Transport Corporation of India Ltd

NSE:TCI

Earnings Call Analysis

Flat Growth and Margin Pressure Persist

The quarter reflected a 'flat' overall performance with both top and bottom line numbers showing little change. Softening demand in key sectors, slowed infrastructure and engineering activities, along with inflationary pressures were partly to blame. Nevertheless, Q4 is anticipated to bring stronger results, being seasonally the strongest quarter. While fuel prices remained steady, negatively impacting the Seaways division. The company has continued to expand its service portfolio and branch network, opening 30 new branches and targeting 50. The Supply Chain business, however, has been a bright spot with growth in top and bottom line by 14% and 24%, respectively. Despite a competitive environment, especially in less-than-truckload (LTL) shipping leading to a revised target achievement to FY25, the company remains optimistic.

Joint Ventures and Business Growth

The company's joint ventures have shown promising performance. The rail joint venture, for instance, has achieved a 6% growth in the past 9 months, signaling strong traction. The Cold Chain segment has been particularly robust, expanding by roughly 25-26% during the same period, leading to the acquisition of 75 new trucks. Transystem, another segment, has impressively grown nearly 50% in top-line revenue, surpassing the previous year's bottom-line figures and yielding an exceptional dividend for the last quarter.

Financial Stability and Revised Guidance

The organization maintains a stable financial state, with a stand-alone revenue growth of 3.8% and consistent margins. However, the margins at the PAT level are slightly negative on a consolidated basis. Addressing future expectations, guidance for revenue and profit growth has been adjusted to a more conservative estimate of 8% to 10% from the previous 10% to 15% range. Yet, indicators like high Return on Capital Employed (ROCE) and positive EV/EBITDA ratios affirm a healthy fiscal position. Furthermore, the firm continues to practice shareholder-friendly policies, as reflected by the declaration of a 125% second interim dividend, with a payout ratio remaining below 20%.

Commitment to Sustainable Operations

The company has made tangible advances in its Environmental, Social, and Governance (ESG) goals, notably with a third of its business now stemming from multimodal logistics. This strategic shift not only grows the business but also significantly reduces carbon emissions for clients. Progress is evidenced by the company's active partnership with the Indian Institute of Management Bangalore in a sustainable supply chain lab.

Capital Expenditure and Growth Trajectory

Looking at capital expenditures, the company has stuck to a prudent fiscal strategy. After revising the CapEx plan to INR 275 crores during the second quarter, they've committed approximately INR 150 crores, and expect to approach INR 250 crores, primarily driven by impending ship payments. Anticipating continued investments of around INR 250 crores annually for the next 2 to 3 years will furnish the necessary capacity for sustained growth. The management has a bullish outlook for the final quarter, historically the company's strongest, propelled by new client acquisitions and ongoing discussions promising good growth.

Earnings Call Transcript 2024-Q3

[Simran Sharma, executive]

Good evening, ladies and gentlemen, I, Simran, 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. 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.

[Ashish Tiwari, executive]

Thank you, Simran, for this call. Good evening to all of you again. Thanks for joining us. As usual, we will start with the opening remarks and followed by the presentation -- and the presentation. For presentation and remarks, I will invite Mr. Vineet Agarwal. Thank you.

[Vineet Agarwal, executive]

Thank you, Ashish. Good evening, and -- everyone. Welcome to TCI's 9 months earnings presentation. Let me just put up the slides. Ashish, can you put it on full screen, please?

[Ashish Tiwari, executive]

Yes, just a minute.

[Vineet Agarwal, executive]

So just to start with, the quarter has been more or less flat for us from a top line and a bottom line perspective. There are, of course, several reasons. We've been indicating that the last few months have been a little slow. Both we've seen the softening of the core sector, we've seen some of the infrastructure growth also slowing down and some of the engineering sector also slowing down a little bit and some impact of inflation on consumer side of the economy.

So broadly speaking, in anticipation of the next few quarters, we felt the impact on this year on the Q3. Notwithstanding that, we saw that the shift of the festival season also had a little bit impact on some months where the stocking was quite high in months like October. But then in months like November, we saw that there was impact as volumes hardly moved.

Going forward, I think Q4 is usually our best quarter. It is always where companies are pushing for more sales. So we see that they're trying to close their books on a positive note. And hence, we will see a lot of movement also happening.

The flat fuel prices are obviously -- helps in some ways. However, on the Seaways side, we see that the bunker prices have moved up and that has impacted us negatively.

On the presentation side, I think you're all aware of the consolidated overview of how we have structured going forward.

[Ashish Tiwari, executive]

Yes. I think the slides are hung-up.

[Vineet Agarwal, executive]

On the growth drivers, nothing has changed specifically. No indication of any kind of reduction in any of these sectors, all consumer side or on the customer side. I think all things are moving as these are all long-term trends. They really don't have any short-term impact.

On the budget, there were -- there was a declaration of three new corridors. And whether these corridors are road or rail, they're all very good for the economy and also for companies like us where we are present in all the modes of transport. So it just -- we will add to the overall logistics infrastructure in the country, and it is positive news.

As a company, we've been present in all sectors as well as in all types of services, buying -- barring a few. And of course, our operations are all tech-driven and clearly, we are moving very heavily towards multimodal logistics.

These are the range of services we provide in those verticals that we service. Again, many customers are taking a single-window solution, and we're providing an end-to-end solution for them, including providing control towers.

In the last 9 months, we've been able to handle about close to 1,700 rigs across the joint venture as well as our movement of automotive -- automobiles across the country. This, as you can see, has been a substantial jump over the 1,360 rigs that were moved last year at the same period. Containers handle also has increased quite a lot.

On the -- just to share a case study with -- about a customer. There's a yarn customer that is based in the western part of the country. And typically, they provide their materials on -- used to provide the material by road. And that meant that the dealers used to place the order or the stocking agents used to place the order on the manufacturer, which meant that the manufacturer did not have a lot of visibility on who the customers were and even availability of the yarn at certain times whenever needed.

So now, what we do is that we provide them an integrated solution from plant up to the customers where we are moving the entire product in rigs. So we stuff the containers. And the first mile and last mile is, of course, done by road but it gets to the terminal. We store the containers there. And as and when the agents require the material, they are able to provide them, and some of the material is also provided to the customers directly.

So this has helped the company really gain more market share as well as their ability to service their customers much faster and simultaneously reduce the carbon emission because of the use of less number of trucks.

So these are some of the case studies that we're doing and not just in the textiles yarn side, but in many other industries going forward. As -- and this is multimodal. But other than that, we also provide a range of services in -- to all the other industries in the next slide. Next, please.

And on the technology side, things are quite good. We are working on certain models on some -- instead of large language models as LLMs, but on small language models also where we're using certain types of information and creating a learning -- machine learning around that. So simple things like, for example, getting advices from our customers, how can we read them better and we can essentially speed up the process of billing. So like this, we're working on a lot of projects, which are helping us not from our own perspective, but also from our customers' perspectives.

This quarter, on a consol level was, again, the highest quarter that we've had. There is, of course, is a little bit of a slowdown as we've been indicating. But more importantly, we've been also very cautious not to take businesses that are very, very low margins. We are preserving our margin structure as much as possible.

The trends look decent. As I've said, we have a good pipeline of customers in all the segments. The company remains net debt-free with approximately INR 300 crores of cash.

I think we briefed about the divisions. If you have any specific questions, we can address them later on.

On the operational side, the Freight division recorded more or less flat growth in the last quarter versus the previous quarter of the year and margin compression also. Again, the -- because the revenue growth was low, the margins have been impacted with a little bit of fixed cost associated with the business. However, the ROCs are at -- still in the above 20% range. And we're confident that we will achieve closer to 23%, 25% range by the end of the year.

In terms of branch network, we opened about 30 new branches in total so far in the last 9 months, and this target of about 50 branches is underway.

The share of the LTL business has not moved up as fast as we thought. There has been some competitive pressure also here. So we are moving the guidance to 1 more year ahead for -- to FY '25 to achieve the 40% target for LTL business.

The Supply Chain business has done quite well in the last quarter as well as, of course, in the last 9 months. Next slide, Ashish. The business has grown about 14% on the top line perspective and the bottom line has grown about 24%. ROCs are at 23%, 24% level. The expansion that is happening with the auto fixed good fixed -- sorry, auto finished goods movement, as you saw in terms of the number of rigs that we're moving is definitely helping the overall growth.

And of course, automotive continues to remain good. There are some segments in automotive like tractors that are slightly on the lower side right now in terms of volume, but the -- most of the other sectors seem to be doing reasonably well. And on a 9-month level also, the business is reflecting the similar kind of growth as a quarter.

The Seaways side of the business has been negatively impacted. As we've been indicating that there is certainly some pressure on the freight rates because of the -- some amount of competition on the western sector as well as the higher -- to some extent, a higher fuel prices. Some of this has come off negatively. Of course, the business has grown -- degrown as well as the margins have also degrown.

So I think we will discuss a little bit more on the guidance. But clearly, we will not be able to achieve last year's numbers in terms of the top line. Bottom line, we've been indicating that it will be lower. Of course, ROCs have gotten a little compressed because of the degrowth in the margins.

The joint ventures as well as some of these joint ventures have done reasonably well. The rail joint venture's grown by about 6% in the last 9 months and continues to form a good traction, for example, the yarn company that we shared in the case study about.

Cold Chain has grown about 25%, 26% for the last 9 months. And we've ordered 75 new trucks in this business. So the -- you can see that as reflected in the capital employed.

Transystem has grown very well, almost about 50% growth in the top line and bottom line has already exceeded last year's numbers. Here, we have received also a very exceptional dividend for this financial -- this last quarter as well.

Net-net, on the stand-alone basis, the margins as well as our revenues at 3.8% growth and margins are flat as well as on the consol side, margins on the PAT level are slightly negative.

What we are doing is that our guidance for both the top line, 10% to 15% and the bottom line, we're revising to about 8% to 10% for both the top line as well as the bottom line.

In terms of the other numbers, we continue to retain the high ROCE. Again, this is net of cash, the capital employed in the business. And the -- all the other numbers, EV/EBITDA sector are all looking quite positive.

The Board has declared a second interim dividend of 125%. The payout ratio still remains under 20% so far.

Our ESG goals from an environment perspective, we've accelerated. Clearly, we're seeing that 1/3 of our business is now coming from multimodal logistics and that is helping us to save a lot of carbon emissions for our clients as well. The partnership that we have with IIM Bangalore for sustainable supply chain lab is progressing quite well.

In terms of the CapEx plan for the budget that we had revised in the second half -- sorry, the Q2 to INR 275 crores, we had about INR 150 crores. And I think we'll probably get to close to INR 250 crores based on the ship payment that we will do in the next 2 months. So we think that we would like to continue with this kind of CapEx of about INR 250-ish crores for the next 2 to 3 years because that will help us to build up the capacity that is needed to grow the business further.

As I also mentioned, Q4 is usually our best month -- best quarter of the year, and we are expecting the similar trends as we've been discussing with our clients. We have acquired several new clients, several clients are in the pipeline, and we should see good growth for the last quarter.

Thank you, and happy to take any questions.

[Simran Sharma, executive]

Thank you sir, for the valuable insights. [Operator Instructions] So the first question is from Mr. Alok Deora.

[Alok Deora, analyst]

So just a couple of questions. So firstly on the CapEx part, so we are not looking at any secondhand ship now. That's out of the -- this our -- we're not basically looking to add any further to the secondhand ship?

[Vineet Agarwal, executive]

We are on the lookout. But it didn't make sense to add it to the CapEx, right now till we are not very sure of it. We -- anyways, if we do find something, there would be typically a quarter of time that will be needed to inspect and sort of verify whether we can acquire the ship. So we would give the -- we'll give that adequate notice to all the investors.

[Alok Deora, analyst]

Sure. And this 5% to 10% growth rate, it's -- which we have now moderated from 10% to 15% earlier. So this is for which period which we are referring to, which for like next couple of years? Or it's basically...

[Vineet Agarwal, executive]

No, no, no. This is FY '24 only.

[Alok Deora, analyst]

Okay. Okay. And -- how we are looking at FY '25?

[Vineet Agarwal, executive]

'25, we're looking at 10% to 15%. And I think that will continue for the next 3 to 4 years.

[Alok Deora, analyst]

Got it. Because if I just look at the numbers in the first 3 quarters, so it's -- 10% seems a little difficult to catch up for the entire year on the revenue side.

[Vineet Agarwal, executive]

Yes. I mean -- so around 8% to 10% is what we're looking at. I think -- Ashish, what is it cumulatively so far for 9 months?

[Ashish Tiwari, executive]

This is close to 2.5%, 3% impact.

[Vineet Agarwal, executive]

Yes.

[Ashish Tiwari, executive]

So basically, the guidance is for profit and revenue both. Probably for revenues, it might be kind of more than 5% for whole year as like quarter goes on. Revenues might be better than the -- sorry, the profit growth might be better than the revenue growth.

[Alok Deora, analyst]

Sure. Just one last question. So the CVS margins have come off quite materially from the numbers which we are seeing 28%, 29% EBIT margins. They are now at nearly 22%, 23%. So how are we seeing the CVS margin going ahead? Because -- any color on the freight rate, so how is the volume side, anything on that part? I mean would the margins be at current levels ahead or we could look at some improvement?

[Vineet Agarwal, executive]

Yes. I think, see, on the -- basically the -- with the competitive pressures that are there in the -- on the Western coast as well as the freight rates not really moving up too much, though the cost structure still remains a little bit on the higher side with fuel prices also now moving up because of the Red Sea crisis, that is the bunker prices. So that is having some amount of impact on the margins.

But again, this is something that we've been saying that this will come down. We are still at around 40% -- 36% EBITDA levels for the quarter and 40% for the full 9 months. So we've been saying that these numbers are definitely going to come down a little bit to more reasonable levels of 30%.

So yes, so I think this is -- it seems a little high, but this is something that we've also been guiding towards.

[Alok Deora, analyst]

Just one last question, similar to -- just one follow-up on this. So these new ships which we are getting it made, so how are things progressing there? It's very much on track? Or there could be -- any update on that?

[Vineet Agarwal, executive]

Yes, it's on track. It's on track, And the delivery is in the -- is in calendar year, between January and March '26.

[Simran Sharma, executive]

The next question is from Mr. Krupashankar.

[Krupashankar NJ, analyst]

Maybe one additional question on the CVS segment as -- so is there perhaps any one-off effect on the CVS side this quarter because of rains in the Chennai port or some other challenges, which can come back probably in the fourth quarter?

[Vineet Agarwal, executive]

Yes. Those have always been there. There was like a cyclone sometime back on the Western side, and then there was on the Eastern side, we had the Chennai floods and that got affected. That affected operations for a week, 10 days. And we have all the ships operational in Q4. So it will be slightly better, for sure.

But again, some volume is also -- we're seeing a little bit of weakness on the volume side also. Like, for example, tile movement from the West Coast is reduced a little bit. So some of that will have an impact, but we are confident that we should probably get to closer to last year's Q4 numbers.

[Krupashankar NJ, analyst]

Right. So 15% Y-o-Y decline, how much would you attribute to volume decline and -- with respect to pricing?

[Vineet Agarwal, executive]

So I would say a lot of this is -- sorry, Ashish?

[Ashish Tiwari, executive]

So I think they're somewhere close to 60% would be the volume decline and the rest is the price decline. For U.S.A., like super side the 50-50.

[Krupashankar NJ, analyst]

Sure. Sure. So -- and so you -- the capacity build up what you're talking about with respect to the competition side, how much sort of a capacity addition have you seen in the last quarter, if you can throw in a number perhaps?

[Vineet Agarwal, executive]

So what happens is that sometimes capacity comes in and goes out depending upon -- some of the foreign flag vessels very opportunistic. They'll see that there is some demand. They'll come in and then they'll move to other markets because there is with -- now with the Red Sea impact, we are seeing that freight rates across the world has started to move up. So some of the companies might move out.

So we don't have a exact number of fixed capacity that has been added. It's more like more floating capacity that comes in and goes.

[Krupashankar NJ, analyst]

Understood. My next question would be on the Freight division. So what I could clearly see is your ETL proportion has gone up and then the FTL piece of it had declined on a Y-o-Y basis, if I'm not mistaken, yet your margins have come in lower, if I look at it on a Y-o-Y basis as well. So is it more of LTL volumes and perhaps see load factors or not getting -- not being as high on specific routes due to which the margins have declined? Or is there any other reason why you're stating that there should be a margin decline?

[Vineet Agarwal, executive]

Well, see, volume has -- is been more or less the same. If you see the revenue, we're almost at the same levels as last year. But what happens is that there are certain amount of fixed costs and the fixed costs, whether it is at the hub level or whether it is a people level, et cetera, that starts to impact if you don't have any growth because that cost structure has gone up in the last year.

So I think the throughput across the network, that remains good. It's just certain amount of fixed cost that is moved up, which we will catch up in the next -- in this Q4 as well as going forward. So then we will see the positive impact.

We -- the last year, when we moved a little bit towards the FTL side, there was some directional loss on this in terms of the capacity utilization, and that is starting to play out here on the infra side. Now we will come back and pick that up. So not on the network side, but on the infra side, yes, there is some capacity that has not been utilized.

[Krupashankar NJ, analyst]

Got it. Last question from my side, on the Supply Chain business. Are you intending to add more rigs or -- given that multimodel has seen a fair bit of traction with automotive sector and your production has picked up? So is there any scope of additional that?2551]

[Vineet Agarwal, executive]

Well, we've been in the process of trying to get rigs, which are of the newer types which have -- can take more capacity, including SUVs, et cetera. So we are still waiting for designs of those type of rigs to be approved before we place order for new rigs. So that has been constantly been pushed by -- push ahead, and we've not got a clearance yet.

So hence, we don't have a guidance on when we'll be able to get a new rig. But notwithstanding, we've been hiring rigs from the market and growing the business.

[Simran Sharma, executive]

The next question is from Mr. Jainam Shah.

[Jainam Shah, analyst]

This is Jainam Shah from Equirus Securities. Sir, my question is related to the Freight segment. So if we see that revenue has grown at around 2% on a 9-month basis. So just wanted to understand the reason for a lower growth. Is it because our competition from the route players is increasing? Or is it because railway's dominating some of the region where investment DFG has started? Or is it industry-wide phenomena, wherein growth has lowered during this particular 9 months? Or any other specific reason that you may highlight for the same?

[Vineet Agarwal, executive]

No, I don't see the impact of railways anywhere specifically yet. But certainly, the slowdown in general freight market is being reflected here. And certainly -- there is a certain amount of competition on the LTL side as well as on the FTL side, there's always been competition. It's just that we have been more cautious about ensuring to protect our margins wherever possible.

So yes, so I think I would say more towards the slowdown as well as a little bit competitive pressures on the LTL side.

[Jainam Shah, analyst]

Okay. Okay. And if we see our bit even -- or even the interest cost might be higher because of the addition of branches that we are taking on a rental basis, which is eventually coming below EBITDA line item. So is it like we have already covered the -- most of the Indian market in terms of FTL and LTL and addition of new branches despite we have opened 30 new branches, there has not been any improvement on the bottom line, which is eventually leading to this lower ROCE for us. We are employing the capital, but the returns are not generating against the same?

[Vineet Agarwal, executive]

No, I would not say it to that extent. The opening of new branches is not that substantial in terms of a cost structure -- fixed cost structure. I think the existing infrastructure that we have has a cost, including the number of people that are there. And any new branch that comes up takes easily at least a year or 2 to give volumes as well as margins.

So I would not attribute it to the new branch network. I would just generally say that there is a infrastructure cost of people as well as the buildings, places that we have on rent overall, not just the branches, and that if there is not enough volumes, has started to have a negative impact.

[Jainam Shah, analyst]

Got it. Got it. And sir, this is the last one question for this tran shipment -- Transystem JV. So we have almost crossed the yearly profit in this 9 months only. So what is -- what exactly is giving this kind of growth momentum to that particular JV? And is it addition of more and more contracts or getting more and more orders? Or is it just the escalation part is also improving the same?

[Vineet Agarwal, executive]

Most of that business is handling the logistics of Toyota in India as well as the Japanese OEMs. And as we've seen that almost all the Japanese OEMs have done quite well in the last 9 months, and actually, I would say, the last 1.5 years or so. So I think that has contributed to the overall growth of this particular company.

[Simran Sharma, executive]

The next question is from Mr. Pinaki Banerjee.

[Unknown Analyst]

And sir, just one question. Just now, you have mentioned that the interim budget, which was presented that the three major economic railway corridors are expected to be one of the positive for you in the long term. But sir, coming to the short term, as you know that elections are around the corner and by the time it gets over, almost the first half of -- half of Q1 will already be over. So are we expecting any slowdown during this time from April to June period?

[Vineet Agarwal, executive]

I think the trends always indicate that there is a little bit of a slowdown that happens. Consumers tend to pull back a little bit and save money. But there is a trickled down effect of the election itself and that has a positive impact.

So the momentum of the economy still remains quite high. So there will be a little bit of an impact, but I don't think it will be so major.

[Simran Sharma, executive]

The next question is from Mr. Aejas Lakhani.

[Aejas Lakhani, analyst]

So Vineet, couple of questions. The first is that, you called out growth of 10% to 15% for the next year. Could you just spell out how we can envision this growth? Because I'm guessing some ships, which were in dry dock this year will come through in the next year. So we'll have some volume growth in -- slightly in -- I'm assuming in Seaways. But if there is so much pressure on freight and supply chain, we have reached a good base, at least in the industry even with the kind of volumes that we're seeing, see I'm just saying a very low single-digit growth. How do you sort of -- how should -- we did use the 10% to 15% growth?

[Vineet Agarwal, executive]

Okay. So the Freight business, assuming we are going to close at almost flat or with a marginal growth of between 2% to 5%, should see a higher growth structure specifically because of the areas that we are targeting from LTL as well as some of the new branch openings and the other things that we're doing in that business. So we have a good pipeline there as well. So I think that should grow faster than what we've done in FY '24.

In Seaways, we think it will be more of a flat growth. We will definitely hit some dry docks and we don't expect any kind of a major volume push as well as -- or a value push there. But the Supply Chain business should see definitely a very good push even though the [ Siam ] indication is that the growth on the sector will be not very high. But there are other segments that keep growing.

So for example, this year, we saw that tractors did not grow that much, but next year, expectation is with after the new budget that comes up, tractor growth and generally, after elections, there is 3323 swaps to agriculture sector tends to increase also. So we will see that there will be a push towards agriculture movement.

Infrastructure growth continues, which means that earthmoving equipment companies are also doing reasonably well. And then 2-wheeler segment has picked up also in the last few months as we know, which is basically an indication of some amount of rural growth exists as well.

So that, as well as we have acquired some large contracts and continue to acquire large contracts in warehousing and other segments of the Supply Chain business. So all of that will contribute to a much higher growth trajectory for that business, I would think in the excess of 15% to 20%. And that should help us overall to get to this 10% to 15% for the full year.

[Aejas Lakhani, analyst]

That's very helpful, Vineet. Just if I were to double-click into the Supply Chain, could you just call out that from the revenues that you do today, could you give some, I don't know, some color on how much is 4-wheelers, how much is 2-wheelers, how much is tractors, how much is earthmoving? Just some color on all of that? And are you gaining, like you mentioned about specialized rigs for SUVs. So is it that you're gaining some market shares there? If at all, who are you taking share from? Because you're going to grow faster than the industry. So...

[Vineet Agarwal, executive]

So we don't split the numbers because a lot of that is integrated. For example, we do inbound logistics for a 4-wheeler company as well as a 2-wheeler company and the supplier could be the same and you're using the same truck to do a pickup from that particular supplier for both these OEMs. And you're bringing it to the same warehouse and then splitting that and sending it to the respective locations.

So -- and similarly, the trucks at -- the rigs that are being loaded could be multi-customer rigs as well or the yards that we manage are multi-customer. So we don't really necessarily split it into these segments to share.

Other than that, we are constantly looking to add more value to -- so there could be three ways of really growing the business. One is that, that particular customer from that particular plant has increased its volumes. So they were producing, let's say, 100,000 vehicles. Now they're producing 125,000 vehicles.

The second is that same company adds a new plant somewhere and completely starts the greenfield project. And the third is there's a new company that comes in and that company adds a new plant. So all these three areas are potential growth opportunities for us, and we are picking up businesses from -- in all these segments.

So yes, in -- we do end up taking some share from some competitors. But overall, I think it's the market also, the size of the market is also growing because some amount of outsourcing also keeps increasing by the clients.

[Aejas Lakhani, analyst]

Got it. Very useful. And Vineet, just lastly, that -- given that gross margins in LTL are far like ahead of FTL and given that, yes, the mix has improved marginally, was that not enough to offset the pressure from a margin perspective that 9-month, we're still lower. So is that incremental delta coming or the difference coming only because that the fixed cost has increased so much so?

[Vineet Agarwal, executive]

Yes. It -- so as I said, the network cost has not had any impact. The utilization of the network remains okay. So yes, but the marginal improvement in the LTL side does not directly have so much of an impact on the fixed cost right away. So it takes its own time. So yes, so it has not really impacted positively yet.

[Simran Sharma, executive]

The next question is from Mr. Vikram Suryavanshi.

[Vikram Suryavanshi, analyst]

Hope I'm audible, sir.

[Vineet Agarwal, executive]

Yes.

[Vikram Suryavanshi, analyst]

Just a update on -- we also have CHA and International business license, but we have not heard much on that side of the business. Now with -- see fairly good share in the domestic side. Most of our customers also might be having import or export of raw material and finished product through International routes. So is there any opportunity for us? Or what are our thought process to focus on CHA and international business supply chain for the -- this player?

[Vineet Agarwal, executive]

Yes. So we don't do any CHA kind of activity with our -- with the Seaways business. But generally, we do a little bit of activity on the CHA side as well as on the freight forwarding side directly related to some clients who are working with us where, for example, there are some clients who are moving chemicals and we give them our tankers that we buy -- we bought, and these are specialized tankers that we bought in from China. So we provide those empty tankers go to, let's say, the Middle East. They fill with those specific cargoes. They come back and they -- we deliver it to their plants in India.

Now this complete door-to-door kind of movement we are doing using our -- first, our own infrastructure and secondly, our own license, the CHA and CC licenses. But these are very, very small businesses, and they are just under the growth prospects right now. And like the opening of the office in the Middle East, these areas where we will see more growth coming up.

We want to go into this speci -- very -- the regular freight forwarding because the regular freight forwarding has no margins. We want to do very specialized forwarding, which is really integrated to our existing business. Basically, what we say is follow the customer strategy. Where a customer wants to go, we will go and follow and get the work done. So that preserves the margin structure as well as we are able to do not just their business in this segment, but contribute in the domestic logistics as well.

[Vikram Suryavanshi, analyst]

Got it. And in LTL, you said that our target is to reach 40% of revenue mix and the 30 branches we added. So the 50 branches is the target for end of this year? Or -- I just wanted to clarify that.

[Vineet Agarwal, executive]

That's correct. It's end of fiscal '24.

[Vikram Suryavanshi, analyst]

And looking at the growth and all that, can we have a broad number of how many total branches so far we might be having and transhipment hubs for that business?

[Vineet Agarwal, executive]

I think that is there in the previous slide, Ashish, if you go behind -- one slide behind, please. Yes, 25 hubs we have and close to 700 offices.

[Vikram Suryavanshi, analyst]

I missed that, sorry. And last one is that since we talked about the shipping and now though we are more predominantly domestic postal shipping business, but do we see any chance that the Red Sea issue continues, then probably the credit rate even for domestic can increase? Or it will be purely on road versus rail for domestic?

[Vineet Agarwal, executive]

Yes. I think it will continue to remain road versus rail. There could be some impact. But unfortunately, the fuel prices are -- once -- if they start moving up a little bit more faster than we are. So sometimes the growth of the fuel prices, if it is a little bit like a normalized curve, we can't necessarily increase freight rates too much. But if it picks up a little faster then we are able to move the freight rates a little faster.

And so let's see what happens. I think it's still very unpredictable with what's happening. So some opportunities also keep coming for going to neighboring countries. But again, we are a little cautious depending on where, what and what is the margin you will get, including insurance costs. Insurance costs because of Red Sea has gone up across the board on international waters.

[Simran Sharma, executive]

There are no additional questions. We have Mr. Alok Deora, again, back with us.

[Alok Deora, analyst]

So in the LTL segment, you mentioned that you -- you might have taken -- you have not really been able to increase the share because of the other competition now. Could you just kind of elaborate a little bit? Because in the Freight business, we are seeing really muted growth since some quarters now. And how do we see that overall Freight business shaping up? And realistically, where do we see the LTL mix in the next couple of years?

[Vineet Agarwal, executive]

Right. So Freight business, the growth for the last, I would say, 3, 4 quarters has been slightly slower, but before that, it was [ leaning ] reasonably well. And I think this is what typically happens. And I'm going on a larger point here before I come to your point, which is essentially having diversified business interest like we do Freight business, CBAs as well as supply chain. So that when the sector doesn't do too well, overall, the other sector helps and that is the kind of consistency that we're bringing with the diversified services that we have.

The range of getting to 40% is now, as I said, was for next year. And I would think that subsequently, we would look at adding 100, 200 basis points of increase every year.

Challenges are coming from some startups in the LTL side who have moved from doing just last mile -- pure last mile to or also on the B2B side are trying to move the LTL at very, very low rates or basically at no margin. And of course, there's always been other regional players, et cetera, that have provided competitive pressure. So that will continue. It's just that how well are we able to provide services to our client.

What we have seen, interestingly, 1 or 2 -- several customers are now coming back with increased requirement for FTL plus LTL combined. And we provide that service with the control tower where they're able to observe all of this together. So some of this is going to play out a little bit on the medium term rather on the short term, where clients will feel a lot more comfort with working with us. And then hence, we are able to then translate better volumes and better pricing.

[Alok Deora, analyst]

Sure. And sir, this tax rate has been higher as compared to the previous quarter. That's primarily because of the Seaways profits coming down or the contribution to -- from the Seaways business coming down. So how do we see this tax rate going ahead like in FY '25? What will be the standard -- normalized tax rate for us going ahead?

[Ashish Tiwari, executive]

So it's not only for Seaways margins. Because also, we got to have INR 32 crores of dividend as well. So in certain situation, dividend is also not taxable. And keeping that in view, the rate is quite lower than the last 3 quarters -- 2 quarters.

I think in the next year end, we have shipping profits normalize as we think of. So the rate would be around 13% to -- like 12% to 13%. As usual, it is in last couple of years.

[Simran Sharma, executive]

The next question is from Mr. Krupashankar.

[Krupashankar NJ, analyst]

Yes. Just one question from my side with respect to the Supply Chain business, the space addition. So just wanted to understand that, is there any target with respect to how much of space addition we're going to do. And how much would be owned and leased out of this 14 million square feet?

[Vineet Agarwal, executive]

Yes. Ashish, just go to the Supply Chain slide, please. So we don't have a target specifically because it's basically based on how we are able to acquire clients. Very recently, we acquired a client in the FMCG space. And the business has not started yet and hence, we've not added that capacity yet. But that would be about 300,000, 400,000 square feet of space of actually covered space that will get added.

Like this, there are constantly pluses and minuses that keep happening. One particular customer, we've been able to -- they've given us more business, but we've reduced the -- and I shared this experience in the past where we were able to provide a very good solution to them for a very narrow aisle kind of operations, and we've been able to reduce the amount of floor capacity that they needed. So we've gone higher as well as that aisles are quite narrow. So you have -- the movement is very, very tight.

However, it is very engineerly designed so that its customer gets maximum benefit and you're able to bring a high degree of productivity and efficiency. So it's essentially client based. And I would say, approximately 15%, 20%, 2 million, 2.5 million is what we own across the country.

[Krupashankar NJ, analyst]

Okay. So Vineet, is it fair to assume that with -- so what I'm hearing continuously over the last 1 year or so is that you're gaining incremental contracts with respect to warehousing. And is it fair to assume that the supply chain margins will go back to the erstwhile levels of 10%, 10.5% over the next couple of years?

[Vineet Agarwal, executive]

Well, the business in -- that has the most highest amount of outsourcing in supply chains in India is the automotive sector, which also means that it has also very high competitive pressures. And we see some of the startups, or some of the newly listed companies that are putting undue pressure on the pricing because they need to show some kind of margin for their businesses or some kind of growth for their businesses.

So that means that the margin structure tends to remain a little bit lower because of the concentration on the auto side. But the warehousing side, et cetera, helps to bring it up. So I think this range of approximately 10-ish percent plus/minus 100 basis points is perhaps more reasonable.

[Simran Sharma, executive]

The next question is from Mr. Anshul Agrawal.

[Anshul Agrawal, analyst]

I had a quick question on the LTL business. Would it be possible to outline the top 3 or 5 sectors to which our LTL business would be exposed? And would our network be skewed towards a particular geography?

[Vineet Agarwal, executive]

Second question is, no. We are not skewed to any geography. We are present in all parts of the country.

First is that we move towards -- we do a lot of movement for engineering products, specifically, which are related -- and engineering, electrical, construction, some amount of -- as in home construction-related material. We do some amount of textiles. We do some FMCG. But the broad sectors are the first 2, 3 more on the engineering, electrical and likewise. Like we'll do -- on the FMCG, we'll do milk, which is like dry milk powder that moves across the country in bulk. Yes. So almost all kinds of segments.

[Anshul Agrawal, analyst]

Got it. Next question I had was while I understand the long-term levers of manufacturing growth, percolating to these businesses, et cetera, would you be able to guide us on any short-term levers that you believe at present in this business to sort of see growth coming in?

[Vineet Agarwal, executive]

Well, I don't see very, very short term. We -- for example, when GST came in, that was a short-term impact because it forced a lot of people to immediately move from the informal economy to the formal side. Like that, I don't see any kind of an exogenous shock that comes up and certainly has a positive or a negative impact on the short-term business.

Like elections, for example, it doesn't mean that there is business. We do movement for election material, but it's not significant. It's very small. So like this, I don't see any short-term very specific levers.

[Simran Sharma, executive]

The next question, we have with us Mr. Sandeep [ Wagal ].

[Unknown Analyst]

Just one question with regards to vehicle scrappage, the new thing, right? So I believe our ban dance system would be part -- or I'm just trying to check whether they're doing that, the reverse logistics for this. And do we have any plans as TCI getting into this logistics piece? And I remember for TVS, you had designed containers or the trucks freight where you could load more 2-wheelers in one load, right. We have done some specific contribution. So anything of that sort we are targeting with regards to this business, right, so that you have some kind of moat around getting reverse logistics coming our way? Because I believe these are going to be hub-and-spoke model for vehicle scrapping, though it is nascent at this moment. But any kind of -- we have a view of taking this forward.

[Vineet Agarwal, executive]

So vehicle scrappage and reverse logistics are not really directly related, and we have no intention of getting into the vehicle scrappage business. And all our vehicles that we need to -- we don't need to really get to the scrappage stage because we sell them much before. That's the first and reverse logistics will not really happen for that, but can happen for other kind of businesses where there is a requirement, let's say, today for batteries to come back to it's -- to the manufacturer.

So some kind of reverse logistics like that might happen. And we are geared towards that. And you're right, it will be hub-and-spoke, and we do that for some of our clients.

What you talked about what we did many, many years ago for creating a triple deck truck. And I think some of these things have become standard in the industry. We continue to do some level of innovation at our services level so that customers are able to get the benefit, and we're able to create a stickiness for them.

So it's an ongoing thing. We don't have anything specific to share that is extremely innovating but -- innovative, but there is always something or the other that we are doing constantly.

[Simran Sharma, executive]

There are no further questions. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.

[Ashish Tiwari, executive]

Yes, Thank you, Simran, for this call, and thank you, participants for being with us. If you have any further queries, please write us back, and we will connect with you back. Thank you so much. Good luck. Thank you.

[Vineet Agarwal, executive]

Thanks.