Allcargo Logistics Ltd
NSE:ALLCARGO
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Allcargo Logistics Ltd
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Ladies and gentlemen, good day, and welcome to the Allcargo Logistics Q2 and H1 FY '25 Earnings Conference Call hosted by B&K Securities. [Operator Instructions] Please note that this conference is being recorded. This conference 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 do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I now hand the conference over to Mr. Sailesh Raja from B&K Securities. Thank you, and over to you, sir.
Yes. Thank you, sir. Good afternoon to all. On behalf of the B&K Securities would like to welcome you all to the [indiscernible] 2Q FY '21 earnings call. From the management side, we'll be hearing from [indiscernible], Chief strategy and Mr. Deepal Shah, Group CFO. Without taking much time, I'll hand over the call to Mr. Ravi for the initial remarks. and post which we will open up for the [indiscernible] over to you.
Yes. Thanks, Salesh. It's a pleasure to be on this call and talking to everyone. The second quarter for the financial year '25 has been quite an eventful quarter in many ways. And I would give a bit of a perspective on what's happening across each of the businesses. And then I invite my colleague, people to take you through the financial highlights and talk about the key numbers. But basically, if you look at -- there are 3 businesses that we have been operating, the international supply chain and the domestic supply chain, which comprises express in contract logistics business. On the international supply chain business, we have had the most challenging few quarters until recently, I would say this is possibly the bottom, which could be over the last 2 decades, but that's only a couple of suites have happened in terms of the market environment that we face.
And I'm really glad that we have been resilient and we have been able to come out well of this period. And when we look at some of our competition and the industry benchmarks, we see that there have been immense challenges in maintaining the profitability. However, we have than much better. And that has primarily been driven by being very proactive on cost reduction initiative on technology initiatives and constant delivery to the customers, which has allowed us to maintain and grow the market share, and that has really helped us through tough.
Now as we look forward, we have seen the beginning of the better times. As we have been reporting on a monthly basis and also for the quarter, we have seen improved volumes over the last quarter as well as over the last year. And with the global economic environment improving, we could potentially see the strengths to follow.
There are, of course, several geopolitical events happening around us, and they would shape the future of [indiscernible] but primary, we believe that global sale will only continue to strengthen from here. And from a company perspective, we have a very, very sharp regional focus and a unique strategy for each region. We have, in the past, been talking about growing our presence in Latin America. Where we have been historically having limited market share.
And I'm glad that this was the quarter where we actually took significant initiatives. So between July to September this quarter, we onboarded an entire new team in Argentina, Paraguay and Uruguay, which will add to the business in the region. It is already doing well in the first 2 months of operations, having grown the business significantly almost doubling the business in 2 months itself.
We are also -- this is a quarter when we finalized our joint ventures in Colombia and Ecuador which will bring in local expertise and combining with the global network, we expect these markets to also grow faster. And this faster growth in new products and volumes would lead to impact on the financial performance as well as in these countries, particularly considering that at this point in time, Colombia and if you are combined, we're not contributing anything on the bottom line.
This partnership would lead to that scenario changing. We have more initiatives to be taken, but I'm glad that 6 important markets in Latin America were acted upon with [indiscernible] in this quarter. When we look at European markets, where we have historically enjoyed market leadership for a long period of time, particularly in Western Europe and Northern Europe.
We saw a continued strong performance in Northern Europe, in U.K. and France and Scandinavia region as well, which has bounced back well. The larger part of Europe still remains a bit challenging because the economic environment is still subdued and it might take another 6 months before the economic environment starts to improve, and we would see how the Ukraine conflict plays out with the change geopolitical dynamics, and that could potentially lead to the revival of European state.
Meanwhile, what we are trying to do is we recognize that Europe, in particular, in the high cost environment. And we are trying to standardize the operating processes further. And we have spoken in the last quarter about our outsourcing from U.S. into Mexico, and we're looking at how we could centralize some of the coal operations in Europe and move them into a low-cost near-shore country, not very far off, so that the timing ones could be managed.
So that should be our strategy to improve profit margins in Europe since as far as the core business is concerned, in this region, we do not see very high growth rates, what we could potentially see in Asia, Latin America, Middle East or to an extent, U.S. and China, where our market shares are relatively smaller. Closer to home in India, all the businesses have done fantastic and both [ LC and SCL ] continue to grow steadily. And we maintain our market leadership by far in the LCL business, and we are climbing up in the India scale business significantly as well now comparing with the top 3 in India.
On the Asian side, we recognize that there could be changes with the [indiscernible] of U.S.-China trade changing, but we have seen that in the past as well about years ago, 5, 5.5 years ago, we had seen that there were tariffs and sanctions and sudden initiatives being implemented. And that had led to NMC state from China to Vietnam. We are seeing imports in the Vietnam office growing and also export out of Vietnam into U.S.
So we believe that structurally, trade rows will continue the trade lanes can change, but as a company, we are well present across the world, and that should work out well for us. Today, when we look at the competitive landscape, there is nobody close to our entity EQ worldwide from a technology and network perspective, and that's something which should continue to create the flywheel of success wherein these capabilities lead to higher volume and market share, higher volume and market share continue to keep us more competitive and we continue to drive growth.
So as the economic environment is now starting to improve, and we remain hopeful of a better environment than the calendar year '25, I think that business is well placed to continue to show momentum and growth. On the second business, in Express, we are now already at par with the best in the industry as far as the cost of operations is concerned. We have recently announced a general price increase, which will allow us to improve the revenues and therefore improve deposit margins.
And a lot of the turnaround work which was done over the years is now concluded on the operational side, and we have had some great leaders sharing in the business to drive commercial operations, and we remain very confident of x business, which has constantly shown significant improvement in the EBITDA over the last 3 quarters if we compare the December quarter versus September quarter. That progress is already visible and the impact can be seen. The third business of Contract Logistics.
In that business, we built on a legacy Chemical contract logistics business and expanded into new horizons, new domains and today, when we look at the split of business, we are very pleased to note that despite continued growth, chemical logistics today comprises only 23% of our business, which means that company has been successful in expanding its business into new domains, auto and engineering, which is now as big as the chemical in terms of the total revenue mix. And the largest section for us now is our e-commerce business.
And this is a business which is a high-growth business. And at the same time, we are not compromising the profitability. So this is a business where in largely at any customer level, like any location level, we remain positive, we are investing in the capacity, which means that historically, our white space was possibly in the range of 3% to 4%.
Now that is 10% to 11%, but that is required as we drive growth in momentum. But in terms of the businesses, which is aligned with the fast-through industries, today, we manage significant capacities in warehouses and back stores for some of the fastest-growing quick commerce companies. And we are also working for various e-commerce companies. So this is a business which is now aligned very well to the growing e-commerce market while remaining the strong foot in chemical business where we retain the market leadership in India and a rapid move in one as well.
But this is a business which has seen a considerable growth if you look at the performance on a quarterly basis. We have grown from a revenue of about INR 76 crore to INR 111 crores year-on-year, which is a significant growth, and we believe that this momentum can continue for the next few years because the opportunities are significant to expand the contract testing business footprint, particularly in e-commerce, auto engineering and other industries that we are now expanding into.
So on an overall basis, if I look at various businesses, the management is confident that we are well placed vis-a-vis competitive landscape. We believe that the market environment is either good in Indian businesses or significantly improving in the global business. And we believe that our investments in technology and focus on cost reduction, operating costs in case of the [indiscernible] business and SG&A costs in case of EQ worldwide international business should work well for us.
On the corporate side, we are also glad that this quarter has seen movement in our restructuring scheme which we received no objection from the exchanges and the scheme has now been filed with NCLT. So we believe that we will conclude the process in the SA time lines. And by April 2025, we should have the international domestic businesses demerged [indiscernible] listed separately. So that is the broad summary. I would now request my colleague Deepal to take you through the financial highlights, and we will then open the floor for questions. Thank you. Over to you, Deepal.
I will now discuss the performance of Q2 FY '25. The consolidated revenue for Q2 FY '25 stood at INR 4,301 crores as compared to [indiscernible] crores for Q2 FY '24, representing a growth of 30%. For the Q1 FY '25 stood at INR 3,813 crores. The consolidated operating EBITDA for Q2 FY '25 stood at INR 135 crores as compared to INR 118 crores for Q2 FY '24, representing a growth [indiscernible] for Q1 FY '25, the same stood at INR 183 crores. The company has reported a profit after tax of INR 38 crores during the quarter representing a growth of over 10% as compared to the same period last year.
The consolidated debt net debt for the quarter ended September 24 stood at INR 55 crores. The net debt has gone up mainly on account of working capital increase. Moving to the segmental performance, I'll start by discussing the performance of the international supply chain business. The LTL volume [indiscernible] volume for the quarter ended September 21 stood at 2.37 million M depicting a 4% growth over the quarter ended September 23 and 5% over the previous quarter, that is the June quarter 2024.
FCL volumes for the quarter stood at 164,000 TEUs up 7% over the same period last year and 5% over the quarter ended June 24. A volume for the quarter ended September 24 stood at 2.65 million kgs. This represents a growth of holding person as compared to last year and a marginal decline 4% as compared to the last quarter.
Volume growth also [indiscernible] during the quarter on the back of improved global trade and company's growth initiatives, a seasonal decline was experienced across regions towards the end of the quarter. For Q2 FY '25, the ISC business reported a revenue of INR 3,770 crores, representing a growth of 25% as compared to the same period last year.
For the previous quarter, IFC segment revenue stood at INR 2,320 crores. EBITDA for Q2 FY '25 stood at INR 79 crores as compared to INR 65 crores during Q2 FY '24, representing a growth of 22%. Q1 FY '25, the same stood at INR 81 crores. Moving on to Express business, operating under the GCPL brand, JPL company. The volumes for Q2 FY '25 stood at 317,000 tonnes as compared to 333,000 tonnes during the same period last year.
For the quarter reported, revenues stood at INR 374 crores as compared to INR 385 crores in the same quarter last year. The EBITDA for the quarter ended September 2024 amounted to INR 19 crores as compared to INR 15 crores for the same period last year. Moving on to the contract logistics business, which is under the old outer supply chain company, fully on subsidiary of all cargo logistics.
Contract Logistics revenue for Q2 FY '25 stood at INR 111 crores as compared to INR 76 crores for the same period last year. Representing a growth of 45%. For the Q1 FY '25, the revenue stood at INR 91 crores. The growth has come on back of new client additions. EBITDA for Q2 FY '25 stood at INR 32 crores as compared to INR 26 crores during Q2 FY '24 for Q1 and the same stood at INR 29 crores.
In line with this disclosure practices, we have been consistently providing other key comparative financial performances and operational indicators in our investor presentation. One can refer that for more details. With this, I would like to open the floor for questions and answer the one.
[Operator Instructions] The first question is from the line of Kada from Gerge Investments.
Sir, my first question is that in this quarter, we have given geography wise gross profit contribution for the international supplying business. We appreciate the better disclosure efforts of the company. However, can you please help us with the similar numbers for FY '24 as well as first quarter?
Yes. So this was requested by several shareholders and analysts, and that's why we thought of including in this because we want the information to be distributed equally to everyone. And therefore, we have shared the aggressive split we can possibly share these stores fit well. So I will ask the team to take note of this and add the trends in contributions of regions as well. We will include that going forward.
I can share the comment that historically, Europe used to be a significant contributor of gross profit. And in the submit environment, we have been finding that Europe has not contributed as well. Within Americas, Latin America has remained steady, but the U.S. contribution has gone down, which we expect to revise. So I would believe that Americas and Europe should fee growth in the -- Americas at should see some growth in passengers because Europe may still not grow at the same rate as which other countries would grow.
So I would imagine Europe should remain steady. It would remain low compared to what it was last year or 2 years ago. Americas, with North America now improving should increase in [indiscernible]
Sir, second question is that in this first half, you can see that the short-term debt in the quarter is INR 1,200 crores. highlights it is ever beneath numbers on a full year basis. It is higher than for your FY '22 levels wearing trade rates were all-time high. I just want to know why has shortened that increase and by the year-end, what would be our net debt target?
Yes. Deepal, if you would come on the short-term debt and provide a perspective on how it is?
Sure. So you mentioned that the short-term debt has gone up to INR 1,200 crores. That is not correct. The gross debt is INR 1,352 crores Short-term debt is around only INR 850 crores out of it, almost INR 495 crores is long-term debt. So I don't know where you got the INR 100 crores of short-term debt number. Secondly, yes, like we mentioned -- I did mention in my speech that there were freight rates, which are [indiscernible] for which some additional working capital was used so these are temporarily the kind of go back-to-back be freight rates. So once we take deep I mean go down, the working capital debt will also be flat. And that's what we are doing also through '22 -- '21, '22, where short-term debt had gone up for working capital and then towards the end of '23 has been deflated. So this is -- defrayed risks are cyclical in nature, and the short-term debt cannot at that from an amount perspective,.
Yes. Just to add directionally, we should see this net debt number going down towards the end of the year. Broadly, my personal estimate would be around 20% lower than where we sit today.
Yes, I mean, we are seeing some freight rates also kind of now a little in some of the trading.
So yes, you're right. It can indication in the business will also bring this down with some money for them to come with the non-core asset disposals.
Yes, sir, regarding the non-core asset disposal, so that stake in HR, we are filing, I think about INR 115 crores. So how would you utilize mine from there.
Sorry. I think you're asking the impact on HRC, but I couldn't hear your question completely clearly.
Sir, the capital market in is adamant receive from...
So there is no -- as you are aware, all the businesses are asset [indiscernible] and do not require any significant capital. So we have been using capital to retire debt or to provide dividends to the shareholders and the company has maintained a distribution of cash flows by over dividend, as you would have seen in the quarter 1 by as well.
there are no significant CapEx plans. Even on the expansion, 1 significant change which has happened, I would say, in a way, in our strategy is that we are now investing in people in a way rather than acquiring companies. And therefore, some of those investments also in a way flow through the P&L. So what I mean to say is, for instance, instead of acquiring a company, we have now onboarded this entire team. I was talking about an example in Argentina, Paraguay it certainly means that in the first couple of months, entire SG&A goes out without any business.
And then as the business starts to come in, it is still a buildup phase. But that is the kind of investment which we are putting in to drive the business growth, but that flows to the P&L itself because all those investments are now in staff costs and expenses as compared to acquiring any companies. So therefore, from a CapEx point of view, there's no significant CapEx beyond the ordinary getting that we've been doing from the layout perspective.
The next question is from the line of [indiscernible] [Operator Instructions]Mr. Sunny, please go ahead.
My first question is regarding the international supply chain business. So basically, this quarter saw a good bounce back in terms of the volume performance and also the corresponding improvement in the gross profit. However, the flow to EBITDA could not be seen and it looks like that part of that impact is from the acquisition maybe that you've done in Latin America or South America.
So is it possible to give some perspective in terms of how much negative drag on EBITDA was there from the acquisition? And what we could also see from the P&L is that your employee cost has increased by INR 32 crores on a Q-o-Q basis. So is this relating to that acquisition. So any perspective on this would be really helpful.
Yes. So the increase in staff costs is primarily driven by one like you rightly mentioned, onboarding new people such as about 30-plus people in the Argentina region that I mentioned about. And a few more people in the leases well, which have been all voted for growth. The second impact is a lot of countries have July to June cycles wherein the bonus [indiscernible] September quarter. So that is the second contributor as well. And the third is there have been also one-off severance costs. So we have had the severance costs in letting go I'm not able to exactly quantify how much of this quarter. But over the last 2 quarters, the severance cost of key leadership units that you've done itself should be in the magnitude of over USD 2 million.
So you're talking about roughly about 18, 2Q kind of an impact distributed over the last couple of quarters on the severance cost paid as well. So these are some of the costs which are reflecting in the increased staff costs. Having said that, like I mentioned earlier, there's a very sharp focus to retain these costs at the optimal level, and that's where we're looking at outsourcing centralization of European operations.
And we are also -- we have already rolled out the financial system, which was required to centralize finance but that is something which we continued recently across key markets. And now we're already working on a program to bring down the finance cost by way of outsourcing of the financials as well -- so our intent is to not allow the staff cost to grow. Whatever investments we need to make for growth would be acted upon by a reduction in staff core outsourcing or tech automation, et cetera, that we bought strategy at a and so that whatever growth we can actually in volumes and gross profits can slow down through the EBITDA, but there would be time delays on account of impact of cost saving actions versus investments that we about it.
Got it. That's quite helpful. Sir, 2 questions relating to this. Is the severance cost largely behind? Or could there be more in the coming quarters as well?
So I would say we could have more severance costs, but what we would do is we would provide a going forward specific carve-out on the severance cost number. And the way we look at the severance cost is it's not a liability, but an investment, I explain what I mean by that. So if we have a situation when we have been able to drive tech automation or we believe that the business can be made more efficient for whatever reason, we can reduce the headcount in a particular country.
And as you would know, in Europe and Latin America and some of these countries, the severance cost could be significant, particularly for long-term employees. But the way we look at this is even if you are paying 6 months to 12 months, even say, 18 months in some cases, worth of payments for severance, it is almost like an investment which pays back within 6 to 18 months, and therefore, is a great investment. So we would continue to reduce head count, wherever possible, whenever we see it's not a replacement of cost, but it is actual savings, and there could be 6, 12, 18 months time line, which would be there, but that's the investment we need to make the company more efficient in the long run.
But like I mentioned, next quarter onwards, we will carve out the vents cost to provide clarity on that.
Just then cost is 1 million for this quarter, almost 1 million that number. Got it.
That's helpful. And basically, going forward, how should we look at the fixed cost on a quarterly basis. So the base is somewhere around 600 for the international supply chain business is about INR 600 crore to INR 810 crores. Is this for at least next few quarters kind of a big number and any improvement in gross profit from hereon will go through to the EBITDA? Or there would be some more additions to the fixed cost in the next 2 quarters.
So like I said, there would be no additions to fixed cost, but it is almost like the intent is to keep them in equation so that the gross profit can slow down. The negative impact would be in terms of from a cost perspective, would be the investments in people.
The second would be severance costs and restructuring and third negative impact would be appraisals and linked to your pay role improvements for people, which means higher cost for the company. The way to offset that is outsourcing tech automation and the business that comes from investments in people so that is how I would see that the intent would be to not allow the cost to grow at a higher percentage in tend be to control it to the similar base levels, and therefore, the gross profit didn't slow down. But there could be a gap of quarter here or there in terms of how it plays out.
Yes. And one last question before I get back to the queue. So you mentioned about non-core asset monetization and the sale of like 1 asset which realized about INR 100 crores, INR 110 crores. So are there some identified pool of non-core assets? And is it possible to quantify assuming that they liquidated over the coming quarters, what would be the quantum of non-core asset realization
Across all cargo on a consolidated basis, which includes all cargo and Gati as well. Broadly, there could be non-core cash flows coming into the extent of INR 75 crores to INR 100 crores that we got estimate.
That's helpful. And I must appreciate that the level of disclosures has improved significantly over the last many quarters. And I hope it keeps including going forward because it helps us to understand the business much better.
The way we would continue to work on that is if we see a request from 1 or 2 persons, we try to answer them on the call or during the meeting. If we see the same request from more than 5 or 6 key people, we include that in the presentation. And we'll tend with that.
[Operator Instructions] next question is from the line of Rajesh Agarwal from air.
When and how do we get an operating leverage in terms of EBITDA going down to the bottom line? -- Across each business, the operating leverage is going to play out more in the international business in the Express business.
Contract logistics is more of a similar piling profile to continue on the express business, like I mentioned, the staff costs and the G&A cost is already accounted for in terms of the future growth, and therefore, we do not need to invest further in that.
And therefore, the increase gross margin and the revenue is leading to operating leverage. So if you see the last 3 quarters, it has consistently played out and we have seen improved EBITDA over the last 2, 3 quarters. And this would continue as we increase the volumes. We have made a monthly disclosure that October was the highest ever monthly volume for the excess business, and therefore, we remain that trend should continue.
And therefore, that should play down to the EBITDA. So we're talking about impact already being visible. As far as the international business is concerned, we have seen in the past in better markets, how the staff costs and the fixed costs remain consistent while the improvements in gross profit have flowed down to the bottom line.
Last few quarters were bad, we've only seen the recovery in the last 2 quarters, beginning. And as I mentioned just in my previous response, -- the improvement in gross profit here on should come down to the bottom line.
But the improvement will be substantial? Or what is the time period for that? What is the time rate?
I would reference to the specific guidance. But like I have mentioned over the last 2 quarters, and we have delivered on that guidance is that we would see sequential improvement.
Sir, how do you see suppose a shortage of container in everything. So you don't see the tendency of the customer is moving more to an LTM business, which is a good high-margin business for us. Are you seeing the changes in that?
So typically, the way it operates is whatever customers has not enough low to fill in the container, they operate on the LCL. There are situations wherein if there is lack of availability of containers on a particular trade lane. See, when they try to move to LCL, we also have to accept the booking. If somebody comes in with a 42-meter booking, we generally don't accept that booking because for our business, the business is profitable, then we have 3 to 4 cubic meter kind of an average shipment size because your money that you make on documentation below fading, et cetera, is justified that way.
So FCL business can't truly translate into LCL, but the SPPs smaller loads and therefore, the LCL business in such cycle does grow more.
And sir, last question, we suppose [indiscernible] come to power now tariffs imposed on China and other imaging countries? How do you see the traffic international cargo moving. And on the volumes, gross profit volumes which we are doing in the U.S.A. now. Is it for export from U.S. or import to U.S.?
Yes. So I'm happy to share my personal perspective on if there's no company view on what the geopolitical environment could shape up. But as far as our U.S. business is concerned, it comprises both export and import. As I was mentioning earlier, we believe that any tariff restrictions which come in particular to a certain country, those satisfactions could lead to diverted tariff flows and we might see more cargo coming in from other countries as compared to China for an instance. You have seen that in the past also when such measures were adopted with more cargo flowing through Vietnam, Indonesia and some of the countries near China.
From a long-term perspective, most companies have anyways been diversifying supply chain. So that should work well. In terms of any of the manufacturing itself moving into U.S. We believe that it is not the entire ecosystem, which would move. Any manufacturing would still mean that the raw material components will still be coming in if there was assembling to be done in U.S., you would still have component fluent.
So we have seen over a period of last 3, 4 decades if we go back, changes in manufacturing locations have reduced the trade flow, they only increase the trade flow because your supply chains become more spread out. The only key impact in the worst case scenario for cross-penetrate could be Mexico to U.S. state, but that is largely road trade and we do not participate in that as yet.
[Operator Instructions] The question is from the line of Saurabh and Individual Investor. [indiscernible]
Sir, if you do a quarter-on-quarter comparison that is from second quarter versus the first quarter of FY '25 for the international supply chain business the company had achieved all 10 quarterly volume in second quarter with 5% volume growth. The product mix was also favorable towards realizations have also gone up 8% quarter-on-quarter. [indiscernible] utilization index has improved quarter-on-quarter. 5 container usage has improved quarter in quarter so all dynamics seem favorable for the company. And additionally, the company has done a lot of cost-cutting measures from the last 2 quarters.
However, the EBIT by TU has come down 17% quarter-on-quarter. Please first understand what has [indiscernible]
Yes. So 2 points there. One, let me comment that, yes, there has been a continued improvement in utilization in all these sectors, but you're looking at a 12-month trend, we are recovering from the lows. We believe that if the trade flows become more robust, we should see continued upward movement on utilization and yields because utilization is the most tragical part that drives the fundamental profitability in our business.
And as far as the EBIT is concerned, I would not break it down by you because the LC and FCL business operate on CVM in a different way. But from an overall perspective, as you have seen, the volume, if you compare has gone up 4%, similar quarter year-on-year while the -- on the quarter-on-quarter, while the gross profit has gone up about 7%, 8%, which means that there has been improved profitability as well on the back of comparatively better utilization.
However, as I have explained to you, there have been some one-off costs such as $1 million in severance works and a few other investments in people, which are also flowing through the P&L and some bonus payments, et cetera, are leading to higher staff costs and therefore, the EBIT number is coming down. What we anticipate from here on over a longer-term perspective, I'm talking about say one year out when we look at the same quarter next financial year, we should see improved volume and gross profit while we should fundamentally see similar cost savings and therefore, the [indiscernible] should take in.
Okay. That helps. Sir, my next question is, sir, as an investor, this company has so many subsidiaries and associates, operate in so many geographies, and there is no correlation between freight rate also. So not only there for us to in future number is on the basis of your guidance in [indiscernible] So last quarter, you had mentioned that there is a lag effect of 4 to 6 weeks, and hence, margins should have improved in the second quarter. However, it hasn't played out that way.
So sir, why can we see improved performance in terms of profitability?
Yes. So I'll take the second question first and then comment on the first one. The second part is concerned. The profitability in the business is gross profit per unit of volume of trade that we carry. And I was just explaining that the gross profit has gone -- grown at a faster and higher percentage than the volume growth, which means that there has been an improvement in the gross profit by cubic meter in LC or the loss profit per in the FCL business as well. That's the first part.
So there has been an improvement in that -- we're only looking at the EBIT, which has been paid out by SG&A, where we believe, like I mentioned, we should see an improvement on the back of improved overall [indiscernible] gross profit, while retaining the SG&A cost save. Coming on the first part, as far as various subsidiaries are concerned, these are operating units, which are required to be established in these countries to conduct business.
We cannot operate with limited entities across the world. We are present in more than 65 countries our own offers, and therefore, these operating units are required. From a structural point of view, as you are aware, the scheme of rearrangement is under progress, and that would lead to all the international business coming under one entity. And as far as the domestic business is concerned, there is no need to have these subsidiaries because you can operate all the businesses under one operating unit.
And therefore, we would just have 1 listed entity, which will also be the operating entity. So all these subsidiaries will disappear on the domestic business side because there's only one country that we operate in. On the international side, we have no option but to retain operating entities across the world.
In terms of following up, I would say that there are multiple factor that you could look at, which impact our business, you can follow the global economic environment, which has a bearing on the global trade. As the inventories build up, we see continued increased flow of trade. That is a significant impact on the volume side.
The impact on the cost side is largely driven by inflation. We have several countries in Europe, for example, where in remunerations have to be increased in line with the inflation indices. So I would say the growth in global trade is a common indicator of our business opportunity and inflation is somewhat a reflection on the cost side.
And within these 2, we are always trying to see how we can compensate for inflation by way of technology and how we can compensate for any volatility in the market in [indiscernible] by expanding market share. So these are the 2 company-specific initiatives where we are happy to provide guidance. But on a broader basis, we can always follow how global trade is doing in our inflationary and size being there.
And there are several container indices available published by various research agencies, which also provide a perspective on the container freight rates and the volumes which are being moved through global trade corridors.
Sir, that was helpful, but subsidiaries and associates in many geographies are okay. But you haven't mentioned or guided same thing in the last quarter that we will be incurring severance expenses for the second quarter or for the forthcoming quarters.
So like I mentioned, the [indiscernible] are taken based on the restructuring investment decisions that we make like you've done in Latin America. We have spoken about the severance cost in the past as well. I'm not sure if there's a quarter last 1 or the 1 before that because we have had such cadence costs in the past as well.
Like I mentioned, I would like to read toward any conclusion. We would continue to look at staff cost reduction wherever we see it's a significant return on investment for us on the back of severance costs, which leads to a reduction in SG&A cost. And if the payback is attractive and if you're able to drive that with technology, we would continue to do that. Like I mentioned earlier, we'll provide a separate carve-out number on that.
Sir, my last question, you're hearing from sources that promoter is wanting to person stake in the company. Why is it planning to do this
I cannot comment upon CSC, and there is no comment that I can provide on that.
Yes, we cannot comment on behalf of the promoter. So -- and in the company at the moment.
Okay, sir, sir, what is -- how is the outlook in terms of demand for third and fourth quarter?
I already answered that we expect the strong demand environment in some of the select countries to continue. And Europe may take more than 2 quarters to revive, but globally, there's a better momentum in the market.
The next question is from the line of Suraji [indiscernible] Individual Investor
So we're seeing a huge increase in the number of ships that are getting added to the global capacity in the current combined with the fact that global -- so if you kind of add to the fact that with the new U.S. President, if the Middle East was -- would probably come to an end somewhere, say 2025 and the sport would kind of normalize. Do you think that the freight rates can take a hit going ahead?
So we believe that freight rates will remain range bound. There are various things pointing towards an upward momentum and things pointing to a downward some of the new appropriately mention, what we follow from various maritime research projections is that there's also a lot of capacity coming up for scrapping.
And on an overall basis, July, which is a leading maritime research company publishes its expectations on the freight environment and the capacity. So what we read through is that net-net, the trade demand should absorb the entire capacity coming in, that's the narrative we've been reading through and taking note of.
Right. That was helpful. And my last question is on the EBIT per TEU I know you've added the FCL business recently. But if I just do a like-for-like comparison, say, say, in 2019 or 2018 when you had an EBIT for LCL of about 15-ish. Is that something that we would target going ahead also just on the LCL business. If you strip out the FCL business out of the international segment, is that -- are you trending towards those numbers?
I would say we do not see our business in EBIT per TEU because business is conducted in different units. And there is not a measure followed in the company internally. So I cannot relate to those numbers or comment upon that. But like I said, -- the simple intent going forward is to create volume growth, which exceeds the market growth.
So we have seen a flat market where we have been growing at about 4% to 5%. We have, in the past quarter, seen a declining market where the market declined by 12% to 15%, and we had gone down by 7% to 8%. So you've been kind of consistently been maintaining a delta of 4% to 5%. Historically, if you look at the long-term averages, the global sales on [indiscernible] rate has been growing at 3% and at about 5% to 6%. So our intent is to maintain the delta of 4% to 5% on these global trade [indiscernible] growth rates. And as the rate revised, our growth rate can move into double-digit for LCL and FCL have consistently grown at close to 18% to 20% if you look at even the last 6, 7 years of compounded annual growth rate.
That was very helpful. And wishing you all the very best.
[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sailesh Raja from B&K Securities. Over to you, sir.
Yes. Thank you all for attending this question. We especially time to [indiscernible] team for their time. Ravi sir, any closing comments you'd like to make?
No, thanks, Shales, for hosting us, and thank you, everyone, for joining in. Like I mentioned, we intend to provide as much disclosure as we can wherever there are completion concerns keeping competitive dynamics, we try to find a workaround and provide at least the lead indicators.
So we are happy to get more queries from you from our Investor Relations team and happy to provide you as much perspective as we can. Hope for today's call was helpful in this direction. And thank you very much once again for joining us.
Thank you. On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.