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TCI Express Ltd
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Ladies and gentlemen, good day, and welcome to the Q1 FY23 Unaudited Results Conference Call of TCI Express Limited, hosted by ICICI Securities. We have with us from the management, Mr. Chander Agarwal, Managing Director; Mr. Mukti Lal, CFO; Mr. Pabitra Panda, COO. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Chander Agarwal, Managing Director, TCI Express Limited. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to the Q1 Financial '23 Earnings Call of TCI Express Limited. I'd like to thank all of you for joining us here today. I will first start with industry and business overview for the quarter, and then we'll hand over the call to our CFO, Mr. Mukti to discuss the financial performance of the company for the quarter.
Our earnings presentation has been uploaded on the website and stock exchange, and I hope you had a chance to review it. The quarter -- first quarter of financial year 2023 was backed by strong demand driven by key industrial sectors. The growth in industrial activity was visible in all the banks and Evatel generation on June ended on a strong note, reaching INR 7.5 crores, which indicates a risk base of economic growth. However, higher crude prices, rising commodity prices, overall incision continues to add good pressure. Amidst the landscape, TCI Express continued to deliver yet another quarter of solid performance.
The company has delivered quarterly income of INR 292 crores, registering a strong growth of 30% year-on-year basis. The growth was primarily driven by increase in economic activity and rise in industrial production, which both was subdued in the comparative quarter because of the second wave of COVID-19. EBITDA for the quarter stood at INR 45 crores, registering a year-on-year growth of 33% with a strong margin of 15.3%.
The margins were slightly lower compared to the previous quarter due to an increase in employee cost as the team is being built for the new launch services. Margins are expected to improve definitely in the subsequent quarters with the pickup in utilization levels and increase in overall operational efficiencies. Our profit after tax stood at INR 31 crores, a growth of 30.5% year-on-year with a margin of 10.6% compared to INR 24 crores in Q1 financial '22.
Now, coming to a brief update on the developments during the quarter. We have added 10 new branches in the Western North region, and we expect to add around another 50 branches during the full fiscal year to strengthen our presence by expanding our services deeper into the key growing markets and to cater to the growing demand SMEs.
In line with our target to add an increase the size of our sorting centers, we have incurred INR 33 crores primarily towards the land purchase in Kolkata for setting up the automated sorting center. The recently launched Gurgaon sorting center is now operational 24/7, and we expect it to contribute meaningfully by reducing the turn on time and enhancing the operational efficiency in the long run and ultimately reducing direct cost. In June 22, around 18% of total tonnage has been processed from Gurgaon center, which reflects the scale and capabilities of the center.
Amongst our newly launched services, we're seeing a strong demand for real estate service from our customers. In a very short span over 1 year, we have strengthened our customer base from 250 to 1,000 and expanded our present -- our presence -- sorry, from 10 routes to 60 routes. Our dedicated team intend to make significant progress during the year and meaningful contribution is expected in full fiscal.
Now to give you an update on recently announced buyback. Last quarter, the board has approved buyback amounting to INR 75 crores. So an open of a route at an indicative price of INR 250 per share. It was placed before the shareholders in the AGM today, and the shareholder voting results will be out in the next couple of days subsequent to which the offer will open for participation. Looking ahead, demand for key industry segments such as textiles, FMCG, automobile chemicals, pharmaceuticals, and industrial goods, coupled with various government infrastructure development initiatives are expected to bode well for the industry.
I remain confident of delivering strong quarter-on-quarter growth in the line of upcoming festive season and the remaining on track to deliver the annual growth of 18% to 20%.
With this, I'd now like to hand over the call to Mr. Mukti to discuss financial performance of the quarter.
Yes. Thanks, Chander, sir. And now I would like to discuss the quarterly performance of the company. In Q1 FY '23, our total income stood at INR 292 crores as compared to INR 225 in the same period of last year, suggesting a robust growth of 30% on a year-on-year basis. This growth was driven by growth in demand from both corporate and SME, which contributes equally around 50% each to the revenue in this quarter.
Our EBITDA also increased by 33% in to INR 45 crores as compared to INR 34 crores in the same period of last year. EBITDA margins were 15.3% flat compared to same last year, lower compared to previous quarter. We continue to maintain high EBITDA margin despite increase in employee costs due to expansion in workforce. The net profit of the company increased by 31% to INR 31 crores with a margin of 10.6%.
During the quarter, we have incurred a CapEx of INR 33 crores was the percentage of land, especially purchase of land in Kolkata of setting up automotive sorting centers there. So thank you very much. And now I would like to open the floor for question and answer. Over to you, Matt, please.
[Operator Instructions] The first question is from the line of Dhruv Jain from Ambit Capital.
Sir, I had a question on the gross margin. So we've seen that gross margin has declined sequentially. So if you could just throw some light on that?
Yes. So basically, so if you see gross margin, if you compare with the Q4 to Q1, it is always slightly lower because in this industry, Q1 is the always weakest one and then the stenting and Q2 is better and then 2 or 3 is more than better to that. So if you see the last trend or is on 5-year trend is the same trend we have. And this will be subsequently will be again increased in Q2 and Q3.
So even if I look at it, sir, on a Y-o-Y basis, there's a 100 basis points of a decline, so...
Yes. That is actually mainly happened because in this quarter, we have some business growth from west region is more and slightly less growth from the other regions of like east and south. So basically, on some empty on those routes. So that's why this utilization level of this quarter has been around 84.5%.
Okay. And...
Just adding on to that. Generally, it is not like a major change or something that has happened. It's just a temporary phenomenon.
Okay. And sir, the second question was if you could just give data with respect to tonnage and you mentioned the utilization. So if you could just give the data with the tonnage.
Yes. So tons we have car in this quarter is 230,000 tonnes. And this is growing almost 28% over last same year-on-year basis.
The next question is from the line of Depesh from Equirus Securities.
Sir, the tonnage data that you just gave, I just wanted to be clear that, that is inclusive of all the new services also, right, the rail and everything that you started?
Yes, that is there.
Okay. So just a question on this, that if you look at like go back in the years right, and if you look at the second quarter FY '20 or third quarter FY '20, you are the same tonnage level. So the tonnage is actually not growing. So when and how do you think that the tonnage will be able to break through this barrier of 2.3%, 2.4% per quarter that we're doing?
So you compare with the quarter of Q2 or Q3 or so?
FY '20. So obviously, the base was weak. But if you look at the previous year quarters, we have been fixed at this kind of nag number for the quarter, right? So how and when we'll be able to break through this tonnage number that we are doing right now?
Yes. So trade is increasing. So like you compare with the ‘20, that was also not a great year for us. And now this is quarter-on-quarter basis is increasing.
Okay. So anyway -- so also, if you look at the quarter-on-quarter, there has been a 22% decline. So just wanted to understand if there is any market share loss or any loss of customers that you want to highlight.
No, this is not the case. As I mentioned, this is Q1 is always the like lowest revenue we have or this industry has a temperate. And then on a year on each quarter, it will be improved. So that is the only same thing is happening. We have grown almost 30% over last year's same period. So this way, it is not in a big task. You see the say last year's figure is also same. If you see the last like 5 to 7 year period, the same things...
Just to add to this, if you see Q1 higher than Q4, it means that the price cut has been taken, and that is not in our case. So we have not done any price cuts or greater top line. So this is typically the case in logistics industry, where Q1, if it is higher, that the profitability has been compromised.
Got it, sir. Sir, lastly, on the rental cost, if I look at the rental cost in FY’22, that was around INR 32 crores versus INR 30 crores in FY '21. While the understanding was that when you basically do CapEx for sorting centers, the rental costs should have really come down. So just wanted to be clear that if that benefit is still to come and how much will it benefit?
So basically, if you see that is the one aspect that we tune started in June, and that benefit for the year will be coming this year. Second aspect because we also assisted in that benefit also we come in this year. And other thing is case to grow the company, we're always adding the capacity in the sorting centers and branches. We opened like 50, 60 branches in last year. So we have taken that space, and that is also adding in this expenditure. Another aspect of that because now, this economy has opened up, and slightly rent has also increased because inflation is there. So that has also slightly has increased like I think this 2%, 3% impact of that is also there in the rent component over FY '21 to 22.
Got it. Sir, can you just quantify what is the one and the good rental cost that will go off this year?
No, we can't give like adjust number on -- we will be shared on a one-to-one basis when you will be on that.
The next question is from the line of Mukesh from Spark Capital.
Yes. Just wanted out on the margin front. So when the margins recover, I know you mentioned that 1Q of the quarter. But when the benefits kick in from the new sorting centers in Pune and Dhanbad and how will that help margin, sir? That's it.
Yes. So basically, in Q2 onwards, we will be again come back on the same territory of 17-plus kind of margin level. Because now is, again, revenue is increasing very fast, and patencies also sometimes defense. So that will happen. Like if you see the same kind of thing of last year pattern, same pattern has been happened to onwards, we have started to improve the margin level, and that will ensure it will be, again, come back to 17% plus.
The next question is from the line of Prit from Wealth Finvisor.
So first, I wanted to understand if you can share any insight into the Gurgaon automation. And if that has been fully running and are all the teething issues over?
Chander, sir, would like to answer on that, please?
So it is running in full force. And I think in the history of Indian logistics, -- we have seen that first time that the labor utilization has reduced in such a large facility. And the time it has taken for trucks to turn around has reduced from 1.5 days to -- now we're talking only 12 hours. So I think from September or October onwards, it's going to be 8 hours. I think this is a big, big -- very big game changer for the industry. And as we go along and we also start putting the same in other cities is where we will see a combined effort of better utilization, faster customer connect, and customer satisfaction to a retail level.
And are there plans to apply that to one this year? Or will that be next year?
So Pune, we will start -- we have done all the R&D for account. So it is ready with us. And September onwards, we will start the process for Pune, and that we should be able to like put it up by next year Q2.
Okay. The other thing I wanted to understand is that are you seeing any slowdown on the ground for, say, the month of July, given that a lot of industries say, especially chemicals, textiles are seeing a certain level of slowdown? So is there anything that you guys are seeing on the ground? And what would your guidance be for this month -- for this quarter? Q2?
I don't think that we are seeing any slowdown in our sectors that we are in because we don't really deal with chemicals in a large way or any of the verticals in a large way. And I think the -- whatever we have guidance we have given for Q2 is intact. I don't see any change in that. So of course, one has to be very mindful that we all are in a very precarious situation where the war is still looming and all of that. So as an economy, as a whole in India, we can expect 7.5% or even 6.5% growth. So if that is the case, the lease definitely would be doing about 18% to 20% growth for the full year.
And this growth you're mentioning is on the top line or that would that the bottom line.
Top line, 18%, 20%. So this would be about 12% to 12%, 14% tonnage and the remaining would be price growth...
Capacity utilization and all of that also all the factors combined. It can't be just 2 factors or one factor completely.
The next question is from the line of Radha Agarwalla from BNK Securities.
Yes. Sir, my question was on the pricing scenario. I believe the pricing for the company is fixed on a per kilometer basis. And the rates are primarily dependent on [ détente ], wherein the basic price is fixed and changes are made basically according to the fuel price. So can you guide me how the pricing scenario works in a rising fuel cost scenario as well as a decline in forecast scenario?
Yes. So basically, there is 2 aspects of that. One is to passing on this visual increase to our customers and another one to passing on to riser hikes to our vendors. So vendors, we are paying as per kilometer basis. And wherever diesel is increasing, we are passing on. And it all depends to what kind of hike is there. And sometimes it is also good at it is also a positive arbitrage for us because we can be like a lag on passing on to vendors. Second aspect of customers, we're charging from them as a park, a par kilometer basis. So per kg are charging from them. And we have a digital high close with each and every customer. And we are almost 90% cases in all the like whatever past size has happened, we're almost able to pass on to 90% customers on that case.
Okay. So the basic price is fixed, and there has been no change in the basic price for the last 3, 4 years now. Am I correct?
No. So basic price, we -- so we have started to start to improve this price level also. And last 2 years, we almost increased 4% to 5% on a basic price also.
Okay. Sir, actually, so my question was regarding, let's say, for FY '22, like last year, our revenue growth was 28%, and our volume growth was also 28%. And on previous conference calls, you have mentioned that you have taken a price hike of about 2.5% to 3%, something like that. And so that price hike of 2.5% is not visible on the overall revenue growth is the subtract revenue growth with volume growth. So is my understanding correct that the price hikes have been passed on were taken only for a few customers -- or can you please guide me on how to understand these numbers?
Yes. So basically, first thing, our volume has grown and last year, I think, 27% in against our revenue growth of 28%. Second aspect this price this volume is basically because we are the India company. So basically, our revenue is depending on which sector we have more better, like longest-distance our perked would be the highest one. I'm supposing shorter-distance in our revenue per kg would be down lower side. So this way, it is a combination of various factors, which sector we have generated more revenue with what the distance we have covered. So this way, it is also happening. So what -- so it is not exactly it will be increased on a same segment.
Okay. So when we say that we take a price hike of 2% to 3% actually every year. So it means that we are talking about majority of our customers and majority of our routes? So on a blended basis, the numbers might be plus/minus 1 or 2 percentage points?
Yes. Because it all depends on which -- what kind of length we cover, which is a whole year we are doing like kind of lakhs of kilometers we are running. So how much we had distance covered, like opposing we carry the cargo from Delhi to Gurgaon the highest per kg would be there supporting, but we're supposing carries a cargo from Delhi to look now that are different rates. So put together, so we are analyzing cargoes separately and overall revenue separately. So last year, we have done that way. The cargo has almost increased 27% and revenue growing on 28, and we had taken a price hike of 2.5%.
So sir, you mentioned that basic price also you have increased. So apart from the oil price increase, I believe the basic price increase includes any kind of rise in inflation in other costs or any other costs. So does the basic price increase covers all the other inflationary charges?
Yes. So basically, inflection you start only from this year only. Last year that we have not faced so much challenges on that.
Yes. Okay, sir. Sir, my next question was that if I see the revenue per branch for the company, so revenue per branch was in the range of, I think, $12.9 million for FY '20. But for FY '22, it is about $12 million. So I can understand that per branch revenue is actually not on an increasing trajectory. So are we taking any steps to increase the per branch revenue for the company?
Yes. Chander, you would like to answer on that?
I don't know which quarters have been compared. But if you look at quarter-to-quarter, it is all on the increasing trend because each branch is a contributor to the top line and part of the bottom line also. So I mean, you have to give more specifics as to what data you're comparing.
What I'm comparing is on a yearly basis. Is it a...
Yes. So you may can give the separate data to us. So we will reply on email, which quarter and what numbers you are comparing with that.
The next question is from the line of Nidhi Babaria from Envision Capital.
So sir, what could be the reason for Q-on-Q decline in sales like on a historical basis also?
So there's only one reason is there because always, Q4 is the highest revenue month due to because March, everyone is caring their stock and then suddenly in April, everything is from down heavily. So that pattern is going on always. And always, May month is also slightly relaxed one or slightly slow growth month always. And when that is -- growth is started on a June onwards. Then because now it's a pre-festival period, this Q2 is also growing well because, again, it is a prefestival season started now. So that displaces started in overall industry and then revenue started to increase in robustly. So some months and some trains are there for slightly supposing there is one sector is if this is a separate part. Like sometimes demand is lower in textile industry or so. That is a separate part. Otherwise, the normal pattern is that one.
Okay. And sir, would you be able to give a rail and air segment breakup, how the revenue growth has been and what are the margins as of now?
So basically, we are not divulging the number once it will become a sizable, then will we start to, I think, in a separate number for this service age. But yes, rail is growing like 75% kind of growth rate on quarter-on-quarter or year-on-year basis. And air is normal is growing in the world, surface is growing in a normal pace. And profit margin is highest in rail and air goods is slightly higher than surface business.
But the volumes are not as high as surface.
Okay. And what type of Q-on-Q growth are we targeting for this year? Because like as you said, Q1 is normally a very big quarter. So for our longer-term targets and even for FY '23 targets, what type of growth rate are you expecting for the next 3 quarters?
Yes. So we will be growing in the range of 16% to 20% in the last 3 quarters. And you obviously surely will try to achieve the revenue what we give us the guidance.
So the 16% to 20% would be on a Q-on-Q basis or a Y-o-Y basis?
Y-o-Y basis.
Okay. And sir, what type of price hikes have we taken for this year?
Chander, you would like to answer?
So we are taking the price hike, the year has just started in the year-end. Depending on inflation and all of that, we -- it should be in the range of 3% to 4%.
Okay. And sir, any color on freight rates for the rest of the year like by what percent are the -- is the industry expected to grow its freight rates on an average basis?
So we run on a vendor management system. So I'm not sure about the market freight rate. But if you look at the overall demand versus supply, the demand also is depending on the economic activity of the country -- so the economy is strong, then the demand will be strong also. So freight rates could move up. But we are not in that -- on the spot hiring system. So it doesn't really affect us.
The next question is from the line of Kunal Bhatia from Dalal & Broacha Stock Broking Limited.
Sir, you did mention about the utilization currently was at 84.5%. I can say that last year, it was actually lower at 83.5%. Am I right on that?
Sorry, you're talking about Q1 of last year?
Yes, sir.
What you're mentioning is 83.5%?
Yes, right.
No, no, no. That was high actually. That time because that time was the Corona was there. So in generally, we can take some advantage of delays or some consignment because that time load was not copper because revenue was less. But this time, because now there's a full revenue month, so we can't be compromised on service levels. So we have to be sending the truck. So utilization level, it's 84.5% is just like in a temporary one. In this quarter, it will be certainly in the range of 85.5% timed.
Okay. No, I was just looking for a comparative number last year, how much was it?
Sorry?
Last year same pace, how much was the utilization, sir?
It was 85% plus.
85% plus, okay. And sir, my second question is in terms of the own facility. We have mentioned that we have reached approximately 18% of our revenue was from the Gurgaon office facility. So how much that can be scaled up to because I believe that will give you addition on the margins?
Yes. So again, it all depends what kind of revenue we will generate from this sector, actually. So yes, it may be like it is scalable even up to 40%, we can be to scale up in Gurgaon sorting center, that capacity we have. So time to time, if you see the -- over the period, we will increase that number of [ titans ] sharing through the center. And subsequently, it will be also justly positive for our margin level.
Okay. Sir, this 40% overall volumes from the Golden facility will take how much time to reach that?
I think it's not a stake, I think, 5 years.
Okay. So it will be a very gradual process you need to say?
Yes, -- it's not the orig process. It will take time.
Okay. And so this new CapEx, which you have mentioned about whereas spent about INR 33-odd crores. Could you just give some sense on how big is that facility or what you intend to do from there? So a little bit on the asset turn, what revenue you are expecting from this?
So basically, it is -- we have bought a land in Kolkata and that facility will be also like in the range of 2 lakh square feet. We will be there. So we are now -- we are in a process to file the application for taken to taken a permission for construction and layout approval. So it will be all processes slightly, gradually, it will happen. But facility will be like 2 lakhs square feet. It will be also automated one, which we have done in Gurgaon. So now whatever facility will be at as a [ green ] says, we will be making them as an automated one.
Okay. And so what will be the utilization level for the Pune facility currently?
So Pune facility, again, if you see now it is manual one is a facility which earlier we have is only 1/3 kind of facility we have there. Now, it's a 1.5 lakh square feet. So you can see it is like 40% is right now, we are using that facility.
Okay. Because that we started in FY '21. So we are at 40% in many years’ time, if I'm not wrong.
Yes. So it will be gradually grow because it will be increased utilization with the increase in the business over the period.
Okay. And sir, just a rough calculation, you mentioned about the 20% growth for the entire year. So that gives us about for the next 3 quarters, you will have to grow at around 18%. So is that a reasonable number to work with. And we can get back to those 16%, 17% EBITDA margin for the next 9 months?
Yes. So again, if you see, last year, we have also said the same thing. We will be our endeavor to increase our margin of 50 to 100 basis points on each year is we have done in the last 7, 8 years, we have done that. And in this year also, we will certainly increase our margin level. So we have reached on a 17% in last year. This year, we will be targeting to 18%. And certainly, we will do that.
Okay. And sir, would you be able -- just the last question from my side. Would you be able to share how much was the contribution from the new businesses, the C2C Express coal chain, and the railway?
So if you put together now, than it is almost 6% to 7%. And in cooling air, this is a combination of all services. It is other than surface, we have 15% share right now.
Okay. including air would be 15%?
Yes.
The next question is from the line of Alok Deora from Motilal Oswal.
Sir, I just wanted to understand we similar to our follow-up to the previous question only. So sir, first quarter after seeing the numbers, and we are talking about a 20% growth. So that means around 70%, 18% growth, and the INR 32 crores, INR 40 crores sort of a quarterly run rate. So you just wanted to understand, I mean, how are we going to -- how confident are we on achieving that? Because from a festive quarter standpoint, we can still understand that 1 quarter, we can have that number. But is it sustainable for all the 3 quarters on an average basis?
Yes, Chander, would like to answer?
So what we have done is that what I understand is also that the business here is in streamlined to have that sort of growth. The economy is also now ramped up to have that sort of growth. And there is some, again, God forbid any problem of like a sudden war, a new issue or something. Then overall, the entire economy can get affected because that happens, our business will get affected. But as of now, I do not see any challenge happening because the country is also poised to grow. The economy is possible. And our #1 rider for company growth is the strength of the economy. So that will come for sure.
Sure. And have you -- how is this July been for us? I mean, how is the momentum made in July because we heard of some slowdown in selected pockets.
No, we have not seen that happen in our business. Yes. But I definitely -- what I hear also is that automobile, which we are not in the business, that might be slowing down from next month or something. I don't know.
Sure. And also, sir, so I might have missed this answer you might have given previously. But these margins, which are now at around 14.7% or so. So how fast we are looking to get it back towards the 16%, 17% kind of range...
And this will happen from Q2 only. And this is -- this was something which in Q1, we have all the salary increase increments. We have all the additions of planning done and so all those things usually in the month of April and May, they add up for the year. And so that is typically the sense in logistics also and logistics volume also come down like because consumption comes down in the first quarter. Schools finish, people go on holidays and all that. So that part of the economy, you'll see travel, hotels and they're doing pretty well. But here, the consumption and all that is reduced. So now normal Q2 onwards it always starts normalizing, and we're seeing that at least in our business.
Sure. Just one last question. So has there been a case where we had higher diesel prices, but we are yet to pass on or we have just maybe passed on that increase to customers in July. So...
I can give you a very good example last year when the -- in the month of Diwali, the month for that, immediately, the price has increased, diesel was increased, and you were unable to pass it on immediately. So if something like this happens, then it is beyond our control. Otherwise, things are under control. And I don't see any challenge in not being able to increase the price. And of course, the fact is that when we are doing something which is rather not totally, not different, we are not trying to garner top line because of the cost to bottom line. That's where we really see the upside happening because we are not compromising on quality of the service. Customer will only give us the price increase if there is quality of service. Otherwise, you will say you reduce your price. The first thing you would say. So keeping that in mind and keeping all the states in mind, we are able to increase the price along with the levels of our service, which we maintained and intact. And actually improving now with this new sorting center that we have automated.
Sure. No, actually, this question just came up because the gross margin was down. So just wondering whether there's some price increases, which we are yet to take into the...
Our business, what you see down is all temporary. It's not like -- because, again, if it's down, it new the economy is down, look at it this way. And if the economy is up, you'll see that everything is up also. That's typically the case. We don't do any -- we are not a new age company, where we will just burn money and do anything and everything. We are a conscious business. So that in keeping that in mind, we are able to sustain it forward going forward. And we don't show any abnormal profits or abnormal revenue growth or anything of that sort. So keeping that in intact, we are able to sell through any of the challenges.
The next question is from the line of Prit from Wealth Finvisor.
Just a follow-up question. Are we seeing any increased competitive intensity? Say, for example, Gati is coming back or other players like Mahindra Logistics and others are getting into express. So we…
I don't think Mahindra is getting into logistics. They don't have the network or infrastructure. Gati is only if you see that what they do are they are masters of Jaguari. So what business they have put where to add to increase top-line they only know because they are able to now -- there are thoughts of their parent company or whatever adding the logistics business to Gati, which means that the profits -- the margins will take a bigger hit now. So it's just -- if you look at clean-cut express business, we are the only company that is there, that is transparent and visible in terms of what the numbers are showing. So I don't think that competition has written into any of our shares or has the strength to do that because we can only do that by reducing their prices. And that's also a temporary phenomena because it's the service fields, the customers also come back to us.
Is a follow-up thing is that we are seeing a lot of slowdown in the PE money as well, right? And if that continues, some of the key players will not get the funding they used to get to burn on. Are you seeing any of that changes now on the count where…
We are not offering ridiculous prices. I don't see anything of that happening anywhere in the field. It's really hard to gauge what is the -- what they are thinking, what they are doing. If the money is drying up, then they will probably -- the problem with these companies is that the owner, there is no owner. And there is no one if there is no owner, it means that there is no skin in the game. And there is no skin in the game, they don't care. So it will only be beneficial for a handful of investors. That's all. So for sure, I mean, that's the way they get the returns happy, but then that shut down.
We will move on to the next question. That is from the line of Nidhi Babaria from Envision Capital.
Yes, I'm done with my question.
[Operator Instructions] The next question is from the line of Ronald Siyoni from Sharekhan.
I just wanted your take on going for sorting centers through purchase of land and everything rather than leasing those facilities. So if you can talk a little bit about having your own sorting centers versus lease one? Or you might be having a combination of both of overland what kind of model you want to operate it. And during this upcoming faster season are you going to put up more lease facilities because all sorting centers will be taking a little bit of time.
I would clarify with you 2 things. Number one, all major locations, you need to have your own sorting center because you cannot have any sort of operational situation where is it shut down because of the landlord or whatever reason it might be. Number 2, those companies which don't have any of their profitability, they go into lease model. We don't go into a lease model of the large centers. We go after smaller locations. So that is where the difference lies. That is why we are able to build this 2 lakh facility to a square feet facility and then do an able to like generate efficiencies unheard of. So that, of course, takes time for the shareholders to see. And eventually, they will see it. I mean it's something which is visible. So to make it happen, some centers, you need to own them. And some -- and well, it's a 80%, 20% principle, 20% of the satiate you have to own and 80%, you have to -- or rather the other way around 80%, you have to own and 20%, you have a lease in smaller locations.
Right, sir. And with like [ taste ] season during that time point of time, do we have a kind of capacity or we have to go with leasing of some facilities or to those capacity?
Usually, we don't have any issue, maybe in small locations that could have been previously, but not now.
Okay. And one last question would be, is it better to have such large stability in a particular area, say, Gurgaon we should have 2, 3 facilities and because sometimes what happens in that particular facility gets affected dealers like we have seen pharma educations or those kind of things. So that gives a big role on the company. But still, what would you refer that a large facility in a particular region or understanding 2, 3 kind of facilities...
So that's a very good question. And I think looking at the -- you have to understand that the fuel cost and labor costs are very high in India. Therefore, having many multiple facilities, it loses the focus of having an asset-light or even just an efficient system. So a large facility is beneficial when it is automated. Now, when we have a situation, as you said, by farmers agitation or something like that, you did find the operations that don't stop. It was just the route network that was changed. Everything else is running in, in perfect sync.
Also, what happens is that when you are having multiple facilities, then you are compromising on the most important thing, which is service in express service, express industry, service industry, we need to have very high service standards. So imagine if you're taking a flight Delhi to Bombay and you're going -- your flight is stopping in Jaipur stopping in [ Endava ].
And then reaching Bombay, it is taking 12 hours versus direct flight of 2 hours. So obviously, you'll be happier with 2 hours and you'll be able to be ready to pay a higher price. So that's how it works. That's how the benefit comes in.
Thank you. Ladies and gentlemen, we'll be taking last question. That is from the line of Radha Agarwalla from B&K Securities.
Just one question. Sir, on the annual report, I noticed that the number of air gateways that we had in FY '21 was 51%. And in FY '22, this has increased to 73%. So as the industry moving from air to road and rail, et cetera. So with respect to that, what is our strategy on the air express segment?
There is -- so it was increased because we started sending directly the booking of the consignment from that location itself. For example, is all the airports, which were not -- which were smaller in size, and the flights are not touching there, we were able to send the material by road to a larger location, and then it was sent by flight. Now, the smaller locations have opened up and the bigger airports are opened up.
So we are able to ship out the air shipments. Air shipment, air cargo in India is not growing at all. It is just running on the backbone of a few companies which have seaters and few and the airlines, which are the value space. Once the airline belly space comes back to in full capacity, we will see that the air cargo prices will drop considerably.
They're already very low, and they will get lower even well that happens when the capacity increases. In India, the customers are not inclined to pay a very high price. So whatever is happening in air cargo industry, it is just a mix and match of different services put together and shown as air express. In our case, we do purely air express if the customer wants [ exit ], and that percentage is the U.S.
Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Chander Agarwal for his closing comments.
I must thank you all for joining us here today, and we look forward to meeting you in the next quarter. Please stay healthy and feel free to be just if any questions remain unanswered. And I also invite you to please visit our automated sorting centers. With that, thank you very much, and have a pleasant evening.
Ladies and gentlemen, with that, we conclude today's conference. We thank you for joining us, and you may now disconnect your lines. Thank you.