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 Limited Q3 FY '23 Conference Call hosted by PhillipCapital (India) Private Limited.
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 guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Abhijeet Purohit ] from PhillipCapital. Thank you, and over to you, sir.
Thank you. Good afternoon. On behalf of PhillipCapital, I welcome you all to the Allcargo Logistics 3Q FY '23 Earnings Call. From the management, we have with us Mr. Ravi Jakhar, Group Chief Strategy Officer; and Mr. Deepal Shah, Group CFO.
Now without much delay, I now hand over the call to Mr. Ravi for his opening remarks, followed by Q&A. Over to you, sir.
Yes. Thank you very much. I welcome you all to this conference call. And this is Ravi Jakhar here. I'm joined by my colleague, Mr. Deepal Shah. Let me first take this opportunity to highlight that we have received -- the order has been pronounced by the NCLT on the demerger, and it has been uploaded on the website. Because of that, while the process is still underway and we estimate that the company should eventually get listed with -- in around April, we had to report the results in a slightly different format, highlighting the continuing businesses, discontinuing businesses and so on.
Therefore, let me first specify that post demerger being completed, we would be having 3 listed entities. And since it is a [ minor ] demerger, on each share of Allcargo, the shareholders will continue to hold 1 share of Allcargo and would get an incremental 1 share each of Allcargo Terminals and Transindia Realty. As we will get to see the results in the coming quarters on a consolidated basis, the results shown here under as continuing business do not include the numbers for the Container Freight Station in the ICD business, which should be back in the [indiscernible]. It does not include the numbers for equipment in the Logistics Park business, which should be under Transindia Realty. And it also does not include the Contract Logistics numbers, which, in the coming quarters, would see consolidation with the Allcargo Logistics.
So therefore, the INR 237 crores EBITDA, including other income, which has been seen, only represents a part of what would be the consolidated number for the main listed entity apart from the 2 new demerged entities. And therefore, the right approach to look at the financials for this quarter would be to look at the combined performance, combining all the businesses. And we would provide that clarity in the investor presentation, which we shall be uploading later today.
The idea also is to get all the questions, considering that there has been a change in format and there could be different perspectives, questions and clarifications, which our shareholders and analysts and investors might have. So we'll be happy to hear all the questions. And to ensure that everybody benefits from the uncertainty -- clarity provided by the company, we would incorporate the information which we deem important and adequate in the investor presentation to be uploaded later today, which will provide clarity on any points that might be there. So this is a brief note on the most recent activity on the demerger and the short-term view on how the results have been presented.
Now coming to a more long-term strategic importance, which is around how the business has been performing, I'm glad to state that our flagship business of LCL consolidation, which is the -- contributes to almost 70% of gross profit in the international supply chain business, has continued to see market share expansion. And for the first time, we have now crossed 15% global market share in LCL as we speak today.
However, in the quarter gone by, there were disruptions in China, which have brought the overall market itself down, and therefore, they do not reflect the growth in the numbers. And if you look at year-on-year, the numbers are flat, but one needs to note that market share expansion means that while the industry and the competitor volumes went down for the corresponding period, we maintain them on a year-on-year basis and a [indiscernible] lower pace. We are already witnessing that post Chinese New Year, China has started to normalize on the supply chain side. Factories are back in operation. And therefore, for the part of this quarter, which is February and March, we would see normal activity. And from April onwards, on a quarterly basis, we should see normalized production and supply chain activities from China, truly reflecting this market share expansion that we have achieved over the last few quarters.
Another important event, which has happened recently, is the consummation of Blackstone transaction, which has been pending for reasons beyond our control for a long period of time, and almost for every quarterly call, we've been discussing about that. I'm glad to say that, that is now being consummated. The SP has already been signed. And therefore, while on the 31st December, you would notice that the consolidated net debt is already down to only INR 130 crores, post 31st December, with the Blackstone transaction being consummated, approximately INR 295 crores of debt has been alienated from Allcargo book. And the company has also received additional cash inflow of about INR 135 crores.
So instead of being -- having and holding a net debt, we would rather be debt-positive. And even if we take into account the outlays for acquisitions recently announced, we have seen that even despite taking into account the investments required for the same, as we close the financial year FY '22, '23, we would still be cash-positive or near 0 net debt. So that's been a big development from the balance sheet perspective. And that means that we would be able to acquire the 30% stake from KWE in the operating express entity.
I'm also pleased to announce that we have been looking at focusing on Contract Logistics. And therefore, there was a demerger, which was underway, and we have also received the NCLT order very recently, and we will be completing the process for the demerger for that business as well over the coming weeks. And therefore, that business would also get demerged into ASCPL, which as on [ this date ] is 100% subsidiary of Allcargo Logistics.
What does not contribute to the numbers in the quarter gone by but would provide further growth opportunities are some of the acquisitions -- the strategic acquisitions that we did in Germany, which would be effective, from an accounting standpoint, from 1st of January, and a small bolt-on acquisition in Turkey to add to our strategic capability in Turkey. So all these initiatives would continue to drive growth for the company.
On the digitization front, we continue to maintain healthy export bookings on platform, which are over 63% of the total bookings, and that is an industry-leading number, far ahead of the competitors operating in the similar business segment. We have been able to work further on automation, data science-based network optimization and other initiatives which are allowing us to become more lean and efficient as we grow in the existing businesses further.
What we have done beyond that is we are also looking at launching new products and new trade lanes, and therefore, we continue to invest in building new products and bringing on new people and building new trade lanes. We are looking at significant growth in the [ ASA ] business, which forms a small part of the business, and therefore, would -- on an overall basis, may not have a very significant impact. But over the coming years, we believe that without any significant CapEx investment on the back of our global network, global relationships and synergies with the ocean freight consolidation, we will be able to do some amount of asset-light digital platform-backed airfreight consolidation business as well.
On the trade lanes, we already operate about more than 2,400 direct trade lanes globally, which is, by far, the highest for any LC operator or any other carriers globally. We continue to see opportunities on the back of our scale and on the back of technology tools which are now available to predict routes, we are able to launch new trade lanes, and we anticipate that now we are in a position to add almost 100 trade lanes on an annual basis, which means that we would open up new avenues for growth.
In the short term, it also means that as we open up a new trade lane, the utilization levels pick up over a period of time, and therefore, there could be some margin investment. But we estimate that on these trade lane, any new trade lanes opened should be able to neutralize the impact within a 3- to 6-month window and start making positive contributions thereafter. So from a long-term growth perspective on the main international supply chain business, we see continued opportunities for growth and also improving the efficiencies on the back of digitization.
On the FCL business, given the macroeconomic slowdown, we have seen a flattening of volume and as the market picks back -- because currently, this is against the backdrop of falling volumes on the trade lanes that we operate in, as the volume start picking up, as I mentioned, which we're already seeing from February onwards, we estimate that we should be also able to start back on the growth journey on the volume in FCL business.
From a freight rate perspective, we have already seen that freight rates have come back to the near pre-COVID levels and that normalization in freight rate has impacted the FCL business profitability. As we have been stating in the earlier calls as well, LCL profitability is largely a factor of container utilization, which continues to remain that way. And on the FCL, we estimated about 15% to 20% drop in utilization on a per TEU basis. And considering the historic average of 20% growth rate, the numbers, when you multiply, it remains consistent. So while the normalization of freight rate has happened, the market being subdued, the growth hasn't come through in this quarter, we estimate that with the trade routes normalizing from February, the March number on a monthly basis and April onwards on a quarterly basis, we should see the growth in volumes back in the FCL business, recouping the lost gross profit of the FCL business.
So on an overall basis, if you look at the combined EBITDA, we are looking at a number of about INR 340 crores, INR 350 crores, which is, of course, lower than the previous quarter, but is broadly in line with the business projections based on the macroeconomic environment. And we see the performance, as I mentioned, to pick up starting from mid-Feb onwards and should start reflecting partially for the month of March and fully from the quarter starting April onwards.
The other key part is that we have been focusing on the asset-light [indiscernible] businesses, and that is something which continues to work well for us. And even in the Contract Logistics business, we have seen continued opportunities for growth, and the growth momentum continues. On the Container Freight Station business, we have been noticing a recent uptick in the EXIM cargo of the country, and we are a direct beneficiary of that, wherein we see the growth in business increasing in line with the increased EXIM cargo growth in the country.
So on an overall basis, we see this as a quarter which has had a negative impact on account of the macroeconomic environment. But from a long-term perspective, we see this also as a quarter where we demonstrated resilience in our performance, gaining market share and achieving conclusion of several strategic initiatives, including the Blackstone transaction and the demerger, which would pave way for a robust growth in the years to follow.
On that note, I invite my colleague, Deepal, to throw light on some of the financial highlights for various businesses. Over to you, Deepal. Thank you.
Thank you, Ravi. So as like you mentioned that the results now include discontinuing operations in light of the demerger order. So these have to be combined, continuing to have a competitive clarity from the previous quarters.
So I'll walk you through the financial performance. For the 9 months of 2023, Allcargo Logistics Limited consolidated revenue, including the discontinuing operations for comparative purposes, stands at INR 15,301 crores as against INR 14,296 crores for the previous year, registering a 7% growth year-on-year. Revenue from continuing operations stood at [ INR 2,099 ] crores in Q3 FY '23 as against INR 5,599 crores in Q3 FY '22. Revenue from combined businesses, which includes the continuing businesses, discontinuing businesses and Contract Logistics stood at [ INR 447 crores ] for FY '23 quarter 3.
EBITDA from the continuing operations stood at INR 229 crores for Q3 FY '23 and against INR 434 crores during the same period last year. EBITDA from combined business stood at about INR 343 crores in Q3 FY '23. For Q3 FY '23, the company reported a PAT from continuing operations of INR 124 crores as a against [ INR 324 crores ] for the same period last year.
Now moving to the segmental performance for the quarter. I'll start by discussing the performance of the main segment. That is the international supply chain segment, which is the largest segment, which operates under the umbrella, ECU Worldwide. This segment reported in Q3 FY '23 a revenue of [ INR 3,631 crores ] as compared to INR 5,200 crores from the same quarter last year. Revenue for the 9 months stood at [ INR 13,300 crores ], approximately half [indiscernible] growth over the last year. EBITDA for Q3 stood at [ INR 274 crores ] as against [ INR 438 crores ] for Q3 FY '22. Annualized [ ROCE ], which is the most important tracking segment [indiscernible], stood at [ 53% ] for the international supply chain business.
Moving on to the express business, operating under the brand Gati. It has continued to deliver solid performance during the quarter. The company's undergoing turnaround and continues to scale up operation standard, experience, [indiscernible] and infrastructure amplification. The [indiscernible] programs have been reaping benefits [indiscernible] during the quarter. Express business revenue for Q3 FY 2023 stood at INR 379 crores as against INR 352 crores, up 7.5% Y-o-Y. The EBITDA for Q3 stood at INR 21 crores against the last year, which was INR 16 crores, a growth of 31%. With better yield management and operational capabilities, we believe that the business is progressing well and will achieve the desired goal.
Contract Logistics revenue for the quarter stood at almost INR 100 crores, and EBITDA stood at INR 31 crores. Comparing with CFS and ICD segment, we have also deliver growth to enhance customer experience with myCFS initiative and better import-export mix. The business reported a revenue of INR 175 crores for Q3 '23 as compared to [ INR 177 crores ] for the previous year.
Speaking about equipment hiring segment, we will continuously working towards moving [indiscernible] asset line approach by providing quality services to customers through a combination of owned and leased assets. The equipment utilization stood at 80% as a capacity utilization. We have been consistently providing other key parameters and financial performance indicators and investor presentation one can refer back for more details as we upload towards the end of the day.
With this, I would like to open the floor for questions and answers. Thank you.
[Operator Instructions] We have the first question from the line of [ Chetan Shah ] from [ Adecco CMC ].
Just wanted a one small data point. Can you give me what is MTO's TEU equivalent, both the LCL and FCL combined, which was roughly INR 2.48 lakhs in the previous quarter? What would be this number for this quarter?
So on the volume side, like I mentioned, the performance for this quarter is flat as compared to the same quarter previous year. As compared to the previous quarter ending September, the FCL volumes are down about 2% to 3% while the LCL volumes are down about 6% to 8%. And you will have the exact number shared in the investor presentation that will follow.
No problem. And just one question -- or rather, let me put in this one small clarification. You spoke that the combined EBITDA of about INR 340 crores, INR 350 crores. Are you referring to a quarterly numbers going forward for the MTO business or a company as a whole? I got a little confused with that. I'm sorry [indiscernible].
So let me clarify. I was referring to the numbers for the quarter, which is continuing on 31st December. So this is not the forward quarter but the quarter which has [indiscernible] to add the various businesses because currently, there's 2, 3 profits, continuing businesses, discontinuing businesses and the Contract Logistics, which is sitting in none of the 2 buckets. So if you want to take a view of the future view, which is the 3 listed companies but look at the actual performance of December 31, '22, that is what it would look like.
[Operator Instructions] We have the next question from the line of [ Deep Master ] from [ One Half Financial ].
Firstly, congratulations on getting the demerger through. So just one small request from me. If we could get the investor presentation in advance of the call, that would really help us prepare for the call. So I understand that this time you wanted some suggestions and suggestions from us. But even if you were stuck to the previous format, would have helped us prepare for the call.
And so one question as well for me. On the volume side, like you mentioned, the volumes are slightly lower. And on the profitability, though, on the LCL side, is that broadly maintained quarter-on-quarter?
The gross profit percentage margin would look -- appears to be higher, but that is only because the revenue has come down. The way to look at this business would be that you would see that the revenue has come down by approximately INR 970-odd crores, corresponding to which the operating expenses have come down by INR 900 crores. So that gap of INR 80 crores is what the impact is, which is, again, can be bifurcated into 2 parts.
One is the actual loss in margin on the FCL business, which we mean getting that [indiscernible] normalized, which is what they are normalized now, would be in the range of 15%, 20%, which is 1 aspect. And the second impact is on growth-initiated investments into new trades lanes, et cetera. That is the way to look at that number. So when you look at percentage, obviously, gross profit as a percentage might appear to be higher because the revenue base becomes lower. So the right way would be to look at the gross profit number in absolute term and how it grows over time.
So put another way, the gross profit on a per TEU basis, if you adjust for FCL, if you look at only LCL, would that broadly be maintained quarter-on-quarter?
The gross profit on LCL basis broadly would be maintained. There will be a marginal decline on a gross profit per [ TEU ], but that will be almost flattish. Like I said, only [ few ] trade lanes that have been launched, which should be on low utilization those will impact slightly. But otherwise, the utilization is only parameter which impairs the profitably on the LCL. So new trade lanes plus the margin decline in the volume, those are the 2 factors which impact.
So as the volumes have started to rebound, the profitability for LCL would be simple as it was in the past, assuming the freight rate continues to be -- remain same, they don't go up or go down. That does not make a difference. FCL business, the profitability depends on the freight rate. So now with the reduction in freight rate, that has come down on a TEU basis by 15%, 20%, which was what we estimated earlier.
Yes. But you've been also mentioning for the last few quarters, so I appreciate that. It is that we didn't have the volumes. So I just wanted to confirm. And secondly, on the...
We get more questions and perspective and try to answer all of them with the right data points because the format that we had to upload, the numbers in and the format in which it could be most clear to all our shareholders, investors and analysts, that's why we took the call, and then we'll upload the presentation later during the day. But your point is well noted.
And so just if you could get some more color on the volume. So like you mentioned that there have been some disruptions. So are there any particular trade lanes you can point out to that would have been much weaker in the quarter gone by?
Yes. So primarily from the month of November about November, maybe expiring in November first week, so November second week onwards particularly [ from the 8th of ] November till end of January, primarily all trade lanes originating out of China had a significant impact and likewise, so whether it was [ account-specific ] trade moving from China to Americas or even China, European. Those were the key trade lanes that were impacted.
Apart from that, there were a few other trade lanes also particularly ending in the U.K. because the U.K. has exceptionally seen reduced trade activity as well. So [indiscernible] continue, which will stand out in terms of the overall market being down. From company's perspective, we saw disproportionate growth in select markets where we've been running the trade [ speculation ] program. So countryside, United States, Vietnam, a few select countries in like Indian subcontinent, [ select few ] markets in Europe, that's where we saw disproportionate growth, and that is what led to market share expansion.
So there will be many countries which we break down, wherein we may be up 5% when the market may be down [indiscernible]. So some of those robust performances is what contained our decline to, like I said, about [indiscernible] on the LCL on a quarter-on-quarter basis and 0% on a year-on-year basis.
Understood. That's very helpful. And do you think that there was a general trend of sort of destocking that's been happening in many commodity-related sectors? Is that also impacting some of your clients?
So what we understand is that prior to Christmas, the demand anticipation was weaker. And therefore, through August and September -- or rather through end July to early September, the orders were fewer, and which meant that the shipments, which typically follow 45, 60 days later, was not how we typically see a December end quarter, which usually is the highest when there's a lot of orders [indiscernible] as well. However, the actual sales for many commodities seem to be much better than anticipation. And therefore, the inventory levels fell short. I mean the most commonly hard example is on the Apple products because in that one [indiscernible] gets [indiscernible] for any information available, wherein the issues are more on the supply chain side, when demand was there but the products were not on the shelves.
On the general mass consumer products, we believe that the inventory levels are sufficient, like if we talk about products like [indiscernible] or those kind of household goods. Our understanding of the market and also looking at the underlying trend is that those seem to be reasonably managed from the stocks that were there. But we anticipate that now post Chinese New Year, the inventory levels are [ difficult ], and therefore, the inventory restocking will happen and which is where we anticipate that from March onwards, the trade should see a pickup on the back of inventory management and somewhere towards the second half of the year, we should see more robust growth taking into account that there are no further unforeseen events of like global catastrophe or war, et cetera. That is the broad macroeconomic view that we hear and sense from the underlying data that we have.
Sure. Perfect. And if I could just squeeze in one more, just one related to your acquisition in Turkey. If you could maybe just spell out your vision and how that could be [ related ] to your overall LCL and FCL in that region?
That is, to be honest, one of the smallest acquisitions we have done but just a strategy acquisition, which allowed us to get the right set of people and some specific rating that we could get stronger on -- in that geography. And that has allowed us in that particular market, though it's a small market for us right now, we were able to increase our volumes to nearly by [ 28% ] on the back of the acquisition. Now the combined capability, we can grow well.
But from an overall perspective, it's not something which should make a significant impact. We believe that the German acquisition, considering the importance of the German market and the global network, would perhaps be more impactful in the coming quarters.
We have the next. It's from the line of Radha from B&K Securities.
So my first question was in terms of the EBITDA number that you mentioned, INR 350 crores for this quarter. So could you give me a breakup of this EBITDA? How did you arrive at this number?
Yes. So if you look at the breakup on the continuing business results which have been shown, it is approximately -- if you add back the interest and depreciation to PBT, you could see that it totals to about INR 237 crores. Excluding other income, there is about INR 229 crores. Approximately INR 31 crores would be the Contract Logistics, and approximately INR 81 crores would be the other discontinuing businesses. Put together would be about INR 343 crores excluding our income and INR 351 crores, including other income. That's a broad range. And we'll share these numbers in these formats where it's easy to understand in investor presentation there.
So this -- there is one item called unallocable and other items. So if -- given the quarterly results that you have released, so we can get the EBIT number from that. So in that, there is this minus INR 63 crores EBIT for this unallocable. So will this be a part of continuing operations? Or will it be demerged?
No. So this will get allocated once the demerger is done. So it's unallocated at the moment, and we are on the allocation side. At the point of demerger, this will, in the respective right proportion will get allocated to the individual businesses.
Okay, sir. And also on -- continuing with the same point in the press release, it was mentioned that some corporate costs have not been allocated to discontinued operations. So is it correct?
That's the same thing. That's the unallocable. That's the same -- that's the discussion.
Yes. So is it correct to understand that some part of the employee costs and other expenses are still yet to be removed from the numbers that you have reported this quarter and subsequently or, in subsequent quarters, some part of it will get removed?
Yes. So please understand that we've been operating these segments as SBUs, and there is a corporate cost also. So as far as the corporate costs are concerned, which we have very clearly mentioned in our results, these need to be allocated, and these will be allocated at the point of demerger.
Sir, do you -- I mean I don't know if you have, but will you have any kind of ballpark number how much is expected to be...
No, that aggregation is still underway. So we don't have any ballpark numbers at the moment to share.
Okay. Sir, on a Y-o-Y basis, actually despite flat MTO volume, we are seeing that the employee cost and other expenses have gone up. So if we remove these corporate expenses that are supposed to be removed later on, so how much -- how would the employee and other expenses look like?
So if you're referring to the employee and other expenses, primarily on the employees side, like I referred to in the earlier commentary, we have been investing in people and new teams and new product launches. So to that extent, those costs would be there. And I'm not sure of what exactly do you mean by the corporate cost. Could you just restate your question, please?
So actually, there is a point #6 of the note starting the presentation-relevant statement, which states that corporate costs have not been allocated to discontinuing operations. So I was wondering whether some of the costs will go to the demerged entity that are currently being shown in other expenses or employee expenses in this quarter.
So I'll explain once again very clearly, that segment reports were as an SBU. Earlier also, if you look at the segment costs reported earlier, the corporate costs were not allocated. Segment was without the corporate costs. Now what we have done is that we have basically identified that there is an amount of corporate costs, which needs to be allocated. And these corporate costs will get allocated to these continuing and to the discontinuing operations based on certain scientific parameters, and that working will happen at the point of demerger. That is what is underway.
And if I can also just add to that, while the segmental breakup will be -- were done. But if you look at the -- if you move away from the segmental and look at the reported numbers consolidated for the continuing business, that basically reflects what would be in the continuing business, and the remaining part will be in the discontinuing business. And which is what, like I said earlier, we'll also provide revenue-to-EBITDA sort of a breakup between the continuing business, discontinuing business and the Contract Logistics business to provide a combined view. So we'll ensure that -- so hopefully, that should be the data point that should help resolve your queries as well.
Okay, sir. And is there any one-off in terms of expenses in this quarter?
Deepal, would you like to answer that, please?
So there's a marginal kind of [indiscernible] and a half million of licensing costs, which is an exception in this quarter. Nothing other than that. [ $1.5 billion ] so around this [indiscernible].
Okay, sir. And just one last question. So currently [indiscernible].
So one-offs, as such, apart from this approximately INR 9 crores to INR 10 crores, some of which [indiscernible].
Okay, sir. And sir, just one last question. So given that if we see the [indiscernible] in third quarter -- sorry, [indiscernible], so currently [indiscernible] we can see it is around, like you mentioned, pre-COVID levels to $2,000.
Other questions?
Sorry, sir?
Is the management able to hear us?
Are we audible?
Yes, sir, we can hear you. Are you able to hear us? [Technical Difficulty]
Yes. Thank you. It appears that there was a network disruption. So responding that the clarity on the continuing, discontinuing and the Contract Logistics businesses and providing a combined view of the same should hopefully provide clarity to U.S. additional queries. And I believe that you had a follow-up question, which we could not hear. So if you could please ask it again. Thank you.
So sir, if you take flat international supply chain volume numbers for this quarter, then the EBITDA TEU comes [ on top of ] 10,000 per TEU. So how confident are we given that -- even [ Janan ] said, there is decline in freight rate by about 15%, 20%. So how confident are we of maintaining this EBIT per TEU of 10,000 plus in the subsequent quarter?
Yes. So on the current level, like I mentioned, as far as the LCL business is concerned, the freight rate sensitivity is not there, which is only to the extent of utilization. So as the volumes come back, we would see [ subsidence ] and further improvements. On [indiscernible] business, we anticipated 15%, 20% and almost the same number has already been -- impact has already been seen. So there could be nothing more than 3% here or there, I mean, is how we would put it across our estimates on what it could look like for hereon.
We have the next question of the line of Ravi Mehta from Deep Financial.
So just on the EBIT per TEU thing, the number looks pretty healthy if you build in whatever volume guidance that you're giving for the quarter. So wanted to know that the freight index has been falling all through the quarter. So the entire fall is captured in the performance or there is some spillover effect, which we can see in Jan-Feb of the fall that has happened until December?
So if you look at the fall and if you look at the continuing business numbers that we have shared, while the revenue has gone down by INR 979 crores, the operating expenses have also gone by almost INR 900 crores. So the data is very minimal and which is basically because the ocean freight rates are largely a pass-through except for the impact on FCL, which, as I stated earlier, the amount of [ 5%. ] So there is a reason why you find that the EBIT per TEU on the EBITDA or EBIT per TEU would largely get maintained and be impacted more by the -- how the SG&A costs are, how growth initiatives are being undertaken, how volume growth gets driven.
Those things will impact these numbers, and they may fluctuate, but we do not anticipate freight rates to have much impact going forward. Steel impact which is there, like I said, almost the entire part of it is already [ structured ] on the revenue side and, therefore, is at least [ 85% and 90% ] were already visible. And on LCL, I mean, is like we've been stating, it's dependent upon utilization, not as much on the [indiscernible].
Okay. So largely, everything is captured in FCL for the quarter, given the [ full length ]?
Yes, yes. And that is why you see a significant drop in the revenue, which is much more than the drop in volumes.
And one point probably I didn't catch it in your opening remarks, probably you were referring to some demerger of Gati, KWE into ASCPL? Or I just missed what probably you highlighted, like you've received some NCLT order and probably your -- if you could just highlight on that, yes.
Yes. So there are 2 demergers that you're referring to. One is the demerger of Allcargo Logistics, whereby the 2 business segments would move into Allcargo Terminals and Transindia Realty. For that, the NCLT has pronounced the order, and the order has been uploaded on the website. We are awaiting certified copies, post which we'll file with ROC and take the process further with the exchanges. And by April NBFC with the new companies will get listed in addition to the continuing businesses under all Allcargo Logistics.
The second demerger, which I referred to, was the demerger of ACCI, wherein we had also shared in the past that we intend to focus on Contract Logistics. And for that we mentioned, we have already received the certified copy also just recently, like a couple of days back. And we would be now filing that with the ROC and concluding the demerger also. So this Contract Logistics business would move into ASCPL, which is currently 100% owned subsidiary. So that is the second demerger, which was the demerger of Contract Logistics business from ACCI, which was a joint venture that we had. That was the second demerger which I was referring to.
On the KWE, my comment was that we have already approved buying the 30% stake from our Japanese partners, in line with our agreement discussed and agreed at the time of first acquisition in Gati. And I also added that we are already having sufficient balance sheet to take care of such investments, keeping the net debt to near the 0 cash cost level.
Sir, just one follow-up that ACCI is a 60% or 70% holding of Allcargo, right? So it will be moved into 100% owned, you mean to say you will be consolidating your entire holding into it?
So going forward, the Contract Logistics business, which is being managed by Allcargo would be consolidated with Allcargo while the -- from the coming quarter onwards while the ACCI, which is the [indiscernible] business, which is also a small part of the ACCI business, which is not strategic for us, that would be managed by our partners and, therefore, will not be consolidated with Allcargo.
Okay. And this will be 100% consolidated, the Contract Logistics business?
The aims of demerger and the transaction, this will be 100% consolidation.
Sure. And any incremental investment that you will have to put because I think we'll be increasing our holding from 60-odd percent to 100%.
As we look at increasingly holding for that, there would be investments for which we would take the Board approvals and [ INR 0.82 ] for the time being for the purpose of management that we already agreed that post demerger will be similar holdings as well, the management of Contract Logistics business will be completely with the Allcargo management team. Like how -- and therefore, the consolidation will happen irrespective of the shareholding increase happening there.
Okay. And for the KWE transaction that is already done -- I think the agreement is done. So the amount that you will be giving to the partner and by when?
So we have been discussing on the time line. The amount is already chosen, and that has been communicated as well. On the time lines, we are working on what the most appropriate time line, which is suitable for both partners. And from a cash flow perspective, like I mentioned, we are already now net cash positive on a consol basis. So we can do the transaction in discussion with the partners, and we would perhaps share some updates on the time line. But the amounts are already chosen at which the transaction will take place.
So can you share the amount if probably for [ modeling ]?
I don't recall the exact numbers. It was about [ INR 400 crores ] [indiscernible] around that number. We can -- there's a reference to it in our early announcement [indiscernible] presentation.
We have the next question from the line of [ Keshav ] from Broadview Research.
Sorry, I just missed your volume commentary. You mentioned that the volumes are flat Y-o-Y. And on a Q-o-Q basis, it was down 2% to 3% in FCL and 6% to 8% in LCL. Did I hear it correctly?
Yes. So I would say that's exactly what I said, but I would also say that the Y-o-Y number is less relevant because the [ freight ] environment has been very different. The Q-o-Q numbers are more reflective of the current trend. And there, it has largely been led by the Chinese supply chain concerns, which led to significant reduction in market size in China. And while globally also, other markets have seen contraction or flat numbers, the overall market has actually shrunk on a quarter-on-quarter basis. This is our internal experience of tracking competitors across all key markets, while we have -- we've grown by a lesser percentage as we have expanded the market share.
Sure. But I'm not able to reconcile. I'm not able to reconcile this because in Q3 FY '22 presentation, the LCL volume reported was [ 2,473,000 CBM ]. And in Q2 FY '23 presentation, it was [ 2,374,000 CBM ]. So essentially, if I take a Q-o-Q drop when it comes to [ 2,231 ]. So essentially, it points to a 5% degrowth Y-o-Y and not flat Y-o-Y. So I'm not able to reconcile because either the reported numbers are inconsistent or something I'm missing because...
[indiscernible] to compare with the Q3 FY '22 numbers, which we are referring to.
Q3 FY '22, if I take a 6% to 8% drop, it kind of shows Y-o-Y drop of 5% on the overall volume and not flat.
No. So the numbers from Q2, which is the September ending quarter, the drop would be the numbers which I mentioned about 2% to 3% and 6% to 7%, which should be in line. If you look at the Q2 FY '23, that is about that much above the Q3 FY '22 number.
Yes, I get you. But when I plug variables, it shows both lower ratios on FCL and LCL. It shows lower number Y-o-Y. That's all I'm saying.
So anyway, we have the exact numbers separate in our investor presentation. You can defer to the exact numbers, and you can please come back to us [indiscernible].
And obviously, the result in the EBIT per TEU, which now if I kind of do this math and the result in EBIT per TEU, which is in that 9,800-odd range, versus 14,000, 15,000 that you were in the last few quarters. Just wanted to understand, you mentioned that the overall rates in the LCL is -- hasn't changed much. You've seen drop in FCL. The LCL has not changed much, but it was more a function of utilization. Could you just explain that a bit? I'm a bit new. So if you can just clarify what you mean by this.
Yes, sure, sure. So when you get down to the EBIT level, we are looking at the impact of 2 key components. One is how the operating margin, the gross profit margin vary. And second is how the SG&A costs vary. On the gross profit side, like I was commenting earlier, against the revenue drop of about INR 979 crores will also be approximately OpEx drop of INR 900 crores. The incremental data is on account of the FCL and investment into developing new trade lanes. But very typically, they [indiscernible] quickly in a period of about 3 to 6 months sales. The trade lanes start operating on a neutral and then profitable basis.
The second impact, which you comment, would be on the SG&A side, wherein the cost would go up on account of some urgencies, of course, will happen on account of inflation. But they're also, as we are expanding into new capabilities, they're building the airfreight, they're building new trade lane, there'll be some investment going in there as well, which typically would lead to growth in business. So these are the 2 inputs which would impact the EBIT on a per TEU basis.
Now as we move forward, the SG&A costs do not grow in the same proportion of volumes. The gross profit would remain pretty much in line on a per TEU basis. Therefore, the EBIT per TEU number should remain constant or grow from here. There is the broad analysis, which one could look at.
Sure. So basically, the realization per TEU, which is showing up to be down close to 18%, 19% Q-o-Q, that doesn't have too much of a bearing on the EBIT? I mean it's largely the SG&A and the trade lane investment, which is kind of impacting the EBIT number more than the realization drop.
Yes. There has been an impact on both OpEx. If to look at -- like I said, if you look at the OpEx also has -- but on a per TEU basis, yes, OpEx is almost in line with the growth in the volume from OpEx. Per TEU basis, there has been a limited impact. The impact is more on the SG&A per TEU, which is the volumes pick up should see an improvement.
Okay. Fair enough. I'll connect with you separately.
Yes, sure. And like I said, we'll provide all information in the investor presentation [indiscernible] the questions today. So thank you.
We have the next question from the line of Sameer Deshpande from Fair Deal. Sameer, can you hear us?
Yes, yes. I would like to have a clarification that it was mentioned that there is a net debt on the balance sheet as on 31st December of INR 130 crores. And after 31st December, we have received some money. And then now we have net cash, but again, there will be some outflow. And whether we'll again go in debt or we will be having 0 debt?
Yes. Thank you. And let me clarify on the number and [indiscernible]. So as you rightly pointed out, as of 31st December, we had the consolidated net debt of approximately INR 188 crores, including all the group companies, against which we alienated the debt to Blackstone as part of the transaction, which is about [ INR 200 crores ], and we have also received cash. So total about [ INR 400 crores ] impact has been positive. And therefore, the net cash of over INR 200 crores to INR 250 crores on the book for a net consolidated basis.
Now in terms of the business outlay, there is 1 which is towards the KWE acquisition, which is already laid out, approximately about INR 400 crores, which is there. And from a CapEx perspective, the business is asset-light and does not have multiple CapEx. And there will be internal accruement which will continue to [ approve ] for the coming months as well. So even if we take into account the investments into buying out the shareholding from KWE, as of 31st March FY '23, we anticipate that the net debt would still remain at [indiscernible] levels because the current surplus on the cash plus the internal accrual will largely take care of the investments required.
So we'll be having roughly 0 debt as on 31st March '23?
That is right.
Got you. After that, the investment for KWE. Okay.
[indiscernible], we are cash positive on [indiscernible]. This will be good enough to take care of the INR 400 crores investment required for buying the stake from KWE.
Okay. And regarding this clarity about the demerger and everything, we will be getting -- the shareholders of Allcargo Logistics currently holding will be getting 1 share of both these companies, which you will demerge?
Yes, it is an absolutely classic in the demerger. For each 1 share of Allcargo, the shareholders would continue to hold that 1 share of Allcargo Logistics and get 1 share each of Transindia Realty, Allcargo Terminals, and the demerger process gets completed, which we had earlier estimated that it will happen sometime between March to May. And we've been making the time line, and we are glad that it will be happening in the same time line. And we expect now it will be happening sometime in April.
So the shareholder -- current shareholder will be having 3 shareholding in 3 different companies in April or May, whenever you complete that?
The share of Allcargo, you get 1 more share of Allcargo Terminals Limited and 1 share of Transindia Realty. So we'll have 3 shares as long as...
Yes, yes. And now this -- when you mentioned that the operating profit that is EBITDA, excluding other income, will be INR 343 crores. So when I compare it with your earlier figures reported before this reclassification, which you have done now in restated figures in this quarter, actually, the operating profit, INR 343 crores compares with the INR 505 crores of the Q3 last year. Is it correct?
Yes. So last year, Q3 was an exceptional quarter, and we also provided guidance that this is a one-off quarter on the back of the exceptional freight rates and trade flows. And we had provided guidance that, that was not a sustainable number. And in subsequent quarters, which is in between INR 400 crores to INR 450 crores, that has been the more steady performance. This quarter has been on the exceptionally lower side because of the China supply chain issues. So that is how I will put it across.
But now from February onwards, that is maybe half of this quarter -- current quarter was affected. Almost 30 days or 40 days were affected by the Chinese lockdown. But now after that, it has opened up. So this current -- the coming month and March, we will be seeing good growth?
Yes. So for the quarter, 3 months onwards, so March, from a monthly perspective, March onwards, we are anticipating improved performance. From a quarter perspective, I guess that the lockdown and the disruption started around November, so there were about 2 months in the last quarter. This month, it will be this quarter will be more like 1.5 months, so marginally better, but then February is also a shorter month. And so therefore, it will be pretty much in line with the current quarter. But since it starts improving from March onwards, April onwards, the performance should get back in line with the quarters that you've been seeing and grow from -- on the back of the volume expansion because the market share expansion is already happening. As the market recovers, the volumes will start to bounce back as well.
And we have also shared guidance for the long-term perspective of 2026, which I would like to reiterate that we would maintain that guidance and which we'll be sharing again in the investor presentation.
Sure. Okay. So let us hope you are in a position to upload your latest presentation as early as possible, so -- because these things, you people are adapting all those things, but to understand these things becomes difficult unless it is properly presented. So I hope you upload it as early as possible.
Absolutely, [indiscernible], and the idea is also to ensure that we provide all clarifications. And because this is a very unique quarter with discontinuing, demerged operations, therefore, we wanted to be sure that we provide everything that is required in the presentation so that all the shareholders and analysts and investors can get a comprehensive perspective on all things that matter.
Because today, if we see the reaction in the stock market also, our share was down 20% for some time. And then later when I think there was an interview on ET Now and some clarification was issued that the operating profit is around INR 350 crores as against INR 229 crores, then the share has recovered a bit. So that is when these type of things, extraordinary events are there. As someone mentioned earlier also, it will be better if we give the presentation. And then later, you can again have some suggestions. And next quarter, you can improve upon them. That will be helpful.
Sure. Sure. Comment is noted. And as a company, we endeavor to -- we are obligated to provide the results in the present format, which we have provided. And I agree to your point that the presentation is quite obvious clarification. So we will take your feedback on that. Thank you so much.
We have the next question from the line of Rushabh Shah from Anubhuti Advisors.
So I think in the last presentation, we were giving a slide with respect to our management aspiration for 2026. So basically, just wanted to check the revenue and EBITDA guidance which you are giving, that is purely on an organic basis. And with this couple of new acquisitions that we have been doing in Germany and Turkey, will these numbers increase from here on? Or basically, if you can just guidance on the volume guidance you are baking in this whole guidance?
Yes. So the 2026 guidance that we've been providing remains consistent and constant. The claims slide you will see in this investor presentation as well. And that takes into account only the organic growth initiatives and some of these bolt-on acquisitions, which are very small, which are not meaningful. It does not include any large acquisition. So this would be like a couple million dollars here or there which could be added, but largely, this is based on the organic business growth expansions.
Okay. Okay. And the volume growth that we are baking in these revenue estimates both in LCL, SCL, if you can give just a rough approximate number.
So I would not be able to comment since the guidance is not being shared. But I can say that we are -- and some things you've been restating that we have baked in the natural [indiscernible] growth sector based on various research reports from different consulting companies and economics organization. And we have factored in that we'll be able to continue to expand the market share year-on-year. And we've been able to do that for the last several years, and we believe that we will continue to be able to do that, and we have baked in those assumptions that there's an underlying market growth. And on top of that, there's a market share expansion, which is what is leading us to those numbers.
And as you will see, and this quarter makes it very clear that the revenue comes down because the freight rate normalized. And therefore, you would also notice in this 2026 guidance also, revenue growth was subdued because these ocean freight rate is normalizing, and normalization was quite anticipated.
Okay. Okay. Perfect. Great. And in terms of your debt levels, at the 31st December consolidated debt -- net debt number, does it include the payment made for the German and Turkey acquisition?
Yes, yes.
Okay. Okay. And just last one, bookkeeping question. So other expenses, consolidated other expenses for the quarter were up roughly 15%. I think in the earlier part of the call, you said that there was some onetime license cost of roughly INR 8 crores to INR 9 crores. So I believe this would go away from the next quarter. So can we assume INR 180 crores more of a normalized other expenses run rate going forward on a quarterly basis?
Yes, more or less that, but we do keep investing in new resources, et cetera, and -- but more or less, it will be in line of that.
That was the last question. I would now like to hand it over to the management for closing comments.
Thank you all for joining the call, and I hope we've been able to provide more clarity. And given the uniqueness of this quarter, we will endeavor to take your comments, questions and suggestions as we upload the investor presentation providing more clarity on all the numbers. Thanks very much for joining in.
Thank you.
Thank you. On behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.