Allcargo Logistics Ltd

NSE:ALLCARGO

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Allcargo Logistics Limited Q1 FY '24 Earnings Conference Call hosted by B&K Securities.

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] Please note that this conference is being recorded.

I now hand over the conference to Mr. Sailesh Raja from B&K Securities. Thank you, and over to you, sir.

[Sailesh Raja, analyst]

Yes. Thank you, Jay. Good afternoon, everyone. On behalf of B&K Securities, I welcome you all to 1Q FY '24 earnings conference call of Allcargo Logistics Limited. We are pleased to have with us management team represented by Mr. Ravi Jakhar, Group Chief Strategy Officer; and Mr. Deepal Shah, Group CFO. We will have our opening remarks from the management followed by Q&A session.

Thank you, and over to you, Mr. Ravi.

[Ravi Jakhar, executive]

Yes. Thank you, Sailesh. Good afternoon, everyone, and thank you for joining in for the call. It is our privilege to be talking about our company's quarterly performance, and thank you all for attending in.

The quarter gone by from April to June 2023 has been filled with significant headwinds on the international trade, and that has led to what we would term as a disappointing quarter. There is optimism as we look ahead. And at the same point, we do not still foresee the sharp rebound in the trade that economists were expecting until a few months ago. And we were also expecting for a normalized second half of 2023, which is July to December. However, the volumes continue to remain under pressure. And that's the overall sentiment on the International Supply Chain business, which is the flagship business. I'll try to share key commentary on all the businesses and then hand over to my colleague, Deepal.

We have also tried to incorporate all the comments and inputs that we received from our shareholders and the research analysts in trying to provide additional information. So I would also request you all to look at the investor presentation, which has been shared, which captures more details this time. For an instance, we have provided the breakup of industry segments in the Contract Logistics business to provide a better clarity. We have also shared more financial details about that segment, which is now important being 100% owned by us as compared to being a joint venture in the past. We have also shared the gross profit information for International Supply Chain as was thought by many participants in the last call, and we have included further such details, which can help you understand the performance of the company in a better way.

Starting with the Contract Logistics business. This is a business which has continued to perform well on the back of strong macroeconomic environment in the Indian context, which has continued to see good consumption and demand, formalization of the housing sector and our strong presence in chemical industry, on the back of which we have been able to also enter significantly in the e-commerce, auto and a few other segments over the last 7 years since we entered into this business.

And quarter-on-quarter, year-on-year, the business has continued to demonstrate overperformance. And for this quarter as well, we have seen a similar trend. And we also foresee continued strong performance, considering the pipeline in terms of orders in hand and the ones we are competing for. And we believe that this business would continue to perform well in the near term and the long term.

On the Express business, wherein we had also acquired additional 30% shareholding from our Japanese partners, in that business, we see 2 significant trends. One, on the operational front, now it's been more than 5, 6 months that we have seen consistent high operating parameters being delivered by the company, in line with the best in the industry. And that is a reassurance of operational capabilities of the business. That is also reflecting in the increasing revenue in the business.

And we have also -- considering that Gati is separately listed, we also shared more detail from Gati in the earlier earnings call on Gati. So I would not get in too much detail. But even the volume data shared for the month of July indicates continued momentum on the revenue. With the improved operating performance and more revenue coming in, we believe that we are in the right direction to improve the performance of the company, both on top line as well as in terms of improvement in the margin.

As of today, with the acquisition of 30% having been completed in the month of June, effectively Allcargo Logistics owns approximately 65% of this Express business. 30% directly through the Gati express supply chain, which is the company, which is earlier called Gati and then to Express. And 35% through 50% holding in Gati, which holds the remaining 70%. So effectively, Allcargo Logistics holds 65% of this business.

On the Contract Logistics, again, with the consolidation consummated, now we own 100% of the business. However, since the transaction was completed midway during the quarter, we still have not consolidated the numbers into the consolidated performance. And therefore, in the investor presentation, we have provided a combined view, while the consolidated numbers may look slightly different since the consolidation on the -- from an accounting standpoint was only done for the 1 month. Going forward, with all the acquisition and the shareholding transfers completed, we would see the consolidated numbers to come as the right number. We would need to provide the additional combined numbers.

Coming to the flagship business, which is, again, 100% owned by us, operating in India and Allcargo Logistics and operating worldwide in the different subsidiaries, which are all subsidiaries of Allcargo Belgium, which is a 100% subsidiary. In that business, in the best of the times when the global trade was booming with inventory, levels being at all-time high, warehouses being filled. In that kind of an environment, we were seeing extremely robust performance, with quarterly EBITDA crossing INR 300 crores on a quarterly basis.

As a headline statement, I would say that with the weakening of global trade, with all the other headwind impact, we still estimated that we should still be able to perform and be able to manage cost and gross profit in a manner whereby we should be perhaps looking at INR 180 crores to INR 200 crores kind of a quarterly EBITDA. However, clearly, beyond the macroeconomics forecast being wrong, I believe -- and let me admit that our own anticipation and expectations on the impact on the performance of the competitive pressures in the weakening volume has been -- not turn out to be correct and which is why we see a much weaker quarter than what we would have liked to see in the April to June quarter gone by.

Primarily, there are 2 factors driving this. So one -- on one hand, the macroeconomic environment means lower volumes and higher competitive intensity with everyone competing for that. There is a parameter on which we are performing well. If I look at the top 20 countries where we operate, in 18 or 19 countries out of those 20, we have gained market share, with only 1 exception wherein we have lost about 1%, 1.5% market share. So we have continued to outperform the competition in terms of being able to do more business.

But there has also been a competitive pressure on the pricing. And with the utilization numbers remaining low in terms of the company utilization, what we're doing about 12 months ago, today, each container is [ current ] 8% to 10% lesser filled as you can again see from the container utilization index we have shared.

So the combination of all these factors, the gross profit has been impacted. So one could see that the gross profit which we have shared this time on a year-on-year basis is down approximately 19%, while we would have anticipated it to be down lower in terms of rupee per cubic meter. On the LCL business, we would have endeavored to keep it constant, but that is also brought by about 6% to 7%. And this impact on the gross profit when translated into EBITDA impact, they get more pronounced with the scale impact.

The other highlights to look at this is also there have been some specific countries where we are focusing on. And I would say, if you look at -- like I said, potentially in our estimation with all the adverse headwinds, with all the challenges, we would have still like to do perhaps INR 70 crores -- INR 65 crores, INR 70 crores more than what has been delivered in the International Supply Chain segment.

And if you look at it, possibly half of the gap can be accounted to one single country, United States of America, where we have seen a significantly weak performance, and we are working on improving there. If I combine Europe and Americas, these 2 regions, which represent largely the long-haul trade also, with a lot of trade happening between Asia to these destinations and also the more developed Western economies, which have been under more severe pressure in terms of trade flows, what we observe is that these countries, put together, the Europe and Americas, was -- a year ago, if you look at the first half of 2022 calendar year, they were contributing to perhaps almost anywhere in the range of 40% to 50% of the EBITDA for International Supply Chain, while the contribution in the first half of this year, January to June, is perhaps in the area of 10% to 15%. So there's a significant impact in these 2 regions.

And in terms of mitigating these factors, we are doing multiple things. One, we remain focused on the volume and -- which is why despite weak environment, there is published data available for various forwarders and shipping lines listed on international exchanges talking about 8%, 9%, 10% kind of decline in volumes. We know from our competitive landscape that we estimate our competing LCL consolidators to have lost volume to the degree of maybe 14% to 15%.

In comparison to that, we have been able to increase market share and thereby perform better in volume terms. We foresee a similar trend in the month of July as well, where we should be able to win on volumes, and we should be able to share July data in the next 3 to 5 days. So we are able to hold on to volumes. And this means that the expanded market share should help us. When the market environment improves, we should be able to grow volume. And as volume grows, hopefully, we -- that would mean better container utilization. And therefore, that's one plan we have in terms of staying focused on volume and market share to improve performance as the macroeconomic environment improves.

The second aspect we've been focusing on is now looking at the cost line items more closely, expediting some of the initiatives, which would be either around automating certain mundane processes or it could be about executing the outcome of some of the [ cancelation ] programs we've been running, which now has standardized the process and, therefore, allow us to move certain positions from high-cost countries into lower-cost countries to reduce the cost.

So on one hand, we are trying to stay focused on volumes and market share. On the other hand, we are now more consciously looking at the cost as well, with an endeavor to get back to the EBITDA levels that we believe will be sustainable in adverse situation. And as and when the global macroeconomic environment improves, we should be able to further gain.

On the FCL side, the market again has been weaker, and that has prevented us from exhibiting the growth rate that we have seen over the last 7, 8 years on a sustained basis of 20%. The volumes in FCL are also flat. In the FCL business, we have always spoken about decline in [ it ], with the [indiscernible] coming down, which has happened. But while we anticipated that to be compensated by expanding volumes, we have found expanding volumes in FCL business to be more challenging even though our market share in FCL is miniscule.

So in the FCL business, the company's strategy is to focus on select markets. We are building team capabilities in some select markets and trying to work with the focus markets to drive growth in volume. So in summary, the company's approach in the International Supply Chain business would be to improve performance, even with the adverse conditions continuing. And should the conditions improve, we should be able to see a significant improvement.

In some sense, when we look at the profitability as well as the cost, taking into account all the inflationary adjustments and the appraisals, which happened in the first quarter in some countries, which ran on December to Jan and some countries in the second quarter, which are mostly effective from 1st April, this quarter of April to June essentially accounts for all cost escalations, also accounts for competitive intensity.

And therefore, from an International Supply Chain business perspective, this is the bottom performance. And our endeavor is to improve from here and not just hoping for better macroeconomic environment but also with various initiatives, which I highlighted. And we would also look at strengthening our own internal business forecast mechanism in a highly volatile environment so that we can endeavor to -- just like how we've been trying to provide more and more better clear information, we also try to provide more and more accurate forecast on how we see the coming few quarters.

So with that, I would say, International Supply Chain business has seen its toughest times. On the other hand, on the domestic side, we continue to see favorable environment for the Contract Logistics and the Express logistics business. And both those businesses are heading in the right direction.

Apart from these 3 businesses, all the other businesses of the company have already been demerged. And therefore, the business is focused on these asset-light, digitally enabled businesses. And in terms of technology advances, we are making good progress. Our data science programs have been yielding impact, if you look at the impact on network optimization for the Express logistics business, which is being done by data science today. We are also using generative AI to improve efficiencies in answering a potential e-mail, which allow us to gain more volumes. [ This means continuing ] International Supply Chain business.

So in many ways, the business performance that we see is also somewhere aided by the quality. And every year to come, we believe technology to play an even important role and considering that we would remain focused on technology initiatives, which would drive the growth of the company in the long term.

And on that note, I would request my colleague, Deepal Shah, to share financial highlights and talk about differential performance of [indiscernible]. Deepal, over to you.

[Deepal Shah, executive]

Thank you, Ravi. I will now discuss the performance for Q1 FY '24. The consolidated revenue for Q1 FY '24 stood at INR 3,271 crores as compared to INR 5,474 crores during the same for last year. The consolidated EBITDA for Q1 FY '24 stood at INR 139 crores as compared to INR 360 crores for the Q1 FY '23. The company reported a consolidated PAT impact of INR 119 crores for Q1 FY '24 as compared to INR 260 crore for Q1 FY '23.

I would like to highlight to you that the company has a very comfortable debt position, with the net debt for Q1 FY '24 at a very marginal level of INR 12 crores. This is after acquiring 30% stake from the KWE logistics partners for INR 406 crores. Post transaction, we have changed the name of the company from GKEPL, which was Gati KWE Express Pvt Ltd, to Gati Express and Supply Chain Pvt Ltd.

Moving on to the segmental performance. I will start by discussing the performance of the International Supply Chain business. As Ravi mentioned, the global trade environment continues to remain soft. The company's business will increase competition for incremental volumes in the market driven by muted overall demand. We intend to maintain our focus on volumes and market share.

LCL volumes for the quarter 1 of FY '24 stood at 2.2 million cubic meters as compared to 2.3 million cubic meters for the previous year quarter, owing to our market share for [indiscernible] volumes, witnessed a growth of 6.2% sequentially. On the FCL front, the FY '24 quarter 1 volumes stood at 143,000 TEUs. Volumes degrew by 9% on a Y-o-Y basis.

For the Q1 FY '24, the International Supply Chain business reported a revenue of INR 2,823 crores as compared to INR 5,043 crores in Q1 FY '23. The EBITDA for the same period stood at INR 111 crores as compared to INR 341 crores for the previous quarter.

Moving on to the Express business, operating under the Gati Express Supply Chain Pvt Ltd. Continued emphasis on the best-in-class service levels and enhancing operational efficiency has culminated in a yet another performance for the quarter. The volumes for Q1 FY '24 stood at 292,000 metric tons, representing a 5% Y-o-Y growth. For the period, the reported revenue stood at INR 367 crores as compared to INR 365 crores in the same quarter last year. Sorry, I was getting us all. Yes. Same quarter last year. The Express business will launch Bengaluru hub in August, and the volume momentum is expected to remain strong.

Moving on to Contract Logistics business. As Ravi mentioned, we have consolidated for 1 month the Contract Logistics because it was acquired towards the mid of the quarter. And it is -- we completed our transaction, and 100% of that business is now owned by Allcargo Logistics Limited, so a subsidiary, ASCPL, which means Allcargo Supply Chain Private Limited. Therefore, the full impact of the Contract Logistics business will be clearly visible from the following quarters.

Assuming 100% ownership in that quarter, if we will take into account, the Contract Logistics revenue for Q1 FY '24 will be around close to INR 75 crores as compared to INR 77 crores for the Q1 FY '23. Similarly and EBITDA for the entire quarter would be close to INR 32 crores as compared to INR 28 crores from the previous quarter last year.

In line with the best [indiscernible] practices, we have been consistently providing other key comparative financial performance and operational indicators in our investor presentation. [ One time, we'll publish ] for more details.

With this, I would like to open the floor for questions and answers. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Nirav Savai from Abakkus.

[Nirav Savai, analyst]

My question is on the MTO business. So last quarter, we had a quarterly one-off provision for about INR 60-odd crores. So is there something exceptional this quarter also?

[Ravi Jakhar, executive]

No, there is no impact of any exceptionals in this quarter. There are, of course, like I mentioned, countries which require more focus, but that is a business concern. There are no one-off exceptional items per se impacting this performance.

[Nirav Savai, analyst]

Okay. The second thing, you said that U.S. and Europe combined was about 40% of your EBITDA in '22. In terms of contribution, it has come down to 10%.

[Ravi Jakhar, executive]

First half of '22, yes, yes.

[Nirav Savai, analyst]

First half of '22, it has come down to 10% for the first quarter, right?

[Ravi Jakhar, executive]

First half of '23, again, compare -- like-to-like comparison, first half '22 versus first half '23, it was over 40%, and now it's in the range of 10% to 15% is what I was highlighting. But there's a greater concern in those markets and which is what we are trying to address through management initiatives.

[Nirav Savai, analyst]

Okay. And the same thing continues for the first quarter as well over '24.

[Ravi Jakhar, executive]

Yes. So when I say I'm referring to calendar year, so January to June '22 versus January to June '23 is what I'm referring to.

[Nirav Savai, analyst]

Right, right, right. So this is basically more competition intensity or it is completely volumes which have become very weak. Or what exactly is resulting in this?

[Ravi Jakhar, executive]

This is largely a concern rising out of reduced volumes, and reduced volumes have a multiplying impact. One, these are the markets which typically have higher cost base in terms of the SG&A cost. People costs are usually higher in these markets. At the same time, profit is also higher because these are longer trade lanes. So when you're shipping something from China to Korea, the profit would be naturally much lesser as compared to shipping something from China to U.S. or Europe.

So these companies work well because they have higher profit and higher cost base. Now the cost base remains same if the macroeconomic environment doesn't change. Rather, many of these countries which would have inflationary salary adjustments of 1%, 1.5% historically have much higher adjustments this time. And many of these countries are even mandated by law.

So the cost base continues to be high. But weakening of volumes in these trade lanes creates an impact and which is why -- and that multiplier effect comes into play because the absolute decline in gross profit translation were actually declining EBITDA. So in percentage terms, it becomes significant.

So that is the situation. And this largely, the decline in volumes in these markets and these are long-haul markets, which basically impact the profitability more. And lower volumes naturally mean more competition, less utilization, all of those things come along with it.

[Nirav Savai, analyst]

Right, right. So we continue to see a similar kind of a demand scenario even in the July month. Or do you see signs of recovery?

[Ravi Jakhar, executive]

So we have not seen the change in macroeconomic environment in July. We -- what we have been able to do is we've been able to continue our own initiatives, which should help us further improve by 2%, 3% on an -- approximately on a month-on-month basis in terms of our own volume. But in terms of the overall macroeconomic environment, we still don't see any significant reversal in demand.

But in terms of our own volume, you should see 2%, 3% to maybe about 4%, 4.5%. We release the data next week. We are still compiling it for the month of July. But there is a positive upward trend, which is primarily limited to our performance as compared to the overall environment.

[Nirav Savai, analyst]

All right. In terms of cost, if you see the conversion cost for MTO business is around about INR 580 crores for the first quarter. So is there any annualized budget where we can get a sense of how this is moving on for FY '24, the entire year?

[Ravi Jakhar, executive]

You mean to say the forecast for the remaining 3 quarters?

[Nirav Savai, analyst]

I'm sorry. In terms of cost, yes, sir. Do we see this similar...

[Ravi Jakhar, executive]

Like I said, this quarter from April to June, in this quarter for all the countries, some countries would have seen cost increase on annual appraisals, et cetera, in the first quarter of the year, which is Jan -- this business operates from Jan to December for us from a business standpoint. And therefore, some large, I mean, several countries we operate on Jan to December see appraisals in Jan to March. But in countries like India see it from 1st April. But in April to June, all costs are factored in is what I was mentioning earlier.

So from a cost standpoint, consider this as all costs factored in. So from here on, as we are able to improve gross profit, that should come down to the bottom line is what I -- and thus, we endeavor to improve the gross profit so that it can straight through -- be passed on to EBITDA.

[Nirav Savai, analyst]

Okay. So the similar cost is something which will continue as far as the rest of the year is concerned on a quarterly basis. Is that right to assume or...

[Ravi Jakhar, executive]

Yes, I mean if you just like to bring it down marginally as well, which should also possibly help us maybe in a -- so in about 3 to 6 months' time frame, we should be able to bring about some reduction in these costs.

[Nirav Savai, analyst]

Okay. And lastly, on the Contract Logistics. Right now, we are almost at 95% kind of utilization. So what kind of growth do we see in this business? And even if it's on a Y-o-Y basis, there has been a decline in revenue. So how do we see this business for the next 2, 3 years kind of a time frame?

[Ravi Jakhar, executive]

Yes. So in this business, the Y-o-Y decline that you see in revenue is only on account of certain specific kind of business, which was not profitable. It was more like a pass-through business being done with a certain client, which we have cut off. And this is why if you would notice, the EBITDA has gone up by almost 15%. The gross profit has gone up by almost 25% year-on-year.

So from a revenue standpoint is not an indicator. The business continues to remain strong and which is what has allowed us to grow 25% on gross profit year-over-year and then in EBITDA as well. We are continuing to invest in people and also in this business. It's not like a fixed capacity. So the capacity is very flexible. We keep on taking new warehouses on lease, and we continue to operate them.

Sometimes, we take them ahead of demand, which is -- we always maintain a certain white space, which is what you see about 5%, 6%. And in some cases, these are build-to-suits. So if say, a particular customer has a specific requirement, we would take a particular warehouse on leasing and operate it to the customer's requirement. So capacity is not a constraint in that sense. We continue to develop new warehouses as an operator and take on more capacity to service more and more customers.

[Nirav Savai, analyst]

And the guidance of -- on the Express business, INR 3,000 crores kind of revenue by FY '26 as impact, is it purely organic or would also involve any acquisitions?

[Ravi Jakhar, executive]

So I would refrain getting into the details of Gati business since it's also separately, let's say, and therefore, for the benefit of Gati shareholders, we tend to respond to most Gati questions in the Gati earnings call.

[Operator]

[Operator Instructions] The next question is from the line of Riya Mehta from Aequitas Investments.

[Riya Mehta, analyst]

My first question is in regards with the debt level. So is this post our acquisition of the Contract Logistics business?

Hello?

[Ravi Jakhar, executive]

Sorry, if I understood correctly, you're asking about the debt.

[Deepal Shah, executive]

Yes, yes. I think what she's asking is that is this debt level post the acquisition of Contract Logistics. That's correct. So the Contract Logistics was acquired from internal accruals. So this current debt is post acquisition of Contract Logistics business, and the acquisition of [indiscernible] stake in Gati subsidiary.

[Riya Mehta, analyst]

Got it. In terms of -- when we talk about Contract Logistics, you said that capacity utilization has not been a constraint. However, we're seeing increasing competition over in that space. What is your outlook there? And what kind of margins do we see in this business to sustain?

[Ravi Jakhar, executive]

So in this business, like I mentioned earlier as well, this is a business in which we have seen robust performance and good growth over the years. And in the chemical contract logistics, we are the market leaders in the country. But in the e-commerce, we have started only in the last few years and done well. We entered into auto segment, and we have done well. There are many other sectors also for us to explore.

So from our point of view, we are at an optimal scale and size to leverage benefits. But at the same time, we are -- we have a significant headroom for growth. So growth is not limited by competition. And we are able to find enough opportunities in the market where we're able to provide the right solutions at the right price, customers are willing to engage into contracts.

And so from that standpoint -- and capacity is more like -- the number in capacity is basically how much of the warehouse is utilized. And typically, we always maintain 5% to 7% white space for an optimal capacity forecasting and based on which warehouses are taken on lease. So that's the part of the business. And we have been facing almost a similar set of competitors over the years. And the business has performed well, and we estimate it to continue to do well.

[Riya Mehta, analyst]

And in terms of margin for the business?

[Ravi Jakhar, executive]

In terms of the margins, I would say on a percentage terms, as we grow, the percentage margin could be slightly lower because historically, this business was, at one point in time, almost 90% chemical contract logistics, which has been growing. But it has been coming down because the other businesses are growing much faster because they were starting from a zero base.

Now chemical contract logistics is highly specialized and, therefore, is higher margin. So you see this as a combination of Contract Logistics for chemical clients and other clients. Chemical logistics is also growing well, which is higher margin. But as the other businesses grow more, percentage margins should see a downward trend, but overall margin should continue to improve.

[Riya Mehta, analyst]

So what would be a sectoral breakup for the current quarter?

[Ravi Jakhar, executive]

Yes. So we have shared the sectoral breakup in the presentation as well. Approximately 35% to 40% revenue comes from chemicals, food and pharma, about the same number, slightly lower, from e-commerce and about [indiscernible] from auto-related [indiscernible].

[Riya Mehta, analyst]

Actually, I was [indiscernible] earlier, what was the trend so as to give what kind of direction.

[Ravi Jakhar, executive]

So like I said, we started off with the chemical contract logistics. The other businesses have been incubated over last few years. So at one point in time, it was almost 80%, 90% [indiscernible].

[Riya Mehta, analyst]

As of this year [indiscernible] I could just have a sense.

[Deepal Shah, executive]

2016. We started in 2016 as a JV for the chemical.

[Riya Mehta, analyst]

In terms of LCL then, I think it's a higher-margin business for us. Are we seeing -- we've acquired a lot of -- hello?

[Deepal Shah, executive]

Yes, yes, we can hear you.

[Riya Mehta, analyst]

We had acquired another companies lately in last year or around. So we'll increase our market share. So what kind of outlook do you give on a LCL basis a year from now or something despite macroeconomic scenario being weak or current level?

[Ravi Jakhar, executive]

Yes. So the LCL business, we have acquired 1 company in the last 18 months or so. Prior to that, we had acquired Nordicon, which was in the year 2021. And what we have done is a follow-on transaction in that. We already own 65%, and we have acquired additional 25% recently. So at the same company, it's not a new business. It is already part of the business.

The new companies which we acquired this year was in the month of January. It was a company called Fair Trade in Germany. For this business, we have seen a volume contribution. However, the business is still not contributing on the bottom line. So there's been some margin volume contribution, which you highlighted of the degree of about 1%, 1.5% on the margin side.

We anticipate that the business will take some more time before it can start turning positive on profit, considering that it was a competing network that we acquired. So it had to incur loss of certain business immediately, while the network synergies were only taken over a period of time. So we estimate that business to move from marginal losses. These are not significant losses to break even over the next 3 to 4 months. In the overall scheme of things, impact of about 1.5% or so on volume, almost no impact on bottom line.

[Riya Mehta, analyst]

Got it. And in terms of our trade lanes, like you said, U.K. and U.S. form -- the losses of EBITDA would form almost 50% would come from the U.K. and U.S. trade lanes. Could you add on what are the trade lanes which would impact that more than 10%?

[Ravi Jakhar, executive]

Yes. So let me also clarify. I meant -- I did not say U.K. and U.S. I said Europe and Americas. When we say Americas, it includes U.S., Canada, and Central America, which is Mexico and Latin American countries, such as Peru, Chile, Argentina, Brazil, et cetera. On the European, we're talking about everything from Scandinavia, which is Denmark, Finland, Norway to Poland on the East, U.K., Belgium, Germany in the North, Spain [indiscernible], and that will whole of Europe and Americas, which is what I referred to. Overall, we have 2,500 trade lanes that we operate, and there is no single trade lane which accounts for 10% of the business.

[Riya Mehta, analyst]

Okay. And India will form how much of -- part of our trade lanes? Which includes India counterpart?

[Ravi Jakhar, executive]

India, itself, we have multiple trade lanes across the world. But India as a country, I would say, roughly be about 10%, 12% of the business.

[Riya Mehta, analyst]

10% to 12%. And in terms of sectoral breakup in terms of or kind of volumes in the LCL business, what kind of sector would contribute the latest?

[Ravi Jakhar, executive]

So we are almost sector-agnostic, and this is truly [indiscernible] of global trade. Therefore, there's no sectoral dependence per se. But naturally, LCL business caters to generally cargo, which is in smaller size, which doesn't go in like multiple full container loads. So typically, these are mostly small and medium businesses, some degree of e-commerce, back-end supplies or certain businesses ranging from furnitures to textile to consumer electronics. It is almost quite varied.

But you could say there will be general bias for -- towards smaller business. If you find more share of LCL among the smaller businesses as compared to, say, so looking at large Walmart contracts, they will mostly be skewed towards the LCL. But in terms of being sectoral, there's no specific sectoral [ breakup ] per se.

[Riya Mehta, analyst]

Lately, we've been seeing comeback of textile and all these companies, so just getting a sense where -- how much would textile form as a percentage of [indiscernible].

[Ravi Jakhar, executive]

Yes. So like I said, that will be relevant to, say, India. And India is 10%, and perhaps maybe textile will be again a certain percentage of that 10%. And as such, we have been noticing that since the Indian economy has been doing well and -- except for the recent months, wherein we would have certainly taken note of India exports also declining significantly driven by lack of demand in the Western economy. But otherwise, still on a comparative basis, whether we compare to other manufacturing countries such as China, India has sustained the performance much better. And we believe that India should lead that in terms of growth as well.

[Operator]

[Operator Instructions] The next question is from the line of Udhayaprakash from Value Research India Private Limited.

[Udhayaprakash J, analyst]

I just have a few questions from our side. Since our launch of ECU 360 in 2018 at this time, it has grown significantly over the years. We have added more and more features. First, can you let me know how much revenue do we derive from ECU 360 as a percentage of total revenue, let's say, 2, 3 years ago?

[Ravi Jakhar, executive]

Yes. So I can share with you that when it comes to export bookings, which is a good indicator of revenue being booked by the company on a global basis. In 2000 -- I say prepandemic, 2019, there was a single-digit number, around 7% to 8% of the bookings, which are happening digitally. Today, with the launch of platform capabilities, we have almost -- as of today, we will be somewhere in the range of 66% to 67% of the global export bookings happen digitally, which could be either somebody logging to ECU 360 or even directly in API and EDI interchange between our systems and the client system. Sometimes, they are directly connected to ECU 360 by way of an API. So they don't even need to log in ECU 360. They can operate in their own ecosystem while being supported by ECU 360 in the back end. The digital bookings have moved to about 8% -- 7%, 8% to about 66%, 67% on the global exports.

[Udhayaprakash J, analyst]

Okay, sir. My second question is on Contract Logistics. Now since we are the leader in chemical contract logistics and we have developed a certain expertise in the area and we have now entered into auto also, do you already have -- or do we plan to have any long-term contracts with bigger companies so that we are the ones who handle their goods constantly? Is there something like that? Or we do it on a contract-to-contract basis for any company that comes to us?

[Ravi Jakhar, executive]

Yes. So that is the advantage in Contract Logistics business, where it is not a transactional business. So unlike in Express logistics business where customer is booking on shipment from origin to destination or even in the International Supply Chain and somebody is booking 1 cubic meter or 1 container of cargo, Contract Logistics business by nature is usually more longer-term contracts, which could vary from a 12-month contract to some of them to be 5-year contracts as well. These are typically long-term contracts awarded by the company for managing their entire inventory in that particular warehouse. So these are by nature not transactions but long-term contracts.

[Udhayaprakash J, analyst]

Okay. So adding a major company to our client portfolio would be kind of a breakthrough for this entire segment itself. Is it manageable?

[Ravi Jakhar, executive]

Almost all the key companies, I would say, majority of -- so if you look at the chemical segment, almost all the top companies operate with us. In the other segments we were getting in, e-commerce, you look at almost all the top companies. So in the segment that we operate in, almost all the key top companies already work with us. So we have demonstrated our performance and which is why most of them are also repeat customers, signing multiple contracts across different locations.

[Udhayaprakash J, analyst]

And sir, can the same can be done for FCL business also? I mean FCL is kind of like a big player logistics business on linear shipping. So can we develop a partnership with a particular set of companies that are focused on exports and cater to them? Would that reduce the volatility in volumes that we face from time to time due to slowdown amount? Or do we already have that in place?

[Ravi Jakhar, executive]

Yes. So let me explain. When we see a slowdown, the slowdown would happen at all levels. Shippers will see their volumes going up and down in terms of volatility. So the volatility will still remain for a company. Where we position ourselves is we operate as a nonvessel-only common carrier. What that means [indiscernible] like an Uber of shipping. So we operate like a shipping line, which doesn't own ships and which is where we are able to operate in an asset-light manner.

But we are mostly all working with forwarders as our customers. The forwarders could be large forwarders, such as DHL [indiscernible]. These forwarders could be smaller forwarders. And these are generally long-term relationships, but these are not long-term contracts. In Contract Logistics, contractually, the business is fine for a long term. In this case, while the business is transactional, customers are looking one shipment at a time. But if you look at the relationship that goes back long. So if you look at our relationship on the vendor side, which is shipping lines, we have been working with almost all the top shipping lines for 20, 30 years.

If you look at our top customers, almost all the customer relationships also go back into several decades. So these are good, strong relationships built over a long period of time. And -- but at the same time, the business is transactional. It is very similar to Express logistics, wherein an auto company or a textile company will be making bookings for a particular transaction, but they would tend to operate with 2 or 3 players who they trust most for service and pricing. And therefore, there's a long-term relationship. That's a similar situation in FCL also.

[Udhayaprakash J, analyst]

I hope that my understanding is correct. If a big player, let's say, a player that's exporting in [ INR 1,000 crores ], they would rather partnership with a shipper directly, I think, rather than an intermediary like us, which is usually preferred by some of medium- to smaller-size players.

[Ravi Jakhar, executive]

Yes. So to be very clear, if there is someone who wants to ship 500 containers or 1,500 containers every week from Shanghai to Los Angeles, they would not need an intermediate. They would reach out to the shipping line directly and run a tender. If somebody is operating 5 cubic meters of cargo, shipping line will not be able to accept it. They would need the full container. They -- while shipping line do operate [indiscernible], they've not been able to gain much market share. So they would need a consolidator such as ourselves because we have built this network over a period of time.

And as you can see from our own financial performance, even 3% to 4% impact on utilization can have a huge impact. It's almost like, in some sense, high-utilization business. Therefore, replicating this network is almost impossible and which is why you don't find new competition coming in. The market has been seeing consolidation within the existing players on a global basis.

So the capability would be not about getting large contracts. Business by nature is about working with multiple forwarders. So for example, more than 20,000 forwarders log in to ECU 360 as well as work with us on the platform. So that's the kind of scale we're operating at, with more than 2,500 trade lanes right now. So that's the kind of competitive advantages compared to one large contract or one big relationship.

[Udhayaprakash J, analyst]

Okay, sir. Now the -- this advantage that we have, also FCL is a very profitable business. But since we are at a very [ nascent ] state, and this advantage it has over LCL is that LCL in the nature of the business itself, there's a direct cost pass-through. But here is the [indiscernible], container utilization is not up to the mark, then we would have to bear that cost, if I'm not wrong.

[Ravi Jakhar, executive]

LCL is [ when we fill ] the container, and therefore, the company utilization has a role to play. In FCL, it is the full container which is moved. So container, whether it is half filled or fully filled, does not make an impact. And what happens is unlike LCL, there is so much of value addition. Customer only has 5 cubic meter, 1 cubic meter of cargo, it is adding, which indicate component, all these cargoes in the warehouse take them into 1 container, do multiple transshipments if required. There'll be deconsolidation in the warehouse. So it's a much more complex operation. And therefore, due to high value addition, it is easily a higher-margin business.

FCL business is more transaction in nature. And therefore, when the package come down, the FCL business would see the margins also come down. So that's where FCL business is more transactional, while LCL business is more complex with greater value added from our side and, hence, more profitable also.

[Operator]

[Operator Instructions] The next question is from the line of Kapil Malhotra from Tata Mutual Fund.

[Kapil Malhotra, analyst]

This is Kapil. So just wanted to understand, what is the utilization level in the LCL business this quarter?

[Ravi Jakhar, executive]

Yes. So if you look at the LCL utilization, it is currently at an index level of about 92%, which means that if you were at 100% in July '22, in June '23, we are at about 92% of that.

[Kapil Malhotra, analyst]

Okay. So what I'm trying to understand is because obviously your -- the profitability, essentially, has been monetized. What we have discussed [indiscernible] post-COVID, you're right, a lot of technological advancements, cost-saving activities which you have done, due to which we will be able maintain our margins. But what I see is the margin has obviously dipped, right? I do understand that has a lot to do with the utilization [ that is right on the first ] question. But do we have any ballpark number in which we say that this looks like a sustainable EBITDA margin for the year and also this is the minimum utilization we need to achieve better or similar margin? Because for me [indiscernible] essentially go up, what will be the accurate number of the margin?

[Ravi Jakhar, executive]

Yes. So I would say that there are 3 or 4 factors which contribute to the margin. One, like you rightly said, is utilization. Second is how many 40-foot containers we are using. And both of these are somewhat linked with volume because if we have more volume on trade lanes, we're able to move more 40 feet containers and we also utilize the containers better.

And so these are in the more operational parameters. And then also about how many containers are we able to move directly versus transshipments. And what kind of value addition we are providing in terms of not just offering [ 40-foot ] but also those. So these are all the factors which contribute.

In terms of sustainable numbers, I would say that very clearly, what we have seen in this quarter, April, May, June, appears to be like the boat hitting the dock on the riverbed. Since all the costs have already been factored in, the volume expansion has not happened because of the macroeconomic environment. And the competitive intensity also means pressure on pricing. So all these factors are at play. So I would say that while we would need perhaps another few -- maybe 6 to 9 months to arrive at a sustainable number, but we should only be looking at improving from here on.

[Kapil Malhotra, analyst]

Okay. But do you -- obviously, [ at least ] the indexes are [ 92 ] versus [ 200 ] last year. What ideally should be right index for us where we can make at least a decent [indiscernible]?

[Ravi Jakhar, executive]

Yes. So I would say that we should definitely return to 95%, 96% as compared to 92% that we have today. That would be the broad estimate. And as you can see that 3%, 4% increase should translate to better [ ease ] and therefore better profitability. That would be our -- that is the approach with which we are internally planning as well in terms of how can we take that to 95%, 96%. So that means that requires volumes to come in and which is where we've been trying to focus more on the market share expansion and getting volumes back.

It would also be somewhat linked to the recovery in long-haul trade lanes because that is where the margin and profitability impacted, which is Europe-Lat Am, China-Europe, China-Americas, et cetera, or India-Europe, India-Americas. So that's where the focus will be on how can we expand these trade lanes, so business initiatives are more focused on these countries, these trade lanes, getting deeper into China to expand market share, trying to build better capabilities in Latin America.

We've been hiring teams in Brazil and a few other countries, trying to further strengthen our base in Eastern Europe. So we've been working on various strategic initiatives which can help us grow volumes on the long-haul profitable trade lanes. And those volumes should help us also operate trade lanes with optimal utilization, which, like I said, the target internally would be to go back to at least 95%, 96% over the next 6 to 9 months.

[Kapil Malhotra, analyst]

But lastly, on [indiscernible], are you able to quantify the cost savings we have been able to do due to the technological advancements we have done in the last 2, 3 years?

[Ravi Jakhar, executive]

So we have some internal estimates, which we have on the technology impact. These are largely -- the dollar impact is largely measured through increased customer stickiness. So we are trying to see patterns and which we are clearly evident that the non-ECU 360 customers have lower repeat [ values ] as compared to ECU 360 customers, for example. We've also seen that the lower booking percentage is clearly higher in customers who are using ECU 360. And the longer they've been on ECU 360, we also find those components to be higher. So all these trends indicate that the customers are booking more often and more services, which means higher volumes and higher yields. That's one example.

On the data science projects, we are seeing impact in terms of the early cost side. So these are some of the things that we are seeing wherein we also feel that it's not just the impact in terms of ease of being [ users ], but there is also a dollar impact on top line in the International Supply Chain business in particular, and on the cost side and the domestic Express business in particular.

[Operator]

The next question is from the line of Bhavya Sanghvi from Fortress Group.

The line of Bhavya has dropped. I think due to [ possibility ] of time, that was the last question. I will now hand the conference over to Mr. Sailesh Raja for closing remarks.

[Sailesh Raja, analyst]

Yes. Thank you. On behalf of B&K, that concludes this conference. Thank you for joining us, and you may disconnect now.

[Deepal Shah, executive]

Thank you.

[Ravi Jakhar, executive]

Thank you all. Thank you.