Transport Corporation of India Ltd
NSE:TCI
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Transport Corporation of India Ltd
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Good evening, ladies and gentlemen. I am Komal, the moderator for this conference call. Before we begin with, I would like to extend my warm welcome to all of you for joining us today. The management, we have onboard 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, Komal, and good evening to all of you, again, for joining us today. To begin with, we would have our earnings presentation followed by the question-and-answer session.
For our presentation, I am inviting Mr. Agarwal. Over to you, sir. Thank you.
Thank you, Ashish, and thank you, Komal, and thank you to all of you joining today's earnings presentation for TCI for quarter 4 FY '22. Can we go to the next slide, Ashish, please.
The last year has been quite eventful for us. We know that in the country as a whole, there have been trends in terms of overall growth and some buoyancy has been there. But in the last few months, we've seen that there has been a certain amount of disruption that has happened because of the war in Ukraine or subsequently now the lockdowns in China, et cetera.
So supply chains across the world are still quite disrupted. And I was just sharing with someone the other day, the -- it's so basic that if you think about, today, we were ordering some printers. And I got to know that some of the components of those printers are being made in the border of Poland and Ukraine. And because there was a disruption, that component has not come and now printers are not being able to be made in India.
So it's just that now supply chains have become very, very intricate. The thought is always that, as they always say, is that your supply chain is as strong as your weakest link. So given that circumstances, we are in a very dynamic situation. However, the company has done reasonably well in this period and has been able to deliver good results.
Next slide, please. I think a lot of the industry growth drivers remain the same. For some of you who have joined us for the first time, we think that there are -- let me just quickly mention some of them, the consumer-driven trends that are quite visible from omnichannel-based experiences to a high degree of urbanization, which is leading to different kinds of logistics solutions.
This is a big trend, and this affects almost all companies. And I believe, as it has been said that in the pandemic, a lot of this trend got accelerated also. So this is a trend that will affect logistics industry for the next several years quite aggressively.
On the customer side, as we are seeing that the changes because of consumer side, because of other disruptions, they're also looking at a lot of areas of how they can manage their supply chains. Many customers are now moving from just in time to just in case, which means that building more additional warehousing spaces or ensuring that there is some flexibility in their supply chains. And they are looking to outsource more and more, as we say -- speak. Clearly, the fact that they are adopting technology and simultaneously asking us to also adopt technology is very, very positive. So in this dynamic scenario, we are seeing a lot of interesting opportunities from customer side also where they're looking to outsource more and more of their logistics.
Industry is very fragmented, and the growth there is extremely directly linked to the overall GDP growth. But the share of the market that we have is increasing as things are becoming more and more formal. And I'm also alluding to the next point in terms of the regulatory aspects.
Clearly, infrastructure is a big thing in terms of the government's push. And we think that, that will help us really bring down the logistics cost overall. And the prompt from the government is very clearly, move to multimodal. They are doing as many things as possible to ensure that this shift starts happening so that the overall logistics cost starts coming down.
The PLI schemes and also the trends towards Atmanirbhar Bharat means that a lot of new opportunities are also emerging for companies like us. I will talk about a few going forward.
As a company, our USPs are -- the fact that -- next slide, please, that we have a very strong customized service base, this base of services that we have been able to create internally means that we are able to really address all aspects of customer needs internally. We are able to outsource things that are not too strategic also simultaneously. The benefit for customers have always been that we can really provide them an end-to-end solution. We provide them a proper visibility across their supply chains and ultimately, is economies of scale also.
We're working with many, many sectors, providing them all kinds of solutions all over the country. Of course, there are aspects that we are providing, which are technology-linked, which I'm going to talk about subsequently.
Our multimodal network, this is the other USP that we have, has become very strong in the last few years. You are aware of the fact that we have our own 3 trains. We added one this -- in towards at the end of March. We also do a lot of other movements.
The overall rate movements came down a little bit because of the fact that in FY '21, there was a shortage of trucks, et cetera, because of the pandemic and a lot of cargo moved towards rail. This has come down a little bit. And -- but the trends are very obvious that at this point in time, we are loading close to 4 trains a day as we speak.
The coastal network is strong, that has delivered. And we have our own 8,000 containers and in fact, ordered some more containers in quarter 1 of this year as well.
In terms of container management, we have all types of containers that we move from domestic to international to chemical, marine containers and so on, and that volume has increased in the last year. We, of course, manage 55 yards across the country. These are multipurpose yards for automotive carrier -- automotive companies mostly, could mean in all segments of automotive. We also manage 60 terminals across the country -- work across 60 terminals across the country also.
We are incubating, as I mentioned, several areas in terms of long-term potential. I have talked about in the past, the chemical, pharma, agriculture, supply chains, these are going through a lot of changes and the demand for organized companies like ours has been increasing.
We are seeing good traction towards renewables. For example, India has a very high trust towards, let's say, solar market -- building the solar market. So we are seeing a huge movement in terms of renewables. We have very specific capabilities around renewables from providing customized rail movement to warehousing storage facilities, including some areas where we have dedicated terminals also for some companies. This is one area through the PLI scheme and Atmanirbhar Bharat is where we are seeing good amount of growth coming in.
You are also aware about our Cold Chain business as well as the SAARC business that has, again, high potential. In the last year, we've seen SAARC, including Bangladesh, et cetera, grow very rapidly. And we are now providing quite a detailed -- quite a comprehensive range of services there, including providing rail services directly into Bangladesh, so avoiding all the traffic that is there at the border checkposts in Bangladesh. So all of these strategies of incubating these high-growth segments are really playing out as we speak.
Technology, I think I do not need to mention, but we are at the forefront of technology. We have a very strong team, developed a lot of tools, et cetera. API integrations is now very, very common. We're building that with customers and suppliers, including building control towers for customers. So again, technology-wise, we are moving in a very rapid pace as we speak.
So these are some of our USPs of the company. In the last fiscal -- in the last quarter, I would say, Q4, the growth has been flat because the base -- Q4 base was quite high. There was a lot of pent-up demand last year, which was reflected in Q4 of FY '21, which we did not see this year.
There is a lot of liquidity available with us. We've been able to pay off all our loans from -- at the beginning of the year, which was INR 230 crores. We had only about INR 42 crores, plus we have about INR 60 crores plus cash as well. So net debt is minus INR 20 crores, INR 25 crores. And of course, there is a very strong pipeline of customers that's available right now.
I'll take up now specific divisions. I think I don't need to mention about the industry, but the freight business has grown in the last year -- next slide, please -- with our with our key account management system as well as the fact that there is a robust demand for freight services across the country.
Our LTL business, as we've been saying, has picked up and has now reached about 35% of the overall business for the freight segment.
One important development here is that we have crossed 20% ROCE in terms of the returns. This is something that we've been saying that the business will deliver in the next -- as this ratio of FTL to LTL starts changing. So I'm quite confident that going forward, the EBIT margins that you see here, the ROC margins will remain at this 20-plus level also.
In terms of outlook also -- there is, of course, a certain amount of growth that has happened because of freight rates being higher. But of course, there has also been a volume growth since we've grown by almost 20% over the full fiscal.
The trends remain buoyant. We've acquired some large contracts here as well, which are both FTL and LTL contracts, combined contracts, which would mean that we should definitely look at a 10% to 15% top line growth and a similar kind of growth in the bottom line.
In terms of our -- just go back, Ashish. Supply chain business has, of course, a very wide range of services that we provide and a real comprehensive way of how we are able to address the client needs. We have a lot of capabilities of managing distribution for our customers. We have abilities of managing large warehouses as well as yards.
And on the automotive side, extremely one of the largest, in fact, the largest in terms of automotive logistics in the country today. The yards that are there about 55, and we are able to provide our hub-and-spoke system for many customers and do a lot of interesting value additions for them across the supply chain.
Specifically, we are also quite focused on the EV space, and we are seeing good results there. We are doing work for several companies. And where we provide not just movement on the component side, but also on the [ FG ] side directly to consumers as well.
Next slide. The division we grew last year in quarter 4 because of the shortage of semiconductor chips. As we know, it has been affecting the industry quite a lot. But on the full year basis, we've had a moderate growth. We've also been adding new customers and some of that benefit of new customers will come across in this financial year. Our storage capacity has also increased with customers to about 13 million square feet of space and about 130 cubic feet.
So this year, we do expect this business to do a lot better. Of course, the disruption of semiconductors, et cetera, will possibly have an impact for some more period, maybe another few months, but we are hopeful that there is already pent-up demand and that should translate into better business for us. So in this business, we are looking at in excess of 15% in both top line as well as bottom line growth.
On the Seaways side, our capacity remains the same. We've not been able to add any more ships because of the very high asset prices that are there. So we are on the lookout for new ships, but it has been quite tough. However, the business has grown tremendously in the last quarter as well as, of course, in the last full year, doubling -- it's more than doubling its EBITDA margin as well as with a very high ROCE.
We have been going to Myanmar, as I've been saying in the previous calls, quite frequently, and even now, there are some voyages that are planned, but it is a little intermittent from the government side also. Things tend to slow down a little bit in the first quarter because of monsoons also. But the Myanmar business is supposed to be retained for the entire year. So we hope that we are able to capture some of that and deliver similar kind of returns in this fiscal also. We are -- we have planned for 3 dry docks as we did in FY '22 also.
In terms of the joint ventures, the CONCOR joint venture degrew by about 7%. It was mainly, as I said, the base was quite high. We had grown at more than 60% last year -- 70% actually. So that base was high and hence, the business also had shifted from road to rail in FY '21. And now it has come back to some extent, to road. But a lot of customers that shifted have also permanently shifted to rail. So this is a business, as I've been saying, that has a high potential, and we look forward to its continued growth.
The Cold Chain business has recorded a very high growth of about 62%, although from a small base. The trends are quite positive, and we do expect it to grow as well.
As you also are aware, in FY '22, we had Mitsui & Co. come in as a 20% partner in the joint venture.
I'm sorry, I have a power outage here where I am, but I'm sure you can hear and see me.
The Transystem joint venture is -- has grown also by about 30%, and of course, profitability has grown there. This is a very focused automotive logistics company for Japanese clients.
Next slide, please. This is a snapshot of the growth on a quarter-on-quarter basis and for the full year. For the full year, consol revenues are up slightly lower than the stand-alone levels. Profitability at an EBITDA level is almost same in both consol level and stand-alone level, but about INR 450 crores in terms of consol EBITDA. Again, these are all-time highs for us. The profitability, of course, is close to INR 300 crores, almost doubled in the last year at a consol level also. So overall, the profitability and business has been quite good in the last year. Thank you.
Certain numbers, as you can see, in terms of consol profit after tax, et cetera, has been showing a -- has shown a 29% CAGR. Yes, you can [ discount ] on a little bit of this year's exceptional results. And -- but the growth still remains in the excess of 20%. ROCE, of course, has crossed 20% overall. Again, if we moderate a little bit, perhaps a 20-odd percent is the more reasonable number.
This year, we've been -- we've increased our dividend payout ratio and trying to edge between the 15% to 20% range in terms of payout. So the overall dividend percentage is at 300%, but it remains under the 15% to 20% range of payout.
Our ratings at CRISIL, et cetera, have all been reaffirmed. And we remain in our industry amongst the highest at AA positive.
Our -- in terms of ESG, also, we are quite focused and we have been able to already start orienting our businesses towards ESG norms. And if you just, Ashish, press one more slide. I think it's on -- yes. We have been doing a lot of movement on CNG vehicles as well as ensuring some amount of movement of clients towards multimodal network, so which will reduce the greenhouse gas emission. As a company, we are very strongly focused on governance and our social aspects in terms -- from our TCI Foundation initiatives.
The outlook is -- looking at some headwinds in the short term because of inflation and all the disruptions, but we are hoping that these will start moderating out as also government spending has started to increase. We are giving a guidance of 10% to 15% on the top line and the bottom line.
If you recollect the first 3 quarters of the last financial year, we had grown quite well, but then we still kept the growth momentum levels in terms of revenues at 15% to 20% because we were expecting the Q4 of FY '22 to be slightly lower and we sort of came up to that range also in FY '22. FY '23, we think that maybe the first few months will be a little tighter. But over time, this will start picking up, and we should look at a 10% to 15% growth.
The budget has been carried forward from the last 2 years. This has been a little unfortunate on our end because we've not been able to find the right ship for us at the right price. We have now -- we even increased the budget for us, moved it from -- in the past, it was a INR 60 crores, INR 70 crores, to INR 80 crores and now to INR 90 crores, and we are willing to go up to INR 100 crores also if you find the right vessel.
There is a planned expenditure on the other aspects of some trucks and rigs, perhaps some containers and, of course, some land and building that's under construction. So looking at possibly about INR 300 crores of CapEx in this financial year.
So we'll be happy to take any more questions. Thank you again for joining us today.
[Operator Instructions] So the first question is for Mr. Ravi Naredi.
Naredi Investment Private Limited. Sir, what margin we may take for financial year '23, first. And second, this INR 300 crore CapEx you are [indiscernible] to do which sector you will do, that will be question two.
The CapEx, as I said, there would be about INR 120 crores, INR 130 crores of CapEx that we go into the shipping-related business, which includes the ship as well as the containers. Some amount of CapEx will happen on proxy sector, which are essentially replacement vehicles as well as some new contracts. And also, we are planning for maybe one to two [ rates ] also. So predominantly, those are the sectors that it will go for. There's no CapEx going into a freight business.
And what margin we may expect in financial year '23?
So I would think that the margin structure should remain almost the same. It might come down a little bit in the Seaways business. But overall, we think it should possibly remain around the same levels.
So top line growth, we may assume 24%, 25%?
No, I think we are giving a guidance of 10% to 15%.
The next question is from Ms. Shalini Gupta.
I think you'll have to unmute, Ms. Gupta.
Yes. Sir, can you hear me now?
Yes. Yes, we can.
Okay. Sir, what I was saying is that there's a very high possibility that economic growth towards the world slows down. And should that happen, we are also expecting crude to fall off -- to come off. So once -- when crude falls -- comes off, then at that time, do we pass on the entire benefit to the clients and to vendors? I mean how does it happen?
Sure. So our contracts typically have fuel escalation and de-escalation clauses built in. And typically, the contracts have like a 5% escalation and then the rates change. So that's how it will happen if there is a -- if the fuel prices fall down also. So there's a formula typically, and there's a trigger price. That trigger that happens after, let's say, a 5% escalation or de-escalation. So it's quite simple in that sense.
Yes. So I mean, if crude were to fall by more than, say, 10% or 15% because given how high it is, it may well fall to below $100. So then do we not see a pressure on our top line?
No, not too much because that -- the percentage of fuel as a component of the freight varies in different contracts, it could vary from 35% to 50%. So yes, there could be some fall in terms of the overall billing that you are doing to customers. But we, as I said, some portion of the growth comes from revenue -- from inflation, price inflation and some part comes from volume increase. And we are quite confident that there would be some volume increase. And that hence, we've also -- that's why I factored in a 10% to 15% revenue growth and not a much more aggressive number.
Okay. And sir, my last question. So most of the CapEx has gone towards hub centers and warehouses. So I just wanted to check like what percentage of hub centers and warehouses do we own? And similarly, do we own all the yard areas that we use for the supply chain?
We own about 1 million to 2 million square feet of space across the country. But -- and in terms of the yard areas, no, we don't own the yard space. We hire and lease them from various vendors.
So yes, and these have been strategic in nature for us because we feel that there are some facilities that we need to have for ourselves. They also become showcase facilities for our clients. That's one. And secondly, in some places, our -- for our freight business, we require hub centers. And those are -- some of the older ones have become quite less -- quite small in terms of capacity and hence, we needed new facilities. So this is an ongoing kind of investment that's happening.
Okay. And sir, would you like to disclose the tonnage in the 3 businesses?
No, we don't have tonnage specifically because, see, our business is not based on tonnage only. It's based on value that we provide to our clients. So we don't share that number specifically.
The next question is from Mr. Krupashankar. [Operator Instructions]
Hello?
Yes, we can hear you.
Yes, very good. Just want to start...
Can you be a little louder, Mr. Krupashankar? We can't hear you as well.
Right. Is this better? Is this better?
You're breaking up.
Yes, let me try I think -- let me just try asking my question in [indiscernible].
We can't hear you so well. Shall we come back? Maybe you can join back in the queue?
Sure, sure.
Komal, we'll take the next question.
Sure, sir. The next question is from [ Mr. Yash ].
Am I audible?
Yes.
So I think you briefly highlighted this, but my question was on the Seaways business. So this year, we have had an exceptional year in the Seaways business. So how do you see this panning out in the next year? I mean, do -- can we maintain the FY '22 run rate or growth on this space? And what would be the margins like? Like this year, they were higher, but what would it be like the next year?
Yes. So I think it's a challenge for us to retain the same margins going forward. We are confident that some of these international voyages, if we are able to make them, we should be able to keep up the volumes as well as the margin. But I would possibly consider a little bit more flattish kind of growth in this business in this fiscal because of some of these uncertainties and the fact that there could be -- some pricing would also come down. But we're also hoping that in the latter half of the year, we are able to add the new ship. And once that gets added on, we should build on capacity.
But that's an assumption right now because, as I said earlier, the ship prices are still very, very inflated, and we are possibly going to keep looking out for the best alternative.
So we will maintain on the top line and margin would get lower. That's right?
Yes, I would factor that in, yes.
Okay. And the second one, again, so we have increased our budget on the ship from INR 70 crores to INR 90 crores odd. So how are we looking at the payback period then, I mean previously versus now, is the payback period extended?
No, since the freight rates have gone up, the payback period has not extended. And when we calculated it 2 years ago, of course, since then freight rates have gone up quite substantially, the container rates. So we do think that it is still possible to get the payback in the typical 6 to 7 years to 8 years depending upon the size of the ship.
The next question is from Ms. [ Puja Nagersheth ]. [Operator Instructions]
Hello? Can you guys hear me?
Yes. Yes, please.
Am I audible? Yes, all right. Okay. So Vineet, one question. Somewhere in your past, you mentioned that there is a visible shift in the rail business. And because of, I think, the CONCOR stuff that are coming up. Can you elaborate more on that? And how do you see the landscape changing because of that and how TCI would be taking advantage of it?
And just to add some context, right? I think [ Distriparks ], for example, in their calls or other such providers are visibly seeing a lot of potential there and seeing a lot of chances of high growth because of additional service that they will be able to provide. So how can TCI take advantage of this?
Right. So yes, I heard the DFC coming up and just the fact that rail infrastructure is getting developed at such a fast pace as well as the focus is there on rail infrastructure, including the announcement of 100 Gati Shakti rail terminals by the railway ministry. These are all indicating that the model shift is very, very critical. The government is pushing very hard for that to happen.
So there will be growth in that infrastructure and hence, the availability of providing more services. For example, there are some companies who have started a roll-on, roll-off service already on the DFC on the Western corridor from the outskirts of the NCR to Palanpur.
Just it's a start where your truck gets loaded on to the train itself as it is and gets off. So like this, there will be other services that will evolve in the next few years. For us, we are the people who provide the end-to-end, the door-to-door solution. And that's very critical because we don't need to necessarily own the infrastructure to run these assets, but we need to ensure that we have the customer with us. And that is the focus for us, and we are able to then deliver to customers irrespective of wherever and whatever mode they use.
So that's our advantage. And I think for us, the DFC sector will also be very, very beneficial in the long run.
Right. Vineet, one more question. Your guidelines for '23 are, assuming that we'll get the ship and then there's a pickup in the economy [indiscernible], in case that doesn't materialize, are we looking at a flattish kind of a year going ahead?
No, I think we've factored in a ship possibly in the [ far end ] of the year. So we don't expect a lot of revenues coming into this business, overall business with the new addition. However, we do expect the other businesses also to start picking up, for example, the supply chain business should pick up as automotive growth will happen in the country as the ship -- as the chip prices -- ship availability increases.
So we think the other weaknesses will catch up as well even if we are not able to add capacity, additional capacity. And of course, general slowdown has an impact, of course. But I don't think we will possibly be at 0% growth.
The next question is from [ Mr. Abhishek Singhal ].
Am I audible?
Yes.
My first question relating to why you are planning to raise funds from nonconvertible debenture of bonds? And where to utilize this one?
Right. So this is an enabling resolution that we have taken. We do not have any immediate need to add any more funds. But this is an enabling resolution you've taken for the next 2 years. In the event that we have to raise additional funds, we are -- we have the capability and the capacity to do that. We don't have to go to the shareholders at that time.
Okay. And second question, what is EBITDA margin expected in FY '23? Is 14% or down?
We expect it to be a little bit more flattish or slightly lower than in the current year.
The next question is from Mr. Krupashankar. [Operator Instructions]
Am I audible?
Yes.
Right. A couple of questions from my side. So as you pointed out earlier, that the ship addition is expected by end of FY '22 -- sorry, FY '23. Given that the capacity with respect to [indiscernible] much higher, are you penciling in a substantially higher growth in FY '24? That would be my first question.
So this will depend upon when we are able to add the ship -- if and when we are able to add the ship. Certainly, then we will factor in a higher growth rate for '22.
And is it fair to say that -- earlier, we had a plan of adding a ship every 15 to 18 months, I think, does that plan still hold true going ahead?
I wish it was possible because -- but the asset prices are so high right now. And I talked about it in the previous call, still what it was, 3x of the prices we paid 3 years ago.
It might have come down a little bit, but still there's just no capacity available. I think what's going to start happening is that the second half of this year, we will see new capacity coming in, the larger ships are going to start coming in. Once that starts coming in, we'll see that some of the smaller ships, the kind of market that we are in for, will possibly be available.
Again, this is all speculative based on the fact that your -- the war might end sooner. We have lesser lockdowns. The supply chains become a little bit more streamlined. So all of these factors will play heavily on when we are able to acquire. And if that trend starts, then yes, we will look at least 18 months, 15, 18 months to that period for acquiring new ships.
Understood. My second question would be on the LTL segment, the freight segment. Just wanted to understand that the confidence you are getting on the growth side of 10% to 15% on revenue and EBITDA, is it more led by an organized shift given the focus increase in compliance? Or is there sort of a branch network, which is driving our growth?
It's a combination of both in the LTL segment. Clearly, as you rightly said, some amount of shift that is happening towards formalization and that is helping us clearly. We also have a very strong brand name across the country. So I think that also helps. And rightly so, the network effect is also playing out where we have a large number of branches across the country with our upper hub network.
We are adding in fact, more branches based on where new growth areas are coming up. And just to cite an example, there is a new airport coming up in Jewar in UP, and we've opened an office over there. Or if there is a new industrial township that's coming up, we are opening offices there.
So all of these things will certainly help in the network expansion will certainly help in business growth as well.
So you did mention that you have won a large contract with respect to FTL and LTL together. Just wanted to understand if -- is there more of an integrated contract coming in because we are available across the entire logistics value chain? Are there more contracts coming in for the FTL and LTL because of this reason? Is that something to which we can look at there.
Absolutely, absolutely. I think the fact that we have options for customers certainly helps us to sell those options and then drive the contracts in that direction also. So it could be comprehensive enough to not just cover a specific division, but multiple divisions also. That's the kind of contracts that we are now working on, and we do have some of them. So yes, I think this is a -- these are some important trends that are quite visible in domestic supply chains.
And is there a number or contribution of integrated solutions to our overall revenue, something which can give us an indication as to how the shift has happened with respect to customers preferring more of an integrated player?
Well, it's very difficult to give that specifically. I think what we tend to do is that depending upon certain businesses, we assign them through certain divisions based on their capabilities. And then we are constantly looking to optimize that. So in reality, it's very difficult to share that number right now.
And last question from my side, bookkeeping question. Just wanted to see the depreciation on the [ CVS ] business has gone up sequentially, it's quite substantial in fact. Just wanted to understand what would be the reason given we have not added a ship [ as well ].
Ashish, can you answer that, please?
Yes. So Krupa, basically, what has happened, we have -- did a kind of a reassessment of all the ships, and there is a sort of reduction in the useful life. And therefore, that component actually appearing as an increase in the normal depreciation.
So Ashish, this would be the trend going ahead?
This will not be a trend going ahead. This is a kind of one-time exercise. Of course, the assessment is necessary in all layers, but it may not be kind of culminating into that higher depreciation every year.
The next question is from Mr. Alok Deshpande.
This is Alok from Edelweiss. Two questions from my side. One, you -- there is a slide in the PPT, which shows about how the share of LTL has gone up over the last 4, 5 years. I just wanted to understand that even as the focus on LTL continues, what is the strategy in terms of owning trucks? Because I also see about INR 65 crores, INR 70 crores of CapEx being allocated to [ purchasing ] rigs. So is it going to be predominantly lease truck model? Or are we going to buy more trucks as well?
The freight division has virtually no trucks. It has very few trucks that are operating mainly for specific cargo like over dimensional cargo, et cetera. But otherwise, all the trucks that we intend to buy would be for our supply chain division. So here, yes, the model is completely outsourced.
Okay. So the LTL share going up then should drive up the margins logically in that segment, right?
Yes. Well because there's no EBIT margin and EBITDA margin is almost the same because there is no depreciation -- virtually no depreciation and no interest costs also since the division has -- is almost using no working capital.
Sure, sure. And the second question is on the Supply Chain division. There, can you give us some color on some sectoral split in terms of which is the largest client sector there? And also, I mean, given the fact that you mentioned 30 million square feet of area, that number seems to be quite high. Is it because it's largely for auto sector? Or how should we read that?
So the business split is 75% to 80% of the supply chain business is related to the mobility segment. Mobility for us means -- Ashish, if you can go to the Slide 15, please. Mobility for us would mean we do work in the 4-wheeler, 3-wheeler, 2-wheeler commercial vehicle, earthmoving equipment, tractors, all of these, so passenger industrial and agri mobility is what we focus on. And so that is a predominant component of this business.
Other than that, of course, we do a large-scale warehousing for our clients. And the warehousing numbers that you see is not of automotive only, but of course, of others as well, we do -- we run the largest -- one of the largest warehouses -- the largest warehouse for an FMCG major, the largest high-tech warehouse for a consumer durables company, also for other food-based companies across the country. So lots of different kinds of areas that we are running warehouses for our clients and just not specific to automotive only.
So Vineet, is there a strategy to then expand your share or wallet share in the non-auto or nonmobility sectors because -- that's where I think a lot of people are seeing a lot of growth as well?
See, we've been also doing a lot of work on the retail side. We are in fulfillment centers for some of the e-tailers as well as some of the apparel companies, for example, have added a line in their warehouses for e-commerce as well.
So yes, you're right that there is a lot of growth opportunities that are coming up. And we are -- we have the capabilities and the knowledge base to do it. We just want to avoid any kind of revenue buyout that happens because there are a few companies that have either come in as with IPOs or planning to come in with their IPOs and [ all our flush ] with cash and they are basically doing revenue buyouts. So we are trying to avoid some of that and trying to ensure that our -- we are able to stick to our margin goals. That is very critical for us.
The next question is from [ Mr. Omkar ].
Hi. This is Srinivas from Mirabilis. Just a couple of questions. Firstly, you mentioned in your opening comments that you won some bit of new business in the supply chain. Maybe if you could expand on it to the extent we're comfortable with in terms of types of new clients or new business lines that you're winning there. And if, say, the industry grows by x, then based on the visibility that we carry, what could be the delta growth for the division, say, in the next year or so?
Sure. So one of the models that we've been able to develop with a specific client who is in the EV space is not delivering it through our dealer network, but delivering it directly from the factory to the consumer. What we typically do is pick up that unit from the factory, take it to a hub, which is close to some customer to basically hubs across the country. We do a certain amount of charging of that unit, we do some PDI, predelivery inspection.
We get the RTO certification done also because RTO -- and you can now do the registration of those vehicles online as well. So we do all of that and then finally deliver that vehicle directly to the home of the consumer.
Now this is a unique model because -- an automotive unit getting delivered to the home of the consumer is absolutely unique. So this, we've been able to create a network for this company, and they are able to utilize this [ actively ].
And then subsequently, we also have a lot of capabilities on the component side. We do JIT, just-in-time logistics for many companies. We do the milk runs, et cetera. And we are selling those opportunities also to these clients as well.
So this is an idea of how certain models are getting evolved in the mobility space itself. So yes, so that is quite interesting.
The other thing that you just mentioned about the growth in industry. I think what has started to happen, as I mentioned earlier, is that there is some revenue buyout that's happening. And some of our competitors are doing that. So there could be a higher growth in the marketplace, but maybe we are not able to keep up to that because we are trying to protect our margins.
So I would not venture out to say that we have a higher delta over the industry growth. But I think to keep up with industry growth is what we are planning, of course. And wherever possible, enhance so it will be very strategic for specific industries rather than just generally everywhere.
Okay. And the second point is, maybe if you could comment beyond the auto as to what are the things -- how it is evolving in the supply chain? And what kind of growth have we had beyond auto in the supply chain this year?
Again, we've added capabilities around chemical logistics. We are doing quite a lot of work around there. Some of the retail customers, we've been able to add, as I said, also add e-commerce capabilities for them as well. We've added a few warehouses and a few areas in the FMCG space. We've got for FY '23 also some new contracts that will possibly start later half of the year.
So the pipeline remains strong in the non-auto space as well. And of course, that's a clear-cut focus also given the fact that there is a higher dependency on one sector.
Okay. Okay. Great. Yes. The next question is on the supply -- sorry, Cold Chain. This year has been quite stellar in terms of growth, though the business itself is still evolving and remains kind of small. But broadly, what have been the drivers of -- if you had to kind of rank it in 1, 2, 3 or so, what are the drivers of growth for this business and how was it more opportunistic or structural in nature in terms of how we're addressing the business? Where do you see it after 2, 3 years?
Ashish, can you change the slide, please?
So what has happened in Cold Chain is that the business with the joint venture partner coming in has become also quite attractive to companies that were possibly on the fence when they were looking at our business. Now they realize that there is a high degree of professionalism in the business. There is a high degree of -- the services are very high quality. And that has driven some of the changes that have happened in Cold Chain in terms of our growth also.
We've been able to capture businesses in -- also on some of the dark kitchens that are there or some of the quick commerce businesses, a little bit of that. But also just generally, the business market has started to mature and hence, we are able to get some clients. We, of course, have done some pharma logistics also, some vaccine logistics and all of that has helped overall.
Going forward, the growth should remain strong. Of course, not at that 60%, 70% that we saw last year. But definitely, I think in the next 3 years, we should be able to double the business.
Okay. Great to hear that, Vineet. And congratulations on the financial performance as well as my compliments on keeping up with all the emerging trends in logistics business and working with the new age partners and businesses, [ you are doing well ].
Thanks, Srinivas. Thank you.
Thank you, Srinivas.
The next question is from Mr. Alok.
Am I audible?
Yes, Alok.
Sir, I just had a few questions. One was on the Seaways segment. So with the share of Seaways coming down because of the share prices we have not been able to add. So how much the margins could go down from these current levels? Because current level margins are more driven by the Seaways segment. So is there a possibility that we go towards a 11% sort of margins? Or would we be more towards a 12%, 12.5% one?
I think I would not warrant an increase in margins for sure, but I would also not discount the fact that margins will go down a lot. So which means that I think it could go down because of the fact that there will be possibly changes in the Seaways side of the business. But our other businesses should hopefully catch up as well. So I think we should possibly remain in this range that we've been talking about rather than very, very specifically giving you an indication that it will go down substantially.
So I do not -- I think the shorter answer is we will not go down to last year's level. But we will not go down, go higher than what we are today.
Got it. And so since you've been highlighting about a lot of issues with the -- not just this sea -- as in the ship prices but also the geopolitical issues. So how confident are we that the ship could come through in this financial year because it's been almost like 1, 1.5 years since you have been looking to add? We understand that it's not really -- some things are out of control. But you -- are we really confident that it happens in this year? Or there also could be some further delay because of multiple reasons?
This has been very frustrating for us as an organization that we've not been able to add capacity. And unfortunate as the situation is globally, it hasn't had an impact on our businesses on the global rates. And we are not expecting in the earlier part of the financial year. I think of FY '22, we were thinking more related to COVID disruptions. But now clearly, we've seen it's beyond COVID, it's gone to the war, it's gone to other aspects of supply chains.
So your guess is as good as mine. I think we all have to plan for this, but we cannot also buy ships at exorbitant rates because it will put pressure on our margins over the long term. So that also we have to be very, very careful because these ships, over a 10-year cycle, is what we need to look at in terms of the returns rather than just what you're getting today and tomorrow.
Sure. Just one last question. So particularly on the Seaways segment only. So you know the asset values are much higher than what we would have bought the ships at -- earlier. So even if you were to close a deal in FY '23, the prices would be higher than what it was before. So these margins or return ratios, which we have made on these ships in the past, those are like not happening even if we were to buy the ship now.
But the rates have gone up, right? So the container rates have also gone up. So we are also factoring that as well. So that's why the returns that you get -- the payback period remains the same. It's slightly higher.
And its rates, yes, please.
Yes, slightly higher cost on the asset and slightly and slightly higher returns on the freight rates.
Sure. Just last question. This freight rates continue to be elevated? Or have you seen any kind of stabilization on that?
Some ups and downs. I think a little bit of seasonality is also there in this. So on the cost, we see that there is monsoons, et cetera. So that has an impact a little bit in terms of demand. So -- but more or less stable.
The next question is for Mr. Depesh.
Depesh from Equirus Securities. Sir, the E-Invoicing, as I understand, has been made compulsory for all companies with turnover greater than INR 20 crores from 1st of April. And some of the competitors in the LTL space are very bullish on this, the shift that it can cost to organized players. So just wanted to understand in your opinion, are you seeing any such shift that is happening? And what are your growth assumptions for the freight segment?
Okay. So there are 2 separate questions. I think broadly, one on the E-Invoicing side. And yes, the effect is there on the LTL side of the business, but predominantly, I think, generally, FTL businesses or the other businesses also require E-Invoicing desperately. I think the customer adoption rate is very, very low. They do not -- they do accept E-Invoices, but they do also want physical simultaneously with the physical [ priorities ].
So this is a very vexing problem because this just increases our -- it is increasing the kind of effort that everyone needs to put into ensuring that we are able to get a faster turnaround in terms of the billing systems. And we've been talking to some customers to see if we can do API-based integration through ERPs so that we are able to share the bills electronically. Hopefully, that will start happening soon. So yes, it will help over time, but customer adoption has to happen.
On the LTL side, that's a shift more towards the formalization. So as there are companies that are forced to really look at E-way, are using the E-way bills are getting into the GST network will have to move to E-Invoicing and hence have to really move towards the formal side of the economy. And I think those are things that will help the LTL business also. So yes, there are 2 aspects of the invoicing and both positive for companies like us.
So sir, do you think that the LTL will grow faster, like 15%, 20% growth rate because of these measures that the government has taken?
Yes, our LTL business will definitely grow at a faster clip.
Understood. Secondly, the 13 million square feet that you manage, I just want to understand, will it be possible to share how much is the managed base on the client location and how much is actually leased by you? And is there any difference in the 2 things that you -- if you can point out, sir?
No, it will be very difficult to share those numbers. We have various -- we have own facilities. We have client-rented facilities, client-owned facilities, or completely third-party facilities. So very, very difficult to break this up into specific numbers.
Is there any difference in the margins, so to say, when you have your own lease facility or you're managing the [ client's facility ]?
Not always. See, I think what happens is that if you have your own facility, sometimes you have also the risk of it being empty between 2 clients. If you have a lease facility, anyways, you have to take the cost now the -- as per the AS 116, you need to factor the asset into your books.
If there is -- in many cases, if there are very large facilities, we actually create a transparency between the customer and us and say that, look, the rental is not where we want to make money. We want to make money on the services, the value-added services. Because ultimately, the client will get to know what the rent is. It's not too difficult to hide it. In certain shared facilities, of course, there is some benefit from sharing that rent between clients.
This will be the last question of this earnings call. The last question is from Mr. Krupashankar.
Yes. Sorry. Just one question. So I did notice that the decline in the pharmaceutical segment was one of the key reasons why revenues in supply chain had come off. So just to get a sense -- I know, Vineet, you don't provide segmental data, but can you specify at least that what would be -- is it is pharm a substantial portion of automotive revenues, which we report?
So what happened was the UP elections and the elections in Northern states, the typical subsidy that happens to farmers to buy tractors and so on and so forth, that came down or they were stopped completely. So the -- that resulted in lower volumes that were moving through the system. And hence, as you can see, an effect on the overall mobility sector.
But it was very specific to the timing of the elections. But of course, it's not an extremely large portion of the mobility sector, but we do a lot of work for tractor companies where other ancillary equipment along with it, we do yard management for them, we do spare parts management for them. So yes, it is an important segment for us, but not substantially large.
Understood. And one last question. I just also noticed that the Cold Chain business is predominantly asset-heavy. And when I look at the overall industry, covering some of the peers who are in the Cold Chain business, the ROCEs are sub-10% in this space, and it's been such a case over the years as well. So what sort of target ROCE do we have on the Cold Chain business, given that we are seeing a large opportunity? And if you're going to focus on fleet addition, wherein the yields are relatively lower vis-a-vis storage side, how do you intend to get the desired ROCE number?
Yes. That's a very interesting observation, Krupashankar, because you're right that a lot of our competitors have grown because of asset addition in the Cold Chain business. And hence, the -- even the return on the return on capital is extremely poor, and years and years that has been there. And hence, when we sort of started this business and in the last few years when we've accelerated the growth in this business, we've particularly kept careful consideration into much how much capacity should we own versus lease and renting.
In all our businesses, we've seen that a combination of own lease, rented, et cetera, spot hire basis always works and has worked quite well. This is the exact strategy we are also following up over here.
You've seen that the capacity that we had in that the capital [indiscernible] that we had was about INR 38 crores the FY '21 and has grown to only INR 42 crores in FY '22. So really, the addition in capital employed is quite less, but the profitability has gone up from INR 50 lakhs to INR 2.8 crores. So a substantial jump in ROCE. And this is because we've been able to leverage the assets better by having a combination of various more models rather than just one of ownership.
Thank you, sir. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.
Thank you, Komal, and thank you all of you for taking out time and joining us today. And I wish you all the best and stay safe and take care. Thank you.
Thank you. Thank you for joining us.
Thank you.