is still grown by around 4%, 4.5% [year-over-year]
Yeah.
Now, it is 4.6%. Even if it would have grown normally, so our tonnage growth in the current quarter, it should be at least around 12%+.
Got it. And sir, there was a strike in Bangalore in last September. Any impact that had on the tonnage or not really?
No, no, it's not impacted much. You are saying this Cauvery issue ?
Yeah, yeah, yeah, yeah.
No, there is not much impact on.
Got it. Just one last question is, net debt, which is, right now there, which we are seeing now will go on the effect. So net debt stabilizing now ahead, going ahead?
Now, as I said, every quarter, or every half year, you say INR 150- INR 200 crore cash flow will come in next month, free cash flows. And, these free cash flows, again, as I said, we are going to plan around INR 120- INR 150 crore. So these free cash flows predominantly used for, you know, the investment in capital. And over and above, it may reduce around, some INR 20-30 crore reduction is possible, as a reverse margin.
Got it. But it doesn't increase under any scenario for the-
Yeah, it will not increase.
Got it. That's all for my side, sir. Thank you, and all the best, sir.
Thank you.
Thank you so much. I would now like to hand the conference over to the management for closing comments.
Yeah, thank you all the participants for your patient hearing. Basically, as a closing remark, just I want to highlight that this variance in the current quarter is on account of some of the reason, especially because of the festive season and because of some of the, you know, impact on certain agriculture and total economic for a month. The festive season, again, that is going to, you know, recover in the coming... It has been already recovered in October, that is already conveyed to you. Based on that, we are expecting that at least around 15% to 16% growth of tonnage in the coming six months. So once we grow at a 15% to 16%, then definitely our margins will improve.
And for this kind of a growth, we have already, you know, planned for our expansion in area. We have already invested and incurred expenses about especially the go down and transportation hub area, what we require. So these expenses may not be increased in proportion to the increase in revenue going forward. So definitely, based on that, our margins are also going to improve. So with this, definitely, again, we will back to our [audio distortion] around 16%. So these remarks, actually, I would like to conclude. Thank you.
Thank you so much. On behalf of Motilal Oswal Financial Services, this concludes this conference. Thank you for joining us. You may now disconnect the line.