Transport Corporation of India Ltd
NSE:TCI
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Transport Corporation of India Ltd
Earnings Call Analysis
Q2-2024 Analysis
Transport Corporation of India Ltd
The company has witnessed a 6% growth on the top line and an impressive 12% to 13% growth on the bottom line quarter-over-quarter, with a notable 20% growth at a consolidated level and 16.7% at a standalone level. This can be attributed to the emergence from COVID-19 and the economic rebound that followed. For the current year, management's outlook remains positive, expecting a healthy growth of 10% to 15% in both revenue (top line) and profits (bottom line).
In terms of operational efficiency, the company is navigating through some variability. With certain years anticipated to experience 'flat growth', the management is aiming to normalize EBITDA levels around 25% to 30%. This normalization process aligns with potential acquisitions of secondhand ships over the next 2 to 3 years, which is expected to foster accretive growth in both top line revenue and profit margins.
Regarding capital allocation, management has expressed moderate caution in their investment strategy, particularly concerning the acquisition of new ships—a relatively new endeavor for the company. Committing further to new ships is seen as imprudent until the company gains comprehensive experience from the timelines and processes involved in the current acquisitions. The company's strategy could involve a mix of secondhand and new ship acquisitions, largely subject to pricing and the success of initial experiences.
In their joint ventures, the company has aligned with reputed clients like Toyota, which has been performing well, contributing to the positive trajectory. Mention of potential expansion plans, like a third plant, signals continuous growth opportunities within these strategic partnerships.
The company also acknowledges macroeconomic factors such as state elections that may cause fluctuations in the short term. Nevertheless, the management maintains their 10% to 15% growth guidance, although they suggest that actual figures might lean towards the lower end of this spectrum. This projection considers a post-election economic refresh and an expected surge in business during the end-of-calendar-year and end-of-financial-year periods, despite a recent growth deceleration due to a higher base effect established post-COVID, and a subsequent slowdown coupled with an emphasis on pursuing quality growth over mere expansion.
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Good evening, ladies and gentlemen. I, Simran, the moderator for this conference call, would like to extend my warm welcome to all of you for joining us today. Today, on behalf of the management, we have with us Mr. Vineet Agarwal, Managing Director; and Mr. Ashish Tiwari, Group CFO. [Operator Instructions] Please note that this conference is being recorded.
I would now request Mr. Ashish Tiwari to embark on this meeting. Thank you, and over to you, sir.
Thank you, Simran, and good evening to all of you again. As is well, we will begin with the quarterly, in fact, half yearly update as well and then follow by the question-and-answer session.
Now I will invite Mr. Agarwal for the quarterly updates. Thank you.
Thank you, Simran, and thank you, Ashish. It's a pleasure to be back again this quarter to talk about our quarterly results for Transport Corporation of India. We're just putting up the presentation.
As we all know that the first half of the year is always a little weaker compared to the second half of the year, especially in the business of logistics, in -- we are -- first quarter is typically when we see a lot of volumes that were in the Q4 of the previous year, it's much lesser.
And in the second quarter, we see the impact of monsoons that is there also, so that also reduces business to some extent. And that trend continues. And Q3, Q4 is definitely much, much better as we go forward.
Typically, about 45 -- 40% to 45% of our revenues come from the first half of the year. The only change in this particular slide here is that we've added Middle East. Our operations in UAE have just commenced. We've opened our office there. And the idea is to do cross-border trade between the UAE and India, especially where we are seeing a lot of our customers asking for those services in those countries -- in that area.
Not much has changed from a [ drivers ] perspective on a quarter-on-quarter basis. The overall trends -- the long-term trends around these specific areas are still robust.
I think the other aspect that is really added on here now more so is the fact that now we have 2 war fronts that are active on the global -- on the geopolitical situation -- scenario, and that creates a little bit more risk in the system, especially risks around fuel as well as risks around certain supply chains that can get disrupted, which, of course, we know that a lot of them were disrupted in the first -- start of the first war between Ukraine and Russia.
So we are anticipating some of the disruptions in the Middle East. And in the next 3 to 6 months, that would be visible also.
But on the fuel side, our sense is that it might not -- the government might not increase fuel prices or tinker with them to a great extent, given that there is the elections coming up in states in the next 2 months and then, of course, the national elections. So it remains to be seen how things are. But if there is going to be any change in fuel prices, we think it will be possibly after January only.
Your company is well positioned in terms of the presence in all industrial segments with a massive range of services unique to our sector and especially in the multimodal area. And of course, we are completely tech enabled.
These are some of the list of services that we have across various -- some of them are specific to verticals, whereas some of them are general in nature as well. But ultimately, the client gets a single-window solution and is able to track everything through a single window and monitor everything through a single window.
So that is -- we're using that as an example. We have a client solution for a footwear company, where we were able to really work very closely with them to see how we can optimize, first, their processes, starting with the warehouse itself.
We were able to provide them infrastructure that was multi-level, multilayer and -- resulting in cost savings, safe space saving as well as accommodating more of their products into the racks and [ bins ]. The number of SKUs that we are handling are massive, as well as the throughput is also massive.
And this is a complete omnichannel kind of an experience where there is an online version of sales that happen and we process those -- that online version as well, [ big pack ] invoice and ship it out. So this is something that would be unique in the industry, and we are hoping that these are some examples that we can use and take to other companies and -- especially in companies which have high SKU, those -- for them, these kind of solutions are very valuable.
The network capabilities around multimodal have been increasing. The amount of containers that we've handled in this half of the year is about 15% -- about more than 20% higher. And apart from that, we have -- the full rate movement has gone up substantially also from 900 rigs to about almost 1,200 rigs in the first half of the year. The other infrastructure remains as is, no -- nothing has been added into that.
We have a presence across all industrial segments and economic activities wherever they are increasing. And including the new areas, for example, renewables, we do a lot of work in the solar segment, we do work for battery companies, we do work in the infrastructure, of course, which are also directly connected with many of these sectors per se.
So we are active in almost all major segments, except for the pure commodity kind of play, where we know that the margin structure is much lower, value addition is much lower. And hence, we're trying to stay away from that.
Technology is given, I think, in terms of both internally and externally the way that we manage with our clients and with a high degree of cybersecurity also there.
In the quarter ended, the business was a little slow, comparatively, versus last year because maybe a little bit of a higher base but also the delayed festival calendar, with Diwali being much later in November, we saw that some stocking was delayed. However, we are seeing that the pickup has been there in the last few months -- last month or so, and this continues.
Currently, our borrowing also remains zero -- well, net zero. We do have a small amount of borrowing, about INR 70-odd crores, which is into trucks, that has been more historical in nature.
In terms of the Freight business, again, no major impact or change in the -- on quarter-on-quarter basis. Customer needs have -- are the same. They do continue to evolve with a demand for more of our national players. Every time I meet our customers, they are asking for moving to more and more organized players like us. So that transition is also underway.
The business you know is [ full ] truckload, less than truckload with a key account management system and control towers also visible -- available for clients. The business grew -- did not grow much, actually. Only, it was very flat in terms of top line. And the bottom line contracted a little bit for the quarter. For the full -- half year, we are slightly negative as well.
Essentially, we would contribute -- we would mention that the margins are down because the volume growth did not happen. I think there is some -- a little bit of a sentiment change that we are sensing because of, maybe, the delayed festival season or because of some other factors related to, perhaps, incoming elections and so on that some amount of slowdown is being felt.
Also, we are cautious of doing business with -- now with interest rates being very high. There are several companies who are delaying payments. So we are now cautious of ensuring that, that does not happen. And hence, we are reducing business with those kind of clients.
The move towards LTL business has started again. Last year, it was flat. We are seeing growth coming back there, and we are seeing 100 basis point improvement in that business. I think that this is a temporary phenomena. Typically, Q4 -- Q3, Q4 will pick up again, and we should be able to reach our expectations in terms of both the top line and bottom line growth.
Again, on the supply chain side, we are not seeing any kind of major changes on the dynamics of the industry. We do see some competition that has listed in the quarter. However, we also know that many of these -- some of these companies are -- most of the businesses are overseas and not in India.
Our business continues to remain quite robust compared to our competitors in this space because we are again, very, very conscious of our margin structure. And sometimes, we might contribute -- might sacrifice some amount of growth for that preservation of our margins.
Next slide. The business continues to be robust. Around 80% of it still comes from the auto-related sectors, including the -- including your earthmoving equipment companies and so on. We have seen a good growth in terms of -- a good pickup in the last few months from the 2-wheeler segment. And we think in the next 2, 3 months, some of this is also going to come back.
Overall, the automotive sector being in a good space, we are seeing a good amount of growth on the top line as well as on the bottom line. The ROCs have also improved. And when we are working with our clients, we are seeing that they are quite happy to contribute more and more towards multimodal services of ours.
On the Seaways side, if you go to the next slide, again, our -- we have about 8,500 containers that we own and the 6 ships. The business -- since we have had all the, next slide, ships operational, the volume growth has come back. The profit growth has been muted, and we were expecting this to really normalize slowly, and that has started to happen. The bunker prices have gone up. However, the freight rates have not gone up as much.
Sorry, just go back, Ashish, sorry. We would also like to mention here that we have signed to buy 2 ships in -- from the Japanese shipyard. These are container vessels of total capacity of about 14,600 deadweight tonnes. They are approximately going to be -- going to cost us about INR 300 crores, and they should be ready by FY '26 -- in the middle of FY '26.
However, we will also -- we are keeping a lookout for secondhand ships as well. These are specific ships that we analyzed and felt that we would need on certain sectors, especially the shorter sectors because these are smaller ships, but they are definitely a lot more fuel efficient and -- as well as ready for the future because these are multi-fuel vessels and with a life of 25 years.
The joint ventures are all stable. The Concor joint venture has had a marginal growth. And so has the Cold Chain businesses, again, both are seeing good traction. In the Cold Chain businesses, we've invested into new trucks and augmented fleet capacity because we are seeing a lot of trends towards -- interesting trends towards more and more business opportunities. Our joint venture with Mitsui for the handling of logistics of Toyota has done quite well, with almost a 50% jump in top line.
On a consol basis, for the half year, we've had a 6% growth on the top line and almost 12%, 13% growth on the bottom line and about 20%, on a quarter-on-quarter basis, on a consol level; and at the standalone level, about a 16.7% growth on the bottom line. Again, as I said, our guidance for the year is about 10% to 15% on the top line and 10% to 15% on the bottom line, which we think we should be able to achieve.
We continue to have about close to INR 300 crores of cash available on our books. And I think some of these numbers are quite self-explanatory. Nothing has changed from your dividend that was approved by the Board of about 125% in the first -- for the first half that was in line with what was done last year as well.
Our ESG goals are quite robust. We are very strongly working towards -- moving towards multimodal as much as possible, so that we're able to not only reduce our carbon emissions but also our customers'. And hence, this growth is -- towards multimodal is quite useful and helpful for our clients as well. Our partnership with [ IIM ] Bangalore for building a sustainable supply chain lab is also going quite well.
In terms of outlook, the demand remains slightly moderated. But again, our -- we should get to 10% to 15% in terms of top line, bottom line. The CapEx targets have been revised. We looked at ships, of course, as I updated that the INR 300 crores will be spent over a course of 2 years and not at one shot. So the installment that is due this year is what we have taken into our budget.
Similarly, the expenditure on a rake that was planned for the end of this financial year is going to happen more towards next year, so that also we have reduced in terms of CapEx as well as some other tweaking. So we believe that we should be around INR 250 crores to INR 275 crores in terms of CapEx. The actual cash CapEx already done so far, it's about INR 115 crores.
We're happy to take any questions. Thank you.
Thank you, sir, for the valuable insights. [Operator Instructions] So the first question is from Mr. Alok Deora.
So this is Alok Deora from Motilal Oswal. So thanks for the presentation and the insights. So I just had a few questions. Firstly, on this new ship, which we have -- which we are looking to purchase, so the first question is, is it coming in mid-CY '26 or FY '26? Because in the press release released today, it was, I think, mentioned FY '26. But when we had announced this, it was around mid-CY '26.
Yes. I -- we don't have like the exact date, so far. But the date is approximately, let's say, middle of the year, which could be -- so let's assume September -- August, September of FY -- of '26, 2-0-2-6.
So it would be FY '27, then?
I think one ship might be coming earlier, so it would be filing in FY '26. And the second ship maybe later in 3, 4 months. One was in January, and one was later, yes, that's right.
Sure. So in FY '26, there would be very negligible contribution from these new ones?
Correct.
Got it. And so this CapEx, which we have revised now, so you have now not factored in the secondhand ship, which you were looking to buy. I mean that's like a very remote possibility now, at least for this financial year?
Yes. For this financial year, yes, that possibility is not going to happen. We will look out for the next financial year.
So if you could just provide some update, I mean, what is happening there? Because is it like now we have these 2 ships, so we might not even actively look at it or because -- we are already discussing with some potential sellers now, and it could take some time, maybe a couple of quarters to materialize. What stage we are in at this point of time for the new ships? Because the growth, which could come in the CVS, could be quite negligible till the new ships come in.
So what is going to -- essentially, the thing is that we have to keep a watch in terms of what's happening on the market also, is the demand coming up to that much -- at that speed? Is the -- what is the competitor doing in this space? And looking at all of those things, we are thinking that post elections next year is when might be a good time to really start looking at the second ship.
So I don't expect it in Q1 also of -- I mean not second ship, I meant a secondhand ship. We do definitely need to add more capacity. The timing of that capacity has to be seen both from a perspective of demand as well as from a perspective of the pricing that's still in the market. We have not seen that the pricing has really come down too much that we can still warrant an increase to buy the ship.
So it's a strategy, it's a combined strategy that till we don't get a second ship -- secondhand ship, we can at least go ahead and buy new ships, which will come later. And anyway, we will need that capacity then. But simultaneously, also, we are going to keep a lookout for a secondhand ship.
Sure. Just last question from my side. So what's the CapEx for next year, assuming we are not penciling in the new ship, the second-hand ship purchase? Just -- because based on the payment for these ships, which we have signed the agreement for, what's the CapEx for next year, total?
I don't have that figure right now, but I think it will be approximately the same amount as this year.
Sure. And if the new ship comes, it could be increased by INR 100 crores also?
Perhaps, yes.
The next question is from Mr. Krupashankar.
Continuing on the Seaways segment, just wanted to understand, we need that up -- we do hear that there are new opportunities emerging from Myanmar with respect to import of pulses. And so do you believe like the margins can expand further, given that there is an availability of return cargo from a different geography? And -- that was the first part of the question. And second thing is with the fuel prices increasing, what is, right now, stopping freight rates from moving upwards?
Several factors. Clearly, demand is one of them. If the demand is slightly lower, there is obviously going to be pressure on capacity utilization. And the second is, of course, competitive pressures. Sometimes when we see that international companies who are operating in different markets, they find the pricing coming down and they find that India pricing is decent, they might want to shift their ships here also.
So both of these things are there. And hence, we have not seen that increase that should have happened much as the fuel price, the bunker price increasing. So yes, so it's an ongoing challenge. And again, some of it is also seasonality. I think the Q2 is a little weaker. Always, there's also monsoons. So sometimes we have lesser voyages as well, so -- but nevertheless, I think this is something that is being closely watched.
And with respect to incremental volumes coming in from Myanmar on pulses import, how do we see [ TCI ] placed on that front?
Again, those -- see, I think the time when we were making those shipments earlier from Myanmar and now it's a big difference, pricing is quite low there also. So it helps us to make some money but not as much extraordinary profits that we did a few quarters ago. So yes, so I think that will help us to preserve our margins but not necessarily augment our margins.
Got it. And the second aspect was on the Supply Chain business. Now while you do see that, of course, autos are doing quite well. I think -- with respect to warehousing also, with respect to what the case you presented on the footwear industry.
So just wanted to get a grip on whether -- are you seeing that number on a longer [ term ], which is 80/20, 80 being in favor of automotive sector, the revenue contribution? Are you seen that number coming down to, let's say, about 70 or 60 in next 3 or 5 years? Or is there any goal which we have set with respect to the industry mix?
No, not necessarily. We don't have an industry benchmark. We -- neither do we think that there is a definitive goal towards getting it to that lower number and that fast, which also could mean that you grow in other sectors at a much lower profitability. That is something that we'd like to avoid.
So I think a few hundred basis points of decrease every year is something that we keep planning. But our success in the automobile sector, specifically has actually kept -- worked in our favor, and we've been able to get more business in that. So I think if you take a 3- to 5-year perspective, I think moving from 80% to -- will be at -- 73% to 75% is possibly the best bet.
The next question is from Mr. Yash.
I am Yash from [ ithought ]. So the first question is relating to the Seaways. You mentioned about the new ships coming in FY '26 and '27. So how do you see the growth outlook in the Seaways division till that time period?
And since now, these are new ships and earlier, we were open -- and we are still looking to buy secondhand ships, what is the payback period of the new ship versus if you buy a secondhand ship, if you could explain that? And I mean, what is the reason that we went for a new ship versus, again, going for the secondhand one? So just trying to understand these two points.
I will take the payback question. So the new ship, as per our calculation, moderately, it would be 6 to 7 years, and with the IR of 20%, 21%. For a secondhand ship, we have the same kind of payback, which is, again, a 7 to 8 years and a similar 19% to 20% IR. So the new ship has a life of 30 years, which is the operational life as per the shipping regulations, while it has been depreciated in 25 years. So that also have an impact on the IR as well.
Right. And the growth till FY '26, that part of the question?
I think the growth will be a little flat, depending upon the year. Some years, we might have some dry docks that will come in. And accordingly, some ships will go out of service as well as some years, we will see a good growth. So I would basically look at it as a flat growth and essentially normalizing the EBITDA levels at about 25%, 30%. If we add a secondhand ship in the course of this next 2, 3 years, we will see then an accretive growth in terms of both top line and margins.
Right. Right, sir. The second question was related to the Freight segment. So the understanding was that with the mix shifting towards LTL, I mean, you said that 100 basis points have increased, the margins and subsequently, the ROCs would improve further. And we have seen a margin decline on a year-on-year basis, even though we have had a flat top line. So is it fair to assume that in the next 2, 3 years as the mix improves, so we can see ROCs crossing the FY '23 now?
Yes, absolutely. I think what has happened is that last year, since the -- there was a little bit tougher shift to FTL business, we saw that the credit also increased because of that. And that credit meant that it translates into, I guess, lower ROCs, business did not grow at that pace. So this is, I would say, this -- maybe this year's phenomena. But yes, hopefully, by the end of the financial year, we should be able to come back to the ROCs of the last year. If not, then at least above 25%.
Yes. So can I go for one more question, if possible?
Yes.
So you have lowered the CapEx guidance by about INR 100 crores, and I think it's mainly because of this ship. And for the other investments that you have lowered, are we seeing -- are we doing this because there are growth challenges for the current year and we are trying to cut the upfront investments and invest closer to revenue visibility? I mean I'm just trying to understand the capital allocation mindset here.
No. Well, it's more also to the fact that you have to find the right ship as we've been struggling to find the right ship. We've done -- we have our teams that have gone all over the world, checked out ships as well as looked at pricing. And we've not really found the right kind of ship at the right price. So that is one.
And the second is, of course, there is a global uncertainty and local market changes that are quite visible. So that is having some impact on capital allocation but not to that extent that we will have to -- we have delayed it. It's more on the latter than -- a little more on the former reasons.
So that and then ultimately, we'll also have to transition our ships as per the new regime to the -- with an age, there's a limitation on the age. So we will have to invest into capacity as soon as we can. And by buying these 2 ships, we are guaranteeing that we will have capacity. And what -- anything else that we are able to add in the next 2 to 3 years is also additional bonus for us.
The next question is from Mr. [ Devyansh ].
In the Freight business, my understanding was that let's say, 90%, 95% of the trucks are outsourced, and we don't own any trucks or rather our own truck is very less. So then even if demand goes down, why would the margins shrink, given that we will not be carrying any trucks on our own book?
Yes. So the margin shrink is shrunk because we don't necessarily -- since we do not have trucks, but we do have other fixed costs, right? We do have people costs, we also have some infrastructure that exists, whether it is branch offices or hub centers and so on. So there's a certain amount of fixed cost that, of course, keeps going up every year. So that's where some of the margins shrunk.
And also FTL business typically has lower margins. So that has had an impact over the last few quarters. And as we are transitioning back to LTL business more and more, we will see this margin coming back.
Got it. Got it. And just one more question on the AFTO. When can we expect the next rake?
I think Q1, Q2 of next year is what we are looking at.
The next question is from Pinaki [indiscernible].
My name is Pinaki [indiscernible] calling from [ AUM ] Capital. Sir, just in your opening remarks, you said that your half yearly -- these first-half results are normally a bit laid down or pickup is -- will pick up in the second half. Sir, but comparing the previous 2 financial years, like this year, you have reported a half yearly growth figure of just 6%.
But coming to FY '23, compared to FY '22, the growth was about 20% and compared to H1 '22 to [ '21 ] was about 38%. So one of the main reasons you might say that post-COVID, the economy was opening up, so there was a substantial growth. But sir, from double digit to single digits, so what is the reason for this, this financial year?
So both aspects, one is clearly what you rightly said about the fact that we were emerging from COVID and it was a low base effect that happened. And now we're having the higher base effect. And secondly, of course, is the fact that there is a little bit of a slowdown that I mentioned. So hence, the growth has come down. And third is, of course, quality growth. There is business available but not necessarily of the best quality in terms of payments or in terms of margins. So we don't necessarily want to grow that [ rake ].
Sir, coming -- like you said that we are facing 3 to 4 state elections at present, and then comes big general elections. So sir, actually, are you still confident of reporting a 14% to 15% growth compared with all the projects which are in hand that -- now at present?
Yes. Well, our guidance is 10% to 15%. I know it's a broad number, but it is something very difficult to predict, also how close we'll get to that. But I would think it's on the lower side of the teens rather than on the higher side of the teens.
But Q3, Q4, typically, there is -- surely, there is more business that is -- that comes out and almost -- whether you look at the end of the calendar year in December when [ MNCs ] are closing their books and they are pushing sales or in March when Indian corporates are closing their books and they're pushing sales.
So there is -- both times, we see a tremendous thrust towards business. Yes, elections do have a dampening effect initially, but there's a trickle-down effect of is what we believe comes in a few months that the amount of money that gets spent in the elections comes down over the course of the next few months.
There is a little bit of a slowdown -- slowing down, not slowdown but slowing down, of infrastructure spend as well. But I think that is perhaps based -- some of it is seasonality also because of a very disparate monsoon in different parts of the country. And secondly, it is also because some places we've seen that government spending has come down a little bit.
The next question is from Mr. [ Subal ] Khanna.
This is Srinivas from Mirabilis. Just a few questions. Firstly, a clarification on the guidance that you've given of 10% to 15% profit growth, is this on the stand-alone numbers or including all the JV, government and other things? That's the first.
Ashish, it was on the...
It's on stand-alone basis.
So whatever comes from the other JVs [ transition ] and all will be additional?
No, that would not additional because it's a growth number. So that would be hovering with 10% to 15%. But yes, it might be from the JVs and other subsidiaries that the growth number would be higher or lesser. But overall, this is the number on the stand-alone basis.
Got it. Sir, secondly on the ship acquisition, you've had challenges acquiring ship for the last -- quite a few quarters. From a long term -- and now you have taken addition to -- kind of induct ships by kind of through more of a new ship kind of thing.
Now when we look at planning for this over a 5-, 10-year period, then would it make sense to kind of keep ordering new ships than be dependent on the secondhand market because that has its own challenges? You would, of course, sometimes also get at good prices. But how do you think about the strategy itself of acquiring ships from a very long-term business plans?
Yes. It's a great question, Srinivas, that actually, we have never bought ships like this. We never bought brand-new ship. So it's a brand-new experience for us. And I think committing to more ships beyond this right now will not be prudent till we don't experience the timelines, the way the delivery happens and the whole experience around this.
So very difficult to commit to that from an longterm perspective saying that we are going to keep buying ships, both secondhand and as well as brand new. Ideally, that could be a good scenario. Or if, as you rightly said, the pricing is great, keep buying the secondhand ships. So let's see how it goes. I think I honestly don't have an answer to that yet. We have to still experience what's going to happen with this acquisition.
Okay. The last question I have is on Transystem. I didn't hear the initial part of the call. But maybe if you can give an update on that business specifically because that's going great. So what is happening there? And what is the outlook there from at least a near-term perspective?
Transystem is a joint venture, handling the logistics of Toyota predominantly, and we work for Japanese OEM clients. And there, the business has -- as we know, Toyota has done -- is doing reasonably well. They also do work for Maruti as a cross-badging. So we've seen good growth there. And I think they're also talking about a third plant now, which were in the papers a few days ago. So all of that is helping this business as well.
The next question is from Mr. Pratik Kothari.
Sir, just one clarification on our sustainable margins in our CVA business?
Sustainable. Ashish, go to that slide, please. Yes. So EBITDA at 40-ish percent. I think 35%, 30-ish percent is historical. Ashish, if I...
Yes, yes. So 25% to 30% EBITDA were the historical returns. So let's say, it would be middle of these two numbers, around 26%, 27% at the normal margins.
So by this shift, I mean, I agree that 2 years back, we were seeing some exceptional gains. But I believe last year, our expectation was this new -- this 35%, 40% would be a sustainable number for us to maintain. We have done that over the last many quarters. So why this change from 35% to 25% now?
There's no change. It's just the historical numbers. I think if you take on the averages, then that's what it was previously. Now, because of those exceptional circumstances, we saw that they went up. Now they should start coming down is what we've been saying also.
And one of the things that I had mentioned at the start of the year is that we were looking at flattish growth in this business, and I think that is what we are sort of heading towards also; and some amount of decrease in margins, which is also what is being led to. So yes, so I think we're talking about a normalization, and that could be between this 30-ish-percent-odd EBITDA.
Fair enough. And sir, my second question, qualitatively, if you can speak about any new addition in terms of product, technology, service? So we are trying to augment a lot of this to kind of replicate our past success and be an integral part of customer supply chain, so anything more that we have been doing, focusing on -- largely on our Supply Chain business and Freight division?
I think technology is a big factor everywhere. We are doing a lot of work in this space, including -- and we have a center of excellence for logistics, which we are doing transformation projects. We're building some models also in terms of how we can optimize certain aspects of our business.
I talked the last time, I think we showed you our dashboards also of what we are doing for our clients. It has been very well accepted. And in fact, we presented to many of our clients, and they all are very keen to adopt it. So -- but the biggest challenge we still face with our clients is that none of them still want to integrate their ERPs, whether it is a feeling of cybersecurity risks or just the fact that they don't want to change their processes.
No customer yet very -- barring, very, very few who have said that please give us e-bills, they still continue to take those bills on via -- but also take physical bills, also take physical PODs and process them and take their own time for processing them.
So those are still in a digital environment today. It is still very challenging. And especially many of the large MNCs as well as large Indian corporates are themselves who are not doing all of these practices. So we keep working with them from a supplier perspective. And I'm quite hopeful that we should be able to translate some of these into better processes for the ecosystem.
The next question is from Mr. Vikram Suryavanshi.
Sir, just an update on this container. What would be the capacity in terms of TEU for each ship?
So the container capacity, so we have running around 8,000...
No, I think the new ship...
New ship, yes.
New would be maybe some 300 to 350 container capacity, on a loaded basis. It might be depending on [ volumetric ] weight as well.
Okay. So it's basically around 350 containers per ship?
Yes, that's correct. 300 to 350 containers.
The next question is from Mr. Anshul Agrawal.
Vineet, my question was on the Freight division. Do you think the commissioning of DFC poses a structural headwind for our FTL business?
No. Not entirely. I think a lot of the FTL business also moves on a door-to-door basis. And -- so door-to-door basis would mean that it has to go from one particular factory to the other factory directly. And there are -- DFC is going to be operational on the western and the eastern corridors and not necessarily at the same time or completely yet. So it's not a structural problem yet.
Containers are anyway moving. The import -- [ Exxon ] containers are moving on the rail anyways. And they'll continue to rely on the DFC, et cetera. Some shift will start happening more on the very terminal-to-terminal kind of businesses. But I don't think it is going to dramatically start shifting the FTL business right now.
For example, if -- and it also depends upon the product, I think. If the product is something that has a little bit of a sensitivity to obsolescence, then they tend to move faster and directly.
The other thing is also road network is also improving simultaneously. So we are talking about a Delhi-Mumbai highway, the honorable minister keeps talking about it, which is supposedly going to take very, very less time. So if you have to take a cargo from, let's say, Jammu to Mysore, the handoffs will be too many on a DFC. So it might be better to take it directly also.
Got it. Got it. Very clear, sir. A follow-up on this, would you be able to share the cargo profile that goes on our FTL business, just broad classification would also help, in terms of bulk commodities or certain sector exposures?
Yes. So I think the type of cargo that we work is engineering goods, some amount of FMCG, textiles, some chemicals, I mean, all kinds of products that have certain amount of value addition. Pumps to tiles to everything.
There are no further questions. We can wait for a few minutes, as the management suggests. We have Mr. [ Devyansh ] back with us.
Just one question on -- following up on the previous one. My understanding from previous discussions, what that is -- as DFC expands, the opportunity for the Supply Chain Solutions would increase. So is it -- when -- let's say you answered the previous question, that was only specific to the Freight division?
See on the DFC, is essentially meant for cargo. Now moving [ auto ] rakes is also cargo. So it would be useful for the Supply Chain business also to use the DFC, clearly, because your trains are going to move faster with an AFTO license. So yes, so ultimately, all kinds of cargo is going to move on the DFC, whether it is container or non-container also. So whichever business of ours is using rail, they will tend to benefit.
Got it. Got it. And just one question to I think someone who asked earlier that our exposure to automobiles is right now 80. And even automobiles will move in a cyclical fashion, right? And therefore, our revenues are -- our business becomes too exposed to the automobile cycle.
So as a -- while we are trying to reduce it 2% to 3% over a period of time, is there a call that we have taken that auto industry in India is too big and should not affect us? Or are we taking concerted efforts to reduce the exposure to the automobile sector?
Yes. So several things. First is that we are quite diversified in the automotive space, not just from a -- not 4-wheeler, 2-wheeler, 3-wheeler but also from the earthmoving equipment, tractors, commercial vehicles and so on. So it's really not automobile but also industrial kind of movement that is there, and we classify all of that under that segmentation.
However, we can split that up, and then you'll see that if you talk about 4-wheeler, 3-wheeler, 2-wheeler, it'll much lower, comparatively. So that is an important aspect. And so hence, the cyclicality is lesser for us compared to maybe 1 or 2 of our competitors, who are very dependent on 4-wheelers from their company itself, so that's one.
The second, of course, is the fact that 40% -- 35% to 40% of India's manufacturing GDP comes from the auto sector. So it is a big chunk of business in the country of GDP and hence, our intention to remain focused on it.
We have Mr. Yash again with us.
So on the Seaways side, last 2 years, we did about INR 235 crores EBITDA and with higher margins. So is it fair to assume at least in the next near to medium term to the new ships coming, we're sort of guiding for a flattish growth and normalized margins? So the ROCs would dip back to the pre-COVID levels, which is more around the 20% mark. And post that, once capacity addition happens and probably some margin improvement, then we go back again or improve again?
So -- yes, I mean, to some extent, we should see that happening, but not too much fall in the ROC. Also, I think the ROC is -- the capital employed will keep coming down also, so ships are getting depreciated. There is hardly any working capital requirement there. So from that perspective, it is good. So I would think that, yes, we'll be able to keep up above [ 20% ] ROCs for sure and ideally on the 25% range.
I think one important point here is that -- and which I keep -- which I've been iterating in the past also, is that we are trying to build a business which is -- which goes beyond cycles. So we have various divisions that are there that contribute at various points and are able to sort of, to some extent, beat the cycles, bring out a more consistent results.
So we had -- and this was very evident a few quarters ago when Seaways did exceptionally well, but our supply chain was not doing too well or other divisions were not doing too well. And now consequently, we've seen supply chain doing better or at one point we need to be Freight doing better.
So like this, the structure of the business is getting created that you are able to see more and more consistency in terms of our growth, especially on the margins profile, very unlike our competitors who are very, very, I would say -- you can see the cyclicality more and more in their businesses.
There are no further questions. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.
Yes. Thank you, Simran, for moderating this call. And those who are new to this call, I understand and I believe that they would have got a fair understanding about the company. We would have answered a lot of questions. Most of you have my number, and you can get to connect me for any other query, which is still there, or you can get my contact from the investor presentation. Thank you so much for joining the call. See you again in the next call. Thank you.
Thanks. Thank you. Bye.