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TCI Express Ltd
Earnings Call Analysis
Q3-2024 Analysis
TCI Express Ltd
The company navigated a challenging year where the entire industry faced headwinds affecting volume growth. Despite these obstacles, the company managed to achieve a 2.5% revenue growth over 9 months and maintained its margin levels. This is notable considering the industry saw significant margin reductions due to these challenges.
Margins saw a contraction by nearly 150 basis points on a quarter-over-quarter basis, despite stable revenues. This raised concerns about the sustainability of profit margins and whether they can return to the preferred 15.5% range. The shift could potentially be aided by easing fiscal policies from the government, suggesting a cause for optimism despite current ambiguities and unpredictable market conditions.
For the upcoming quarter, disruptions like regional protests are expected to contribute to a single-digit volume growth. Accounting for these factors, the company expects to end the year with a volume growth in the range of 4-5%.
The company is concentrating its efforts on the Surface segment, where it has established market leadership. Unlike competitors that may rely on franchises, the company aims to expand its direct control by opening more offices and increasing the base of salespeople in India. An impending launch of a new service, intended to further its competitive edge, is expected to be announced in the near future.
Concerns were raised regarding the stagnation of net profits around INR 30 crores to INR 35 crores over the past few years, despite the country's GDP growth and the company's strategic initiatives like branch additions and service expansions. Company executives noted that while revenues did not grow significantly this year, they maintained consistent operations, customer base, and actually achieved a remarkable margin level increase from 12% to 16% in one year amid the pandemic. This exceptional performance highlights the company's resilience in difficult times.
The company's growth is dependent on economic conditions, and the macroeconomic scenario has been challenging. With distinctions between GDP growth and stock market performance, the key here is to identify where the company can seize opportunities within the growing segments of the economy, such as consumption and farming, despite the poor performance of the services sector.
Load factor issues arose due to overcapacity in the fleet as volumes decreased substantially after the Deepawali festival, particularly in the Western parts of India, and did not pick up as expected in December. The drop in utilization from 85% to 83.5-84% has had a negative impact on margins. This was a repeat of challenges faced last year where excess truck capacity led to underutilization.
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Good day, ladies and gentlemen, and welcome to TCI Express Limited's Q3 and FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Navin Agrawal, Head, Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.
Good afternoon, ladies and gentlemen. It's a pleasure to welcome you on behalf of TCI Express and SKP Securities to this Q3 FY '24 Financial Results Con Call of TCI Express Limited. We have with us Mr. Chander Agarwal, Managing Director; along with his colleagues, Mr. Mukti Lal, CFO; Mr. Pabitra Mohan Panda, COO, Surface; and Mr. Hemant Srivastava, COO, Express Business, Non-Surface. We'll have the opening remarks from Mr. Agarwal, followed by Q&A session. Thank you, and over to you, Chanderji.
Thank you, Navinji Good evening, and welcome, everyone, to Q3 and 9 Months Financial Year '24 Earnings Conference Call of TCI Express Limited. I would like to thank you all for joining us here today, and I hope you and your families are staying safe and healthy.
We have already circulated our earnings presentation and press release on our website and stock exchanges. I hope you all had a chance to review it. To start with, I will give you an overview of business trends and performance, and then we'll hand over the call to our CFO, Mr. Mukti, to brief on our financial performance for the quarter and 9 months financial year '24. Let me begin by providing a brief overview of the economic landscape, landscape in which we are operating during the third quarter of financial year '24. The operating environment in the third quarter remains challenging as we continue to face headwinds stemming from muted festive demand and an extended holiday season. Despite these challenges, TCI Express has demonstrated resilience and agility in navigating the market dynamics.
With the combination of a strong customer mix base, along with an unmatched network and efficiency, we have maintained stable profitability and margins, outperforming industry peers. In line with our shareholder friendly capital allocation policy, the Board of Directors has recommended a second interim dividend of Rs 3 per share. This brings the total dividend for the 9 months financial year '24, INR 6 per share, representing and a payout of 300% of the face value, reaffirming our commitment to delivering value to our shareholders.
Moving to a brief update on business developments. Among our newly launched services, the Rail Express has gained substantial traction from customers. We have successfully expanded our customer base to 4,000, covering 125 routes to meet the growing demand. These services are expected to contribute positively to our top line in the coming quarters, enabling us to achieve higher margin levels and growth.
I'm delighted to share that the ongoing construction of the Pune service center is progressing as planned and expect to become operational in March '24. As far as our future focus is concerned, we will continue to invest in technology and automation to drive a more efficient operation and provide superior customer service.
Over the 9 months financial year '24, we have incurred a total CapEx of INR 25 crores. The CapEx was primarily spent for expanding our branch network, automation and ramping up of our IT infrastructure. During 9 months financial year '24, we expanded our footprint by adding 15 new branches in the West and North region to cater to the growing demand with unparallel services. Our strategic investments in technology and infrastructure have been instrumental in streamlining our operations, ensuring that we remain in the forefront of the industry. Furthermore, I'm happy to share that we were honored to be selected as India's top 500 value creator companies by [indiscernible]. Additionally, we have received recognition from the CII Institute of Logistics [indiscernible] implementation of AI, that is artificial intelligence, in our business operations, earning the prestigious CII scale award '23 in the express courier category. This accolade underscores our unwavering commitment to innovation, technology advancements and sustainable practices. In our continued effort and pursuit of people-first approach, we have been again certified a great place to work for fourth consecutive year. And it's a true validation of our commitment of fostering a positive open [indiscernible] environment.
As we look ahead, the sector is poised for good growth and propelled by government infrastructure and policy initiatives for the development of transportation, et cetera, particularly in relation to major [indiscernible], logistic stock and road and railway and highway connectivity. In this favorable industry trends, we are confident in our ability to capitalize on the exciting opportunities in the Indian logistics market and to create long-term value for our stakeholders.
With this, I'd now like to hand over the call to Mr. Mukti to talk about our financial performance for the last quarter.
Yes. Good evening, everyone. Now I would like to discuss the financial performance of the company. Our Managing Director has already highlighted the development during this quarter, and I will delve into the financial aspects. During the quarter, our revenue from operations stood at INR 312 crores for Q3 '24 as against compared to like INR 320 crores in Q2 of this year and INR 314 crores in the same quarter of last year. And that's why continued headwind on account of muted festive season or festive demand and long holiday season during the quarter and the high base effect also playing out this year from a year-on-year number perspective.
Though we maintained profit margin intact, the EBITDA for the quarter stood at INR 48 crores with a margin of 15.1%. Our profit after tax for the quarter stood at INR 32 crores with a margin of 10 points -- a robust margin of 10.3%. Overall, in the 9 months FY '24, our revenue from operations was INR 937 crores as compared to INR 915 crores same period last year, registering a year-on-year growth of 2.5%. The EBITDA for the period was INR 148 crores with the margin of 15.7% and profit after tax was INR 100 crores with margin of 10.6%.
As a result of continued focus on revenue quality and profit growth, we ended the quarter with generating a cash flow from operations of INR 75 crores and then continued to generate solid cash flow to fund our strategic growth plan. Our commitment remains rooted in balance growth and revenue quality. With the additional automation unlock and flexibility across our network, we remain confident in our ability to capitalize on opportunities and solidify our leadership position with industry-leading services.
So thank you very much, everyone. And now I would like to open the floor for question and answer. Over to you, moderator.
[Operator Instructions] The first question is from the line of Jainam Shah from Equirus Securities.
Sir, the first question is related to a few data points. So if you can provide the volume number for the current quarter?
Yes. So volume numbers are 2.5 lakh tonne for this quarter and 7.42 lakh tonne for the 9-month figure.
Okay, sir. Okay. Got it. Sir, you have done CapEx of around INR 25 crores in the 9 months? So what we are targeting for the fourth quarter and for the next year? And are we intact for INR 500 crores CapEx over FY '23 to FY '28?
Yes. So basically, we have taken a target of 5 years in FY '23. So it is including FY '23, in which we spent INR 125 crores. And in this year, hopefully, I think we will spend around INR 15 more crore, so INR 40 crores total for this year. So it becomes INR 165 crores and remainder part of INR 335 crores, we will be spending in the next 3 years, FY '25 '26, '27.
Okay, sir. Okay. And sir, contribution from the newer services would be how much percentage this quarter?
This quarter, contribution from this newer service is also, remains same, is around 17%, 17.5% what we have it in last quarter as well.
Okay, sir. And sir, coming to the margin. So our margin has dropped sequentially during this quarter. So any specific reason to that?
Basically, if you see revenue numbers are -- if you compare with the last year, there is a slightly less revenue. So utilization level of truck is usually dropped. So in this quarter, we have 83.5% utilization level. And that's why, if you compare with the last year's same quarter, we enhanced this EBITDA margin by 10 basis points. So that way, it's okay.
Okay. And sir, over the medium- to long-term target for the margin, how we are expecting because in this 9 months number, it is somewhere around 15.5%?
So again, we are hopeful to be -- Q4 must be on a good note and we are seeing the traction in January and February month. But we are not much hopeful double-digit kind of growth, obviously. So it's a similar way. This year is challenging year. Everyone in the industry if you see, everyone faced a challenge on a volume growth. But good thing in our company, revenues, we've grown 2.5% in 9 months, but we also intact our margin level, whereas every industry player has been taken a big hit on their margin levels. They have fallen down heavily.
Yes, sir. Correct. Correct. And sir, just last question from my side, in medium to long term, how we are projecting our revenue or rather volume growth given that there will be -- first quarter for the next year will be more of an election quarter. So post that, how we are expecting the ramp-up in the volumes over a medium to long term?
So I refer this question to our MD, Chander, sir? Can you just apply on that, please?
So, the -- if you look at the next quarter, it's quite clear that we're looking at the way the economy is moving, we will be expecting -- I think the numbers would be the same. And there isn't any large -- there could be an uptick of maybe 0.5% or more. I do not see a large uptick because, again, the situation on the ground is very different from how it is shown in the -- on television or whatever. So yes.
Okay, sir. Okay. And sir, [indiscernible], are we having the 2x of GDP growth target going forward as well?
Yes, that's not going to be changed. I have always mentioned that looking at the situation -- the economic situation of that particular year in that time period, one has to always monitor. And our fundamentals are always intact. And then that's why we're able to maintain double-digit margins for so long. So I don't think there is any problem structurally or micro problem that we have. It's a problem of just economy and its demand.
Next question is from the line of Alok Deora from Motilal Oswal.
Just a couple of questions, first, similar to the earlier question. So sir, this year has been pretty challenging as we see for the industry as well as for us. So next year, could it be a case where we gradually improve on this and then we go back towards our double-digit kind of a growth target? Is that very much possibility now because considering that we'll be entering the election year and things could be slower in the first half of the year and then ramps up in the second half?
So we have to consider 3 things. First of all, inflation rate, how much it comes down. And then the interest rate, most important. And number three is the fuel charges. So all these -- even though the fuel charge is passed on, but ultimately, someone is not really benefiting from it.
It's not like the airline where you only have 2 players and -- or 1 player where they can just charge what they want and get away with. So I think in our case, we have to also see and understand how the demand picks up, what the government is turning out in terms of its fiscal policy, post-election and all of that.
So I think it's a wait-and-watch situation. Very early to comment because gone are the days when we would know for a fact that this is how things are going to play out, this is how things are going to be laid out. It was very predictive then, but now things are very different.
Sure. And sir, on these margins, we have seen almost flattish sort of quarterly revenue, Q-o-Q revenue and the margins have come off by nearly 150 basis points. So any one-off in this? Or can we expect it to go back towards 15.5% sort of a range? I'm talking about excluding other income, 15.5% of our margins in Q4 onwards? Or any comment there?
I think 0.5% and more will be achievable in this quarter. There's no problem, and yes.
Sure. Just one last question. So earlier, we had mentioned that the new segments, as they ramp up, we will see the overall margins also improving. So that remains? Or is it a little more competitive scenario now where margins would be kind of restricted in the 15%, 16% range? That's all from my side.
See, margins are not affected because of any competition. It is only affected because of the demand and the economic situation. So we are -- I think getting back to the same scenario would be very -- would be possible as the fiscal policy of the government also eases and it kind of changes. So I think it will happen. It's not like it's all sudden, things will change.
Next question is from the line of Amit Dixit from ICICI.
Congratulations for a stable set of numbers in a very challenging environment. I have a couple of questions, sir. The first one is, if I again, harping on the same volume question. If I look at 9-month volume growth, it is almost 1.6% and you highlighted that the next quarter would also be -- I mean, in the similar lines. So what do we expect volume growth for this year to be roughly 2% or something and next year because of the election -- the election in the first quarter itself. Can we pencil in a volume growth, let us say, of 5% to 6% or something like that? Or do you see some other tailwinds, I mean, helping you?
Yes. Mukti?
Yes. So basically, in this year, we are seeing not more than 3%, 4% kind of volume growth in this Q4. And obviously, we are not also asking for the rate hikes. This is a challenging scenario. Next year, yes, it is too early to comment on first quarter. Obviously, there's an election on a whole year. And this challenging if you see the North India now, the farmers are on the road, actually. They blocked everything. So it's kind of challenge is also coming. So sometimes we are not able to even see. Last quarter also is interesting. Last day of the month -- this December month is always a better one for every industry player and we get the highest business on the last day and in this quarter, last day was a Sunday. So that Saturday, Sunday is a long holiday.
So we ultimately impacted the kind of volume. So in this quarter, yes, we will be anticipating again low single-digit kind of growth and obviously, finish the year, obviously in the range of 4%, 5% volume. Next year, we're anticipating in the range of 11% to 13% as a volume and revenue may be more than 1% or 2% price hike in general due to that high inflation, we will be asked to customers. Let's see how this will be played out, because again, depending on the demand scenario and various factors.
Okay. Very clear, sir. The second question is essentially what kind of operating environment you see in different segments that you operate? Are there any sweet pockets you see or there are challenges throughout or some segments that had temporary slowdown that you can share. Just a segmental flavor would be nice, sir.
Chander, sir, you would like to answer?
Sure. The most important thing is that the favorable segment is obviously Surface segment that we are doing. And other segments, which are really catching up are, for example, the Rail segment. So the impetus will be only on the Surface segment where we are market leaders.
And at the same time, our growth plans are to further expand into other locations within India to expand more offices and have a higher base of salespeople. So essentially, what it means is that unlike other companies, which rely on franchise and everything, we will be able to have a wider scope of control across our customers and our people.
So I think this will be a really helpful factor going forward. And we have already started working in terms of how the business has to be kind of obtained from other competition. In fact, we will be launching another new service in the next 1 week or something where we will publicly announce about it.
Next question is from the line of Ravi Naredi from Naredi Investments.
Sir, my main concern about TCI Express is there because I'm shareholder since last many years. Our bottom line is stagnated since the December 2020 quarter, it is going around INR 30 crores bottom line. So asking when possible? Because in last 3 years, GDP and size of our country's GDP has been rising, and we did Gurgaon sorting centers started, in Pune is about to start, but growth is not coming?
So Mukti?
Yes, sir. So I think you mentioned quarter -- December 2020? Right, sir?
Yes, yes.
So I have not the number with me, but 2020, that was -- that year was COVID year. I really not seeing the number. That was around INR 30 crores. But yes...
Sir, I have numbers. INR 34 crores in December; March, INR 43 crores. Again, June '21, INR 24 crores; September '21, INR 34 crores. Then INR 35 crores, INR 36 crores, INR 31 crores, INR 38 crores, INR 32 crores, INR 38 crores, INR 32 crores, INR 36 crores. Now that these are the stagnant net profit in between INR 30 crores to INR 35 crores in spite of our in 3 years, our GDP has risen. Our -- everything you are doing in the right direction, but bottom line is not coming?
No, sir. Basically, if you see margin levels are almost same, kind of we are not able to improve. That is a reason is there like revenue is basically is not growing due to these all -- this year, whatever happened. Otherwise, sir, these all are intact. We tried hard to be get branch addition. We tried hard to be expansion and a new similar kind of services. So that we will keep continuing that story.
But story is there, but bottom line is not coming. That is my -- main -- my concern. And we have did 2,000 and 2,050 buyback also, and you see what is the share price now? You are giving good dividend, but it is not working in the system, see our net profit rises?
So I can say on that sense, I can say we are almost most consistent companies. Other companies doing one quarter is good one and next quarter maybe fallen down 40%, but our company's operations, our company's revenue, our company's customer base is intact and in all, even on challenges time, we maintain that, that I can say in this time only. So -- and we are still -- if you see the graph, our PAT level margin, no competition even in near to us. So that lever some time, yes, you rightly said because -- I think in one single year, in COVID year, we've grown our margin level from 12% to 16% in a single year. So that's also -- supposing we've grown on 100, 100 basis point in each year and that year, we did well and grown 400 basis points and then subsequently maintain that. So you can say the sustainability is also important on some time. And obviously, this year was specifically headwind in our business and there is a growth scenario was not so good for everyone.
And still we are -- in this year, everyone's margin has fallen down heavily in the range of 40%, 50%. Our team did very well. And even in this challenging time, the same kind of revenue -- in spite of increase in manpower costs and slightly other costs and depreciation, we are able to maintain our PAT level margin.
So this is showing on a different testament for our company and sustainability we're giving to market.
And I remember before 3 or 4 years before, Chander has expected our company will grow 3x to 4x in next 3 years or 4 years, but it is not happening. That's why I'm asking, what is going on in the company? These are my questions.
Yes, nothing. I would like to comment that, first of all, we are, of course, I always mentioned, depending on the economy, how it's going. And I think you are well aware also that the economy is not doing as well. See, GDP growth and stock market growth are 2 different things. Within the GDP growth...
No, no. I'm not concerning with the stock market growth. GDP is there, GDP is growing, GST collection is growing...
No. Even though it was negative, then it came to 2.5%, then to 5%, then what the number will be at the end of the year, nobody knows? So I think you have to really look at the -- if you go in detail, what part of the GDP is increasing? Manufacturing is not increasing. Consumption is increasing. Services is not increasing. Farming is increasing. So you have to really break down and then see, where it is that we can really have the opportunity going forward.
The next question is from the Krupashankar from Avendus Spark.
Sir, my first question would be on the Express business. Just wanted to understand, in October month, we had roughly a load factor of about 85%. But towards the end of the quarter, it's closer to about 83.5%. So just wanted to understand, was there overcapacity of trucks which we had deployed in the network due to which the margins have declined sharply. Because last year, I think around third quarter, we had mentioned that, that was one of the reasons. Is that the case?
Your voice is not clear, Krupashankar. Can you just kindly repeat again? Your voice is not clear.
Is this better, sir?
Yes, this is right now better.
Just wanted to check that our load factors had come off from 85% in October to overall for the third quarter at around 83.5%. So given that last year, I think we had similar challenges wherein we had deployed higher capacity on trucks and that went underutilized. Was that some sort of event this time around as well, wherein we have faced some challenges with the respective utilization in the month of November and December?
Yes, yes. So you rightly said, yes, I got it now. So basically, November, again, after Deepawali, that was in a reduction in heavily on business volumes because western part of Gujarat is closely -- completely shut down for 5, 7 days and other part of country also, there's been a low volume. And then surprisingly, this time, December was also not picked up the volume. And that's why this utilization level is in the range of 83.5% to 84%.
Got it. So if I were to look at while you had mentioned earlier that the newer services has -- especially Rail Express has done well while the contribution has more or less, I would say has not changed that materially. Sir, is there any trend of what is the growth in that business, if you can highlight?
So we are not giving the figure because this is not a significant amount. But yes, it is contributing. That's why if you see my margin level in spite of flattish growth, margin has been maintained. Otherwise, there isn't a drop in margin because there's been 2 or 3 reasons for that. One is contribution from these new services, which is higher profit. Or you can say a similar kind of margin level which we have in Surface and other ones -- other ones like -- Air business also growing.
So that is also help us to be -- and simultaneously, interestingly, SME business in this time, big customer business is slightly less displaced in comparison to SMEs and SMEs has a higher composition. So in this quarter, we have maintained a ratio of in split of 50-50, it is around 52% to 48%. So that will also help us to maintain the margin level.
Okay. Okay. But sir, if I were to just look at the disclosures with respect to receivable days and net working capital days, I think that has gone up, that's right? SME proportion being higher. Sir, is it fair to assume that the competitive intensity has gone up quite substantially because there's lack of pricing power, there's limited tonnage growth in the underlying industry. So is it possible that that's sort of a trend continuing -- going ahead as well, which may put a pressure on your guidance for FY '25?
No, no. So I'm just giving a comment on. That is not that much. Actually, it's very simple. Actually, the last 2 days was a holiday in this quarter. We'll be getting the highest money in last day. So that's the only reason. It is already normalized in January month. So nothing is kind of that. Because our cash flow since last 2 decades is very, very robust. There is no challenge on that. So that is already normalized. And hopefully, that the same way kind of like 50 days -- receivable days would be come in March -- this quarter.
And competition has got into the -- they're already there or whatever there for 15 years. They're already losing money and lost money or whatever it might be. And they're at the -- not at the same Express level, they're at the lower level. They do more of the FTL and all that.
So I think one should always understand that -- two things. Why the difference in our yield, our margins compared to other customers is because we are in the higher-value segment. And number two is because we have the experience for being in the business in the formal business or rather the organized segment for a long period of time.
Understood that, Chanderji. But -- so what my thought process and correct me if I'm wrong, there has been a massive emphasis placed by the industry on tracking the SME code over the last 2 years. And in light of that, we could have anticipated that a substantial increase in the competition given everyone is expanding branch centers as such. So just wanted to check if that would be one of the reasons why the tonnage growth has also come off in this quarter?
See, again, tonnage growth and all is again function of economy, which is a function of inflation and high interest rate. We must keep that in mind, number one. Number two, the consumption, consuming people that derived the demand are not just you and me. They are majority of the population who are not able to really some time make ends meet. So we have to really see breakdown, and if you breakdown and see where the opportunity lies and how we will capture it and how we are capturing it. And one important thing is to note is that the -- what you mentioned that I don't think that the demand or the emphasis is ever on -- rather the emphasis is not on just the pricing.
It is also the service level. What level of service you're able to give, how fast you're able to give. By getting a 50-footed truck, I don't think service level changes because again, what you mentioned about the number of branches, if you really go out in the field and you see who has the branches, who doesn't have the branches, who claims to have branches, it's all evident.
So I think it's a very -- today, thanks to the government, we are able to see everything is in the open. Everything is highlighted, what is actually present and what is not present. Companies -- some few companies have INR 3,000 crore, INR 4,000 crore lying in their bank account from their investors. So they earn interest on that, and they show profit from that. So there are multiple factors that -- but yet they are not able to pay dividend. So there are multiple factors that come into play and realistically, for sustainability, all that little bit of here and there is not going to help anyone long term.
Understood. Last question, if I may. Just wanted to check, is there any way in which we can provide zone-wise growth because we have been adding branches in the North and the West region. So how would have -- what would have been the contribution about 3, 4 years back versus now? Is that possible to be provided on the call?
So basically, we always try to be make a balance. Otherwise, my utilization of truck will be fallen down. So that's why we never encouraging any kind of disbalance on a business. Again, 85% business is coming from 3 zones: West, South and North and 15% from Eastern zone. As you're aware, Eastern zone is nothing progressing and just they're consuming.
So more business is originating from these 3 zones. But it's still -- because we have the like branch -- huge branch -- our own branch network. That's why we are able to generate the business from SME customers. This is a key to generate the business from SMEs, branch network -- own branch network.
Supposing somebody has franchisees. Then they are not interested to do the small businesses. They are targeting big customer and big volume and that's why -- so in our case, we had our own branches. And that's why we are able to maintain the kind of business. Still, it's like above the industry level, this utilization level of this -- our fleet utilization basically. So it is very important to generate the business from SME even in kind of branch network.
[Operator Instructions] The next question is from the line of [ Vishal Agarwal ] from Leo Capital.
Alluding to that as a response to last question, for the MSME retail business, do we give any credit in the market? That's question one. And second, what has been the reason why we have been very successful there. Because a lot of competitors, like you said, talk about building the SME business, whether it is a newly listed startup or the legacy players, but they haven't seen much success. So what differentiates us there and what will keep us there, if you can answer both of those?
Chander, sir, you would like to answer?
Sure. Sir, legacy players like us, we have the experience and we have the knowledge. So I think that makes a big difference. And we never needed massive amounts of capital to really get the business going on the ground. I think it's a matter of not rupees and paisa, but it's a matter of experience and knowledge. So I think that really makes us the leader in this line of business.
And for MSME, do you give any credit in the market?
So, SME. Yes, we're giving -- out of this 50%, we're giving just few customers or 30% out of 50% we're giving the credit, which is also short credit and remainder part of we're receiving at the time of delivery, either on at the time of delivery or at the time of booking.
So this is 30% of the 50%, which means 1-5, 15% of the overall using credit and then the 50% which is key account, you have to give credit?
Yes.
And short credit, meaning how many days of credit?
Like below 30 days.
Got it. And how many routes do we currently operate in the Express business?
How many routes? I think we have already given in our presentation there. There's different kind of routes like from branch to hub and then express, that we have given there.
Yes. I think you've given 500 express routes and 2,000 feeder routes in one of the earlier presentation, is that the right number?
Yes, that's the right number.
So 500 express routes? And what was this number, say 3 years back? Have you added routes in the last 3 years?
No. So if you see that landscape is not increasing, maybe like 4%, 5% may be okay, but numbers is almost same. Because route is -- we are 20-year-old company, and we already established the network. So we're going denser, but not increasing that route. Volume is increasing on that route, basically. So branch expansion happening on -- going denser in cities, Tier 2, Tier 3 or Tier 1, but routes are also like same.
I understand.
[ Vishal ], sorry to interrupt you. Please come back for a follow-up question. [Operator Instructions] The next question is from the line of Mayur from Wealth Managers.
Am I audible?
Yes.
Mayur, your voice is coming little feeble. Can you speak over the handset?
Sir, I'm on the handset itself. So, now is it audible?
There is a slight disturbance from your line, Mayur.
Now is it okay?
Yes, go ahead.
So sir, just I understand that due to low growth, we are slightly on the defensive side and based on what we have been guiding. But again, just first question on mine is, sir, we had the call post -- in the Q3 itself after a month of that passing. That time also, you were pretty confident about the H2 being much better than H1, the SME growth was taking off.
Our CapEx plan even for H2 INR 60 crores cumulatively we had planned. Now we have only put INR 5 crores in Q2, and we are saying INR 15 crores only in the next quarter. So it's only INR 20 crores. And this is only with the change within 3 months, I'm saying. Our FY '25 target was also INR 1,700-odd crores after downgrading it substantially.
And now we are talking of only 11%, 12% -- 10%, 11% growth, that also standing today on a low base. So sir, what has changed in these 3 months, which has led to such a sharp fall in the growth outlook and you being on the cautious mode?
Yes. So this is a good question, basically. So I will clarify one by one. So first, I will be taking the CapEx part. So CapEx part, you rightly said we plan to buy one land parcel and that yet not actually materialized. That's the only reason we are not able to put them into place, and that's the only one reason. And remaining CapEx like we plan for the automation of Pune Sorting Center, this is already online with.
We will start that operation in March month. And then subsequently, we will be streamline the operations of that. Second part, like October, you rightly said October, I think we met 17 October, we were on a con call and that was the pre-Deepawali month, everything looks very, very rosy and growth was very good on October.
But again, in a subsequent month, November, there was, again, a sharp reduction in volumes. And interestingly, as I mentioned in last question also, December was surprisingly volume had not picked up. Because last week of that month is also washed out because there was a last Sunday, Saturday all there and long shutdown of all factories and all.
So big customers, volumes -- all dispatches has been dropped out, heavily dropped. And SMEs was maintained. So that's why our revenue wasn't like intact and margin level is also intact. Q4, again, because we -- that's the pattern is going on. That's why we are not excited about, more optimistic about the uptake in any volume in this quarter.
That's why we are slightly cautious because if this pattern is not improving and overall in manufacturing side, you see the factory output number and you see other numbers related to that. So scenario is like that and next year, yes, there is an election year. So we are more cautious about that. So it's too early to say something on that part. So that's the only reason we have.
Sir, this is not a question of clarification for the moderator. But sir, when you say cautious approach, you mean 10%, 11% growth or you mean even lower than that?
For next year?
Yes.
Yes. We will be like -- we will be at double-digit growth in next year.
Okay. Okay. Great. Sir, the question from my side actually to Mr. Agarwal, actually sir, slightly more broader question. Sir, logistics as a percentage of GDP is expected to fall because of efficiency, right, broadly, but the scale for organized players and opportunity will grow up. We understand that, right? But sir, on a slightly broader basis, do you believe that at some point in time, we will have to relook our strategy of growth versus margins. We understand you are the top launch at the margin of 10% net profit margin. Very few -- I don't know, but no logistics player has achieved and for long, you have been doing that.
But then there are top line growth some companies are still showing. I'm talking of operational growth. Forget other income and profits. But top line growth, so is it that at some point in time, with efficiency, customers would ask for lower pricing. We understand that inflation is there. But do you think there will be a case for us to relook this strategy of growth versus margins over the next 2, 3 years?
Let me start by saying that logistics cost isn't -- whatever reason you said is not a function of that. Logistics cost is a function of the cost of fuel, okay? India, cost of fuel will always be high. So please always keep that in mind.
Number two, we are not substituting profit for top line growth. I want to be very clear, and I want to be extremely transparent about it that we are not doing any of that. The point is that India saw good economic growth after GST was launched in 2016, okay? Since then, it has -- since 2019, it has fallen, number one -- two.
Number three, if in India, if you give up your margin, it will never come back. 15 years, companies are trying to make profit, they have not made profit. 8 years, companies which were acquired here, they have tried to turn around. They are not able to turn it around.
So I don't think it's a direct correlation of top line growth and bottom line growth. It's a question of the state of affairs of the economy. We can be a normal regular FTL players and have INR 20,000 crores, INR 30,000 crores revenue as the group, is no problem. But what will be the margin? It will be lesser than what we are making. So we have to be very cautious in not diluting what we want to achieve as a company and as [indiscernible].
[Operator Instructions] The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, in line with your answer, which you just gave. So sir, what has to change in the sector for companies like yours to both grow reasonable as well as generate the profitability that you are doing? Do you think something needs to change in the industry? Do you think it's just a function of some weaker hands going away and everybody else getting better pricing power? Sir, it is very, very high level. But what do you think needs to change? Because it's never both growth and profitability coming together. So what would be your answer?
What needs to change is that the unorganized segment has to -- the share has come down, which is happening -- which is happening very strongly, which is being controlled by the government. And I think this will be a major factor for the benefit to come in.
I don't think that any company or any organization would like to give up either or. So in that sense, you have some companies which have been trying to do everything and possibly acquisitions and all that and yet not even INR 1 they're able to make.
So I think where we want to be is something that we have already planned out. And numbers can, of course, come down and go up only because of the fact that the environment that we operate in. All the large logistics groups also, in the country, are not posting any -- very high double-digit growth or anything like that. So we should be always mindful of the reasons -- the real reasons behind what is happening.
Sure, sir. And sir, maybe I can follow up with one more question. In light of that, and obviously, you spoke about growth in terms of GDP versus what market is building and could be very different. But as you are doing your capacity planning, say, for the next 2, 3 years in light of all this talk about manufacturing growth in GDP and things like that. How are you looking at? How you want to grow your capacity over this period?
What do you mean by capacity? Capacity of what? Sorting centers or trucks.
Sir, truck sortation centers, like overall, your...
I don't plan on trucks. We don't plan on trucks because that is not part of our asset proposition. We do not own any trucks. We don't pay emphasis. We don't lay emphasis on an asset, which is money using. We pay emphasis on how our capital value can be increased by doing automation in our existing sorting centers.
I think already it is mentioned that we will be automating -- automatizing about 10 sorting centers going forward. And you should come and have a look at the -- one that we have in Delhi. So you'll have a fairly good understanding of exactly what the logistics -- how the logistics landscape is.
Next question is from the line of Lokesh Manik from Vallum Capital Advisors.
My question, Chander, was on your initial remarks on the subdued environment, macro environment. So will you be able to share as to which sectors have seen subdued growth? Is it more concentrated to a particular sector or is it more broad based in nature? If you can share something on that, it will be useful.
Mukti and Pabitra, please.
So basically, we feel that except pharma and engineering, all sectors impacted by this subdued environment. If you talk about electronics, if you talk about textile and lifestyle products because discretionary purchase is still not happening. And yes, similar way, so all sectors impacted except these 2 sectors, but otherwise, all remaining sectors are impacted, yes.
The next question is from the line of [ Vishal Agarwal ] from Leo Capital.
How much is the yield difference for us between the MSME accounts and the key accounts? And are these accounts both served by the same team and the same branch network? Or is the branch network mainly for SME clients and key accounts are handled [indiscernible]?
So this is a very good question. So basically, network is both customer is same on longer haul, obviously. It's going like we have the hub-and-spoke model where we plug the cargo at branch level and then consolidate that and then forward to origin sorting center. And then longer haul, we're sending the full longer haul and then from that location to delivery location and then customer. So that fundamentally is the same kind of network we are operating. And obviously, there is a huge price difference or you can say like sometimes more than 20% price difference in between these 2 kinds of customers.
Understand. And you said the middle mile is common because on the long haul, it's the same, but in terms of sales representatives or in terms of pickup infrastructure and all, is that different for both of these?
Yes. You rightly said. So basically, branches are the main source to be like make the marketing for the small customers because they go -- need to go to door to door in a nearby area and ask for the business, visit all small factories and everything. For big customer, we have like big team at all the level of -- controlling level, regional level and this corporate office level. They -- we're pitching to big customers and everywhere.
Understand. How many branches do we have? And how many sales team members we have in the central team for the big customer?
So we have a branch network is of 950 branches we have and central team put together, it is around 200 persons we have.
Got it.
Sorry to interrupt Mr. [ Vishal ]. I will request to come back for a follow-up, please. The next question is from the line of Akash from Dalal & Broacha Stock Broking.
Yes, sir. My question was...
Akash, your voice is not clear.
Yes. Is it better?
Yes.
Yes. Sir, my question was related to the EBITDA margin guidance that you already given that a lot of automation, operational efficiency coming through the new sorting centers, our margins will be improved to almost 17.5% to 18%. But now I think we have changed our stance. I mean I would like to know the reason, sir?
Your voice was not clear. Can you come again, please? I'm not able to understand whole question what you asked.
Sir, the line for the participant dropped. We'll move to the next participant. The next question is from the line of Anshul Agrawal from Emkay Global.
So our FY '25 target for new services as a percentage of contribution to top line is 25%, while we are currently at around 17%, 17.5%, sir. How do you plan to reach there is my question? And if you could just give some understanding about the margin profile of these new services, are they intact at around 20% currently?
So basically, if you see a higher margin level is almost 2%, 2.5% higher than other services. And specifically, like Air and Rail is a higher margin comparison to slight in Surface. So -- and I think that would be fare of services, may not be like increase more than 20% in next year, yes.
Great. Sir, last question from my side. After Pune, which are the hubs are we planning to automate and by when? That would be all from my side.
Yes. So basically, next would be like Ahmedabad and Mumbai, Chennai, but Ahmedabad construction will soon start. I think in this next year, FY '25, we will be starting the construction, and then we will put the CapEx there in the automation. And then obviously, subsequently followed by Chennai and Mumbai.
So Chennai and Mumbai will start in '26?
Yes.
[Operator Instructions] Next question is from the line of Ronald from Sharekhan.
Sir, I wanted your views on kind of growth we are seeing like.
Ronald, your voice is not coming clearly. Can you please speak through the handset?
Now is it audible?
Yes.
Yes. So sir, I just wanted your views on the kind of growth we are seeing, like we have been seeing more of a government-led CapEx and manufacturing CapEx has been slower, private CapEx has been slow. So one thing on that growth that whether we can cater to this kind of government CapEx-related growth maybe into infra segments, also EV segments or such kind of segments where government-led investments are there.
And second one on the growth versus the consumption pattern, like we have been seeing consumption at malls or at those points remaining high for, say, lifestyle or garments or those kind of things. But small MSME shops or SME shops are not showing that kind of growth. Sir, how you can -- can you maneuver these things with respect to private and government CapEx and premium luxury mall catering to those in mom-and-pop stores?
Yes, Chander, sir, would like to answer?
In general, I think the growth that we have seen now, the profitability that has also come is because of the SME sector. And we have been fortunate that the margins were maintained because of that. And in general, what I also understand that going forward, the trend will remain the same. The customer that is about to -- that is a small time customer for us -- no, it's small customer SME always has this one desire that his material reaches on time, reaches safely and reaches without damage, and there is someone who can listen to that.
So that customer base will always remain. And I think this will be and with our ever-expanding branch network, we -- and as per what we had planned, this will be a very important -- they will have an important role to play going forward.
Okay, sir. And your view on government and private CapEx?
So the CapEx, what -- as you very rightly said that it's not at all happening, no new industries are coming up and the current manufacturing, people are not expanding the manufacturing base. We have heard about the PLIs and all that. But on the real ground, it's very different.
So I think going forward, even what the government has planned is to first build the basic infrastructure of the roadways and the highways. And then we will look at essentially possibly, hopefully looking at even lowering the cost of fuel, which I think will be the major reason for overall economic growth and prosperity.
Ladies and gentlemen, we'll take the last question for the evening from the line of Lokesh Maru from Nippon India Mutual Fund.
A few questions from my side. One is what would be the average fleet size that we will be using in our mid-mile segment, the larger trucks and [indiscernible] hubs?
So majorly, yes, I'm answering on that. So major truck, maximum -- maximum size of that truck is 18 tonnes and on [indiscernible], we also -- so you can take average like 15 tonne or 16 tonne average on mid-mile.
I mean, when we say 83.5% utilization, what would be the number of trucks that we would deploy on the mid-mile side of our business?
Yes. So we give a number on our presentation is around, I think, 2,000 numbers of truck, which we're putting on that in mid-mile.
Okay, sir. Sir, next question is on the line of given our [indiscernible] at least investments within fixed assets that we are doing for the first time, which is in terms of sortation centers, the conveyors. So let's say, we have just done one and then second is underway. Once at least 10 of them are automated, to our mind, what is the kind of return on this investment that we envisage in terms of could be INR 400 crores, INR 500 crores that we invested, we get operational efficiencies. But then when it close to the bottom line, is it 20% kind of return on our capital employed? Is it 30% kind of return? So how do we measure that? What is the valuation aspect of it?
Yes. So this is very good question. Basically, these all are the sorting center -- new age sorting centers are basically backbone of all our operations, and we want to be improved, more efficiency and want to reduce the turnaround time for cargo from across India. Because now we'd just be dealing with only one center and now the second is underway, you rightly said.
So after that, we will be seeing the more benefit because the probability of correctness, probability of time is there because we will be -- as you -- we've been mentioning last time, there is a reduction of -- halting time has been heavily -- we reduced almost 60% time in this center.
So next center will be also helping us. And once we will be reached on these 10 centers, there will be a much better way will we execute like cargo. So that sense, this -- and another aspect of this because we're building up this center for like 15, 20 years, not for the like short-term or medium term of 5 to 6 years. So obviously, near term, returns are slightly less. But ultimately, we want to be like payback period of 6 to 7-year max for these centers. The life -- it is -- of these centers, life is like 15 to 20 years at least for every center.
Okay, sir, understood. So we are looking at it from more -- from a long-term point of view -- long-term benefit of the investment point of view. Okay. Sir. Can I squeeze one last question?
Please.
Sir, would there be any differential in growth rate in terms of volumes in last 3 years with the industry leaders -- the closest industry leader and why would that be? That's all from my side.
Sorry, come again. We couldn't...last few words...
Would there be any differential in growth rate in terms of volume in the last 3 years with our industry leaders, right, the ones serving the same segment. Would there be a differentiating growth rate, volume terms, in last 3 years? And why would that be in your reading or your observation?
I'm really -- I'm really not able to understand what you want to try to ask actually.
Sir, given our volume growth in the last 3 years, would it be substantially different from volume growth of the industry leader operating in the express segment?
Yes, it is, yes. So basically, if you see, we -- what kind of environment we are operating like in Express segment, which is part of load business in Express. That is completely different, and we've seen the growth in like in FY '22, we've grown around 28% and FY '23, we've grown 16% and this year is the only challenges. So we can say, yes. And obviously, like our MD has said, we are in a -- running in both ways. We need on a growth and as well as profitable growth, we are not compromising on a margin level.
So in that sense, in a challenging time and other guys like going up and then going down heavily and then come up by again and then -- so that's why we are not growing. We are consistently -- so our strength is our employee network, branch sector, which is owned by us and sustainability of all complete -- this supplier side, we are also having long, long relationship with them.
Our relationship with our like SME customer is intact, like other -- rightly -- someone has rightly said no one is really able to maintain their level of business with them. They're facing a lot of challenge, but we not. Because since last 2 decades, we had a good relationship with them, and that's why we are opening up the branches. If you deal with only a big customer, then we don't need a branch network.
So that's why, yes, we have differentiated ourselves in many terms. Other biggest aspect -- everyone is talking about like IT improvement, but we are talking about operational efficiency. That's why in this B2B industry, we are the only one to putting these automation in the sorting center. So that's I can say.
Ladies and gentlemen, we'll take this one last question from Akash from Dalal & Broacha. We will not be able to take any more further questions.
Just wanted to ask regarding the EBITDA margins. A couple of quarters back, you were promising that due to the automation centers and operational efficiency of the sorting center, we wouldn't be able to scale those margins to 17.5% to 18% in the long range -- longer term. But now we have changed our stance. So I mean I just wanted your comments on that?
So yes, you rightly asked. So basically, our cost reduction due to that automation, we've taken a target of like 35 to 40 basis point reduction and we already did of like 25% reduction in costs. So these 2 things are simultaneously -- obviously supposing we could not have this automation, then we will not be able to even what kind of margin we right now have.
So even to maintain the kind of margin level of 16% is really challenging in this year. You can see drop of these other players, is heavily drop of like 40%, 50%. So that is the -- or other aspect of that is the service level what we're proving to our customers. So our resilience with this all kind of customers due to this efficiency we created through this automation is really fantastic and customer admire that.
And so that's why I think it is -- we are able to -- in spite of that, there's a flattish growth, we are able to maintain margin levels, I can say. So again, Mr. Chander has mentioned in time to come, obviously, we want to be back to that trajectory of 17% to 18% margin back.
That was the last question for the evening. For any unanswered or follow-up questions, you may get in touch with Navin Agarwal at SKP Securities. I would now like to hand the conference over to Mr. Agarwal for closing remarks.
I must thank everyone for participating at TCI Express con call for the financial year '24, quarter 3. We have been experiencing tough quarters and year, yet we have maintained our margins, and we strive to always keep our shareholders and our vendors and our customers our top priority. With that, I must thank you all.
Thank you, everyone.
Thank you very much. On behalf of SKP Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.