TCI Express Ltd
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Earnings Call Transcript

Earnings Call Transcript
2021-Q1

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Operator

Ladies and gentlemen, good day, and welcome to the TCI Express Analyst Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you, and over to you, sir.

A
Abhijit Mitra
Analyst

Yes. Thanks, Lizan, and good afternoon to all the participants who have joined in. So today, we have the management of TCI Express to discuss Q1 FY '21 results. Represented by Mr. Chander Agarwal; MD; and Mukti Lal, CFO; and Mr. Pabitra, COO. So without further ado, I hand it over to Mr. Chander for the opening remarks. Over to you, Chander.

C
Chander Agarwal
MD & Executive Director

Thank you. Good evening, everyone, and welcome to the first quarter of financial '21 earnings call of TCI Express Limited. I would like to thank all of you for your interest in TCI Express. And I hope you and your loved ones are doing well and keeping safe. As usual, we will start with a quick overview of the business and the industry for the quarter. And then I will hand over the call to Mr. Mukti to discuss financial performance of company. Our earnings presentation has been uploaded on our website and stock exchange, and I hope you have had a chance to review it. First quarter of the fiscal year was worst impacted due to the spread of COVID-19 pandemic and subsequent nationwide lockdown from the month of April. Lockdown restrictions were lifted in phased manner from the month of May, but the business sentiment and demand remain subdued due to complete or partial closure of factories, interstate highways, migration of labors and all of this impacted the businesses as well. Logistic industry, especially B2B logistics, was clearly impacted due to these factors. And what was visible was the number of e-Way bills generated during this period in April, for example, it was only INR 84.5 lakhs. And it started improving in the month of May, where the numbers stood at INR 2.5 crores in June and INR 4.3 crores -- sorry, INR 2.5 crores in May and INR 4.3 crores in June. However, it is still below the pre-COVID-19 levels. In light of these market conditions, TCI Express generated a total income of INR 90 crores compared to INR 257 crores for the same period in 2019. EBITDA for the quarter stood at INR 4 crores and margins of 4%, and the company was able to deliver breakeven profitability at net level -- income level of INR 1 crore. The decrease in revenue reflects the negative impact of COVID-19, of course, and the severity of the impact on our operations can also be understood from the fact that, in May, we were operating at about only 35% of capacity, which further increased to another 68% in June. In view of these market conditions, decline in revenue was as expected. To minimize the impact of revenue losses in business, various cost rationalization measures were put in place immediately, and that helped us breakeven during the quarter. But the logistics sector is still struggling with the challenges of high operation costs. Furthermore, our asset-light business model and the wide network of vendors give us the access of large number of trucks and drivers. That allowed us to overcome the shortage of labor crisis faced by the industry. We have also been able to cut down our fixed costs significantly. While some of these reductions are temporary in nature and as business operations scale up these will increase back or may not to the same level. A portion of these benefits will be permanent and will result in cost synergies and higher profitability margins over the next few quarters and the full fiscal year. To give you an update on construction of sorting centers, the 2 sorting centers in Gurgaon and Pune is on schedule, and we're expecting to commence commercial operations from these sorting centers before the end of current calendar year. In these trying times, we are extending full support to our customers and vendors, partners by staying close to them and to better understand and meet their requirements. Furthermore, I'm pleased to say that our employees have demonstrated full dedication and commitment in running the business operations seamlessly through these tough times. To ensure safety of our workforce, we have implemented various preventive measures, such as work from home, promotion of digital communication mediums, office sanitization and social distancing at workplace. Going forward, we can say there are signs of economic recovery as factories resume operations and people are returning to offices. But the additional lockdowns across different states and cities continue to remain a disruption in the supply chain, hence possibly a slower recovery -- economic recovery. But we are confident that through our unique asset-light model, we will be able to mitigate operational challenges to a very large extent, and we will emerge stronger by lowering our costs and continue to serve our customers through our time definite services. Now I would like to hand over the call to Mr. Mukti to discuss the financial performance for the quarter.

M
Mukti Lal
VP & CFO

Thank you, Chander, sir, and good evening, everyone. I will present the key highlights of our financial performance for the quarter. Please note, first quarter of FY '21 is not comparable with same period of last year due to impact of COVID-19 on our performance. And revenue from operations for the quarter stood at INR 89 crores compared to INR 256 crores in the same period last year. In absolute terms, EBITDA was INR 4 crores with margin of 4% on revenue. We have successfully reduced our fixed costs to a large extent and some of these have been reduced permanently. Going forward, this will help us to further increase our EBITDA and PAT margin as we scale back our operations in coming quarters. On a PAT basis, we were able to breakeven for the first quarter at INR 1 crore due to low operating leverage in our business model. In Q1 CapEx, we incurred a CapEx of INR 16 crores, which was primarily used in construction of our sorting centers. I would like to highlight that we continue to generate strong cash flow in Q1. In Q1, cash from operations stood at INR 45.5 crores resulting in cash and cash equivalent of INR 70 crores at end of quarter. Our strong balance sheet with 0 debt assures our ability to withstand these turbulent times. Thank you very much now. We can now open the floor to question and answers, please.

Operator

[Operator Instructions] The first question is from the line of Depesh Kashyap from Equirus Securities.

D
Depesh Kashyap
Research Analyst

Sir, your gross margin has hit an all-time high of 35% in this quarter. So my question is, is it just a timing issue that you have increased the freight rate to the customers but not passed on entirely the benefit to the vendors? Or is it some sustainable savings that you are doing in this quarter?

C
Chander Agarwal
MD & Executive Director

So what was the second part, sorry?

D
Depesh Kashyap
Research Analyst

No. Is it just a timing issue? Or is it some sustainable savings that will continue going ahead?

C
Chander Agarwal
MD & Executive Director

Right. So we are -- we had taken this opportunity of lockdown to really streamline our operations and redesign the -- some of the glitches that we were facing. So yes, we did take the opportunity to improve. And of course, what we do is not one time. We aim to -- we strive to maintain it throughout the year.

D
Depesh Kashyap
Research Analyst

Sir, specifically on the freight rates, what kind of increase you have taken? That's what I wanted to understand.

C
Chander Agarwal
MD & Executive Director

So it's a different paradigm for different types of customers. And different regions have different like set of increase. So in general, I would say that we have increased about 3%. And we have almost seen that 3% covers only about maybe 30% of our customers. So we still have a long margin to go ahead in increasing the same for our remaining 70% of the customers.

D
Depesh Kashyap
Research Analyst

Okay. And the sorting centers in Gurgaon and Pune that you're trying to commission in the third quarter, so my question is, whichever 2 existing sorting centers are you going to replace? And how much rental savings you will do with commercializing of these 2 sorting centers?

C
Chander Agarwal
MD & Executive Director

So I think the Delhi will replace, of course, the Rewari, which is existing. I'm not sure about the rent. How much is rent?

M
Mukti Lal
VP & CFO

It's INR 2 crores a year.

C
Chander Agarwal
MD & Executive Director

About INR 2 crores a year. And Chennai would be...

M
Mukti Lal
VP & CFO

Pune.

C
Chander Agarwal
MD & Executive Director

Sorry, Pune would be...

M
Mukti Lal
VP & CFO

INR 1 crore rent.

C
Chander Agarwal
MD & Executive Director

About INR 1 crore a year.

D
Depesh Kashyap
Research Analyst

So total INR 3 crores you will save with these commissioning?

C
Chander Agarwal
MD & Executive Director

Correct.

D
Depesh Kashyap
Research Analyst

Okay. And sir, lastly, my question is on annual report. So in the annual report, you have mentioned that post demerger, 20 of your 47 immovable properties have been transferred to TCI Express and rest 27 are yet to be transferred. So my question is why so much delays? I guess it's been 4 years post the demerger. And what is the total amount that will be coming on the balance sheet once the transfer is complete?

C
Chander Agarwal
MD & Executive Director

No. So on that part, because we are in a process, we had to approach local authority to transfer from TCI to TCI Express Limited, and we're already on that process and it is sometimes a long, long process to convert from that. So all properties had already been shown in my balance sheet. It's a matter of just name transfer from TCI to TCI Express Limited, and it is also going on. So we will be -- hopefully, we will be due in the next year. Because this year, again, is impacted due to these all corona impacted -- impact on that.

D
Depesh Kashyap
Research Analyst

So you're saying it's already part of your gross block, right?

C
Chander Agarwal
MD & Executive Director

Yes, yes, yes. 100%.

Operator

The next question is from the line of Ankush Agrawal from Stallion Asset.

A
Ankush Agrawal;Stallion Asset;Analyst

Just a couple of data points. Can you give the capacity utilization and tonnage growth for this quarter? And secondly, just a clarification. The labor cost, which is -- like the labor, which are looked at certain centers that is included as a part of operating expenses, right? And not the employee cost, right?

C
Chander Agarwal
MD & Executive Director

So yes, the capacity utilization is, again -- now it's come down to -- it's come up to 90%.

A
Ankush Agrawal;Stallion Asset;Analyst

I'm talking about blended for the quarter, if you can give?

C
Chander Agarwal
MD & Executive Director

Sorry?

A
Ankush Agrawal;Stallion Asset;Analyst

If you can give the blended number for the quarter?

M
Mukti Lal
VP & CFO

Yes. So on capacity utilization level, in the last quarter, we were around 85.5%. And now in this quarter, we achieved -- because this is a lockdown time, but we -- as mentioned by Mr. Chander, so we redesigned something, and that's why we achieved a 90% capacity utilization in this time.

A
Ankush Agrawal;Stallion Asset;Analyst

That would be the exit utilization, right? If -- my question was towards the blended, if you can give -- if you have?

C
Chander Agarwal
MD & Executive Director

Your voice is not clear.

A
Ankush Agrawal;Stallion Asset;Analyst

Is it audible now?

C
Chander Agarwal
MD & Executive Director

It's audible, but it's not clear.

A
Ankush Agrawal;Stallion Asset;Analyst

So my question was like the 90% is the exit for the quarter, right? My question was if you can give the blended for the entire quarter, if you have that?

M
Mukti Lal
VP & CFO

No, that number actually, generally, we are not disclosing what kind of capacity we have in a total. We are not analyzing on that way. So whatever truck we are running, so it is basically for truck capacity we are utilizing.

A
Ankush Agrawal;Stallion Asset;Analyst

All right, all right. So on the tonnage growth?

M
Mukti Lal
VP & CFO

So tonnage -- actually, tonnage is degrowth in this quarter by almost 68% vis-Ă -vis my degrowth in revenue is 65%. So basically, we are -- sorry. Yes. So we -- basically, we have taken a 3% price hike in this quarter.

A
Ankush Agrawal;Stallion Asset;Analyst

Okay, okay. And just on the labor cost, sir, is it part of the operating expense or the employee costs?

M
Mukti Lal
VP & CFO

Yes, correct. It is a part of direct cost -- operating cost.

Operator

[Operator Instructions] The next question is from the line of [ Shriram Rajaram ] from RatnaTraya Capital.

U
Unknown Analyst

I have a couple of questions. One is if you can give the absolute tonnage number for this quarter as well as Q1 FY '20, it will be helpful. Secondly, on Friday, Indian Railways has announced a Freight Cargo Express. It's supposed to be a pilot project, which is going to run from Hyderabad to Delhi, and it covers nonbulk commodities also. That's what it said. So I know these are early days, but if you can comment on that it will be helpful. How that will impact going forward?

C
Chander Agarwal
MD & Executive Director

Right. So I didn't get your first question on the tonnage. What was that?

U
Unknown Analyst

Absolute tonnage, tonnage volume. The usual number, which you'd give.

M
Mukti Lal
VP & CFO

Yes. So in this quarter, we achieved almost 73,000 tonnes material we have moved in this quarter in against of last year to almost 2.25 lakh tonnes. Last year same quarter.

U
Unknown Analyst

What was it in Q4, sir?

M
Mukti Lal
VP & CFO

Sorry?

U
Unknown Analyst

Q4, what was the figure?

M
Mukti Lal
VP & CFO

So Q4 was around 2 lakh tonnes.

C
Chander Agarwal
MD & Executive Director

Now regarding your question on the rail thing that started between Hyderabad and rest of the country, that is still in its nascent stages. And what my understanding is that the rail freight cost is much higher than road freight. So I don't think that customers are very reluctant to go to that -- will switch to that easy -- easily switch to that. Because in rail, the cost is about INR 25, I think, per kilo. So that is not at all justifiable. That's almost the cost of like air cargo. So till these people don't really drop the rate, make it cheaper than the road cargo, then I don't think it will work.

Operator

The next question is from the line of Kaushal Shah from Dhanki Securities.

K
Kaushal A. Shah
Vice President of Equity Research

Sir, you mentioned about the cost-cutting measures that you've indicated. In the Q4 call also, you had mentioned that we have roughly about, I think, quarterly run rate of around INR 40-odd-crores or maybe INR 45 crores of fixed cost in addition to variable costs. So if you can just share some more details about what is the level of fixed cost that we have cut, which we can kind of continue going forward also, which will kind of just help us to understand what has been the efficiency improvements?

M
Mukti Lal
VP & CFO

Yes, well. So we have given guidelines to almost reduce this cost by at least 15% for the whole year. But if you see in Q1, we will be able to reduce the cost -- fixed cost is 30% plus. And in all quarters, we are also looking for at least to reduce 15% to 20% in that range. And whole year, again, now we have revised target to reduce by 20%. So that is our target. And you also see we are able to rationalize our costs very well for the operating costs as well. So that will also be continued in a year -- in the whole fiscal year.

K
Kaushal A. Shah
Vice President of Equity Research

Sure. So if I'm not mistaken, I think the number that you shared in Q4 was around INR 170 crores, INR 180 crores of fixed cost on a yearly basis. So what you're saying is that we can actually cut this by 25% or 20%. So let's say, about INR 35 crores, INR 40 crores kind of cut is possible?

M
Mukti Lal
VP & CFO

Correct. Correct. Correct.

K
Kaushal A. Shah
Vice President of Equity Research

Okay. And sir, any thoughts on the availability of driver and the manpower, on that front in terms of -- we've heard a lot of stories about the migration that has happened to rural areas and people going. So any issues that we are facing on that front?

C
Chander Agarwal
MD & Executive Director

Not really because, first of all, if you have heard the Q1 call, then also, we did not really face any issues. And it's just that the -- it's only because we are on -- we are vendor run. We have vendor management system. So we do not have any drivers on our payroll. The vendor -- the drivers are on their payroll. So we have not faced any situation as such. We have been able to maintain our fleet operations. And the ones who were affected were possibly more on the unorganized segment. And yes.

Operator

The next question is from the line of Chetan Gindodia from AlfAccurate.

C
Chetan Gindodia
Analyst

In terms of June month and in terms of now, July is almost -- likely better also. How much has we...

Operator

Sorry, Mr. Gindodia. Sir, we are not able to hear you clearly.

C
Chetan Gindodia
Analyst

Hello. Is it audible now?

C
Chander Agarwal
MD & Executive Director

Yes.

C
Chetan Gindodia
Analyst

So in June month and in the July month, so up till now, so what kind of normalcy have we returned to in terms of Y-o-Y comparison? So have we returned to almost in July month, almost 80% to 90% of our earlier last year July number? And second question is in terms of sectoral trends, what are you seeing? Which are the different sectors where the degrowth is the highest and which are the other sectors which are compensating for it?

C
Chander Agarwal
MD & Executive Director

So normalcy is back at 80%, and the sectoral trend is pretty much the same. We're not seeing any diversion from that. So we have always been in -- our sectors have been quite almost, you can say, recession proof. We have never faced any challenges as such. Even though when there was a dip in demand, we did not face any issues.

C
Chetan Gindodia
Analyst

Okay. Any decline -- sharper decline in MSME sector, which is our focus, or something like that?

C
Chander Agarwal
MD & Executive Director

Not really. We have not seen anything. I mean, I think all -- even the auto spare parts has picked up. Everything is getting back to normal. So automobiles may not be selling, but auto spare parts movement is pretty strong.

Operator

The next question is from the line of [ Deepak Mehta ], an investor.

U
Unknown Attendee

My question is that how you are seeing the demand in rural sector? And what is the delivery and your consignment for rural demand?

C
Chander Agarwal
MD & Executive Director

We do not have so much of rural demand business. We do not, like, cater to the villages and all that. So very hard for us to say -- to talk about that.

U
Unknown Attendee

And you're also not catering the online vendors, such as Flipkart and Amazon, I mean?

C
Chander Agarwal
MD & Executive Director

No, not really. Not much.

Operator

We'll move on to the next question that is from the line of Shalini Gupta from Quantum Securities.

S
Shalini Gupta
Research Analyst

I just wanted to check with you. Last quarter, you'd guided for 10% to 12% revenue growth in financial year '21. Now are you changing that guidance by any chance?

C
Chander Agarwal
MD & Executive Director

I think what we have understood looking at the current situation, we will not be -- we will be maintaining about almost the same levels as last year. The situation globally has not changed as we had expected. I mean there is people who are talking about getting vaccine maybe by July or August. Of course, all that is not happening. So this is what -- this guidance was given based on what was going to happen, on the data that was available at that point. But upon the data that's available now, what I can understand is that we should be able to achieve last year's level.

S
Shalini Gupta
Research Analyst

In volumes?

M
Mukti Lal
VP & CFO

Yes, in revenue.

S
Shalini Gupta
Research Analyst

In revenue, okay, which includes a 3% increase in pricing?

M
Mukti Lal
VP & CFO

Yes, correct. So volume may be down by 4% or 5%. So we're targeting to achieve at least 5% rate hike in this year.

S
Shalini Gupta
Research Analyst

Okay. Sir, I'm just a bit surprised. I mean, there's so much of stress all over and you people are increasing your pricing. So I mean that has been well accepted by -- and a lot of your customers are MSME, who are struggling with their businesses. So you find that this pricing has been well accepted by the -- by your customers?

C
Chander Agarwal
MD & Executive Director

Yes. So there are 2 ways to look at this. Number one is that you have to see our customer profile. The kind of customer that we are -- that we have are the same people who are hungry -- who are the SMEs who are hungry for business and are having a good shift all over India. So we are not dealing with MSEs (sic) [ MSMEs ] that deal in cash. And so that basic distinction holds to forever in our case. And price increase is something which is also dependent on the service level. So if we are able to service our customers during lockdown also, then they did not hesitate in paying a price. Whereas other companies, which have asked possibly for a price increase, but have failed to deliver. So it's almost like you take a flight Delhi-Bombay and the flight gets canceled, you get your money back, right? So here, it's almost like that. If customers -- your material is send from Delhi-Bombay, so they end up paying for it. And they know that the cost has gone up, and we're not doing that just for increasing our profits. So in general, the customer -- relationship of the company with their customers also matters. So there are 3 points to it: customer relation with the customer -- with the company, sorry, and then you have the service levels also and the type of SME customers.

Operator

The next question is from the line of Shreyas Bhukhanwala from Canara Robeco Mutual Fund.

S
Shreyas Bhukhanwala
Equity Research Analyst

Sir, 2 questions. One is on the gross margin, which we have seen a substantial increase year-on-year. So is it because of the price hike benefits largely retained by us, and we have not passed on to our vendors?

C
Chander Agarwal
MD & Executive Director

Operations.

M
Mukti Lal
VP & CFO

So there is -- again, there are 2 ways. So 1 is, again, we have taken a price hike from our customers. Second thing, we restructure our operations route wherever is possible, and that's why our capacity utilization level has improved from 85% to 90% in this COVID time. So these -- coupled with these 2 things, we were able to increase our gross margin from 29% to 35%. So that is the main reason.

S
Shreyas Bhukhanwala
Equity Research Analyst

And so apart from that, was there any benefit in terms of pricing, which we might have received considering the current scenario and unorganized or regional players facing issues on the logistics front?

M
Mukti Lal
VP & CFO

Not really, because our competition is really not with them because our strength is -- lies with interstate movement. And they are -- basically, you are mentioning is a regional player or local player. So we are not at all with that competition. We are -- interstate is our core efficiency, and that's why we were able to do that.

S
Shreyas Bhukhanwala
Equity Research Analyst

Okay. And sir, with the diesel cost increasing over last 1, 1.5 months, do we see this gross margins kind of some normalization out here going forward in next 2, 3 quarters?

M
Mukti Lal
VP & CFO

Yes. So what happened, so last year, on a whole year, we achieved 85% levels. Now we at least want to be achieving this year, 88%. 90% may not be able to achieve in a full year. But yes, we have intention to achieve at least 87% to 88% in this whole year. That's why we will improve the margin certainly in this all fiscal -- complete fiscal.

Operator

The next question is from the line of Alok Deora from Yes Securities.

A
Alok Deora
Research Analyst

Yes, sir. I just had one question. So what kind of volumes we are now looking at? Has the demand sort of picked up in July from the levels which we have seen pre-COVID? How close are we to those levels? And what kind of improvement we can see in the demand?

C
Chander Agarwal
MD & Executive Director

So levels are back at 80%. And my understanding is that certain parts of the economy has still not picked up. Like, for example, the automobile industry hasn't picked up. The travel industry hasn't picked up. And I'm not sure also about how the future is going to be for the travel industry. But in our case, the kind of customers that we cater to, as I mentioned earlier, it's pretty much like recession proof, which -- I mean the term here to be used is not recession, but you can say that it's any natural calamity proof. So we have been good. We have been in good fortune because of that. And I think it will continue the same way. There's not going to be any deviation from that.

A
Alok Deora
Research Analyst

Okay. And sir, just on the pricing part. So are we looking at any further price increase in the near to medium term?

C
Chander Agarwal
MD & Executive Director

Yes. We've only increased prices of 30% of our customers. So the goal is to increase it at least to 60% to 70% to get up to that level.

A
Alok Deora
Research Analyst

Okay, okay. And I think you answered this briefly in the previous -- in one of the previous questions. This has been sort of being accepted by the client. I mean, it's not like in some of the segments where we have tried the increase and then sort of rolled back because the demand was any which way weak.

C
Chander Agarwal
MD & Executive Director

No, no, nothing like that. We are not in that situation. Hello? Abhijit?

Operator

We'll move on to the next question that is from the line of Krupashankar from Spark Capital.

K
Krupashankar NJ
Analyst

I had a question again on the gross margin, sorry, to go more into it. I just want to understand something that is there an increase in the overall lead distance, per se? For example, there were higher cargo moving in from, let's say, Delhi to Bangalore in this quarter versus the Delhi to Pune in the previous quarter, which would have resulted in a higher gross margin?

C
Chander Agarwal
MD & Executive Director

No, not really. It doesn't work that way. It's like the customers which you are working with, they have the same requirements. I don't think their demand changes like -- because we are not doing local transportation. We are only doing pan India. I think the customers will stick to us only for pan India.

K
Krupashankar NJ
Analyst

So it is just more on the basis of route optimization? Or is there anything else which you can highlight on what would be the operating efficiencies?

C
Chander Agarwal
MD & Executive Director

Can you speak a little louder?

K
Krupashankar NJ
Analyst

Sorry. Is it better?

C
Chander Agarwal
MD & Executive Director

Yes.

K
Krupashankar NJ
Analyst

Yes. So was it just the route optimization? Or is there -- can you highlight what are the other operating efficiencies which you have brought forth in this quarter?

C
Chander Agarwal
MD & Executive Director

So always one thing which holds true in TCI Express is the capacity utilization, which I always talk about. So even capacity utilization is something which we monitor thoroughly and on a daily basis. And that is something which can go totally out of whack if you have a situation like COVID when things get instructed. Compared to other companies, which you will find later during -- when they report the results, that what I'm saying holds true. So capacity utilization, if it is not maintained, the entire economics -- your balance sheet will go for a toss. So we have been very prudent in doing that. So more than route optimization, we have done the capacity utilization. We've monitored that very diligently. And we've also like ensured that we haven't paid extra for any transportation.

K
Krupashankar NJ
Analyst

Sir, would it be fair to assume that because there was a lot of disruption during this COVID period and competition also was not available, our trucks will factor or rather would be a form of mix. Because -- why I'm asking this because there's a tonnage decline of 68% in this quarter. And in light of what you have seen in the express player, industry, especially, is that the return cargo was fairly difficult to get. So maintaining a higher load factor or rather capacity utilization was going to be a challenging aspect itself in this quarter, but we have done a stellar job. So is there anything more to add on, like, for example, competition being -- not being available or rather there was -- turnaround time was better.

C
Chander Agarwal
MD & Executive Director

If competition wasn't available, we would have had a higher top line. So that is not true. And so competition was operating at their level, whatever. Your second point was, I think it was -- what was your second point?

K
Krupashankar NJ
Analyst

Sir, turnaround time, perhaps we got higher days so that the effective -- we could fill up the trucks better?

C
Chander Agarwal
MD & Executive Director

So what we did was, in this scenario when the customers were also not giving us, one goal that we had was to clear the goods that was on the way and that was already with us. So all that transportation happened in the meantime because the competition did not have their truck drivers or the labors, but we did not face the situation. The reason why we did not get a higher top line is because these companies were shut. The manufacturing companies were shut. And we fall under the essential services. So we were able to operate. And when we were operating, we did it in a very prudent manner. We did it in a very cost saving manner. So I think all of this, if we can understand, it was good management with strict cost control that actually helped us in achieving that sort of increase in gross margins.

K
Krupashankar NJ
Analyst

Right. So my second question was on that only. So if I look at the -- as you had mentioned that the truck drivers are on payrolls of the vendor and hence, the truck driver shortage was not of a big impact. Do you see that -- given that the rates are increasing and there's an acute shortage of drivers in the market, do you see that there is a potential rate hike with your vendors going forward and that may in charge -- that may in turn increase your cost?

C
Chander Agarwal
MD & Executive Director

So we have something called the diesel fuel surcharge, right? So if there is a diesel price increase, we will actually attribute that to the diesel fuel surcharge. And then, if we have to increase the cost of our vendors, we will. So I do not see much variance happening in that because it's very well managed.

K
Krupashankar NJ
Analyst

So what I -- sorry, what I meant was, for example, because there's a shortage, the drivers would demand a higher salary. So that way, that's -- yes.

C
Chander Agarwal
MD & Executive Director

Yes. We don't face those situations or those traumas unlike other companies.

Operator

We'll move on to the next question. That is from the line of [ Adit Shah from Vibrant Securities ].

U
Unknown Analyst

I want to understand, out of the INR 400 CapEx -- INR 400 crores CapEx that you have committed, now INR 280 crores is remaining. What is the time line of the remaining INR 280 crores? That's my first question. And in the current quarter, your -- out of your operating expense of INR 86 crores, how much of that is fixed expenses?

M
Mukti Lal
VP & CFO

So on answer on your first question. So out of INR 400 crores, we already spent INR 120 crores, you rightly mentioned. So remaining INR 280 crores, we are looking forward to spend in the next 3 years. And second -- what was your second question?

U
Unknown Analyst

So in the current quarter, out of INR 86 crores operating expenses, how much of that is fixed cost? What is the fixed cost run rate, basically, for this year?

M
Mukti Lal
VP & CFO

Yes. So fixed cost is, if you see, we have dropped down from almost 30%. So my operating cost has been reduced to 65%. And then personnel cost and admin cost is there. That has been reduced in our same quarter of last year by 30%.

U
Unknown Analyst

Okay. So what is the kind of run rate you're targeting?

M
Mukti Lal
VP & CFO

So in a full year, we're looking forward to at least reduce 20% fixed cost for the whole year.

U
Unknown Analyst

Okay. And what is the absolute value actually out of the current INR 86 crores?

M
Mukti Lal
VP & CFO

Sorry?

U
Unknown Analyst

Absolute value of fixed cost in the current INR 86 crores of this quarter?

M
Mukti Lal
VP & CFO

Yes, it is INR 29 crores only.

Operator

We'll move on to the next question. That is from the line of Shreyas Bhukhanwala from Canara Robeco Mutual Fund.

S
Shreyas Bhukhanwala
Equity Research Analyst

Yes. Sir, on the -- on your earlier remarks, you said, probably we are looking at cost savings, which would be kind of more sustainable barring this year as well. So any quantification probably what can be the margin accretion we can look at from those sustainable savings going forward?

M
Mukti Lal
VP & CFO

So that's why we are planning to have at least improvement in the margin by 2% in this complete fiscal. So last year, we achieved EBITDA level of 12%. This year, we want to achieve 14%.

S
Shreyas Bhukhanwala
Equity Research Analyst

Okay. But sustain -- so I just want to know, of the cost savings, how much will be more sustainable which would probably -- so what kind of margin improvement we can see from those sustainable savings?

M
Mukti Lal
VP & CFO

So almost 100 basis points will be come from there only because now some costs are in a nature of -- so we are not going to incur in, like, traveling, conveyance, and other physical meeting expenditure. That will not be happening mostly on a whole year. And so that's way -- and some sales incentive we used to give to our employees that would not be there because sales market may not be -- enhance our revenue from current level since last financial year. So that's way, we will be able to manage that cost.

Operator

We'll move on to the next question. That is from the line of Yung Yeoh from Toyoko Marine (sic) [ Tokio Marine ].

Y
Yung-Juen Yeoh;Tokio Marine;Analyst

Just want to ask on the ASP increase. Has that had anything to do with consolidation in the sector, maybe smaller players who are not able to sustain during the downturn?

C
Chander Agarwal
MD & Executive Director

So what was your first part again? Sorry, I missed that.

Y
Yung-Juen Yeoh;Tokio Marine;Analyst

No, no problem. Just on the 3% ASP increase that happened in the quarter. Just wanted to ask if that -- you did give some color. Now I was just curious to know if there's any impact on consolidation in the sector, maybe smaller players that couldn't -- they couldn't make it through the downturn. If that had an impact on your ASP increase?

C
Chander Agarwal
MD & Executive Director

Not really because the kind of customers that we cater to and the unorganized segment caters to is a big difference. I mean, we're totally different envelopes. So in that sense, we have not really like poached on those customers or those customers -- their customers have come to us. It's purely on the customers that we operate with.

Operator

The next question is from the line of Dhaval Shah from Girik Capital.

D
Dhaval Shah
Equity Research Analyst

Sir, in the last call, you were discussing about the vendor consolidation and the cost cutting which you might take on the vendor side. So what are your thoughts there? And also, the previous participant was asking on the consolidation because we had a thought that it would pressure the smaller operators. So what is the scenario right now? And what do you see it panning out over the next couple of months as the recovery is going to take a lot more time, so the large organized players like us might be in a better and a stronger position compared to the smaller fleet size owners? So overall view, how do you look at your business in terms of gaining market share, gaining strength and growing stronger over, say, next couple of years?

C
Chander Agarwal
MD & Executive Director

Can you put your question as 1 and 2 and 3 because with the whole sentence, I'm kind of lost. So your first question was on the vendor pricing or whatever?

D
Dhaval Shah
Equity Research Analyst

Yes. So you had mentioned that we might cut down on the vendor business if the things are not improving in the second and the -- first and the second quarter. And also -- yes, so this was my first question. And the second was on the broader consolidation, which you...

C
Chander Agarwal
MD & Executive Director

Sell in market.

D
Dhaval Shah
Equity Research Analyst

I mean -- yes, like in the market, the weaker players getting out, unable to service their fixed cost, the interest payment, the driver problems, with the shrinkage in the entire industry volumes, so the loss of business. And how would that benefit us? And are you seeing any signs of that?

C
Chander Agarwal
MD & Executive Director

So regarding the vendor management, we have about close to 1,500 vehicles. And we are not operating all 1,500 vehicles because our business is only up to 80%. We are going to be -- hopefully, our understanding is that by the month of September, it should go up to the full pre-COVID level. And I think -- so obviously, when you have vendor management, you only run the amount of vehicles that you need as opposed to when you own the fleet. So we are definitely at an advantage right over there. And hence, when we did that, we were also able to increase our gross margin in these times. Now if you look at the -- your second question, the broader consolidation and competition in the market. Yes, competition is creating a tough time because I don't like to say that apple-to-apple comparison of, say, the unorganized segment and the -- sorry, the organized segment and the unorganized segment. If we look at in the organized segment, the next best competition is really, really struggling hard, even though they have been sold to a new -- to a different company. They are struggling in operations. They are struggling with their clients. Our goal is -- will always be to get that business also. So I think, in general, we are geared up. We have made several changes at the corporate office, at the corporate level. That has percolated all the way down to our branches. And I think the results will show by the year-end.

D
Dhaval Shah
Equity Research Analyst

Okay. Okay. And sir, you mentioned there were 5,000 trucks in the system in the last call. So was that number wrong? You mentioned right now, 1,500.

M
Mukti Lal
VP & CFO

So 1,500 number is the vendors number and vehicle runs are 5,000, yes.

D
Dhaval Shah
Equity Research Analyst

Total 5,000, okay.

M
Mukti Lal
VP & CFO

Yes. Other thing to just clarify to that because now supposing we running 5,000 trucks and earlier, they were taking 4 trips in a month. Now this time, they, maybe, take 3 trips in a month. That's why we are managing them. So they are not leave us -- they have not left us, but yes, they are running with us, and they maybe take that kind of strict, reduction in their trips basically.

Operator

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

R
Rajesh Kothari
Founder, MD & Director

My first question is, you mentioned about the cost-cutting savings, whereby you mentioned about 200 bps reduction kind of thing what you are targeting. Can you just tell me that first quarter itself, how much was the cost savings done in first quarter?

M
Mukti Lal
VP & CFO

Almost 30%.

R
Rajesh Kothari
Founder, MD & Director

Can you tell me in absolute number?

M
Mukti Lal
VP & CFO

Actual number is from INR 41 crores to INR 29 crores we have reduced on part of personnel cost and admin cost.

R
Rajesh Kothari
Founder, MD & Director

So about roughly INR 11 crores in first quarter.

M
Mukti Lal
VP & CFO

INR 12 crores, yes.

R
Rajesh Kothari
Founder, MD & Director

And full year, you are expecting that number to be total about INR 30 crores, am I right?

M
Mukti Lal
VP & CFO

Yes, correct. Correct understanding, yes.

R
Rajesh Kothari
Founder, MD & Director

Understood. And it seems as the business comes back to normalcy, how much you think out of the total INR 30 crores you think you will able to save that on structural basis even for next year? Or do you think that, that basically benefits onetime because, of course, people will move and sales will also happen and incentive also needs to be given, so on and so forth. So do you think of this INR 30 crores, how much you think you will able to retain for FY '22?

M
Mukti Lal
VP & CFO

Yes. So you are well. So that may be -- then this will be increased from the current level, obviously. When we put into normalcy, then we have to be increase traveling, conveyance and physical meetings and everything. So I think we maybe -- still maybe able to reduce by 10% on 2022 on level of '20.

R
Rajesh Kothari
Founder, MD & Director

You mean to say that INR 160 crores fixed cost will reduce to INR 130 crores in FY '21 and INR 141 crores in FY '22, that's what you are talking -- something like that? That's what you are...

M
Mukti Lal
VP & CFO

Yes, correct understanding. Yes.

R
Rajesh Kothari
Founder, MD & Director

So you are saying that in FY '22, even if the revenue increases, because it will be a normal year and, of course, revenue increase would be huge because your first quarter was washout, your fixed cost will remain the same?

M
Mukti Lal
VP & CFO

Yes. Hopefully, yes. We will be able to manage to reduce over the current level.

R
Rajesh Kothari
Founder, MD & Director

I see. Over the last 3 years, what kind of cost savings, if you would have quantified any such number in last 2, 3 years, how much cost saving company would have achieved?

M
Mukti Lal
VP & CFO

Sorry, I could not get your point.

R
Rajesh Kothari
Founder, MD & Director

During the last 3 years, I'm just trying to understand what kind of cost savings you would have taken in terms of quantum increase?

M
Mukti Lal
VP & CFO

No, I am not able to understand your question. You're talking about the last 3 years or you want to...

R
Rajesh Kothari
Founder, MD & Director

Yes, last 3 years.

M
Mukti Lal
VP & CFO

So that way, actually, if you see we have given -- seeing the market conditions, we've given good increments and enhancement on salary of all employees. And we also expand on our network in terms of offices, in terms of various facilities. So that way in advertising, we also put some money. So that way we have increased the cost, but yet what kind of CAGR we're going to get on revenue, that my increase in cost was less for that. So supposing my revenue had grown on 17% CAGR in last 3 years, so we expect increase my cost in the admin and all around 12%.

Operator

The next question is from the line of [ Deepak Mehta ], an investor.

U
Unknown Attendee

Sir, my question is that due to recent price in diesel, so what would be the impact on your overall margin? And how you see -- how you're managing the cost due to higher fuel and all?

M
Mukti Lal
VP & CFO

Yes. So we just mentioned in another question. So this diesel hike, we have to pass on to our vendors. And subsequently, we also have the DFC, diesel hike clause with all customers. So we will be continuously passing on to customers as well. So that way there is no gap on that. What we have increased even is a positive arbitrage for us. So we've always taken a slightly higher hike from the customers.

U
Unknown Attendee

Okay, okay. And one more question, sir, if you see the trend by government is to promote freight by trains and Indian Railways. So do you see any foreseeable changes in demand or impact on your business through -- of this?

C
Chander Agarwal
MD & Executive Director

In comparison to Railways? Sorry, can you repeat the question?

U
Unknown Attendee

So as you see government is promoting the Indian Railways for this goods transportation and all. So do you see any impact on your business?

C
Chander Agarwal
MD & Executive Director

Not really because the cost of railways is much higher than road transportation. And as I mentioned earlier that to break something, you have to really come out with some very different model. So their model to get into -- get the truck business, the pricing has to be lower than trucking business, then only they will find effective. So that is never going to happen. So I don't think that it is a viable proposition for manufacturers. Over time, what could happen is the EXIM Cargo, hopefully moving -- instead of the road moving on the DFC, or even the commodity, which is moving on road will move on the DFC. But then the DFC will not penetrate the hinterlands. India is about hinterlands also. Farming is 40% of the economy, 45%. So that market cannot be really catered to through railways.

Operator

The next question is from the line of Chetan Gindodia from AlfAccurate.

C
Chetan Gindodia
Analyst

So just to -- just for the clarification. So you said that we will be targeting a 14% EBITDA margin for FY '22? Is that what -- is it correct?

M
Mukti Lal
VP & CFO

'21, yes.

C
Chetan Gindodia
Analyst

Sir, '21 or '22?

M
Mukti Lal
VP & CFO

'21.

C
Chetan Gindodia
Analyst

Okay. And a large part of this savings is mostly going to come from the savings of rent that is because the sorting centers will be replaced?

M
Mukti Lal
VP & CFO

Not really. So there's a couple of things. Like one thing is we have taken the price hikes from the customer. Second thing, our operational efficiency has to be improved. And third thing, yes, reduction in a direct -- in this fixed cost. So these 3 things coupled with we will be able to improve our margins from 12% to 14%.

Operator

We'll move on to the next question that is from the line of Lokesh Manik from Vallum Capital.

L
Lokesh Manik;Vallum Capital;Analyst

My question was more to understand the business better. Just to understand how many routes in India are serviceable by us and how many are we present in? And what would be the percentage of profitable routes in your experience?

M
Mukti Lal
VP & CFO

So there is a -- we don't have that much data to have which one is profitable or nonprofitable. You can say in other way, 85% business we are generating from North, South and West, and 15% from the East side because East is, generally, is a consumption state. So moment of goods from -- happening from South to East or North to East or like that. So that way -- because we are all India, we all -- we have the offices across India, that's why we are also able to generate the business from across India. So barring East, sometimes we may not have the business. So that way it's happening.

L
Lokesh Manik;Vallum Capital;Analyst

So we are present all across India. There is no further scope for penetration. Is there? Or how is it? Are you going to depend on capacity utilization, more tonnage basically?

M
Mukti Lal
VP & CFO

No. So on the back sense, we are trying to generate more business in business areas, like supposing earlier in 1 MIDC in Mumbai. Like supposing there is only 20 factories. Now it's 40 factories, and we have 1 branch there. So now we are opening up a second branch there. That's why if you see on our last 2 or 3-year plan, we have opened almost 200 branches, new branches in these areas. So we are going deeper, not going denser, not like farthest area, we are not opening up the branch.

C
Chander Agarwal
MD & Executive Director

We still don't find opening an office in Leh any use.

M
Mukti Lal
VP & CFO

So like we are opening up more offices in Mumbai area, more offices in Chennai area, that way. And it is keeping us on approach with my SME customer. So we want to be -- because 50% of business is coming from SME customers, so we always need to be near to them.

Operator

The next question is from the line of Kunal Bhatia from Dalal & Broacha Stock Broking Limited.

K
Kunal Bhatia
Research Analyst

Sir, I just had 1 clarification. So you mentioned that your cost savings on the rent would be around INR 3 crores. I am correct?

M
Mukti Lal
VP & CFO

No, no, no. This is actually once we will be -- start the commercial operation from these centers, then we will be able to and that will be coming at this fiscal year -- this calendar year-end.

K
Kunal Bhatia
Research Analyst

So next year, it would be INR 3 crores?

M
Mukti Lal
VP & CFO

Yes, yes, yes, so is it for 2022? Yes, we will be able to reduce INR 3 crores. But again, it is not -- because sometimes we need to also increase my infra or we are also in our plan of to open up my further branches. So it is really may not be look into books, that way.

K
Kunal Bhatia
Research Analyst

Okay. And sir, secondly, also, in terms -- I just wanted to know in terms of the turnaround time with these new sorting centers coming in. How has your turnaround time changed over the years, over the last 3-year period?

C
Chander Agarwal
MD & Executive Director

Our quest is to reduce it as much as possible. So I think by -- at least by another 50% is what our goal is, a new one.

Operator

The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.

R
Rakesh Vyas
Dedicated Fund Manager for Overseas Investments

I have 2 questions. First one is around your outlook guidance on the revenue for this year. So if you can just help me understand the math. First quarter, we have seen a 65% decline. Currently, we are at a decline of 20% on a normalized basis, and you expect the normal pre-COVID levels to be achieved in September. So essentially, if I do my math, we'll be down by almost 40% in the first half. So what gives you confidence that second half we will be able to recoup all of that revenue loss? That is question number one. And question number two is around the gross margin itself. So if I understood your commentary correctly, because of the lower volumes, you were focusing more on capacity utilization currently. But as the volumes start to pick up, is there a possibility that this gain in gross margin will actually decline to some extent?

M
Mukti Lal
VP & CFO

Yes. So you are rightly said. So in first half, we may be down by -- we are targeting maybe down by almost 30%, not by of 40% or 35%, which we want to achieve in the second half. That is our target internally. And on margin levels, yes, so we continue that journey because we have done some permanent changes on that side. And that in COVID time, we've learnt various things and then put into system. So we're confident to achieve 14% EBITDA level in this fiscal. There is no challenge. And barring also because we also have to reduce our fixed cost. So with this -- coupled with that, we will be able to achieve our EBITDA margin.

R
Rakesh Vyas
Dedicated Fund Manager for Overseas Investments

So just if you can just clarify as to -- I mean, what steps are you taking to gain back that 35% lost revenue given that even in FY '20, even in the first 9 months, we had struggled a bit to gain that kind of momentum? So I'm just trying to understand what is giving us that confidence that we'll be able to achieve that.

M
Mukti Lal
VP & CFO

Yes. So because now whatever we -- pre-COVID time, we have -- we -- in March, we lost some revenue. That's why if you see my monthly run rate is also that way. So we will achieve certainly by -- and what branch we opened in the last 2020 -- that year, they were not in a BEP level. And so now they will start to generating the revenues. So this year, they will also contribute on that part. Second -- third thing, we are also -- just Mr. Chander had mentioned, we are also restructuring in a corporate office for putting vertical hats for every different, different verticals. That will also help to generate the new. And other thing, we are also various projects for the medical and ventilators and all we are putting here. So various couple of things we are doing. That's why we were able to -- this month even itself, we have reached to 80% of that. That is also a very good thing. And in next month, we are trying to -- though we are trying to achieve 100% level. But yes, so that way is there. And even September, we can be -- take some growth also because this is also pre-Diwali month then.

Operator

The next question is from the line of Prit from Wealth Finvisor.

P
Prit Nagersheth;Wealth Finvisor;Analyst

Sir, I think most questions have been answered. The only thing I wanted to better understand is when you indicate capacity utilization, are you referring to the usage of all the trucks and the vendors you have in your system? It is that metrics?

C
Chander Agarwal
MD & Executive Director

Yes.

P
Prit Nagersheth;Wealth Finvisor;Analyst

Yes, okay. Okay. So that is that currently at 80% and you are slated to get there. Okay. The other thing that I wanted to better understand is that in this times, say, textile being one of the sectors that you were supplying to, which I think had a 10% share, right, of your top line. I think that sector is still pretty down and out. So do you think that with that continuing, you would still be able to hit your revenue targets? Or are you looking to develop businesses from other verticals?

M
Mukti Lal
VP & CFO

Yes, you rightly said, so they are struggling. Now, but they will -- now they started to open and ship the material. Because now, again, they have to put into every shop. So that now started.

Operator

The next question is from the line of Siddarth Mohta from Principal India.

S
Siddarth Mohta
Associate Fund Manager

Yes. Sir, I have got 1 question. Sir, you have given the EBITDA margin guidance of around 14%. So what can be this margin in FY '22, given that you have focused a lot on the cost plus your couple of new fulfillment center is also coming. So yes, that is my EBITDA question.

M
Mukti Lal
VP & CFO

Yes. So by 2020, we want to achieve 15% EBITDA margin. So next year, we are targeting to improve by 100 basis points.

S
Siddarth Mohta
Associate Fund Manager

Okay. That is FY '22 is around 15% EBITDA margin?

M
Mukti Lal
VP & CFO

Yes, correct.

Operator

The next question is from the line of Sayan Das Sharma from BOB Capital Markets.

S
Sayan Das Sharma
Research Analyst

Congratulations on a pretty decent set of numbers given the tough climate. So first -- couple of questions first on...

Operator

Sorry to interrupt, Mr. Sharma. We're not able to hear you.

S
Sayan Das Sharma
Research Analyst

Is it better now?

Operator

Sir, you're still sounding soft.

S
Sayan Das Sharma
Research Analyst

Just one second. Is it better?

Operator

Yes.

S
Sayan Das Sharma
Research Analyst

Sir, just wanted to understand a bit more on the route optimization part. So when you say route optimization, you have done some optimization on certain routes, do you mean that we have only plied on routes where we have higher capacity available, where the volumes are available and therefore, we have not operated on some roues? Or how is it, sir, if you can help me understand? Because this has helped us achieve a 90% utilization, which is all-time high level?

M
Mukti Lal
VP & CFO

No. So if you see on a minor level, so what we had done, yes, earlier, we also mentioned, we start to utilize higher capacity trucks or extra load benefit we have taken. Second thing, what we have -- because we increased the branches in cities. So earlier, we had direct 1 vehicle from my sorting center to these branches. Now we are started to utilizing 1 truck in 2 branch or 3 branch. So that way we have keep our cost under, and that is very well going on. And it will be continued for the time. So it will be -- is a permanent thing.

S
Sayan Das Sharma
Research Analyst

Okay. But once volumes come back, you will not be able to do that, right, sir? I mean, then we will need more trucks. And you have to go back to what was normal in FY '20, right?

M
Mukti Lal
VP & CFO

No. So that will be continued. So we align the 2, 3 branches. Now number of branches have increased, so their distance has also reduced from 1 branch to another branch. So we are putting -- supposing right now is a 6-tonne truck is there and it is only touching 1 branch. Tomorrow, we may have 8-tonne truck and that maybe touch 2 branch. So that cost will, you can imagine, cut by 40%, 50%. So that's why we are doing that.

Operator

The next question is from the line of Anish Jobalia from Banyan Capital Advisors.

A
Anish Jobalia
Senior Research Analyst

So my question is around the margins going forward. So you have guided for like improvement in the fixed cost as well as your gross margins are expected to be sustainable going forward, which will be during Q1. Maybe it will increase a bit, but still we have gotten a lot of changes so that we have this delta over the last year, which was 71%. So -- and we are expected to do 1,000 -- I mean, with the revenues of last year, which is around INR 1,000 crores. So there is no negative operating leverage that will be recurring this year. So why are we expecting margins of this 14%? Because with the same revenue, we could actually reach 20% margins. So if -- what am I missing in terms of the expectation of margins?

M
Mukti Lal
VP & CFO

Sorry, I could not get your whole point. So we can discuss separately, can e-mail us, so we will reply on that with all details?

A
Anish Jobalia
Senior Research Analyst

Yes, yes, sure. I mean, but broadly, what I was saying that there is no operating leverage that is fixed for saving. And there is a gross margin improvement, like nearly 6%.

M
Mukti Lal
VP & CFO

Your voice is also very low. Can you speak slightly louder, please?

A
Anish Jobalia
Senior Research Analyst

Is it better now, the voice? Is it better?

Operator

Sir, you are sounding very soft. Can you speak a little bit louder?

A
Anish Jobalia
Senior Research Analyst

Yes. Is it better now?

M
Mukti Lal
VP & CFO

Yes. Please.

A
Anish Jobalia
Senior Research Analyst

Yes. So my broad -- broadly, what I was trying to understand is that we are expected to do similar revenues. Fixed costs have improved and gross margins also have become more sustainable because of improvement in the capacity utilization and expected to remain higher as compared to the last year. So what I'm trying to say is that there is no operating leverage that is going to recur negatively. So we already have a delta of 6% in terms of the gross margin. So why can't we do -- I mean, why are we not expected to do higher margins at roughly 18% to 20%? And why are we guiding for 14%?

M
Mukti Lal
VP & CFO

Yes. You rightly said. So what happened -- what kind of efficiency we have taken or achieved in this quarter 1 may not be sustained on that month. So supposing, last year, we had achieved 85%. This year, maybe achieve 87% only. Because in this quarter, we have achieved 90% capacity utilization. So you rightly said in the time to come, we maybe achieve 87% and 88%. That's why we are slightly pessimistic on that side. That's why you are taking is a 14%. You rightly said it can be improved. Because if you see last year, even in spite of all odds, we have improved our margin level. And in last 4 years, we even improved 400 basis points from 2016 to '20. So that journey, we want to be continuing. Each year, at least we want to be -- so in this year, it will be 200 basis points. And next year onwards, again, we're targeting 100 basis point improvement.

Operator

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

C
Chander Agarwal
MD & Executive Director

So I must thank all of you for your participation. These are very challenging and tough times. In spite of that, TCI Express has done well in terms of its operations and performance. And looking forward, I hope that TCI Express is able to perform much better. Thank you.

M
Mukti Lal
VP & CFO

Thank you.

Operator

Ladies and gentlemen, on behalf of ICICI Securities, that concludes conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.