Allcargo Logistics Ltd
NSE:ALLCARGO
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
American Express Co
NYSE:AXP
|
Financial Services
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Target Corp
NYSE:TGT
|
Retail
|
|
US |
Walt Disney Co
NYSE:DIS
|
Media
|
|
US |
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
|
US |
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
52.57
90.8
|
Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Estee Lauder Companies Inc
NYSE:EL
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Church & Dwight Co Inc
NYSE:CHD
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
American Express Co
NYSE:AXP
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Target Corp
NYSE:TGT
|
US | |
Walt Disney Co
NYSE:DIS
|
US | |
Mueller Industries Inc
NYSE:MLI
|
US | |
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Earnings Call Analysis
Summary
Q1-2025
Allcargo Logistics reported a consolidated revenue of INR 2,813 crores for Q1 FY '25, a decrease from INR 3,271 crores YoY. However, EBITDA rose by 34% compared to the previous quarter, reaching INR 133 crores. The company saw a consolidated PAT of INR 4 crores, bouncing back from a loss of INR 12 crores last quarter. Strong global growth momentum boosted the International Supply Chain business, with LCL volumes rising by 6% QoQ. Though the revenue slightly dipped in their Express business, contract logistics showed a positive trend, with revenues jumping 28% YoY. Management anticipates continued sequential improvements throughout the year.
Ladies and gentlemen, good day, and welcome to the Allcargo Logistics' for Q1 FY '25 Results Conference Call hosted by PhillipCapital (India) Private Limited. [Operator Instructions] Please note that this conference is being recorded.
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 date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital (India) Private Limited. Thank you. And over to you, Mr. Vikram.
Thank you, [ Pia ]. Good morning, and very warm welcome to everyone. Thank you for being on the call of Allcargo Logistics. We are happy to have the management with us here today for question-and-answer session with the investment community. Management is represented by Mr. Ravi Jakhar, Group Chief Strategy Officer; and Mr. Deepal Shah, Group Chief Financial Officer. Before we start with the question-and-answer session, we'll have opening comments from the management.
Now I hand over the call to Mr. Ravi Jakhar for opening comments. Over to you, sir.
Thank you, and welcome, everyone. Good morning. I'm happy to share updates about the company and the underlying operating businesses with you. And before we take all questions, I would like to summarize the business outlook and then hand over to my colleague, Deepal to talk through some of the financial highlights.
So this has been a good quarter, and we have had sequential improvements across all the businesses. The flagship business, which is international supply chain has seen a good momentum, which we have been expecting for some time. And now in this quarter, we have seen improvement in volumes. We expect the improvements to be more substantial in the months to follow, as we have seen the demand starting to pick up only towards the mid of June, something that you've highlighted in some of our monthly updates as well. For the quarter gone by, we saw the LCL business increased by almost 6% compared to the previous quarter.
We also witnessed the FCL business up 9% as compared to the last year. Now when these volumes have gone up, this is means that our utilizations have improved on the FCL side. So we have on the utilization index, we have each [ continent ] like 4% better as compared to last year. We have also been able to increase the share of 46 containers by almost 9%, which are operationally more efficient. And we've also been able to reduce the transshipment requirement. So all these things combined have allowed us to improve the margins in the business. And therefore, that has contributed to the positive growth in EBITDA, which on a consolidated basis is at about 34% compared to the previous quarter on the back of 13% expansion in the consolidated revenue.
On the international supply chain business, we have been noticing that for the month of July as well as August, the volumes have been stronger and we see a similar demand outlook for September [indiscernible] therefore, our general belief is that market should see continued sustained recovery in trade volume until the end of the year. Coming to the Domestic business. On the Express business, we have seen that operational efficiencies, which have been achieved early part of this calendar year sustained and that has allowed us to continually improve the operating margins in the Express business. And as an outcome of that, the EBITDA for the quarter is almost 33% higher than the previous quarter.
We believe that on the back of these operational improvement, the commercial growth will also take in the industry itself is expected to grow at a robust pace, and that should help companies expand its commercial operations increased the volumes and revenues. And on the back of the sustained operating efficiencies, we should see a continued improvement in margins and profit bottom line numbers in the FM business as well. Contract Logistics business, we have continued to maintain the expansion mode, which meant that the white spaces have in more or less consistent. But as far as revenue is concerned, we have increased almost 13% as compared to the previous quarter. We increased almost 22% compared to the previous year. And this is primarily on the back of renewed contracts.
And now we are expanding the other domains. So if you see the distribution of our business, it is almost equal across the main stay chemical domain, the e-commerce business and now auto and other industries also contribute to almost 1/3 of this business. So the business has now been diversified. We have marquee clients working with us and a lot of new contracts being signed. And I see that's a healthy pipeline, which is visible. So we believe that for the coming quarters, the contract logistics business should also see a sustained growth. So as a combination of these 3 businesses doing well, we have seen a positive sequential outcome, and we believe the trend should continue.
In terms of the macroeconomic environment for the domestic business, we have been experiencing in teens in the volumes. And we believe that with the safety season ahead, the volumes on the [ ex ] business side should only go up. On the Contract Logistics business, the trend of companies wanting to outsource and move from unorganized to organized. That's something which the underlying current has remained. And therefore, the industry growth continues to be healthy. On the international supply chain business, besides the revival of trade volumes, the company is also focused on 2 key categories of initiatives.
One is revenue expanding initiatives, which include launching new products, launching new tradings and also strengthening our presence in certain markets where there's an opportunity. For example, recently, we appointed a new leadership team in Argentina, Uruguay and Paraguay. The markets where we felt we underrepresented and now we have a very strong commercial team, which has come on more together as one team. And we expect that the volumes in these 3 companies could potentially double from the current labels in next 9 to 12 months.
We believe there are other such pockets of opportunity wherein the company's market share is relatively lower, and we continue to work towards such specific opportunities. The second key category of initiatives is on the cost side. There's a continued focus on standardizing our operations, which allows the operations to be outsourced. We have achieved a lot of cost savings as discussed in the past calls through standardization and then outsourcing of operations from the United States into Mexico and we continue to evaluate other such opportunities on how we could standardize operations and then outsource to reduce costs.
And the second opportunity in that category is to continue to drive automation because standardization also makes automation more feasible. And the combination of these 2 things should allow us to maintain our costs against all the inflationary pressures. And as an outcome of that, the business should do well. That we brought some on the business performance and the market outlook. We'll talk more about some of this in the questions that come across.
And on that note, I would request my colleague Deepal to take you through the financial highlights for the quarter gone back. So over to you, Deepal.
Yes. Thank you, Ravi. I will now discuss the performance for Q1 FY '25. The consolidated revenue for Q1 FY '25 stood at INR 2,813 crores as compared to INR 3,271 crores during Q1 FY '24 and INR 3,398 crores during Q4 FY '24. The EBITDA for Q1 FY '25 stood at INR 133 crores, down 5% as compared to Q1 FY '24 and up by 34% as compared to the quarter ended March '24. The company reported a consolidated PAT of INR 4 crores as against a loss of approximately INR 12 crores reported during quarter 4 FY '24. Consolidated net debt for the quarter ended June '24 stood at INR 424 crores.
Moving on to the segmental performance. I will start by discussing the performance of the international supply chain business. The trade environment has been buoyant. Demand has expected -- has exceeded expectation on the back of strong global growth momentum as compared to 2023. LCL volume for the quarter ended June 2024, stood at 2.25 million PBM, similar similarly on a Y-o-Y basis and representing a quarter-on-quarter growth of 6%. The STL volume for the quarter stood at 156,000 TEUs, similar to last quarter and up 9% on a Y-o-Y basis with Q1 FY '25, the ISC business reported a revenue of INR 3,320 crores as against a INR 2,843 crores in Q1 FY '24 and INR 2,919 crores in Q4 FY '24.
EBITDA for the same period stood at INR 81 crores as against INR 42 crores and INR 111 crores, respectively. Now moving on to the Express business operating under [ GTPL ] brand company, the volumes for Q1 FY '25 stood at 300,000 tonnes as compared to 292,000 tonnes during the same period last year. The quarter reported revenue stood at INR 358 crores as compared to INR 367 crores in the same quarter last year. The EBITDA for the quarter in June 2024 amounted to INR 20 crores as compared to INR 18 crores for Q1 FY '24.
Moving on to the contract logistics process [indiscernible] supply chain. The contract logistics revenue stood at INR 91 crores for the current quarter as compared to INR 71 crores for the quarter last year. Clearly, EBITDA for the quarter ended June 2024 stood at INR 29 crores as compared to INR 32 crores for the same period last quarter. In line with the best disclosure practices, we have been consistently providing other key comparative financial and operational indicators in our investor presentation. One can refer that for more detail.
With this, I would like to open the floor for question and answers.
[Operator Instructions] The first question is from the line of Rushabh from RBS Investment Manager LLP.
So with regards to the Express business, we have seen a good churn at this signal-level management team. So I just want to understand what changes have been made or what changes will we be making at a broad strategy level. So there is good double-digit volume growth over the next 2, 3 years?
So considering that [indiscernible] listed company. I would restrain some going into too much of detail on that, and the [indiscernible] management team could answer that. But just to state the effects, as you are aware, Gati Express business has seen an operational turnaround with the cost of operations now matching the best standards in industry, and that's been the primary level of profitability. Sandeep joined us as a Chief Operating Officer last year in the Gati business, and there's clearly been a strong outcome.
We have had senior commercial leaders joining the company recently, and we remain confident that they would see a company toward future growth. So there [indiscernible], who's the Chief Commercial Officer. And of course, Phil has retired from the company and would continue to transition management. So there have been changes which have been made, new people have been brought in and new people would bring in new [indiscernible] and renew focus, which should continue to drive the growth momentum which has been built on the back of a significant turnaround of extremely challenging situations. So I think all the management changes should work well for the business.
And secondly, on the contract logistics side. What is the sustainable EBITDA margins. We have seen a slight dip here. We just say next 2 years, what is the outlook here?
So the EBITDA margins have -- I would say, the current quarter decline is not an indication of a trend. On a small base, sometimes we cost reallocations can also have a bearing impact. But fundamentally, the business profile should remain consistent. We don't see a significant upward or downward revision in the margin growth should sustain from a 2- to 3-year horizon.
We could potentially build additional revenues from the transport part of the contract logistics where we had certain restrictions, which are now removed which typically comes at a lower margin, but then that would be like an incremental business on top of whatever growth we see today. So if we continue to witness the current growth pattern, the margin profile should remain same. Should there be an accelerated growth on the back of the current contract logistics business with greater contribution from transport than margin percentages could decline, but the absolute margin should grow even better. That's how I would put it.
Next question will be from the line of Ravi Singh from [ Cosmic Horizon ]
In the MTO business in the peak over time, we used to do an EBIT per LCL continue volume of about 0.44x, which has risen quite sharply during COVID time and now it's close to about 0.15x. Now with container shortages and the huge increase that we have seen recently in the long-term fit rates, can the EBIT per LCL at least shoot up to the pre-COVID levels of 0.44x if not higher?
So a couple of comments here. The LCL and the FCL business composition as well as the [indiscernible] composition has significantly changed over the years. So -- and also it represents the mix. So before we have always advised against comparing on an MH per TEU basis, we have shared the guidance in terms of what drives the patient profitability. And typically, 1/3, 2/3 or roughly 70-30 is the percentage of gross profit contribution from the LCL and the FCL business. That's what we are maintained.
So if one was to try and estimate the profitability scenarios, one could look at that split of GP. We've been sharing the volume details. On the FCL business, freight rates are going up or down has somewhat direct vary, not exactly the same proportion, but to some extent on the profitability. On the LCL business, the key drivers are utilization and the 40-feet container usage, most of which are gain share on a monthly basis. So from hereon, what we see is that we have great confidence on the volume growth and utilization and [indiscernible] remaining same which means that the operating profile of the LCL business should improve from here.
And in this business, as you could see, the SG&A cost is a significant multiplier of bottom line. So that is something which we are confident again of continuing with all the initiatives that I spoke about. So effectively, there's a significant operating leverage that kicks in. And therefore, if one is realizing at the EBIT per CBM in the LCL business or EBIT per TEU and the FCL business and some kind of a blended number on that, you would see that marginal improvements in gross profit can have much more significant positive impacts on the bottom line on a per unit basis.
So business fundamentally tracks gross profit per CGM, for LCL and gross profit per [indiscernible] is why the company management are driven. And I would say that from current levels, one could expect the SG&A cost to be largely contained, keeping them well below inflation rate because inflation will have an [indiscernible] impact, but we intend to offset that to some extent with the automation initiated. Now on the back of that, we have shared some guidance on the volume expansion. So one could play out the operating leverage and make some estimates. But yes, fundamentally, we should move towards levels broadly in the range or maybe perhaps higher as the business will revise over the next 2, 3 quarters.
It makes sense. And also all the cost initiatives on the employee cost front. Is that all done? Or is there some more impact that can flow through in the next quarter?
So that is largely behind us. And like I said, there have been increases and there have been reductions in that how we have been able to contain the cost otherwise in a normal operating environment, the cost would have gone up. So that's the reason why all the corporate cost reductions and automation initiatives and outgrowth initiatives have come in handy to maintain the cost. And now we have seen the revival in business. This quarter, we have seen some growth in volumes, and we are seeing even better trends in the recent months.
We would have the monthly updates for the month of July, perhaps with the next price [indiscernible], we should be out. So one could see it should be continued also trend on the business that should translate into profitability as well.
Sir. And lastly, just in the first 5 months of this financial year, you've seen a record 74 million TEUs of container movement which has beaten the previous 2021 record of about 73.9 million TEUs. And many analysts world over believe that this was on -- usually on account of front lowering of demand and the Christmas and the New Year stocking, which generally happens around Q3 had been preponed to Q2. So does this imply that somewhere down the line demand could taper off and freight rates could cool off from here on?
So one, typically, whenever we look at the container statistics, which are usually shared, I'm not sure which numbers you're referring to, but there is also a mix of empty and the [indiscernible] containers so laden containers typically demonstrating momentum inventory, while there's a lot of empty containers which basically are based on the repositioning acquired [indiscernible].
In terms of the demand, we have seen sharp pickups and which have led to a significant [indiscernible] from April until June, July. And then there has been a marginal decline on some trade lanes and marginal increase. It's not been constant net and now we believe the [indiscernible] should remain stable or more or less range pound until the end of the year. Now beyond that, there is no visibility at this point in time, particularly around the Chinese New Year around February, there has been a little bit of a [indiscernible]. There could be some decline as well.
But right now, the biggest challenge is the -- on the supply side with the whole red prices, the additional turnaround transit time also the U.S. ports have been congested. So all these factors have been leading to a bit of a supply shortage result. And we cannot really comment about the geopolitical situation, but at least the immediate future, we don't see things changing that at end. By the time things improve on the supply side, we believe the demand should get better because the current demand update is largely from select markets in Asia, U.S. [ exon ] in South America.
European economies have remained subdued, and we have not seen momentum on growth in those markets, which potentially could fall in 2025. So it's more like a combination of all these factors should potentially [indiscernible] a sustained demand for the remaining 3 quarters of this financial year. That is what our broad estimate is based on all the geopolitical development we played in sites that we follow.
The next question will be from the line of Rajesh Agarwal from [indiscernible]. .
Sir, any one-off this quarter in terms of expenditure?
Nothing significant that needs to be highlighted. Deepal, do you have any comments on that?
Yes, nothing -- no one-off. .
One from INR 52 crores we bought for that COVID relief for employees that was there in this quarter?
No, no, [indiscernible] there in the last quarter. [indiscernible]
So all the costs has been appropriated and everything, any increase in cost or anything in rationalization in the cost side?
Yes. So thank people for confirming on the no one-offs. And like I said, on the cost side, we have done a lot of cost reduction initiatives, which are to maintain the cost of site inflationary increases. So no significant additions or reductions you expected there. Focused cost drive gross profits to drive the bottom line. .
So any operating leverage from here will drive to the bottom line?
Yes. That is exactly the strategy and expecting.
Sir, one question. What we have done, right? Apart from the automation and digital, which we are talking about is the business becomes more a sustainable model, it doesn't become a one-off because of the freight rate or a supply shortage of containers, we benefit. And when that is over, we don't benefit. So is there any strategically we can do our 6% EBITDA or something like that, the business can become more sustainable?
So I think the best part and the most beautiful aspect of our business is that it is a very, very unique niche business, which is not replicable. The business that is -- the flagship in rational supply chain is less than container route consolidation. In here, we operate 2,500 direct trade lanes, which means that it's like how you book an Uber, you could book at EQ container, you could book [ 1 ] cubic-meter of [ target ] share to make it simple for understanding.
If could just book on cubic million of [indiscernible] every week across 2,500 tradelanes. It's like vast [indiscernible] network. To give you an example, this is a bigger network than any shipping line in the world. That's the kind of scale we have created globally. And that is the reason why some of the largest forwarders globally also are our customers, which means that even [indiscernible], DSV and the likes of these large forwarders, and they have requirements, even they end up being customers for Q1.
It's a very, very robust strong network. And being a cross-border change also requires operational engagement on both version and destination. So it's a very unique business. We have our own offices in almost every country that matters, barring Russia in terms of scale and size. And so this network, this well-established and services, are the fundamental ground, which creates very high-entry value. So on top of that, what we're trying to do constantly is our customers are mostly forwarders who are well educated. Our vendors are shipping lines, which are also well managed.
What we need to do is we need to create the digital layer, which is like the physical infrastructure on ground to manage consolidation and containers and the digital network to bring all these stakeholders together and provide seamless visibility. And that's where all the automation, the data analytics on route optimization, all of tools come into play. We are the only company in the world which is almost 70% of its export bookings coming in through digital channel to all these differentiations on an already unique niche business model creates very high entry barriers and very high [ decensivity ] in the business.
So why then we benefit after the [indiscernible] on our country utilization came down, why we didn't benefit if it would have been so.
No. So that is exactly the counterproductive because as you can imagine, the cost of operating the business is the cost of container and the revenue comes in from every cubic meter that we get. Now when the economic downturn happened, and on the back of that, we will need a dual event when we say this also rapidly collapsed in the utilization also came down were in a situation where each container, the cost of getting the container, the freight rate is to a large extent in the LCL business passed on, right? But if you're not carrying enough cargo then we don't make money. So it's like any airline growth. If you have vacancies, you don't make money. If you have a full [indiscernible], you make money exactly.
So do we enter into the contract annually contract with the shipping line contain -- so much content we will upload for LCL and all?
There is a combination of rolling contracts, spot buying minimum commitments and sometimes it's more of the volume incentives, like when we cross certain thresholds, we get such additional volume [indiscernible], et cetera. And these are initiatives which go back 30 years. So it's not exactly that we have contractual obligations on the buying side, but we have strong comfort. I mean to give you an example, in the worst crisis of container shortage in the [indiscernible] in the big peak of COVID as well as in the recent times, we are always able to find space for our customers across the world. So that's been a strong testament to our operational capabilities. .
So if the [indiscernible] is normal, geopolitic and another utilization of [indiscernible], then we'll make money, we will make more bottom line?
Absolutely, the bottom line should grow as long as we are able to improve the utilization, which should be on the back of volumes. So as the economic growth revised, which we are seeing right now and should continue as the whole -- the interest rates coming on, the consumption should go up. So the whole [ metro comic ] environment is that last 12 months were to, but things are looking better. Europe possibly will take some time longer. But on an overall basis, we see enough contributions coming in from different quarters of the world to drive economic growth, up the trade volumes and all of those directly contribute to us. .
Next question will be from the line of Radha from B&K Securities. .
Sir, sequentially, despite the rise in volume, we have seen that our operating costs have remained elevated. Could you please highlight what are the reasons for this? Because last 2 years, we have taken a lot of initiatives on the cost front. So when can we see the benefits of that come into our book?
So a significant part of operating cost of ocean freight. So naturally, in an arrival motion preeminent operating costs will also go up. But like I mentioned, the plan, which is why if you look at on the consolidated basis, a 12% increase in revenue sequentially has led to a 34% increase in EBITDA. So the operating costs would not come down. They would come down or go up with the freight rate but what we're expecting is that the volume should go up.
Gross profit per unit volume, which is what we call a yield in this business should remain consistent or we never improve. On increased volume and improved yield should lead to a higher gross profit. And all of that by containing SG&A should come down to the bottom. That's how the business strategy is being worked upon.
Okay, sir. And secondly, what is the volume growth that you are targeting for FY '25 for the international supply in business?
So at this point in time, we are not sharing any specific guidance, but we would like to reiterate that we continue to expand market share, which means that we would grow faster than the market in both healthy and FCL business for FY '25. .
Okay. And sir, in contract [indiscernible] business, we have gained wallet share from customers in this quarter. But despite that, we are seeing that EBITDA -- so what are the reason? And what is the path for the contract [indiscernible] business in this quarter and [indiscernible] .
The tech logistics business is typically driven by contracts bearing from 1 year to 3 years in contract life. And therefore, quarterly trends could have a little bit of deviation based on how the white space is moving because we're constantly investing in acquiring additional capacity, which naturally remains vacant for some time and then customers fill in. There could be some potential [indiscernible], but typically, revenue growth and the revenue mix is an indicator of profitability. In this case, revenue growth looks strong. The revenue mix has remained consistent. So [indiscernible] should remain consistent in terms of margin profile and should improve in terms of absolute amounts. .
And what are the current volumes from the 3 regions that you mentioned, I think now we are at a growth also in which subsidiary are these regions being recorded?
So the international business is -- sorry, international supply chain business outside of is all under subsidiaries below EQ worldwide NV, which is the Belgian entity. That is where we recall. We don't share specific volumes. .
Sir, last question, you mentioned about the net debt. So could you mention the net debt from each business segment? And what is the target needed for this year and next year?
I will request my colleague, Deepal to comment on that.
Target net debt, it depends upon each business. In some businesses, they want to just have some leverage for working capital requirements. But if you want the breakup, we can share the breakup. So as far as EQ is concerned, which is the largest business outside of India. The net debt is [indiscernible], be stand-alone, but also holds a net debt of INR 524 crores.
Gati typically is at INR 195 crores in net cash available because we had and the QIP money being rate in and ACL is at around INR 24 crores of net debt, which is used for CapEx requirements and the long-term borrowings. And there are a cash of around close to INR 52 crores in other subsidiaries [indiscernible] of mid debt.
Sir, any substantial or any CapEx plan for this year and next year?
No. The only -- I think -- so that you already have the QIP proceeds where we are to be investing in some hubs and also into the technology. Apart from that, in all [indiscernible] particularly, we do not have any oral cargoes, we don't have any large CapEx requirements only maintenance CapEx, et cetera, which is expected.
So the summary is we expect the debt to go down from here, not go up only subject to working capital debt which if the freight rates go up and that, of course, will increase our business on the earnings as well but if that's the case, the only working capital debt may kind of go up a little bit depending on how [indiscernible] perform. But just [indiscernible] spite of the working capital then going up, our DSO and all have been raised on and win controls. So there isn't any additional exposure. It's only the additional business that we are reaching in terms of revenue which will be followed by profits will come along.
The next question will be from the line of [indiscernible].
Basic question, just to improve my understanding. So LCL volumes in measure in [indiscernible] and FCL in TEU, why is that?
So the FCL is measured in DUs, which is a 20 feet equivalent unit because we typically carry the full container load, which means that the customer either books 1 to 5 or 10 containers with us this container could be a 40 feet customer or a 20-feet container and that is why globally, the container business is measured in TEUs. The reason why we measure LCL and CDL is because customer does not bring in the entire cargo, customer brings in a part of the cargo.
So cargo brought in is like 1 cubic meter or 2 cubic meters or 0.5 cubic meter. And therefore, the bookings are always in cubic meters. And all these shipments together fill up the container. That is how the lesson container on consolidation business was and hence, the unit of measure is always cubic meters in NPL and TEUs and FCL.
So is it a fair understanding that in FCL, the revenue and costs are both on a TEU basis, but LCL, the revenues on pivotal, but cost in [indiscernible]
Yes, that is correct. And which is why the utilization, which is cubic meters per TEU plays an impact on profitability.
Understood. And on Slide 14, the chart on the right-hand side, which shows container utilization index and 40 feet continued usage rates, what is the difference like between the 2 charts?
Yes. So container utilization is how many cubic meters are we putting inside the container the 40-feet container usage indexes of all the containers that we are using, how many of them are spotty seat and how many of them are 20 seats. So what happens is a 40-feet container as the name suggests, typically has twice the volume of a 20-feet container. However, the costs are not double. They're typically 1.6 to 1.7x and therefore, the objective is to always carry the LCL cargo in 40-feet containers, but if you do not have enough cargo, like typically to give you a ballpark IDR 25 to 27 cubic meters of a cargo is typically carried in a 20-feet container.
So if you have 45, 50, 55 cubic meter, you tend to carry them in a 40-feet container. And that is how largely the business operates. But sometimes, if you say you only have 20 or 22 or 18 cubic meters of cargo, then you would carry that in a 20-feet container. Now from a business standpoint, [ 43 ] means lower cost per cubic meter because the cost is not doubled, but the volume is double. And therefore, as the business is performing well, the volumes are higher, we are able to use more and more 40-feet containers. So the graph at the bottom suggest how is our 40-feet continue mix improving or deteriorating? So that's the difference. One is, how many cubic meters are we putting inside each container? And the second one represents what percentage of containers are 40-feet in the overall mix.
And this includes from an LCL business point of view, not SCL, charts on the right-hand side do not [indiscernible]
[indiscernible] are even from LTL point of view, only, that's right. .
And some of gross profit, let's say, as Q1 FY '25 is INR 647 and then the EBITDA, the chart below is 81. So the difference between that is all overhead costs, [ extra ] costs?
Yes. Between the gross profit and the EBITDA would be the overhead costs, the admin cost, half cost. .
So that is a lot of overhead costs. So where does it -- is semi-fix, totally fixed, like what is the nature of the fixed costs?
So I would say there is some degree of variability based on the performance. But to a large extent, these are staff costs, [indiscernible] office rentals, et cetera, and kind of fit and which is why I was mentioning earlier that the SG&A component is significantly high compared to the bottom line, and therefore, improvement in gross profit have a far more profound impact on the bottom line.
And therefore, there's a huge operating leverage at play. And hence, the endeavor is to always continue to outperform market and as soon as whenever we see the macroeconomic environment supporting the business, we see a good revival in the performance. And naturally, this...
Good understanding. So this fixed cost is, let's say, INR [ 2,200 ] crore annualized run rate, if I did the math right, of this 2,200.
I lost you. I'm not sure if it's a connection at my end or yours.
So line for the participant seems to have disconnected. We will move to the next question. The next question is from the line of [ Sukan Garg ] from [indiscernible]
I just wanted to know more about the cash flow petition case [indiscernible] as we compare from June because in June, the profit, the operating margin and the cash flow net [indiscernible] to the financial [indiscernible]
Deepal, you want to respond on that? .
So I couldn't actually hear very clearly. So regarding cash flow, so what is the specific question? [indiscernible]
Yes. So I just wanted to know that if our cash flow situation has been a little less better than what we have in Q1 FY '24 because if I see the operating margins or operating margins have been trading down a little bit from June '23 to June '24 going from Q1 last year to Q1 this year.
Yes. So if you look at the results for Q1 FY '24 versus the results for Q1 FY '25, there is a change in the results as far as the EBITDA margins -- I mean, intent is concerned. Keeping that in mind, the cash flow has, to some extent, the EBIT margin to [indiscernible] the cash is marginally impacted. Also, what has happened is that if you compare the [indiscernible] in Q1 of '23 versus Q1 of '24, which is now, you will see that [ repaid rates ] have also gone up a little bit. So there has been some additional investment in working capital, but we have sufficient cash and lines available for us to cater to these requirements is not the issue. .
But do we recover that in Q2 or Q3 onwards sufficient planning product?
The operating cash, if you go back and look at the cycles 2 to 3 years back, what has typically happened is that we will be -- [indiscernible] have gone up. Many times, we came with a better margin over a period of time. And if that happens, the cash is obviously we take pass-through. So we will definitely recover all the cash back. So the working capital expands when the freight rates go up and they contract when the freight rates come down, and that cash is replenished back to the line that we have with the institutions. That is how the whole [indiscernible] works. But what it means is a better business opportunity to cater to and better margin and profit in times of higher freight rates.
Yes. So primarily to add to that, basically, the fundamental driver here is that the ocean freight rates have gone up in the last 3, 4 months, and that has meant a much higher working capital which has been deployed. And therefore, the cash flow has been utilized towards that.
I also mentioned that our DSO just to further -- I did mention earlier also to [indiscernible] they haven't gone up. So the cycle in terms of recovery is fairly consistent. There is no other issue. It's [indiscernible] .
The next question will be from the line of [indiscernible].
Okay. So sir, what I was asking earlier, when I was not audible that. If I did the math right, there is a fixed cost of about INR [ 2,200 ]-odd crores based on last quarter's generate financials. So just to get a better understanding of the business, what would be the broad buckets of where this INR 2,200 crores fixed cost is incurred, like how much is rental, how much is employee and what might be the other big bucket shop costs?
So we don't share a breakup of the SG&A costs, but I would say the staff cost is the single biggest contributor towards that cost second cost would be warehouse and office rentals and lease rental costs that we pay. And then third would be the general administrative costs corresponding to utilities traveler. And a part of that would be variable pay bonus, et cetera, which is linked to the performance.
So from a -- in terms of forecasting what the P&L would look like, if you look at the Slide 14, which I think you only were referring to on the graph, you also would notice that we share the feed, the LCL and the FCL index, which basically means gross profit per unit. So LCL is gross profit per cubic meter and the FCL is gross profit by [indiscernible] now of course, these are on an index that we share. But one could -- you clearly see, for instance, the LCL yield is more range bound. And now on the back of increased utilization, we believe we should get back to where we were 12 months ago and then possibly improve from there on.
So this number should start looking at beyond 100. And as the volumes grow, the gross profit is nothing but a multiplan of volume in the -- so that is the way in which one could forecast the future performance. And like I said, to reiterate, we have done enough by way of cost reductions outporting in automation. Keep a check on this SG&A cost. And that is why there's a huge operating leverage at play in this business.
Understood. So the way you're explaining and the way I understood, I would have said LCL and [indiscernible] to be more volatile because we are booking revenue on CBM and intel costs [indiscernible], where it seems the FCL is more volatile. So are you -- and taking some sort of a market price risk in FCL business or in the LCL business. Why is that?
I tell you why is that? When it comes to an LCL business, the business is about we receive one [indiscernible] meter of cargo in our warehouse. When we consolidate that ago, sometimes you do the door pickup as well, then the cargo is moved on the ocean leg. Subsequently, we have deconsolidation activity in the warehouse, then there's a door delivery for some part of the cargo. So there are multiple activities involved and ocean freight is one component of that. .
So all the other costs are more consistent and somewhat linked to cubic meter. The ocean freight component is the one which is linked to TEU. And in this business, we have -- the other rate does vary that much as the ocean freight. And therefore, this is more driven by and as we're able to utilize the able to save on ocean freight cost because that is likely we're able to -- let's say, if we're able to improve the utilization index by like [indiscernible] by 10%. That means that we are seeing the 10% additional cargo on the same ocean freight cost -- the ocean freight cost is the 30% of the total cost.
We are still saving 3% cost. Now 3% cost in the kind of margin profile reduce the impact on the bottom line. And that is how it kind of plays out. On the FCL business, freight rates are very volatile. And that freight rate volatility plays directly into it because in a certain sense, a large part of our revenue and cost, both are only to ocean freight. There isn't much of a warehouse or origin or destination or activities in the FCL business. And therefore, the volatility of the ocean freight rates is fully reflected in the FCL business.
While in LCL business, it is just one portion and also it is kind of passed on. So typically, as the freight rates go up or down, we don't really end up making more or higher margins based on the freight rates. Naturally, of course, what happens in the freight rates are high people tend to consolidate more and do the [indiscernible]. So there is an indirect impact on how utilization goes up. But fundamentally, from a pricing standpoint, it's not that we try to price higher when the freight rates are higher. Typically, the office operates on gross profit by cubic meter.
So when the [indiscernible] goes up or down, they typically revise the tariff economy. But what happens in FCL, when the freight rate moves from, say, $1,000 to $5,000, we don't maintain the same $200 margin. It may not become exactly that [indiscernible] proportion, but it goes up and down and it varies. So that is the reason why FCL has a greater dependence on the ocean freight, it has lesser complications and outcome of that, the volatility is much higher in the FCL compared to LCL.
[indiscernible] So just to my understanding, the LCL invoice for the client, the portion at [indiscernible] of the total invoice in [indiscernible]
The cost side. On the cost side, on the revenue side, typically, on an [indiscernible], which you log into [indiscernible] which is a unique platform that we have where you can get an instant code for moving cargo from anywhere in the world -- in the world. Typically, if you were the mine cost and you would typically show charges for transport, handling, [indiscernible] multiple line items in there, but when trying to explain you is broadly the component of ocean freight would be lesser in the LCL.
And it's kind of a pass-through. So the volatility is kind of passed the gross profit largely remains intact or range on is more dependent upon the utilization and operational efficiencies.
Okay. And in FCL, the volatility is somewhat absorbed by you. So a short volatility in a way of the container trade that we globally see right? We saw volatility. There's a very sharp upswing or downstream, your need index will be heard in that media.
No, it typically plays in sync. So particularly the yield improves with the higher freight rates and it reduces to be lower freight rates.
If not, so why has it reduced this period because rates have gone up, right, if I understand correctly -- yield index was down/
No, we are comparing it with the last year's similar quarter wherein the -- and there's a bit of a lag effect as well. If you look at sequentially, you would see a different picture. And this is why maybe perhaps we don't -- we'll not share the FCL, we'll try to see if we can share more further on this on a more sequential basis. .
Next question will be from line of Radha from BNK Securities.
Sir, I wanted to understand that in the internal supply chain business, what percentage of customers are recurring in nature?
I would say roughly about 40% of our business comes from large customers, which are almost all recurring in nature. 60% of the business comes from small customers and I wouldn't put an exact number, but a large majority of those customers are also recurring customers with many having year-long or take long relationships with us because most of this business is coming in through small and medium forwarders, I talk about the small customers, and they have been working with us for a long period of time typically.
The share sometimes come in on the new trade lanes to services that are launched and new products that we launched. And naturally, we continue to acquire the new customers as well in some key markets, but a significant proportion, I would say, more than almost like 90% of this would be a recurring business from the same kind of customers.
Sir, can we [indiscernible] explaining to the last participant that there is some lag effect in the gross margin this quarter and maybe sequentially, it could be better. So is my understanding for -- I mean the revenue for this quarter is on the basis of bookings that you had received last quarter. And hence, we can see the [indiscernible]
[indiscernible] average 40 days of selling from -- if you make an average of Asia, Europe, Asia, Americas and [indiscernible] Atlantic, they could be typically about 4 to 6 weeks of lag effect in some sense. And which is why, like I mentioned, we look at the month gone by in the current month, we believe that [indiscernible] should only improve on both the volume side and the overall parameter. .
Okay. And also despite a majority of our [indiscernible] there is no contractual agreement with them. Is this a fair understanding?
That is right. There are no contractual obligations on either side. But I would say there is a reasonable understanding of many customers and with many vendors, you typically have volume incentives that play with some of the largest customers in some of the large vendors that we work with. .
The next question is from the line of [indiscernible]
Congratulations on a good set of numbers. I just have one question. With the freight rates going up and we've seen increasing in volume, can we envisage that in a few quarters, and we should touch the run rate of what we touch in 2021, '22? Or that will be too much to ask?
We would refer from the guidance. But like I said, at least for the quarters -- 4 quarters of this year, starting with the first quarter, we've seen sequential improvement, and we expect the same sequential improvements to continue for the remainder of the year on a quarterly basis. That's the kind of broad outlook that we have at this point in time.
But I don't want our guidance, sir, but are the price almost at the rate at which it was on different trade line.
So like I said, the European economies have still remained subdued. So if you look at the rates for export out of Europe into Asia, are extremely weak, while at the same time, waste from Asia to Europe are much higher and rates from Asia and to Latin America, for example, for some trade lanes had tax as high as they were doing some of the [indiscernible] as well. So there's been a bit of a -- it's not like a secular chain across all trading at is a combination of trends.
And how much would the revenue be from exports from Europe?
Our business is largely a representation of the global trade. We have a strong business almost in all parts of the world, pretty distributed. .
Thank you very much. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you, everyone, for joining us in, and we hope you are able to provide insights on the business and respond to your questions. One of the ways to improve disclosures and information from our side is to receive inputs and questions from your side. So please feel free to reach out to our Investor Relations team. I'll come back with your suggestions on what kind of information you would like to see and we'd be more than happy to continue to improve our disclosures and see how we can help the analyst community as well as our shareholders understand the company and the business better. Thank you very much for joining us today. .
Thank you. On behalf of PhillipCapital (India) Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines. .