Delhivery Ltd
NSE:DELHIVERY
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Welcome to Q1 FY '24 Earnings Conference Call of Delhivery Limited, hosted by Citi Research. This is Vijit Jain. Before we start, Delhivery would like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier. Kindly note that this call is meant for investors and analysts only. If there are any representatives from the media, they are requested to drop off this call immediately.
To discuss the results, I'm pleased to welcome Mr. Sahil Barua, the MD and CEO; Mr. Sandeep Barasia, ED and Chief Business Officer; Mr. Amit Agarwal, Chief Financial Officer; and Mr. Varun Bakshi, the Head of Investor Relations. [Operator Instructions] Thank the management team for providing us the opportunity to host this call, and I invite Mr. Sahil Barua to take us through the key highlights of the quarter, post which we'll open up for Q&A. Over to you, Sahil. Thank you.
Thank you, Vijit and the Citi team for hosting us. Thank you all for joining the 6th earnings call from Delhivery this evening. Just a quick check, Vijit, that I'm perfectly audible.
Yes, Sahil. You're audible.
Great. Excellent. Thank you. So as usual, we will begin with a short 15- to 20-minute presentation where I'll walk through the highlights of the first quarter of the financial year, and then we'll open up for questions. Apar if you can begin.
So before I begin a quick summary of this quarter is that the positive growth momentum that we saw beginning in quarter 1 of last financial year continues. Quarter 1 of financial '24 is our fourth sequential quarter of revenue growth. In terms of quick statistics, we continue to be India's largest integrated logistics platform.
We delivered INR 1,930 crores of revenue in quarter 1 from services. This represents a growth of 11% sequentially from the same quarter last year and a 4% growth from quarter 4 of the last financial year. Do bear in mind that in our industry, quarter 4 -- quarter 3 and quarter 4 are typically the high watermark quarters and quarter 1 is sequentially usually our weakest quarter of the year.
Despite this, we've actually seen strong revenue growth in Q1. Adjusted EBITDA margin continues to hover at the breakeven point, we're at negative 1.3% for this quarter. We've seen strong volume momentum in the Express business with a total of 182 million shipments delivered across our Express and heavy parcel business in Q1, which represents a year-on-year growth of 19.2%. At the upper end of our estimate of growth for the industry, which was between 16% to 20%, which I've spoken about last year and sequentially versus quarter 4, a growth of 1.2%.
Our LTL business continues to recover strongly, both in terms of volumes and revenues.
We've delivered 343,000 tonnes of freight in quarter 1 of the financial year, which represents a year-on-year growth of 43.7% versus the same quarter last year and an 8% growth over the previous quarter, quarter 4, which again typically is a seasonally high quarter. Network continues to be stable. We covered 18,530 PIN-codes across the country. We continue to have 26,500 plus active customers across our various service lines.
Over 50% of our customers, our revenue comes from customers who use more than 2 of our services and we continue to operate over 17 million square feet of spine infrastructure across the country. In terms of quick statistics that present a snapshot of the business, as you can see, PIN-code reach is remained stable throughout financial '23 into quarter 1 of financial '24.
We continue to service 18,530 PIN-codes. We continue to cover 220 countries through our own network and our partnerships with FedEx and Aramex, continue to have 26,500 active customers as of this financial year and operate about 17.5 million square feet of real estate. We've seen some expansion in quarter 1 as is normal in our business.
Quarter 1 is the quarter in which we expand infrastructure, both in terms of spine hub and gateway infrastructure and delivery stations in preparation for growth for the rest of the year. Total gateways have expanded to 101 as of quarter 1 fiscal '24. Automated sort centers remain constant at 24. We've expanded the total number of delivery centers from 2,880 as of quarter 4 to 3,170. This includes both new delivery stations as well as conversion of partner centers into owned delivery stations.
So as you can see, the partner centers have declined from 1,175 to 1,039. Higher volume centers will continue to be converted into owned centers going forward. We continue to consolidate freight service centers as volumes have gone up. The integration process, which began in quarter 1 financial '23. We had 237 freight service centers, including post-delhivery and SpotOn at the time. This has now been consolidated to 128 centers as of quarter 1 financial '24. And we continue to have a team size, which grows from 57,000 people in quarter 4 to about 60,300 people as of quarter 1 fiscal '24.
Moving on to the next slide, a quick summary of the quarter. As I mentioned in the Express business, we've seen steady shipment volume growth in what is a seasonally weak quarter. we've seen 19% growth in volumes year-on-year in Express and Heavy put together at about 182 million shipments for the quarter.
In PTL, strong growth momentum has continued in Q1. The market has obviously not grown 43% a year. So this represents significant share gain for Delhivery. We've also seen 8% growth over a seasonally strong Q4. This is on the back of service levels that continue to be consistently robust. Gross service levels continue to be above 90% despite the impact of rain and other disruptions.
And we continue to improve margins in the PTL business through price divisions and actively churning out lower margin customers. In the Supply Chain Services business, we won new mandates with a number of marquee clients, which we expect to start reflecting in financials in subsequent quarters. This includes Havells, Tata motors, MamaEarth and a number of other customers.
Over 50% of our outsourced fleet in mid-mile is now sourced through our Orion truckload platform, an initiative that we've launched around quarter 3 of the last financial year. And going forward, we expect to launch intra-city sourcing on the Orion platform as well.
On the OS1 platform side, we've launched Dispatch1, which is our first SaaS product on the OS1 platform, which we expect to start rolling out to customers starting quarter 3 across India and abroad. We've also consummated an investment in Vinculum, which is aimed at expanding value-added services, which is an integrated fulfillment stack for D2C customers across the country. So that's a quick snapshot of the quarter.
Moving on in terms of overall financials. In quarter 1, we've grown from INR 1,860 crores of revenue in quarter 4 to INR 1,930 crores, which represents a 4% growth quarter-on-quarter and 11% year-on-year. Growth has been delivered both in the Express business and in the Part Truckload business, as you can see on the right.
The Express business has grown to INR 1,202 crores of revenue, which is a 14% growth compared to the same quarter last year and shipment volumes have grown from 152 million shipments for the same quarter last year to 182 million shipments in Q1, which is a 19% growth year-on-year.
On the PTL side, quarter 1 last year, of course, was affected by integration issues with SpotOn. We've grown revenues since by 34% from INR 259 crores to INR 347 crores and overall volumes from 239 crores to 343 crores, which represents a 44% growth in volumes and 8% over the previous quarter.
The other businesses have performed well as well. The Truckload business has grown from INR 109 crores in quarter 4 financial '23 by 20% to INR 131 crores in quarter 1 financial '24, which is also a 7% growth over the same quarter last year.
Supply chain services has grown 10% from the previous quarter from INR 188 crores to INR 206 crores, though compared to the same period last year, we've seen a decline. This is driven by the underperformance of one of our accounts, which has been affected by low offtake of consumer durables quarter 1.
Cross-border services has degrown from INR 57 crores in quarter 4 to INR 42 crores in quarter 1. This is largely driven by a change in mix in the business as more of our business continues to come from our ocean freight business as opposed to our air freight business and as yields in both air and ocean trade continue to compress.
In terms of adjusted EBITDA, quarter 1 financial '24 stands at negative 1.3%, which is the bar on the extreme right. Quarter 1, as you can see, over the last 2 financial years and prior to this is seasonally our weakest quarter of the year. So the good news is that, overall, our performance in quarter 1 relative to both financial '22 and financial '23 has improved significantly.
In financial '22, quarter 1 adjusted EBITDA was a negative 3.8%. Last year, in the same quarter, we were at negative 12.5%. This year, we're at negative 1.3%.
Moving on. Now in terms of an overall breakup in this table, as you can see, revenues in quarter 1 came in at INR 1,930 crores. Overall EBITDA from services came in at INR 196 crores or 10.2% of revenue compared to negative 0.3% for the same quarter last year and 11% in quarter 4.
Despite the fact that we've been expanding the network in quarter 1. Corporate overheads stood at INR 221 crores largely driven by inflation in wages and an increase in some fixed costs of the network. As a percentage of revenue, they grew from 10.7% to 11.4%. And net adjusted EBITDA, therefore, came in at negative INR 25 crores or negative 1.3%.
To the next slide, quarter 4 financial, this is the EBITDA bridge that we present every quarter. Quarter 4 financial '23 adjusted EBITDA stood at INR 6 crores. Our incremental revenue from quarter 4 to quarter 1 stood at INR 44 crores and incremental gross profit in the transport business stood at INR 17 crores, prior to certain specific items for quarter 1. We had about INR 4 crores of annual wage increments above the gross margin line, which is at the operational staff levels.
We have planned investments in the last mile, which is the expansion of the Delhivery station network, which led to an increase of INR 2 crores and an impact of uncontrollable factors, which are linked to both security concerns in Manipur and the weather impact in North India in the second half of the quarter, which led to a decline by INR 4 crores. So the total increase in transport gross profit after adjusting for these stands at INR 7 crores.
Transport fixed costs have increased by INR 13 crores, which is driven by an increase in mid-mile capacity, both in terms of gateway and hub infrastructure and in terms of the trucking network. And annual wage increases of supervisory employees, which is typically done in quarter 1 of the financial year.
And we've seen a total decrease in transport service EBITDA, therefore, of INR 6 crores. Following this, there's an increase in service EBITDA. There's a reduction in service EBITDA of the non-transport businesses by INR 3 crores, largely driven by the supply chain services business. And secondly, an increase in corporate costs of about INR 21 crores, which is driven by increments in salaries of INR 6 crores, a one-time milestone-based payout to employees of TRI Robotics, which is a company that we acquired in financial '22 of INR 5 crores.
Investments in our marketing program, which have begun this financial year of about INR 3 crores and provisioning for ongoing commercial disputes with certain vendors in this case, [indiscernible] of about INR 2 crore, which leads to a total change of negative INR 30 crores and leads to quarter 1 financial '24 adjusted EBITDA of negative INR 25 crores.
In terms of key cost drivers, as you can see, not very significant change between quarter 4 fiscal '23 and quarter 1 fiscal '24. Total freight handling and servicing costs have increased from INR 1,372 crores to INR 1,438 crores, which, on an absolute basis, continues to be below the same cost at the same time last year in quarter 1, which was INR 1,453 crores.
As a percentage of revenue from services, freight handling and servicing, therefore, is reduced from 83.2% last year to 74.5% as of quarter 1 fiscal '24. The major changes, one has been in vehicle rental expenses, which are reduced from 20.6% to 20.1%. We expect this to improve further as we continue to source intra-city vehicles through our Orion platform.
Contractual manpower expenses have increased from 11.1% temporarily to 12.1%. This is due to the impact of rains due to us continuing to pay salaries in states that have been affected by security reasons and annual wage increases. And overall, the net change otherwise is in lost shipment expenses, which continues to improve from 3.2% in quarter 1 financial '23 to 1.7% in the previous quarter to 1.3% in this quarter.
Moving on. This is the final adjusted EBITDA bridge. Total revenue from customers, as I mentioned, stood at INR 1,930 crores. Freight handling and servicing costs stood at INR 1,438 crores. Employee benefit expenses of INR 353 crores. And other expenses at INR 152 crores, leading to a reported EBITDA of negative INR 13 crores.
Adjusting for share-based payment expenses and capitalization of the leases, this leads to our adjusted overall adjusted EBITDA of negative INR 25 crores or minus 1.3% of that. So to summarize the quarter, this is our fourth sequential quarter of revenue growth since quarter 1 of last year. Express and LTL businesses have demonstrated revenue growth and volume grow in a seasonally weak quarter, setting us up well for the rest of the financial year.
Our capacity expansion plans have all fruited in quarter 1. We've expanded mid-mile capacity and delivery center capacity in preparation for seasonal volumes in Q2, Q3 and Q4. Margins remained stable broadly overall and we expect a great financial year ahead. With that, I'll pause, and happy to take questions.
[Operator Instructions]
Sachin you may ask your question now.
Congrats Sahil and team on having a great quarter. I had a couple of questions, basically one regarding PTL business. So on PTL, we have been highlighting a weekly sort of trending in the past couple of quarters. I understand this was done due to SpotOn acquisition sort of integration issues getting over and to reflect how we are ramping up. We do not see that happening this quarter. Do we assume that the growth in SpotOn -- sorry, PTL business has normalized now? Or there is something else going on?
Not at all, Sachin. I think the point of demonstrating it in the past was really because there were several questions about the PTL business, and we felt it was necessary to demonstrate the ramp-up of volumes. As you can see, we've had a very strong start to the FY. We've seen an 8% growth in volume in quarter 1 over the previous quarter already. And compared to last year of 45% -- 44% in overall volumes. And the idea was really simply at this point to say, look, integration issues are behind us. And going forward, we expect the trend of growth in PTL to continue. So we don't really need to demonstrate weekly volumes any further.
Understood. Quickly on the employee expense side, that's the second question. So I noticed that [indiscernible] sort of employee expenses are going up very, very mutedly in terms of rising. But we see ESOPs being granted at a rapid pace, right? So in Q1, if I calculate it from the filings, roughly that amounts to INR 80 crore worth of ESOPs been granted. Is that how we should look at forecasting our ESOP expense in the sense like ESOP should grow employees expenses in terms of cash being relatively muted?
Yes. I think we've granted 2 million ESOPs as part of our annual cycle. Our annual performance cycle takes place at the end of quarter 4, and so the grants are made at the start of Q1, and then after that, we don't have too many grants which happen through the year, except for some exceptional performance. So you're right, you will see ESOP expenses in quarter 1. Our policy is -- as for our performance policy, wage increments, typically, in our case, we forecast at being between usually between 6% to 8% annually. But overall, you should not expect to see significant wage inflation year-on-year going forward.
Understood. And just one final thing, like I hope the violence in Gurgaon and surroundings is not impacting business? Or can you give some color on that?
Certainly, I think the reality is that both weather and security situations do disrupt operations in various ways. We haven't fortunately seen any significant impact on our operations overall. That said, with the shutdown of Internet, even briefly, we had to modify how we were picking up and delivering consignments. We continued to remain operational throughout. We've also managed to continue to remain operational throughout -- in all rain affected areas throughout the end of sort of quarter 1.
So no major impact per se. We remained operational. Despite the Internet connections, we've continued to pick up volumes overall. But we monitor the situation on 2 days, of course, wherein particularly sort of violence prone areas, we did have to suspend Delhivery operations briefly.
Next question from Sachin Salgaonkar.
I have 3 questions. First question, Sahil and team, just wanted to understand about what's happening on the ground on e-commerce as well as, let's say, from other operators like Social Commerce and D2C. Reason I'm asking is your shipment growth for 1Q was great. And just wanted to understand, should we look at this as a trend to continue? And are we seeing improvement in the overall general appetite out there?
Sure, Sachin. In general, these days are quite careful when I'm making statements about the e-commerce market. But that said, I think, look, our volume growth has been solid in this quarter. We've been at 182 million shipments overall compared to 152 million last year. I think if you remember, our position has consistently been that while the medium and long-term trajectory for e-commerce is consistent, we expect the market to grow between call it, 16% and 20%. And our growth has been at the upper end of that.
Our assessment is that, that represents an overall share gain in the market. In terms of market volumes, quarter 1 is historically not a very strong quarter for e-commerce. In general, quarter 2 is when the action starts picking up about now and volumes then continue through quarter 3 and quarter 4. So we expect that, hopefully, there'll be sort of solid volume growth in August and then with the Diwali sales at end of the year.
In terms of D2C, that's a particular segment of focus. I think we've gained significant share in the D2C market. Overall, we've been focusing on our value proposition for D2C, both increasing speed, integrating fulfillments and launching a suite of data services, which a number of customers have now started taking up. And we've also been growing our presence in -- with smaller and the long tail of e-commerce really both with the launch of [ Delhivery One ] which is our self-serve portal, which allows small brands to really sort of access our services seamlessly.
And also through the growth of our franchise network and the growth of our delhivery C2C shipping app, which allows the extreme long tail to start shipping through delhivery immediately without sort of the burdens of long contract process and a long sort of integration process. So that's sort of business secret to our growth in quarter 1. I think we are optimistic about e-commerce as usual. Individual players, as I mentioned, and I think as is public continue to face their sort of independent struggles and their independent strategy continues to evolve.
But for us, we maintain consistent market share with the larger players. We've gained share with the smaller players. We continue to launch value-added services. And so irrespective of market outcomes, I think we are well positioned.
So does that mean you guys are seeing a mix shift more in D2C versus e-commerce in the seasonally slower quarter on Q4 e-commerce?
We've certainly seen a shift in terms of client concentration. So our sort of top 5 client concentration is reduced overall. And both D2C -- the definition of D2C is a little bit vague, but I'd say sort of vertical e-commerce plus D2C plus SME is now a larger percentage of our business.
My second question is on the supply chain business. And historically, when we look at the growth, the trends look a bit volatile. Casing point this quarter, we had a minus 13% Y-o-Y growth or a 10% Q-o-Q growth. So just wanted to get a bit more color from you in terms of understanding what's going on here. We heard the comments in the opening mark about you guys getting a bit more marquee customers, question out here is, should we see a stabilization of the trend out here? Or any color you could provide us in terms of how to look at this business?
Sure, I think as far as this business goes such in one of the things that we've spoken about is that the minimum size of this business actually is sort of where it stabilizes is much larger than where we are. This is still sort of an early business for delhivery. We have -- these are typically large contracts that will be anywhere from INR 20 crores, INR 30 crores a year at the minimum of nearly INR 150 crores a year.
And so when individual clients businesses sort of have their sort of moments in the year that can affect growth both upwards positively and negatively for us right now. I think there were disruptions in supply chain in general in quarter 1 when you consider the security situation, the rains and sort of how it's affected consumption, and that's reflected a little bit in our numbers. The contracts that I pointed out, whether it's Havells or Tata Motors or MamaEarth or some of the others that are starting up. These are ones that we expect will begin in quarter 3, quarter 4. We've signed these contracts, and now we start deploying and building the infrastructure, which typically takes anywhere from about 60 to 90 days. So hopefully, this will hit us in quarter 3 and quarter 4. But this business will continue to sort of grow fast off of this base and see some volatility for the near future.
Very clear. And third question, perhaps to Amit. Amit, I just wanted to understand what's happening in depreciation as well as other income. Depreciation was down 31% Q-o-Q, any one-offs out here. And same for other income? Is it all treasury income or something else out here?
So on the depreciation and amortization, there were 2 components. One, related to depreciation of fixed assets. As you are aware, that we basically built most of the capacity in first half of the fiscal year. So quarter 3 and quarter 4 typically see relatively lower investments. And as a result, the implication of lower WDV based depreciation is evident in the quarter 1 subsequently. So that is one of the reasons why depreciation and amortization -- depreciation was lower. I think this number would even to about INR 25-odd crores attributable to this.
And on the amortization, in quarter 4 of FY '23, we amortized fully the SpotOn IT systems, which we no longer use. So that was an implication of another about INR 30-odd crores. In other income, there were 2 impacts. One was a redeployment of our capital of about INR 5,500-odd crores into higher-yielding instruments and mark-to-market gains. And other part of about INR 10 crores, INR 10 crores to INR 12 crores is a classification where we moved certain other expenses where certain adjustments were made between other income and other expenses. So that was a one-off item of INR 10-odd crore.
Just, if I want to understand a bit more clarity on depreciation and amortization going ahead, we should see some kind of a seasonality every year, where 1Q is a bit low and then things start picking up 2Q onwards, right?
Yes, this will a bit depend on when our mega facilities come live. So this year, we expect our Bhiwandi Mega gateway to go live between September or November. And as a result, you will see the implication on depreciation in the subsequent quarters. Similarly, we expect our mega gateway in Bangalore to go live in March 2024. So you may not see the same impact that you are seeing this year in quarter 1 in the next year quarter.
Next question, we go to Gaurav Rateria.
Am I audible?
Yes, Gaurav. Please go ahead.
I have 3 questions. The first 1 is we see PTL volume is 77% of what it was at the peak of 4Q on a combined basis. So is it fair to say that if we go back to that, our transport service EBITDA would also kind of revert back to a similar number what it was at that point in time?
Sure. I think that's a fair assumption in general, though our expectation and we're still figuring out our linehaul costs, for example, are coming in better than they were prior to the integration, which was, if you remember the whole point of buying SpotOn, which was really essentially to be able to move more of the volume to larger automated gateways and through our trucking network. So potentially, at least internally, we would like the margins to be at least as much as they were at similar scale or higher.
Yes. I was doing some rough math, Sahil, on this. So if I continue to assume 50% incremental gross margins on transport business, then I get to a similar service EBITDA margin for transport, what it was at that point in time in the fourth quarter of fiscal '22. So does it mean that we still have scope for continuing to deliver more than 50% plus incremental gross margins till the time we get back to sort of a similar volume what it was at the peak?
So as I mentioned in general, that would be true, but as I've said, previously as well. It depends a little bit on the mix of the business in terms of exactly where it's coming from. At the moment, we do have pockets of underutilization, which continue -- relative underutilization, I would say. And therefore, the incremental margin story continues to sort of be solid. That said, we are also discovering new ways of improving productivity even in places which we had thought historically were sort of close to high utilization. Our engineering continues to deliver that.
And so potentially, this could continue slightly longer than we had previously expected. We're also discovering certain commercial benefits on the trucking side through our Orion platform. So the way to put this is that one would expect to get to at least the same margins that we had at the same scale. Also bear in mind one more thing Gaurav which is that we have been culling low-margin customers and churning out some of these low-margin customers or renegotiating pricing. So hopefully, our expectation would be that even that will have some impact.
Got it. Secondly, on -- like once you get back to normal volumes or same volumes on a going-forward basis, I think you kind of suggested in the past that incremental gross margins in this business should revert to a more normalized level of 30%. How should one think about incremental service EBITDA margin in the Transport business on a more normalized basis? Should it be between 20%, 25% incremental margin? Should it be lower? Just trying to understand the puts and takes there.
At this point, it's difficult to give exact commentary on sort of where the service EBITDA margins will be. But broadly, if you do the math, yes, I'd expect incremental service EBITDA margins to be in sort of that 18% to 22% kind of range.
Got it. Last question, I just want to understand a little better on your sourcing comment from your own Orion platform, how exactly did it help you? And what incremental levers we have?
Sure. Very simply put Gaurav, we run -- it's essentially a freight exchange, Orion is a freight exchange. It was designed both for internal use cases for our linehaul procurement, for our supply chain services business and also externally for customers to place trucks through the platform. So think of it as similar to sort of what full truck alliance does in China. Earlier, our linehaul contracts were not being sourced via Orion. We continued to source them through our own fleet team as we placed our linehaul demand onto our Orion platform, we've had multiple vendors bidding for routes as we've opened them up. And as a consequence, we've seen commercial benefits come in. As vendors has given us competitive bids, and we've had multiple vendors bidding.
So that's been 1 reason. The second is that we've also expanded the scope slowly over the last year. We began by exposing our Ad hoc or spot requirements of trucking onto the Orion platform. That was then expanded. The scope was expanded to fixed contracts as well. And so we started seeing benefits both on spot as well as fixed contracts. By way of context, spot contracts typically will be between 10% and 14% of our total trucking, 86% is fixed. So there were benefits that came in through that as well. And now we're also expanding these 2 intra-city movements, which is where we use a mix of LCVs and sort of smaller HCVs.
Next question we have from Sohan Joshi.
Am I audible?
Yes, please go ahead.
Two questions, Sahil. Going ahead, what will be the impact on realizations because as you said in previous Con-call, individual players may have some ups and downs throughout this year going due to funding winter. And maybe some of our competitors are also raising funds like Shadowfax or Xpressbees. So will it affect the relations in Express Parcel business going ahead?
No. Also, to be clear, Sohan, I've pointed this out before, what happens to individual players or what happens to the fundraising strategies of other players in this market is not a journey to our pricing strategy. Our stated ambition has always been to be the most efficient player in the market, which we are. When you combine the fact that we have an extremely attractive pricing proposition that we provide to all of our customers, irrespective of their size, coupled with the fact that we have one of the highest quality of service, and we reached 18,530 pin-codes.
And we have the operating leverage that we do. I think -- I don't think that any amount of capital raising or sort of pressures to individual players in e-commerce has any impact on pricing or market share for us. And the second thing is, if required, we will defend our market share because we have massive operating leverage and the operating margins to do so.
Okay. My second question is in the previous con-call, we had some talks about monetizing the IP of transition robotics. Are we through for that plan? I mean, we are going to see any revenue flowing from it in this year as well? Just can you throw some color on it.
Sure. We have begun to sort of road test our drones, as I mentioned in the last quarter. In fact, I think 1 of our models should now be commercially ready by quarter 3. That said, do bear in mind that there are licensing requirements and so on that we have to meet. And even if we were to have monetization this year, it won't be a significant portion of our overall revenues.
Okay. And just one question, if may I ask any plans on acquisition on the table going because there because media reports of Gati, there were media reports of you, delhivery entering into hyperlocal though, you have denied in the BSE announcement. But still any plans for acquiring any company, which we can add to our networks? Any such plans?
Sohan, I think you answered it already before I did. It should be strange if I were to announce something right now, but no, as I mentioned, we've denied it officially. At this point in time, we're very happy with the organic growth opportunities that we have.
Next question from Mukesh Saraf.
Am I audible?
Yes. Mukesh, please go ahead.
So firstly, if you could just quickly give us the market share that -- how the movement in your market share has been on the Express business. Obviously, you've grown at close to 20%, but how the industry growth has been.
Mukesh, I think last time you put me on the spot with this as well. I think we've grown 19% in volume terms versus last financial year. Various people measure market share in various forms, but our assessment is that market has grown at less than the 19% that we've grown at. And apart from that, we see significant increase in our overall volumes from D2C as a category from vertical players and from SME, generally are faster growing than the broader market. So our assessment, therefore, is that we probably gained 1 or 2 percentage points on market share.
Great. Okay. And secondly, in terms of this increase in the fixed cost, like you mentioned your planning expansion for the year. So just understanding how much of that would have been done in 1Q, I mean, typically, say, if you have to do x amount of expansion. 1Q covers how much of it? Do you have already done 70%, 80% of that? What you planned for the year in 1Q already?
More or less, Mukesh. The only sort of big expansion that will come in will be in quarter 3 when the Lonad facility in Bhiwandi goes live. That said, even that will not have a full impact on fixed costs because we're essentially consolidating infrastructure. So our -- we operate -- are we going to be gateway? We operate a large service station. We operate a large returns processing center, all of which are consolidated into the Lonad facility. So net-net, the impact on fixed cost actually will not be that significant even when Bhiwandi Lonad goes live.
In general, quarter 1 is where we would have committed and executed probably about 60%, 70% or sometimes even higher as a percentage of our total capacity. Also, if you remember from the last call, I mentioned the 2 specific cities where we had expansion plans outside of Hyderabad, which was the other one, were going to be Chennai and Pune. And Chennai has gone live. So that's also been consolidated and is already reflected in our statements.
Sure. Sure. So we should -- I mean, as you -- I mean, through the year now, the operating leverage should only play out as well?
Yes.
And just lastly, very quickly, I mean, how would the debtor days differ for you across businesses? I think you had mentioned it once in the past, but if you could just recap that across businesses, how does that vary?
Sorry, can you repeat the question? You said database?
The debtor days, the DSOs.
Sorry, the DSOs. Amit, you have the exact statistics. Can you take this, please?
Sahil, we don't disclose the debtor days by line of business. We popularly give our debtor days in quarter -- at the end of quarter 2, but our analysis at end of quarter 1 showed that we have reduced debtor days on a whole of business by 2 days in quarter 1 and we expect the momentum to continue to bring down debtor days in Q2.
But very qualitatively, if you could tell me, Amit, on across these businesses how...
So typically in B2C the billing cycle is 30 days and the receivable days is also 30 days bill by second or third of the month for the previous month. And then the bills become due by fourth fifth of the subsequent month. We do not deduct the COD in hand from this debtor days. If we were to deduct, we would be pretty much 0 working capital on express business. But without that, we would be about a month odd, as you can see, in B2B businesses like LTL, supply chain services, FTL, the billing cycle being 30 days, the credit period terms could range from 30 to 60 days and very exceptional contracts, maybe 90 days and do the math on what the average.
Next question we have for Hitesh Goel.
Congrats on a good set of results. My first question is on when I see the per shipment revenue for Express parcel and both for PTL. It's actually -- it's kind of declining for last 2 quarters. So is it a yield issue because you're saying the pricing in the market has not come down. So it's a mix issue. Can you just talk about that?
It's largely a mixed issue Hitesh. So It's a combination of both the client mix changing in the Express parcel business, the salience of the heavy business as it changes, there is basically quarter-on-quarter, there may be variations in the overall yield and also the zone mix. Typically, in quarter 3 is when we see a bump up in realization both because the salience of the heavy business can go up and slightly heavier products get shipped out in quarter 3. But per se, no change overall in pricing strategy between quarter 4 and quarter 1. So on the Express side, what you're seeing is really just a shift in mix to some extent.
No, I was just going to answer the same question for PTL. Same thing on PTL. As I mentioned, it's a mix shift. In PTL, we sort of have 3 broad categories of customers. One is major accounts or enterprise customers. The second is SMEs and the third is sort of retail and aggregator customers and mix across the 3 varies, there's a natural variance that sort of up is in the overall year. And outside of which, the specific customers, there are provisions that we take which can affect the yield in any given quarter, but no change in pricing strategy.
Sure. And my other 2 questions is, first, is also on the network utilization. So how has it increased or decreased as you have set up more infrastructure over Q-on-Q basis?
Network utilization in quarter 1 is obviously slightly lower than network utilization in quarter 4 because we've expanded at an overall level because we've expanded mid-mile facilities in preparation for the rest of the year. And obviously, we've increased the overall count of delivery stations also in preparation for the rest of the year. So utilization would have dropped a little bit to that extent.
That said, at an aggregate level, network utilization doesn't really have any meaning because it's ultimately just an aggregate of utilization, individual facility level. What I can tell you is that facility level utilizations for us in the mid-mile will typically vary anywhere from about 70-odd percent at the lower end to up to about 110-odd percent in various locations. And the delivery stations on average, my sense is that we are at this point, probably close to about 60% to 65% utilized.
Okay. And you touched -- touch-based bound on the PTL mix, right? So just wanted to get more sense on this. So what is your mix between enterprise, SME and retail. And when I compare the yield of other players in the market, the yield is much higher because I think their mix is also different because they are more towards SME or retail. So can you shed some light on it? How should we look at it? Because we are closely monitoring the yields to understand the profitably in the PTL business. Is that the right way to look at it?
It really depends. I mean, I can't really comment on what drives the yield for other players in the market. The way at least we look at it internally is our yield is determined by our own unit economics and our own targets in terms of gross margins and EBITDA margins. We do have obviously a different pricing strategy for enterprise customers versus SMEs versus retail. And obviously, the pricing strategy generally will be that the larger the customer sort of marginally, there are discounts on price. So retail will typically be highest yield. It's followed by SME, followed by major accounts.
In terms of the mix, look, the reason I don't want to sort of -- one is we don't disclose overall mix. And the second is, at this point, providing sort of an exact breakup of mix is not a good indication of the future because our ambition is not to grow at 5% a year. our ambition ultimately is there's a $3 billion, $5 billion LTL market. And delhivery at this point in time, all things said and done, we are a $200 million, $250 million player.
So there's a long way to go, our ambition will be to gain share across all segments. We do not have a yield protection strategy. We have a growth strategy and a margin improvement strategy. And therefore, I don't think that our yield will remain absolutely sort of predictable going forward.
Next question we have for Pulkit Patni.
Yes. So actually, my question was also on yield. But the fact that you said that your focus is a growth strategy and not yield, I think it partly answers. Maybe just an extension of that, Q1 FY '22, your realization on the PTL business was close to 11,000, which has come down to 9,900 right now. And this is happening at a time when you said that you are taking out some of the low-yield customers. So any rough math as to at what yield level do we think sort of we bottom out in the sense that we can't go below that? Any numbers that you have based on the cost initiatives that you are undertaking?
Yes. Look, I think let's not confuse profitability and yield because it is possible to be profitable. Let me give you an example. If you pick up a LTL freight in the city of Delhi and you're delivering LTL freight in Fareedabad, the yield is naturally significantly lower than if you're picking it up in Delhi and delivering it in Cochin. And so the overall yield that you have is a reflection of the mix of your business. So we don't, frankly, waste a lot of time comparing our yield to any of our other competitors. We have yield targets that we need to reach for every single load that we carry. And we have the systems, which allow us to price every single load accurately.
Typically, players in this space have relied on sort of rule of thumb guidelines per yield. What is we tend to take what we think is a more scientific and strategic sort of look at how to price for every load. So as we have culled low-margin customers, that may or may not have any sort of implication in terms of yield remaining stable, going down or going up. You can have unprofitable customers at a INR 16 yield and you can have highly profitable customers at a INR 5 yield. And our ambition, of course, is to have highly profitable customers at all yield points. So that's sort of -- I don't know that answers your question, but we don't really -- there's no minimum yield also at an aggregated level that makes any sense. If it's an intra-city load, typically, you would argue that sort of the minimum yield you require is about INR 5 of consignment. And then, of course, it varies depending on the distance that you're traveling.
Sure, sure. So effectively, from 11,000 to 9,900, it's really not any discounts or real customer. That's just the mix that has been changing through this period? Or things like distance, et cetera.
Absolutely.
Next question we have from Baiju Joshi.
Am I audible?
Baiju, yes.
I have 2 questions on behalf of Aditya Suresh, if I may. First question is on the small disruptions, like last year, there were rains and again, this year, there were a couple of incidents. So just wanted to understand what steps you can take at your end to tackle some disruptions so that these don't cascade into bigger issues?
It's a good question. We've called out before that one of the big macro risks that faces the company is disruption through weather. At our end, of course, we have a fairly rigorous process of making sure that our infrastructure especially the spine infrastructure is resistant to all forms of natural calamities, including rain. So our facilities are designed as such, right, from vehicle ingress to parking, making sure we have staff which is available and taken care of for health and safety measures.
So we have seen per se no major disruption in our spine network in terms of the ability to service our customers. That said, customers obviously do face disruptions in their operations when it's raining heavily. And as a consequence of that, sometimes that may lead to either a pile up of volumes, which means too much volume. And in some situations, customer operations, maybe shut, there's limited sort of control that we have on that. But if your question is, is the network managed to be resistant to rain? The answer is yes.
And secondly, can you provide an update on the ONDC network and any use cases that have seen considerable traction in terms of volumes?
We're not yet significant participants on the ONDC network. I think ONDC has seen some traction, especially on the food side. I'm not aware of sort of what the most recent numbers are, but the last I heard numbers were in the range of -- weekend orders of food were in the range of some 30,000, 40,000 orders a day. Look, whenever ONDC plays out, we will be meaningful participants as required. I think we like the idea that we have the ability to publish a price in a service level. We also have both the staffing, the technology and sort of the underlying cost advantage to service any demand on ONDC. We are integrated. We continue to watch it. But at this point, we are not active participants.
Next question we have for Ankita Shah.
Can you hear me?
Yes, Ankita, please go ahead.
Sir, you shared the approximate utilization level on the mid-mile side. But on the first and last mile, would it be possible for you to give some color on the utilization?
Yes, utilization on the last mile, as I've mentioned, Ankita, is in the range of about 60% to 65% of theoretical capacity. That said, even in the mid-mile and in the last mile, I do want to point out that one of the jobs that our engineering teams perform is to continuously figure out how we can release additional capacity. So 110% in the mid-mile also that I've pointed out. The reality is that we probably have the ability to go to 120%, 125% with better engineering, which we continue to explore.
So like I said, I wouldn't read too much into aggregate utilizations across the network at this point in time. The way I would put it is there's operating leverage in the business, which is quite evident. I think we've spoken about it multiple times over the last several quarters.
And the second is that as you're aware at the gross margin level, our unit economics continue to be highly positive. And so overall, as utilization, even if it stays flat, volume growth should deliver its returns to us. And if we continue to sort of see these engineering opportunities to increase productivity, we'll see an improvement in margins. But there is a reason we do not publish aggregate network utilization. I'm aware that other players in the industry once in a while do provide this estimate. But in our view, providing a network level utilization actually is dangerous and false.
Okay. Okay. Secondly, just one clarification. Is there a change in the number of 1Q '23? Same quarter last year, volume numbers of PPL visits because I think we've published 239,000 this quarter and this -- the earlier presentation was mentioned 262,000 tonnes. So I just wanted to clarify or I can take it offline with the call.
I'll -- Amit to just investigate that and come back to you, but per se, there's no change.
Okay. I'll get that checked. Secondly -- last question from my side. So in last 2, 3 years, if I look at the annual numbers, there was an increase in the lost shipments number. I've seen on a quarter-on-quarter basis for 1Q has come down. But on a full year basis, any outlook on where this number can be on a yearly basis, full year FY '24.
So as you can see, the total loss and damage expenses as a percentage of revenue is at 1.3% in this quarter. We did see a spike in quarter 1 when we had integration issues and this was more reconciliation sort of related loss in damages that we had to bear in quarter 1. On a normalized basis, our expectation is that loss environment should be sub 1% of revenue, and that's the internal target that we're working towards.
Next question we have from [ Sri Nidih ]
Am I audible?
Yes, go ahead.
Sahil, Congratulations on good set of numbers. Sahil, I want to understand on the operational strategy wherein we -- we are basically integrating mid-mile operation of Express business and PTL business. In that context, does company have to be very selective in terms of what load it takes from the PTL customers?
I think irrespective of our strategy of integration, we have to be selective about the kinds of loads that we pick from customers. Our view has been very simple, which is that we look for loads fundamentally -- I'll able to say, we do not do loads that are not easily transportable. So as an example, we don't do over-dimensional cargo. We don't do hazardous material, we don't do improperly packaged material or loosely packaged material in the PTL network at all. It's a fairly tightly controlled sort of form factor and we don't do loads which -- where a single piece weight is higher than 400 kilograms.
But these are like more of a specialized cargo, right? Rest of the market itself should be very large which could be integratable, right?
Absolutely.
Okay. And does the load characteristics also matter? Like if it is very seasonal, your network can't handle it. And is the net -- like load coming from a smaller customer? Do you have more of a marketing bandwidth to handle it? Or it doesn't matter whether a customer is small or the lower product profile through the seasonality is very different?
The whole point of Delhivery is that essentially, we are able to service any size of customer with any form of load that fits our requirements, -- as I mentioned, there are a small set of things that we don't do. But outside of that, irrespective of our customers, seasonal requirements or our customers sort of science, we provide exactly the same service. In fact, we not only provide the -- it's not only our ability to serve. Our aim really is to be the lowest cost service provider for absolutely any size of customer and to be the highest quality service provider to any size of customers.
So we do not differentiate in terms of either sort of saying we can't handle your loads because of seasonality or we can't handle your loads because you're a small customer or anything of the sort. Our entire network is designed to service everyone.
Yes. And one more, if I may. In one of the presentation deck, you highlighted of incremental investment in marketing. It is directed more to adding SME customers in the PTL business with your network getting stabilized and service level back to the level you want?
That's exactly right. We have no particular need to perform marketing for our e-commerce business. We're already the market leader. And I think we're more or less the default choice for anyone. And on the PTL side, I think what we're doing is expanding our local presence across Tier 2 and Tier 3 markets across the country.
Next question we have from, Aditya Mongia.
The first question that I'd want to ask, more on the adjusted EBITDA margins that you report in the first quarter? I see this is 200 basis points improvement from FY '22. What I wanted to understand was that should we assume that FY '22 was a good reflection of seasonality last quarters and thus the full year FY '24 numbers should be 200 basis points higher and probably even more so given the cost improvements that have happened in this period?
Aditya, you're breaking up a little bit, but I think I got the gist of your question. I think far be it for me to suggest what you should or should not assume. But broadly, what I can certainly tell you is that, yes, our margins in FY '24 are 200 basis points better than they were in fiscal '22. On a larger network as well and on lower realization, so that should give you a sense of sort of the operating leverage in the business. I do think there are certain structural factors in fiscal '24 became better than fiscal '22. Sorry, go ahead.
The second question is the financials -- can you hear me?
Yes, Aditya I can hear you, but I think you missed my answer, which is fine. So why don't you go ahead.
On the recent announcement that Flipkart to enter the Express B2B space. The question that I had was, do you think that given the benefits of being in FedEx Express B2B as a synergistic step along way B2C, means and the strategic actions would happen more and more by almost all e-commerce players. And obviously, if that is the case, does that make us more worried about us kind of retaining this competitive advantage over...
Aditya, can you hear me? just checking.
I can hear you.
I'll answer the question, but I think you have some background noise maybe. Yes. Okay. I think Aditya's question was essentially, are we worried about the fact that Flipkart has decided to get into B2B logistics. The short answer to this is no. And fundamentally, for a couple of reasons. One very, very simply is that fundamentally, the PTL model that you require to establish, it needs to have a distributed network of our kind which, in our belief, self-networks do not have. And so their ability to scale up their B2B business is uncertain.
The second is, I don't see any strategic advantage or strategic rationale for captives to be in this business at all. First of all, it doesn't make any sense for a captive whose job is to provide theoretically a higher customer experience to the e-commerce brand going out and, let's say, delivering spare parts for Tata Motors to their dealers. I mean I don't understand what the logic for that is at all and how this is capital efficient whatsoever. So there's a strategic misalignment. There's an economic misalignment. There's an executional misalignment. I think making an announcement is the easiest part of setting up a business. So the rest of it, we'll see. But per se, if your question is are we worried, the short answer is no. We have the infrastructure. We have the capability. We have the team, and we have the economics to continue to grow in this market, irrespective of individual strategies by the captives.
Just a last question from my side. Your -- 4Q adjusted EBITDA numbers for FY '22, which was 3.5% on the positive side, were they stable numbers for the fourth quarter? Or did they have any Shopee scale-up driver?
Yes. If you were to look at quarter 3, quarter 3 was also positive when the influence of Shopee was not as large. So yes, there was some impact from Shopee, but it was not as significant, perhaps as you think. Outside of which, as I mentioned, there are structural factors in our business in this financial year, which are different from where we were in financial '22. We have larger, higher scale hubs, which are more automated, higher productivities. And we also have a significantly more developed trucking network, and we've also been jettisoning low-margin customers.
So let us see as the business plays out. Financial '22 was a good indication of how operating leverage in our business plays out. But neither financial '22 nor financial '24 is going to reflect exactly what the long-term economics of the business are going to look like.
Next question we have from Rishabh Parakh.
Can you hear me?
Yes, please go ahead Rishabh.
Sahil, Just 1 question on our -- incrementally, we have guided that our gross margin will be 50-odd percent of our incremental transport revenue this quarter is about 38%. So what would you attribute that to? And going forward, do you think we can hit the 50% mark over the next 3, 4 quarters?
Yes, that's a good point. I think we would probably have ended up at the 50% mark in any case. I think there was some volatility which came from weather towards the end. One of the things it does, it reduces last-mile productivity to some extent because the number of deliveries per person comes down, obviously, because of the impact of the rains. That's one of the reasons why incremental gross margins in this quarter look a little softer than they have in the past.
How much further with the 50% incremental gains continue? As I mentioned, this question has been asked quarter-on-quarter. When we began in quarter 2 last year answering this question, at that point, our estimation was that it would last through quarter 4. But we've been pleasantly surprised that incremental GMs have continued to remain high in quarter 4 and in quarter 1. And as of now, I do think that we have sort of capacity in the network and our engineering is strong enough to allow us to continue to see high incremental gross margins in the near future.
Long term, our expectation, of course, when capacity utilization normalizes is that incremental gross margins will be in the 30% to 35% kind of range. But whether we'll be there exactly sort of in this quarter or the next quarter or the quarter after is not something I can immediately comment on.
Next question we have from Naitik Modi.
Can you hear me?
Yes, absolutely. Please go ahead.
My question on the PTL business. So the incremental business this quarter, quarter-on-quarter has come at a much lower realization. So I just wanted some understanding on that.
Yes, as I mentioned, I think this is a combination -- this is a mix impact and also an impact of what lanes we're servicing. As I mentioned, the 3 major segments of the business are major accounts, SME and retail. So one is this automatically sort of the mix of those customers changes, yield may change a little bit. The second is within those customers, obviously, as they expand their relationships with us, it's possible that they're shipping on some lanes, which are shorter distance lanes, for instance, therefore, affecting yields. I wouldn't look at yield necessarily, internally what we look at is gross margin for the PTL business and EBITDA for the PTL business as long as those are trending upwards on an absolute and relative basis. We don't have to worry about changes in the yield. If your question is, has there been any change in pricing, the answer is no.
Okay. And on the service EBITDA, we have made about INR 197 crore. Of that, how much losses would be there in the non-transportation business?
Amit, do you want to take that question?
Can you please repeat the question?
So out of the service EBITDA that we reported about INR 197 crore, this consists of what losses from the non-transportation business?
The service EBITDA of non-transportational businesses put together be most flat or about like 2 percentage points.
Next question we have for Mayo Gattani.
I just wanted to check, you mentioned something on the SaaS in the presentation. Maybe I missed it. Can you throw some more light on what that was? And what are you referring to? First question. And second was, you've been very confident on the margin front -- on the volume front. And -- but the margins have been on the weaker side because you have increments this quarter, you have some one-off expenses for expansion that you're expecting a lot of growth in the second half. So this will continue in quarter 2? Or this is what you had to do, and now you will see a significant improvement in margins as volumes increase?
Sure. While let me answer the second question quickly because that's a much shorter answer. As you can see in every year, margins begin to improve in quarter 2 and continues through the financial year. Our wage increments obviously hit us in quarter 1. And as I mentioned during the question from Mukesh Saraf, we typically see about 60% to 70% of our planned infrastructure development to happen in quarter 1. So no, I don't expect any significant increase in the fixed cost base going forward in Q2, Q3, Q4.
We do expect volumes to grow through the rest of the financial year. And so the operating leverage should play out and margins should improve as volume growth kicks in. Obviously, bear in mind that quarter 3, quarter 4 are seasonally high quarters both for e-commerce as well as for PTL.
Coming to your first question on platform and Dispatch1, as I mentioned multiple times, OS1 is the platform that we've been building for the last 3.5 years. It's essentially, think of it as building Android for logistics, effectively an operating system, which allows logistics, operators, enterprises to essentially build their own logistics applications. And also to integrate with the deliveries logistics systems.
It's aimed at small scale operators, both in India and the rest of the world. They have the ability to use our first-party applications. which is Dispatch1 is 1 example of that, which we've launched, which allows last mile operators to essentially use our dispatch service. So it's exactly the same as deliveries dispatch service, and they also have the ability to customize into their specific needs which means they have sort of highly specific product requirements.
This is aimed at companies both in India and outside India. So we're going to be targeting both the Middle East and the U.S. as potential customers. We have 10 potential customers that we're speaking to. It will be monetized similar to a standard SaaS product. But that said, this isn't going to be a significant portion of our revenues at all through this year. We're still at an early deployment stage. So first-party software is 1 part of what we're doing, which is the SaaS product.
The second is also allowing other logistics applications to ride on top of our platform. So you will remember that we acquired a company called Algorhythm, which provides data services in the supply chain services space. So that will also be deployable on top of our platform stack. And similarly, other, for example, routing applications or scheduling applications can also be deployed on top of the OS1 stack, which will then be available to all of the customers, food delivery services.
So that's broadly the platform strategy. This is the first commercial deployment that we're doing. It's on schedule as of now. We don't expect it to perform any significant portion of revenue or profits in this year, hopefully, we'll start seeing monetization slightly more significantly in the next financial.
So just to understand better, you were saying that you developed a platform on the delivery basis where a third-party logistics company can take it from you and run their own business in India as well as outside.
They can use both our first-party applications or they can use components of the platform to build their own logistics applications as well if they happen to have the resources to do so. We provide them the basic libraries, the basic toolkits that they need to do so, and also the configuration layers if they need to do so.
So let's say you're a large logistics company, you can use the base components of platform to build your own logistics applications. Let's say, you're a small logistics company and you want a first-party dispatch application, we'll provide it to you. let's say, you're a logistic SaaS company which wants to offer your services to customers who are using deliveries logistics stack, you can do that as well. So that's broadly what platform is.
Sorry, just to ponder a little bit more on this. So would it be like why would someone use your software because wouldn't it be leading -- giving their information, their client information to you.
No. The data is similar to how you would use, as an example, AWS. Data jurisdiction is very clear, Delhivery does not have access to proprietary data. This is entirely -- all of the data belongs to the specific company, which is utilizing our services, and we have no access to it.
Okay. And we see a better monetization or numbers coming from FY '25 onwards. This is just the start.
Yes.
Next question we have from Keshav Gaba.
Am I audible?
Yes. Keshav, please go ahead.
Sahil, my question is more from a business perspective. Like we offer -- we strive to offer the best services at the best price. But don't you think that price should command a premium in the market -- and if we are not focusing much on the pricing part of the picture, then how are cost efficiencies lying because I think that there's a lot of infrastructure and integration which we have done with SpotOn. So if you could just explain me this.
Certainly, Keshav. It's not necessary that the best product should always be the most expensive product. If that was the case, as an example, cloud computing would have died at the start. The fact is that certain businesses are the plumbing of how other businesses work and logistics is one of those. If your payment gateway said we are the highest quality payment gateway and therefore, you should pay us the highest charges. There'll be no electronic payments. And our view is that logistics is more or less exactly the same.
You must remember that ultimately, and we remember, our stated strategy is that we are a cost input to all of our customers. Every dollar that we save our customers is a dollar that they get to invest in growing their businesses. And every dollar that they invest in growing their businesses is ultimately a dollar of revenue that comes back to us and allows us to scale further. Delhivery stated strategy has always been and will always be to be the most efficient and lowest cost provider of services to all of our customers and all of our business lines. In fact, I think the big fantasy in logistics has always been the desire to be a high-price [ yield management company ].
I think there are specific verticals where that makes sense. If you were delivering vaccines, certainly being a premium player would make sense if you were running gold chain perhaps. But what we do fundamentally is high scale, and we are cost input to highly cost-sensitive customers, and we, therefore, have to be the lowest cost service provider.
That works. And my second point would be on the warehousing space, like what are we offering there? Because I think Safexpress has released their annual statements and they have touched around INR 3,000 crores revenue in the express parcels, and they were very bullish about the warehousing space. So I just wanted to understand what is the Delhivery proposing in that space?
We are -- we provide fulfillment centers, both for B2C commerce as well as for B2B. It's essentially an integrated supply chain solution. So let's say, you're an e-commerce company, a D2C company, which requires warehousing space for inventory across the country, we provide it on a variable basis so that you don't have to invest upfront in the fixed costs of warehousing. We also allow you to distribute our inventory across the country and essentially allowing to create a white labeled Amazon Prime kind of service.
On the B2B side, it's an integrated supply chain solution. So essentially, we help companies design and execute their supply chains. We both obviously help them store inventory and transport inventory to and from plants and warehouses across the country and then to dealers or the customers. And through Algorhythm and through Vinculum, we also have the ability to help them optimize inventory placement and fill rates and transport selection. So warehousing obviously sort of nit into the whole supply chain services and transportation ecosystem.
So continuing my point on business ideology, I just wanted to ask how far are we from volumes, which would help us realize EBITDA level profitability because I think we are doing good as far as retail volumes are concerned, I think we have reached a significant, I would say, stage of such a region of the service levels. So how far are we from the volumes? So could you please just...
Certainly Keshav, I think if you look at quarter 4, you can see that we had EBITDA breakeven in quarter 4. And so our estimation is that this year, we will have quarters where we will breakeven. So clearly, we're not far from volumes being large enough for us to be breakeven at an adjusted EBITDA level. Our ambition, as I mentioned in the past, is also to be generating net profits by the time we are late financial '25, early financial '26.
Over the next couple of quarters, though, do bear in mind, the market is very large. It's -- India is anomalous as a market in terms of the fact that we don't have a single large logistics company as India's largest integrated service provider, we are -- as of last year, we were less than $1 billion in revenue. I think our focus really, first of all is also to grow in size, which is really to be a $5 billion, $7 billion, $10 billion company in revenue terms.
And so in the short term, as we continue to make capacity investments in any single quarter, our adjusted EBITDA margins or that margins may be negative if we expand capacity heavily. This is based on our assessment of future growth. But this year, again, as we've seen in financial '22 and in financial '23, I think operating leverage will kick in. And we will see profitable quarters this year as well.
And my last question would be on the competitive side. I think Maersk has also announced that it is entering the express parcel business with a flat rate of some INR 80 per parcel an all, plus there's a lot of cash on the balance sheet, and I know the proceeds have just been in like just come 18 months back. So how are you planning to use that? Is it more on the acquisition side? Or are we all going to add more trucks and more physical facilities. So could you please just...
Sure. I think for us, strategically, we've always been clear, which is we will continue to build capacity to service the market, which means expanding our mid-mile facilities, which means expanding our trucking network, continuing to gain scale. And so a portion of the cash that we've raised at the moment, we continue to be invested in expanding capacity. We obviously believe that we are a natural consolidator in this market, and we do look for inorganic opportunities for growth as well. And so a certain amount of our capital should we find the right asset at the right price, will be deployed towards acquisitions if required. We made a couple of bolt-on acquisitions on the tech side in any case over the last couple of quarters.
And outside of that, some of it is also ultimately, we're in a volatile and uncertain world. And so it provides a buffer of safety to the company having a strong balance sheet, I think, is also a competitive advantage to us. About Maersk, specifically, I can't really comment too much because I have no idea why an ocean freight company wishes to compete in an express parcel market. But I doubt that it's likely to be a very successful strategy at least in the short-term midterm. It's an entirely new capability for them.
And if you ask me, the INR 80 price point is higher than the price point that players in the market, not just Delhivery, but other players in the market already offer. So I'm not really sure what the value proposition is at all.
Next, we have Dhiresh Mehta.
Am I audible?
Yes. Go ahead.
This slide, which is there on ESOP charge. So this year's comp cycle, if I heard correctly, you said it was already over. And this year, you gave 2 million ESOPs, right?
That's correct.
Okay. And what was this number last year?
Amit, can you take this question, please?
I'll just pull in the last quarter's results and...
So my basic question was when I was getting to was that on a steady-state basis, like you shared, right, in a steady state, we'll have 30%, 35% gross margin. So what is a steady state ESOP charge was in this table as of now FY '28 shows 0, right? But as time passes, you have grants being done. So on a steady-state basis, what is going to be the ESOP P&L charge?
Apar, can you please jump to that slide. So I'll just summarize how our ESOPS are structured. There are 2 portions of our stock options, performance based and time based. Can you go to the previous slide, please? Yes. The ESOPs which are ungranted today stand at total of about 39 million stock options out of which time based or 24 million stock options and performance based are of almost 15 million stock options. These performance-based stock options vest at a share price level of INR 800 a share, INR 1,000 a share and INR 1,200 a share.
The charge for the performance-based stock options granted has been shared separately from the charge based on the time-based stock options. The performance base -- sorry, the grant of the 2 million stock options that happened this quarter was of the time-based stock options -- and correspondingly, the charge would be close to about INR 80 crores for the full year. So as you can see, if we were to use somewhere around, let's say, 3 million stock options a year on time-based, the 3 million to 4 million, the poll would last about 6 to 8 years for us. And equally, if we were to use about 2 million stock -- performance-based stock options per year. Again, the pool would last an average of about 7 years.
Understood. So on average, you're giving 2 million to 3 million ESOPs per year, and these are given at face value, right?
Yes. 2 million to 3 million -- I mean, I said that roughly, you should assume that 3 million-odd time-based stock options per year and about 2 million, 2.5 million performance-based stock options. The performance-based stock options costing gets adjusted downward because of the probabilistic event of achieving these share prices. And just from an accounting standpoint, this cost doesn't get reversed in accounts if the price level is not met, and equally, there will be no dilution corresponding to these either.
Understood. And coming to the Slide 11, which is on the incremental adjusted EBITDA movement. Now some of the costs are related to capacity expansion but if we take out some of those, for example, DC capacity expansion was INR 2 crores, then there is a INR 13 crore increase in transport fixed cost. Some of that is mid-mile capacity investment, and some of it is business as usual increases in salary.
So my point is that even if we take out some of the costs which are related to capacity expansion, then the increase in transportation service EBITDA, corresponding to the increase in transport revenue obviously, you've not given the breakup. First of all, if you can give the breakup. So for example, INR 2 crore, I think, clearly take out and add back to the minus INR 6 crore, right? But out of this INR 13 crore, how much is mid-mile capacity expansion?
So the way, I think one other important part to look here is the security and extreme weather-related impact. This has been estimated at a conservative level where parts of the country have been completely -- completely shut. And our estimate is that we would have lost about 0.5 million to 1 million package volume in this period, and we continue to pay wages for all our staff and ensure their security. So if you were to take -- just add INR 2 crore and INR 4 crore, this will take -- this will make the service EBITDA impact neutral. And the mid-mile capacity expansion would have been I think, about INR 8 to INR 9 crores out of that INR 13-odd crore impact here. So that would be...
So add another 4. So basically, on INR 44 crores of incremental revenue, adjusted for all these things, you have INR 4 crore increase in transport. You would have...
You would add INR 8 crore. You would add back INR 2 crore, you would add back INR 4 crore from the security impact. And you would add back INR 8 crore from the mid-mile capacity.
Okay. So then -- and then you have this increase in corporate cost also. So in this, there is only thing which is one-off seems to be this INR 5 crore one-time milestone-based payment. So net-net, the costs are also increasing, and the increase in service EBITDA is not able to take care of -- at that scale that we are operating in.
In this quarter. In this quarter, I think the point that we've been making consistently is the recurrent preparation for larger volumes going forward. I wouldn't read too much into the numbers from any single quarter.
But then the adjustment that you were doing was to take out those costs, right, which are just rising because of the scale investment. And then after making those adjustments, then we are seeing that increase in corporate costs are not able to take care of the increase in transport service EBITDA after having made the adjustments for scale investments.
So the increase in corporate costs of INR 6 crores in salaries is an increase linked to our annual performance. We have an incremental revenue of INR 44 crores. Incremental gross profit is INR 17 crores, which is quite obviously visible. There are certain network investments that have been made because we expect significant incremental revenues through the rest of the year, which will come through. Our corporate costs are not expected to rise through the rest of the year. The remaining fixed costs are not expected to rise through the rest of the year.
We're at the end of the Q&A. So Amit, Sahil, I'll just jump in with a few questions from my side, if that's okay.
So one of the things you mentioned, Sahil, in your earlier presentation also is that you've close some of the partner constellation last mile centers opened, new express delivery centers of your own. And you mentioned that the larger partner centers were moved in-house. So I'm just wondering, is this driven by as partner centers become larger, there is scope for deployment of automation and you do prefer to do that in-house. Is that how I should think about it? Or is this a one-off thing? Or is it a structural change in that sense?
It's a tactical thing that we keep doing on a regular basis. These are small delivery stations. The constellation program is where somebody in a local market can run a delivery station for us. It's not because there's scope to automate or anything of the sort. I think when volumes become large, typically, there are certain processes that need to be built in which are better done through our own delivery centers than through partner centers.
Partners may continue with us. What typically happens is that you split the network. So for example, if you're running a telecom network as traffic in our sell side becomes larger, you split the sell side, similarly, in logistics, when the volume in our DC becomes large enough, we split the DC and we replace with one of others -- it's a fairly tactical and sort of routine process.
Got it. Understood Sahil. My next questions are just some housekeeping questions. So first, if you can explain what you meant Amit, on some changes to other expenses and other income because I noticed that the other expenses also went up Q-o-Q. So if you can explain that. And then finally, you used to provide this cash lease rental split between interest expense and ROU. So if you can do that. And finally, the CapEx and FCF for the quarter. And related to that, did working capital kind of benefit from the higher share of D2C in this quarter?
So Vijit, I won't have the CapEx and FCF number exactly with me. But the working capital improvement was largely driven from our B2B businesses, primarily part truckload and supply chain services. The CapEx and FCF numbers we will release along with our September balance sheet. Coming to your ROU question, can you Apar, please jump to the adjusted EBITDA bridge slide -- we again may not have the ROU absolute a set here because the balance sheet was not been released for quarter 1 -- the adjusted EBITDA walk Apar.
Yes. So the actual rent paid for the quarter was INR 66 crore, while the -- while your amortization of the rentals would have been part of the depreciation and amortization, we'll share back this exact number alone off-line with you.
Okay, sure. And yes, sir, just a last question, the clarification on other expenses and other income that you mentioned earlier.
Varun, can you please take up The adjustment between other expenses and other income adjustment?
Can you please repeat the question?
The adjustments we have done in other expenses and other income. It is a classification what exactly was reclassified.
Vijit, can you repeat the question, please?
Yes. Varun, can you hear me? Hello, Varun. I think Amit, Varun can't hear us. Varun, if you can hear me now. The question...
I can hear you.
Okay. The question was what is the reclassification that has happened between other expenses and other income because the other expenses look like they've gone up Q-o-Q, right?
The increase in other expenses is not driven by the reclassification. Some of the expenses that would have -- that drive this increase in other expenses are -- if you see the notes that we have disclosed as part of our annual results earlier, you'll see that marketing expenses are a part of our other expenses. Some of the things like travel expenses are part of our other expenses or the things like the technology costs are part of our other expenses.
So these cost -- technology costs would have gone up along with volumes as well as the fresh investments that we make. On that bridge slide, you would have seen that we have shown as part of our corporate cost increase that we have increased our spends on marketing starting this fiscal, that also explains the increase in other expenses. So it's those kind of multiple items have driven the increase in other expenses, a majority of them would be part of our corporate costs.
Got it. Those are my questions. I think we are at the end of this call now. So I'll just give this back to Sahil and team for your closing remarks.
Thanks, Vijit. Thank you all for joining the call. And as I mentioned, the summary of the quarter is, we're happy to have a fourth consecutive quarter of revenue growth. We made some investments in capacity expansion which have marginally reduced margins, but overall, the economic performance of the business continues to remain stable.
And I think we have a pretty positive growth outlook going into quarter 2 and the second half of this year. So hopefully, see you all at the next earnings call in 3 months. Thank you for hosting us, Citi.
Thank you. Thank you, everyone.
Thanks.