TCI Express Ltd
NSE:TCIEXP
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TCI Express Ltd
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Ladies and gentlemen, good day, and welcome to the TCI Express Q4 FY '20 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you, and over to you, sir.
Yes. Thanks, Neerav, and good afternoon, and welcome to all the participants. So we have with us today, Mr. Chander Agarwal, MD of TCI Express; and Mr. Mukti Lal, CFO of TCI Express, to discuss Q4 and FY '20 results. Without further ado, over to you, Chander, for your opening remarks.
Sure. Thank you. Thanks, Abhijit. Good evening, everyone, and welcome to the fourth quarter and full year financial 2020 earnings call of TCI Express Limited. Before we begin our discussion about industry and business, I would like to thank you all for joining us during the ongoing health crisis caused by COVID-19, and hope you and your loved ones are doing well and keeping safe.On this call, we will start with quick business overview for the full year. Followed by discussions about impact of COVID-19 on the industry and the business and how we are gearing ourselves to manage the impact of this pandemic. Then I will hand over the call to Mr. Mukti to discuss financial performance in detail. Our earnings presentation has been uploaded on the website and stock exchange, and I hope you have had a chance to review it.Now coming to the results. I'm pleased to report overall encouraging performance during the year financial 2020 despite the challenging economic and business environment. On a full year basis, TCI Express delivered total income of INR 1,036 crores, it's flat compared to last year, and EBITDA was at INR 126 crores, with margins of 12.1%. Our company delivered a robust growth in profit after tax of 22.3% to INR 89 crores. During the year, we continued our focus on enhancing margins and improving profitability through higher capacity utilization, penetrating deep in the cities and tapping into growing SME customer and, of course, the efficient working capital management.In the light overall sound performance, the company distributed dividend of INR 4 per share for full year with a payout of 17.2%. TCI Express has added 70 new branches during the year to penetrate deeper in the selected geographies, and this strategy has been successful in contributing to the company growth. We have incurred a total CapEx of INR 32 crores towards the construction of new sorting centers in Gurgaon and Pune. The construction of these sorting centers was halted earlier due to the NGT ban and now with the COVID-19, it has got delayed further. However, last week, we have got the government approval to restart construction at these centers and are hopeful that our new sorting centers will commence operations from third quarter of fiscal financial '21. We are putting our full efforts in making that happen. The complete automation and implementation of business intelligence at our sorting centers will result in shorter turnaround time, higher utilization and enhanced operational efficiency in the long run.Overall, it is important to note that the business environment during the year remained challenging with the economic slowdown in the year '19/'20, vehicle, industrial and manufacturing activities across sectors. Despite all these challenges, the company delivered a top line growth of 5% in the first 11 months from April to February 2020. Normally, March is considered to be the best operational month, where we see high movement of goods due to stock clearance. However, with the unfortunate India shutdown because of COVID in the middle of March, it impacted our business performance. Although the nationwide lockdown brought businesses to a halt and disrupted the economy, we stand in full support with the decisions taken by the government. During these times, health and safety of our employees, partners, vendors and other stakeholders remain utmost priority. With the announcement of the lockdown on March 24, the company allowed work-from-home policy and promoted video and audio conferencing tools to interact internally and externally. Our offices resumed from April 20, and we have taken various initiatives such as operating with limited workforce, sanitization, social distances at workplace, employee screening at regular intervals, mask and sanitizer distribution. We believe that all these measures are critically important to ensure safety of our employees at the workplace.COVID-19 impact on the industry. The business environment came to a grinding halt with the announcement of the nationwide lockdown in March. Markets rapidly deteriorated after mid-March with the closure of factories and offices along with the interstate movement. And that has clearly impacted the transportation and logistics sector. COVID-19 has impacted all categories of industries and India's core sector output declined by 6.5% in March and is expected to decline in April as well. The pandemic has been rapidly evolving on daily basis. The government has extended lockdown multiple times and now with some relaxation, the economic activity has started, but at a lower capacity. Last-mile delivery are facing challenges, such as strict restrictions on interstate movement, especially in the metro cities. Such as Delhi, Bombay, Calcutta due to high cases of coronavirus, coupled with migration of labor adding to transportation challenges.How TCI Express is managing the impact of this pandemic? Company is closely monitoring the impact of pandemic on the economy and business and have taken series of strategic initiatives to mitigate business risks; number one, cost structure optimization. We are reviewing all our cost heads, negotiating with our business partners and objective is to reduce fixed cost. Cost control measures such as promoting digital communication tools and reducing travels, field operations footprint. Focused on improving productivity and optimizing working capital and carefully planning our capital expenditure plans, collaborating on various projects to deliver health equipments like ventilators and medicines. With all these initiatives, we are committed to optimize our cost structure and improve our margins and profitability.Looking ahead, the actual impact on the business will depend on the severity and the course of COVID-19 in the near term. And we shall have a better clarity in the coming days once the lockdown is lifted. I believe we are better placed than our other companies as we are asset-light, we have the asset-light model, coupled with a strong balance sheet, which will not only allow us to navigate through these unprecedented times, but also emerge stronger.We are confident that once the economy activity revives, we will turnaround our operational and financial performance as we remain the preferred partner of choice for offering time definite services to our clients.Now I would like to hand over the call to Mr. Mukti to discuss the financial performance in detail.
Thank you, Chander, sir, and good evening to all of you. I will present the key highlights of our financial performance for this quarter. So however, Q4 FY 2020 is not fully comparable with the Q4 2019 due to this unprecedented situation arising out of COVID-19, which impacted our performance, as mentioned by Mr. Chander in March 2020. And our revenue from this quarter has declined to INR 238 crores from INR 266 crores in the same period of last year, and it is a decline of 10.5% year-on-year basis. And absolute EBITDA stood at INR 28 crores in this quarter in against of same quarter of last year is INR 35 crores. And that line also is around -- so EBITDA margins declined to 11.7% in against of 13.1% in last year same quarter. And profit after tax is also stood at INR 19 crores. It is also a decline of 12.5%. And -- but margin levels are the same, is 8%. And last year, it was also around 8.1%. And CapEx in Q4 2020, we have done a CapEx of INR 9 crore and total outlay for the year was INR 32 crores, and this was largely used for the construction of our sorting center. Thank you very much, and now -- we are now ready to address your questions, please.
[Operator Instructions] First question is from the line of Nishant Shah from Dolat Capital.
Sir, just wanted to know what is the volume for the whole year?
Yes. So volume for the whole year is around 8,40,000 tonne for the whole year. And for this quarter, it is 2 lakh tonne.
2 lakh tonne?
Yes.
Okay. And now, sir, will you be able to maintain a 50-50 percent mix between the SME and the other segments?
Yes. Yes, we will -- yes, we will -- we are not changing that mix at all. There is no need. There's no requirement to change it.
That means looking at the current situation, the focus will be more on the -- acquiring more customers on the SME side?
Absolutely. The large customers are not in a position to expand their businesses, and we are seeing that the opportunity is only arising from the SMEs. Interestingly, India is a country where we will see that when there is an economic slowdown, it's the smaller guy, the SMEs, which give you more of the business. Contrary to what we are seeing in the news that is -- they are talking about the ultra-small SMEs, which are dealing in cash or who are dealing with the export material. So they are the ones who are in serious problem because they have manufactured, but they have -- they are unable to ship out their material.
Okay. But suppose, if you add 1 new corporate, then what will be the mix change? And how will be the margins get impacted?
So obviously, large corporates are also added. It's not like we have totally shunned out. But you see in 2 -- past 2 years, the growth that has been happening in India, I would say, last year before the shutdown, in February, the growth was coming from SMEs. The large customers were all not growing, they themselves were not growing and they were not allowing their logistics players to grow. Whatever growth we had till February, the 5% or whatever was because of the SMEs. I think going forward also, we will see that when we add the large customers, the same proportion is being added in that number of small customers, in that equal proportion or even sometimes more depending on the volume and the quantum of the large customer.
Okay. Got it. Got it. And sir, are there any chances that you will be having a cut on the employee salary or the bonuses part of it?
So we are the only logistics company which has not cut down the salary. We've only cut down the salary of like, I think, only 1 senior person, that is the MD. And I don't think that going forward also, this would be happening. There's no need.
Okay. Got it. So it will be -- you will be maintaining the standards?
Our salary cost is not very high. It's only like, I think in total would be about, with top management, about maybe INR 6 crores or something in a year. So it's not like we're an MNC or something where we're paying like crazy amounts of salary.
And right now, sir, the fuel charges have come down drastically. So which is helping the -- which might help the margins in expansion. But do you think that benefit will be passed on to the customers in the future? Or it will be retained by the company?
No, it will be -- we will -- okay, there are 2 angles to it. Number one, the fuel cost has gone down, but the subsidy has increased. You must be aware of the subsidy. So we will have to see how that plays out when the economy opens up. How -- who will absorb what. At this point, we are not doing any touching of the price. We're not doing any price transfer to the customer or to the vendor or anyone else because it's too risky. Once it opens up, we'd have a fairly good understanding where the subsidy stands, where the -- our rate stand. So we'll do that sort of -- we'll do that benchmarking and the analysis after the 17th.
Okay. Okay. And sir, the last question is what is...
Sorry to interrupt you, sir. I'll have to ask to come back in the question queue for a follow-up question. Thank you. [Operator Instructions] The next question is from the line of [ Yun Zhen ] from [ Tokio Marine Holdings ].
I'd just like to ask, after the third quarter during that call, the outlook for the fourth quarter was quite positive. I think it was teen sales growth for the fourth quarter. Just want to know if you could give us month-by-month in the fourth quarter, what the sales trend was like? Just to get a sense of the impact before COVID and the impact once COVID goes.
Yes. So I think January was something that we were all expecting to be really good. And it turned out to be only a growth of maybe, I think, 3% or something. And February was better than January. I think Mukti, it was how much about 5% or 6%?
Yes. So we almost in March, if you take your figure of that absolute term, we almost lost INR 40 crores revenue in this quarter. And because as mentioned by Mr. Chander, that was the -- supposed to be a very good month for us, and we would have to be at INR 40 crores more revenue for that.
Which means that we would be at a growth of about 12%.
5%, sir.
Over in the month of March over January and February.
Yes. Yes.
I see. Okay. Okay. Okay. That's my main question. I'll get back in line.
Next question is from the line of [ Vishal Dehria ] from [ Mayura India Life Insurance ].
My question is like this year, what is your outlook on pricing outlook on utilization because in a year where volumes could take a massive hit because MSME specifically are at risk. So in terms of what would be your outlook for pricing and utilization? And also your outlook on receivables, could there be a rise in receivables from the MSME side in this year?
No, I don't think SMEs is going to see -- we're not going to see any rise in receivables from their side because they don't have any reason to hold back. I don't think we deal with that kind of a SME base. Pricing and capacity utilization is very early to say anything. Like I mentioned earlier, the real data, the real analysis can only be done once the engine starts running, which I'm hoping that it will be in full gear by July. So I think it will be very difficult to kind of like say, at this point, how we will tackle both. All I know is that we are not in the -- we don't want to be in the position to be reducing the prices anywhere. But also, we can be working on cutting out the pricing for our vendors, which is our cost aspect. That is something that we can consider doing also. So that's a -- it's something which we'll get to know once things are moving.
So what is the utilization currently? I mean, after the lockdown eased up from end of April until today, what has been the pickup? And at what rate are you operating currently?
We are at about -- I would say, at about 25% capacity utilization.
Next question is from the line of Pritesh Chedda from Lucky Investment Managers.
Sir, what will be the extent of fixed cost in our business? And how much of that fixed cost is possible to cut down in FY '21? If you have any thoughts there.
Mukti?
Yes. So we have a very good opportunity to various costs are even semi-variable. Like related to traveling expenditure because we're now focusing more and doing a digital communication and all. So they're traveling, then conveyance, then some customer meeting expenditure, then we also taken one initiative. We are not putting any stationary expenditure this year because we are providing a digital contract knot or docket knot to our customer and then various retailers, we are negotiating with them. So, so many expenditure we already planned up, and at least we have a plan to accept employee cost. Employee cost is also related to their meetings and other expenditure, salary cost may be cut down by on that 5% or 7%. But on other cost, we are trying to cut at least 20% for the whole year for the 2021. And there's various, various options for that as I mentioned on that part.
You said 5% to 7% in employee and the other expense, you said 20%?
Yes.
So if I have to put it that these 2 costs put together about INR 150-odd crores, saying that INR 150-odd crores annually.
It is INR 175 crores annually.
Okay, INR 175 crores. So 20% means [Foreign Language], what -- INR 20 crore-odd is what you are aiming to cut in FY '20?
Yes. Yes, yes. That salary will not be cut at all. These are related to expenditure to my employee-related expenditure, which are the like meeting expenditure and all, that may be cut down and some incentive maybe also take a hit like that is also just variable kind of expenditures there. So that is there only.
Okay. Okay. Sir, and -- yes, sir, any thoughts on the competitive landscape, how it will behave? And what do you see the changes in the express logistics industry over the next couple of years?
Yes, there will be a lot of consolidation happening. Already, I'm getting fillers almost daily basis to -- for acquisitions. So I think this is something which we knew is going to happen. And for any start-up, for anyone which is like heavy on their -- which is asset-heavy is definitely going to take the toll.
The next question is from the line of Chintan Sheth from Sameeksha Capital Private Limited. Next question is from the line of Shriram Rajaram from Ratnatraya Capital Partners.
I have a couple of questions. Now if we see your book, I mean, SME forms 50% of your book and do you see any possibility that SME customers could shift to the unorganized players in order to create spot? So that is my first query. Second is if you could throw some light on your CapEx plans for the next 2, 3 years probably.
I don't see any reason why the SME will shift from to the unorganized segment because unorganized segment is in scatters right now. So there is -- possibly like there is no incentive for them to do that. Like unorganized segment is in a very bad state. So that is not going to happen. And number two, what was your question? Yes. We have already spent -- out of the INR 400 crores, we have already spent INR 120 crores. This year, we will spend about INR 80 crores as we have planned. So there is no change in that.
Okay. And the next year, it would be INR 100 crores, right?
Yes, about that much, yes.
Sir, and so why I asked you this question on SME is basically, people are on a cost-cutting mode. And I mean, people may not see some -- the value-add that you provide. So there is a possibility that they could shift. So that is why I asked you this question.
CapEx, I mean, from cost-cutting point of view, they always had the option of going to the unorganized segment earlier also if they wanted to, but it's just that they will not be able to provide the service and the assurity. Now is the time when we are seeing that companies are shifting and wanting our service more, they are not wanting point-to-point service as much. They don't want to -- because manufacturing is also not 100%. It is now staggered, and it is going to go in parts and loads. That is what the express business is. The hub and spoke model is now going to come into full effect. Like, well, it was already in full effect, but it is going to come -- it's going to be enhanced further for our customers because they will be shifting their point-to-point to express, so I don't think the unorganized segment will be able to provide this kind of service that we are looking at, the pan-India and all of that. So I do not see that as a effect at all.
Next question is from the line of Sangeeta Purushottam from Cogito Advisors.
My question is a follow-up to an earlier question on the fixed costs. You said that your fixed cost and some semi-fixed cost together are about INR 175 crores a year. So does that mean -- it's roughly about INR 15 crores a month, is it? So as long as you are doing more than INR 15 crores a month of revenue, you should be cash profit positive, would that be a fair statement?
Sorry, I could not get your point. What our cost is roughly...
The point I'm making is, you mentioned earlier to one of the other participants that your fixed costs for the company for the whole year, INR 175 crores. Is that right?
Yes.
Okay. So that translates to approximately, say, INR 15 crores a month?
Correct.
Right. Okay. So if you do INR 15 crores a month of revenue, you don't bleed. Would that be a correct statement?
No, no. So fixed cost is other than my operating cost. So our operating -- so my operating profit, if you see in last whole year is around 30%. So for that we have to be charged. So against INR 1,000 crores, my operating cost is INR 700 crores suppose, that INR 300 crores we have as a remainder for this fixed cost and profits. That is the understanding.
No. So INR 700 crores -- could you just explain this? So if you have INR 1,000 crores of revenue, you're saying 7 -- what is this INR 700 crores, your operating cost, is it totally variable?
Yes. Yes, yes, 100%. So actually, what we are doing, we are all totally completely asset-light model company. We don't have any fixed cost related to my operating.
Okay. Okay. So INR 1,000 crores of revenue gives you an operating profit of INR 300 crores. And from that INR 300 crores, about INR 175 crores is fixed.
Yes, correct. That is correct understanding.
Okay. Okay. Okay. So what is your breakeven point for a quarter, say, how much revenue would you need to do in a quarter to be EBIT breakeven?
Is INR 100 crores.
INR 100 crore revenue for quarter?
For the quarter. For the quarter.
Yes. For the quarter, we are talking, yes.
Okay. So if you did INR 100 crores of revenues for the quarter, your operating cost would be INR 70 crores, right?
Or maybe slightly down even with that. We are targeting for is even reduced further because that was before it belongs to last year. Now we are targeting to reduce further.
Okay. So I'm a little confused on this number. So I'm just going to go over with you. INR 100 crores of revenue you do, INR 70 crores is your operating profit. You make -- is your cost, INR 30 crores is your operating profit and your fixed cost per month are INR 15 crores. So you need to do maybe INR 150 crores to INR 200 crores, roughly upwards of INR 150 crores in order to not to bleed, right? Not INR 100 crores?
So whatever fixed cost right now we have, we are negotiating for our all infrastructure cost with everyone, and we are confident to reduce it by that number.
Right. But at the moment, with whatever costs that you have, would it be then fair to say you need to do at least INR 150 crores of revenue per quarter, not to go into the red?
Let me explain. Our fixed cost per month is about close to almost INR 11 crores. We're taking that INR 3 crores extra because we had the travel and all of that, like the advertising and all of that was part of it, which is not going to happen this year. So essentially -- yes, so essentially, we would be needing -- our fixed is just the salary and the rental part, which comes to be about INR 11 crores or INR 12 crores, I don't know. I'd like to see our numbers.
Yes. Correct.
And 11 -- so that's about INR 30 crores for 3 months?
Yes.
At INR 30 crores, what we will be needing per month is about almost INR 30 crores to breakeven is what I'm looking at.
Right. So that means INR 100 crores of revenue per month.
Correct. Exactly. Not per month, it's quarter.
Right, right. Okay. Okay. And what is -- you're saying you wouldn't have a better stance by June or July as to...
Sorry to interrupt you. Hello? Ma'am, sorry to interrupt you, may I request you to come back in the question queue for a follow-up question. Next question is from the line of Ankush Agrawal from Stallion Asset.
Firstly, if you can just give some color on what kind of stress, if any, are you seeing on your receivables part? And secondly, if you can give the tonnage growth for the quarter and for the whole year?
Yes. So receivables, we don't feel anything. Our sale if you see -- you maybe have seen our balance sheet on SEBI, we have the receivable number on the same number of the last year. So my data -- receivables days are equally to that 48 days. That was also in last year and same in this year. So there is no challenge we are facing at all, and we are able to get the money even in April and May also, there are no challenge at all. And yes, what's -- your second question was on tonnage. So tonnage was in this quarter that was in a negative by 11.5%. And for the whole year, it is a negative of 1% only. And complete is for the year is around 8,40,000 tonne. And for this quarter was 2 lakh tonne. That's the number.
Next question is from the line of Paresh Jain from Bajaj Allianz.
Yes. So in the initial part, you said that you're looking to reduce your fixed cost by INR 20 crores for the financial year '21, right?
Yes.
Now this INR 20 crores of reduction, this is likely to happen because of this reduction in advertising and travel expense? Or is it that INR 11 crore expense will be reduced?
So if you see this quarter 1, especially we are negotiating for whatever kind of indirect costs we have. Like my rental for the godowns and my electricity is there, then again, what Mr. Chander had mentioned, traveling and conveyance and advertising, everything we are looking for. See whatever we can reduce, we will be able to reduce. So we targeting to have only INR 30 crores or INR 32 crores fixed cost for this quarter. That's our target.
Versus a normal of INR 45 crores, right?
No. So in -- if you see -- again, in the different, different quarter had a different fixed cost because we have to be -- it's depending on various events in the company and all. So if you see last year, we in this quarter had only INR 40 crores fixed cost, that will be reduced to that way.
Right. Got it. So I understand that advertising and travel and everything, this is probably variable because as the business activity picks up, you may spend more, if the business activity comes down, you would reduce, right? So -- yes. So my whole point was this INR 20 crores of reduction. This would happen because of this reduction in business activity, which is advertising and travel? Or is it related to your rental expense, which is slightly more perpetual slightly longer term?
It is both.
It is both?
So -- yes. Because, see, as a company, we don't like to reduce rental of -- if there's a branch rent less than INR 50,000, I don't like to reduce that. I don't like to burden that person. So we have to take into account -- factor in everything, the human element also and all that. I mean, most companies are not even paying. I don't even need to pay the salary if need be. But we are not going to do that. I think where it is totally nonessential, we will -- we have chopped it already. We've already cut it out. And of course, like you know we're not going to be giving any salary increase for at least Q1, Q2 possibly, Q3, Q4, we may be giving. So it's -- our full efforts is to reduce as much of the fixed cost as we can, rental is not much. Rental is only about maybe INR 3 crores or INR 4 crores a month. And then above that, you have the miscellaneous expenses. You have like consultants, you have like some sort of like the normal and indirect expenses that you have in running a business So that is something that we are cutting down. And I'm not very keen, maximum, I've cut out my salary for Q1, and I don't think we can go below that.
I think that's a fantastic thing that you have done. And that's really -- I mean I really appreciate that because, I mean, that's the difference between good and great, I'll say it that way. That's fantastic what you have done. So congratulations to you on that for not retrenching and for ensuring that your employees are getting salaries.Okay. And secondly, in terms of -- since we get trucks from outside, right? So are we seeing a cost or are we able to see some reduction out there?
So what is happening is this process, I will initiate after the 17th. I don't want to be like touching the beehive before because it's very sensitive. There are driver issues, there are labor issues. There is this -- the fear of the unknown. The more we shake the beehive, the more we might get strung. So I don't think now is a good time to really do any of that. Obviously, I have my sight on that. And how will we do it? We'll have to do it very, very tactfully. I know that there could be a possibility that we can reduce the number of vendors we have on to the system. Instead of just reducing their prices, we might just get rid of them because I know that this Q -- the Q1 is not going to be very, very large in volume. And possibly Q2 also may not be that large in volume. We don't know. We -- it's the unknown. So more than just reducing the INR 1 or INR 2, we would just cut out the vendor completely.
Next question is from the line of Avnish Tiwari from East Bridge.
Could you articulate how DFC could provide you either in terms of opportunities or in terms of any risk you see in your business?
DFC has got nothing to do with my express business where I'm doing 40,000 delivery pickup end points in India. DFC is only -- I don't know, it's been 20 years. It's not come up. I don't know when it's going to come up next. I don't put my rupee on that. I have not seen any other businessman put any rupee on that. They are definitely not a threat. In fact, last year, from the NITI Aayog from Mr. Gadkari, it was a clear mandate that it is being made to reduce the export time it takes and the cycle time it takes from North India to containers to reach Versova, and all the export containers and the commodities is going to move on that. So that's it. And on a recent chat also with Mr. Gadkari and all these eminent people, politicians, it was very clear that the focus is also now because they are building a Delhi to Bombay highway, where it's guaranteed 10 hours you can reach 10 or 12, whatever, 12 hours or 13 hours, in a truck, maybe 14. That and where they have industrial corridors on both sides, that is a better lucrative more opportunity than the DFC. And this highway will be ready in 3 years. So I think investors should look at this highway, what is going to hold for them and for the economy versus the DFC, which hasn't come up in 20 years. And very clearly, this new highway says that the biggest problem of DFC was land acquisition, which is still there. But this highway is not going to be -- is in the rural area in the intervals and is going to be cutting through that. And it's going to be built for a company -- for companies like us who will possibly deliver Delhi Bombay like 8 hours or something. So DFC is not really a -- is something that we are looking on or banking on or betting on.
Next question is from the line of Vihang Subramanian from Samsung Asset Management.
Sir, firstly, if you could just sort of explain to me in our business model, like, say, there is a volume de-growth.
Can you speak a little louder, please? I can't hear you.
Yes. Am I audible now?
Yes.
Yes. So basically, my first question was like when there is a de-growth in our volumes of like say, 20% or 30%. Like how should one look at margins because like -- so obviously, most of your costs, like the employee costs and the rent expenses are going to remain the same. But like in your operating expenses, freight, which is like the major chunk of it, so you have tie-ups with like a lot of vendors and they might be like unorganized or small truck operators, et cetera. So how do you sort of -- like do you renegotiate it with them based on like the revised volume that you've got? Or how do you sort of like manage the margins when there is a volume decline?
So we don't -- we pay them -- we pay the usage by kilometer, right? So if we're not using the truck, then we're not paying them. Simple as that.
No. But say, you've contracted with, like, say, you have a guy who is running a 10-tonne truck and you're paying him per kilometer. And earlier, you used to get 10 tonnes, but now you're getting only 7 tonnes. So do you still have to go with the same guy or then do you have to look at a different truck?
No, no, no. We go with the same guy, but we won't go with 10 trucks. We'll only go for -- with one truck.
Okay. Okay. So no, no, but it's not the number of trucks, the tonnage I'm talking about, right. So you pay him on a per kilometer basis. But then if your tonnage decreases, then how do you manage that?
Our pricing is the same, what we give them. Whether we use 700 tonnes from them or 7 tonnes or 700 kilos. So because they drive the vehicle as per my requirements, my company requirements, it's how we're paying them. Like today, if there's a need of just 7 tonnes, as you said, 1 truck. We'd only pay them for one truck. Doesn't mean that the pricing will increase or something? It's a fixed...
And your margin declined, right, sir? Because for instance, if you were getting 10 tonnes earlier, you were charging a client on a per tonne basis?
No. No, this is not on the spot. This is vendor system. On the spot, the margins will decline, okay? But -- and by the way, on the spot market hires is now almost 100% of the current -- whatever rate, whatever freight rates are there. So market on the spot is only different. And what you're talking, it will decline -- no, not really. It doesn't vary for us in that manner. If I send 7 tonnes at INR 0.50 per kilo is going to be INR 0.50 or if I send 700 tonnes to INR 0.50. Obviously, the volume is now less or much lesser. So you're not going to gain, get the gains out of 700 tonnes. You'll get the gain of only the 7 tonne that is being booked.
Right.
So to add to Chander sir's thing, so what we are -- we are ensuring the capacity utilization has to be intact actually in this condition. We are not going to truck empty like that, like you have mentioned just like out of this 10 tonne, if you had a 7-tonne material, then we will be -- not leave that truck like that. So we will be insured on that way. And the truck has to be utilized completely. That's how...
Right, right. So exactly, that's exactly what I was asking actually because if utilization decreases because of the decrease in volume...
We will not allow to decrease the utilization level, what Mr. Chander Agarwal had advised. So we will be like earlier there was a 3 tonne, now, we will only move one truck, but it has to be also completely full.
Yes, that truck can't move empty just because it's come down to 1 truck. They don't lose the capacity utilization effect. That will always be intact that's the company policy.
Right. And assuming that suppose the lockdown and everything starts now like in June, like after 1Q, when you have like remaining 3 quarters for FY '21. So could you kind of probably help us with like just 2 things here, ballpark, what sort of volume or turnover kind of growth and margins you're expecting like ballpark numbers? And second thing is, could you just also say how much CapEx was incurred in FY '20?
We're looking at about maybe like a business growth of at least 10% to 12%. Meaning, you will see how it result. And we have a very -- and we would be having our profits equally. And what was the second question?
How much CapEx was incurred in FY '20?
We spent about, I think, INR 35 crores. And the remaining -- and we will be spending about INR 80 crores this year.
Okay. Sir, on the first part of the question...
Sir, sorry to interrupt you. May I request you to come back in the question queue, sir. Next question is from the line of Abhishek Ghosh from DSP Mutual Fund.
Sir, just in terms of what is the number of fleet touch points that you have in terms of the vendors?
Number of what, sorry?
I think total truckers that -- which we kind of have it in our vendor system, how many trucks do we have as touch points at this point in time?
I think 5,000.
5,000. So -- and there is no minimum guarantee that you have clause with your vendor?
No, no, nothing. See asset-light model is the beauty, right? We don't have any assets. You can play -- it's like if you own a car, you drive it whenever you want.
Sure, sure.
But of course, this is not like owning a car, thank God, but we use it when we want.
Fair enough.
We're not even losing money, interest, depreciation, nothing.
Okay. But you will evaluate this 500 truckers touch points, you said post 17th May taking a call whether you want to reduce it or how do you want to go around that. Is that right?
It has to be done very carefully because if we reduce it, we don't get good quality back. And most likely, a lot of people, there's going to be a lot of churning in the industry. And we'll have to really -- we'll have to be very careful to emerge as, again, the top. And I don't think maintaining this being in the top is easier because it's asset-light and our flexi business model in terms of flexi operations and everything. So I think it's kind of like easy to like, say, reduce price, to move them, but we have to wait and watch. We have to calculate it.
Sure. And sir, in terms of like the way you are looking at reducing your touch points of the vendors, I think everybody around also would be looking to do the same thing, and there could be a supply glut. So you think that could put pressure on the overall freight rate, assuming fuel prices remain stable. You think this phenomena itself can put a lot of pressure on the freight rates and better negotiating power for you guys?
No but freight rates are already very high now in the market. On the spot, if you buy, any logistics company, which is in the business of on the spot hiring and then providing service to the customer is going to be in trouble this year. Only because the freight is a ridiculous, like 100% more, let's say, from all of Gujarat, any trucker, they have increased the prices 100x and it's some -- it's unbelievable. So obviously, it means that the vendor system will come into place. Now we have to wait and watch and see how manufacturers are increasing their price or not. And based on that, we will take a decision whether we will increase the price or not for our customer. So it's a lot -- it has to be done very tactically as I always say. So it cannot be done -- it cannot be hurt mentality, [Foreign Language] so we have to increase it. [Foreign Language] we have to decrease it. No, it can't be done that way.
Sure. Okay. And freight rates are now high because of the driver shortage...
Sir, sorry to interrupt you. May I request to come back in the question queue. [Operator Instructions] The next question is from the line of Shreyas Bhukhanwala from Canara Robeco Mutual Fund.
Two questions. One is on the pricing front. So I understand you said, we won't be looking to reduce prices. But are we seeing any requests from our clients or SMEs, wherein they are requesting to reduce the prices? And secondly, on the SME side, again, being a 50% contribution, just wanted to understand the mix on the client side. So is it that -- so I understand, it's quite -- we have a very good base of the SMEs, but is it that, that top 25%, 30% would be contributing a good amount and then there will be a long tail? Or it's widely distributed SME category?
I think I'll answer your second point first. The -- it's widely distributed, maybe 0.1% [Foreign Language] location, like maybe like, I don't know, Kanyakumari or something. They would not be on the same category as other SMEs. So it will depend a lot on the location. But in general, it is of the better SMEs that we operate with.Regarding your first question, reducing price was out of question. In fact, some locations, we have already increased prices, and they have agreed also. So I don't think it's going to be any question of reduction in our case. This is -- if this was like plain vanilla transportation, then yes, I would be like, okay, even you reduce INR 0.50 or whatever, makes a big difference. But here, it's a value-added service. So the chances of reduction is like negative. It's not going to happen.
Next question is from the line of Aman Rathi from Morgan Stanley.
Two questions from my side. One, based on the revised business plan that the company would have developed for the financial year. Given the volatile situation, can you give some quantification on what is the volumetric growth you are targeting for quarter-on-quarter or year-on-year basis, first? Secondly, I just wanted to know more about the business, how the transportation happens? Do you use pallet system in order to transport the -- or any other system you have?
Starting with question one, I'm expecting about maybe 8% to 10% volume growth this year. And number two, we do use hand pallets and motorized palletization in our sorting centers and in our branches. But unfortunately, in India, we don't have the system of palletization in the trucks. Because packaging in India is very, very absurd and different. It's not like same type of packaging for all types of manufactured items. So therefore, it cannot be placed on a pallet in a truck. And our truck quality is pathetic. It's like the Tatas and all that, it's like -- it's ancient, it's 60, 70-year-old technology. And of course, the highways are great now, but as you come inside the city, there are lot of autos and everything. So I don't think any -- so that is also a big problem. So palletization is kind of like really impossible inside the truck at this point. Yes, for short distance, maybe like if you're going from OEM to plant, maybe there they could be doing it.
Okay. So majority of the pallets that we use is...
Can you speak a little louder, please?
So majority of the pallets we use is restricted to the inventory, if it has been hold for a shorter period, if I stand correct?
It is used...
Exactly. Our material inventory, yes. For shorter period, yes.
Okay. So do you rent this pallet? Or how do you see the demand for the...
They are not expensive, very high-quality is available in India, we buy them. Because the usage is pretty -- is like daily basis and they're pretty steady, so they go on for like 5, 6 years without any problems.
Next question is from the line of Dheeresh Pathak from Goldman Sachs.
Sir, have you shared the -- like what is the business activity or volume decline you're seeing in the month of May, now that the country is into various green, red, orange zones and some activities are...
I'm sorry, can you say again?
So have you shared -- I might have missed it in the earlier part of the call, have you shared what volume decline you're seeing in the month of May and now that country is divided into various zones and some activities are allowed? What is the business decline that you're seeing, volume decline in the month of May?
So we are not -- we -- our business has started, like, we have started doing business. We have generated revenues already. And this is -- I would say that volume decline is possibly around maybe almost, I would say, about 70% or something. And this is something which was expected. We have to be careful in terms of how we handle the products, how we get it, the manufactured goods. When we -- when our people go to their customer to pick up the material whether it's sanitized or not, whether they spray it or not. So all those things take time. And I think 70%, and I would say that by this month end if the lockdown opens, if manufacturing comes back to 30%, 40% by month end, then I would possibly see, there could be a high possibility of almost 50% negative from like, say, almost 95% in April.
Okay, understood. The second question is, this vendor, you mentioned 5,000 truck partners. Sir and you also mentioned some routes, prices have gone up. So -- and you said that there is no business asset-light, there's no guarantee of any business that you're underwriting with these partners. So then you are also seeing this sort of increase on select routes where prices are going up just prices. You're also seeing on passing these prices on to your clients. Is that correct understanding?
Our pricing does not go up. The spot hiring goes up in the country. Our pricing does not go up because our vendor pricing is fixed. It was fixed last year. It was -- and it's still the same. So our pricing...
You also said that business is asset-light and you've not underwritten any capacity with any truck partner, right?
Right. So if one -- if you are my vendor and you own 10 trucks, if I want to use only 1 truck of yours, I'm going to do that. I don't have to pay for the remaining.
At a fixed price, which is committed for a year?
It's not committed. We don't have any commitment of any sort. They are under an agreement that they will work for us, they will brand their trucks as per our company name. And if we are not even going to give them any work, we're not liable to pay them. Our agreement doesn't say that anywhere. So that's why...
Yes, that I understand. But what pricing are you supposed to give them? Spot pricing or a fixed price, which is the...
Per kg. We are paying them as per kg, whatever they run, we have to be pay -- sorry, per kilometer. We don't need to pay anything if they stay empty, then we don't need to pay anything.
Sorry, still not clear, sir. So one would be a fuel price. You will pay a price, which is a function of fuel price plus some price per kilometer basis, right, is what you're saying?
No, no, no.
Our price is determined in the beginning of the year or whenever. And it's in our prerogative, when we want to change it and how we want to change it. So the pricing has not been changed. If I'm paying them, my pricing works on, I would pay them by kilometer. How much they run. So if they have 1 vehicle running, say 5 like 10 kilometers, I will pay them for 10 kilometers. And if they have 9 vehicles, which are not running, I will not pay them. Simple as that.
But if there is a scarcity of assets and as a truck operator, I am getting better prices elsewhere, why would then I make my capacity available to you?
You can get better price elsewhere, but you will not get the material. So pricing can be there, right? People -- why do you think the truck on the spot have increased the pricing because there's no material. Here, what they are trying to do, which is a contrary to the belief that if the material is not there, pricing will drop, no. Because there are not enough drivers. There are not enough labors out there. So they are bearing the brunt. They don't even have a -- on the spot guys, don't even have a second driver. So they're actually at a disadvantage. So even if there are 9 trucks, if it doesn't work for me, where is he going to go? He is not going to get materials anywhere, maybe out of -- the manufacturing is all shut, but he knows that I will get them to you. Ultimately, I'm the one who is going to give them feed his stomach. So he is not going to go anywhere. It also, it depends a lot on not just the simple variables like the asset and that. But also like how the market is playing out, who is able to provide the business, who is not able to provide the business.
Next question is from the line of Neelesh Dhamnaskar from Invesco Mutual Fund.
I have 2 questions. So one is which of your client industries or sectors are showing some degree of revival based on whatever assessment you had recently, whatever opening up has happened?
I think now we are surprisingly, very happily, and glad to say that almost all our branches are opened across the country, even in the red zone. And so manufacturing -- so basically, what it starts off with is delivery of the material. Like in the beginning of April, we had 10,000 tonnes material lying with us. So the question is not to first deliver that material. And once you start delivering is, when you will star going to pick up. So slowly by slowly, the pickups have started to happen. They are varied industries. They are everywhere. They're not just, I would say that only pharma or only in like engineering. It's everywhere. Everybody is desperate to do business. In fact, people are so desperate that, they want you to take out their March [Technical Difficulty] which that Mukti was saying earlier, INR 40 crores to INR 50 crores worth of transportation that we did not do that much material is pending to be taken out. So I think it started all over. I mean, there's no like -- I'm not seeing like 1 sector taking off more than the other or something.
You mentioned, right? Hello. Yes. You said all the branches have already started?
Yes, they have, yes.
Yes. Okay. Great. Great. And my second question was, how is the company going to ensure that driver availability? Basically at the trucking vendor level when things pick up because that's been an issue around. So how confident are you that you will be having truck drivers when things revive?
So already our truck, we -- I get a daily report of the truck drivers reporting to the trucks. And it's very encouraging. Even those truck drivers were not getting paid. So they're also anxious to get back to work. Our delivery system that we have delivery, intercity delivery, intracity delivery network that we have, they all also desperate to work because they want the money. And ours is like our ecosystem is as such that they know that we have the materials, we have the goods, they can transport that we are not going to be sending out empty trucks. So I think, in general, it's about the roadblocks being moved out and us gaining speed and going ahead.
So essentially, truck driver availability should not be a big issue for you?
No driver -- because we have -- our ecosystem already has the drivers available. It is on the spot outside, which it does not have, which is facing the crunch.
Got it. Got it. And I have one last question, if I may. So I'll just ask. So in between we were hearing that there were a lot of state-related bottlenecks, which had emerged because of extra checking and all. Have they kind of subsided? Or do they still --
Yes, they are not there anymore, like the way it used to be.
I mean to say, the COVID related checks, not the...
Yes, yes, yes COVID related, COVID related.
So they have kind of smoothened out. Is it?
I just did Delhi to Gurgaon this morning, and there was -- hardly there was no checking. There was a barricade. That's all.
[Operator Instructions] Next question is from the line of Krupashankar from Spark Capital.
I had one question pertaining to the support. Have you provided any support to vendors or truckers, given that there is this driver shortage and no cargo availability. So their financial position also will be under duress. So is there any extended support given?
Yes. Now I can tell you one thing that the drivers which are stuck in our sorting centers we are providing them with the -- like a mattress and all that, and food is being provided to them also. And we -- obviously, we're not charging the vendor. And the vendor has a lot of the -- it's from the cycle. It has its revenue coming in and its payments coming in. So that is also like with us in waiting for them to start the work, so we can pay them. So they know that their money is also with us. So they're not going to like -- they're very happy in parking the trucks at our premises and not worrying about it. So our labors also, we're doing the same thing, labors, which are in our premises. We have not really allowed them to go out. We've convinced them to stay because -- and of course, we have the strict sanitization process because if they leave, then there would be like ultimately loss in our productivity. So that we are very well-managed and very well taken care of.
Chander, what I meant was anything on the financial side of things, which was paid out earlier as an advance to perhaps a payout to meet their obligations, et cetera, financial obligations, et cetera.
To meet their financial obligations when?
Over the last 2 months.
So we don't have to pay them, right. If they're not working, we don't have to pay them.
Okay.
There's a labor sitting in my sorting center and I'm giving him the privilege to stay there. Why -- I will not pay him salary. I will not pay him like, yes, he's my liability. If he dies or something also, it's not my liability.
No. Got it. Just as a vendor retainment sort of a measure is what the angle that I was coming in from?
There is -- vendor cannot go anywhere. Vendor will go where and get what. He is not going to get any business, no money, nothing.
Got it.
If he goes -- if he leaves my company and goes somewhere, he's not going to get any business.
Got it.
At this -- if vendor goes, leaves the company, he becomes on the spot hirer. His company becomes like he puts some trucks on the hire. So on the spot hiring. So like on the spot hiring business is debt now, there's no one hiring. So he's totally at loss.
So Krupashankar on to fulfill their commitment, as a finance commitment, we are releasing their money, whatever, because you know we had a 1-month credit with us. Supposing we had no business in April, after mid of March. So whatever dues we have, we are releasing that. So they can pay their EMIs and all kind of things. That we have supported them. Another thing because government has also supported them, they can defer their EMIs and insurance and everything. So there's in no challenge we -- as was faced in a whole these 2 months. There's nothing new happened on that part.
Next question is from the line of Prateek Kumar from Antique Stockbroking.
Sir, one question is on gross margin. So you mentioned about the fixed cost-cutting off around INR 20 crores in FY '21. So in FY '20, you improved your gross margins by around 50 bps. So to around 29% on a year basis, while your exit was around 30%. So how are you seeing gross margins for FY '21?
Yes. So Prateek, we are looking forward to, again, improve my margin level by at least 100 basis point in this year as well.
So this will be over and above that fixed cost cut of around INR 20 crores, which we are looking at?
Yes, correct. Correct.
And just one question on business partners. You said, we have like 5,000 business partners of the point you've said. So how many -- these would be like a 10-, 15-year age-old partners with us or like these are like 15, how would that mix be age-wise?
So if you see the reason all are basically old relationship person with us. So I think almost everybody is more than 8 years or 10 years with us. And as for business increases, so new vendor is also increasing time to time. So average as you maybe take as 7 years because, again, whenever we are not -- we don't want to be monopolize any vendor or any rule that's why we are also encouraging to you adding the new vendors in the plan. That is our strategy.
Next question is from the line of [ Yang Jian ] from Tokio Marine.
I just want to come back to what you mentioned about the INR 40 crore loss in March. And as a result, if we add that back, the fourth quarter, I think, was up 4.5% in terms of the top line growth. So I just want to come back to that. I mean, coming out of the third quarter, the guidance was maybe in the teens. Just wanted to get a sense what was shortfall or what was the -- what was happened unexpectedly in the fourth quarter?
Right. So what happened was like the -- first of all, Diwali was a really big problem in India. It did not take off the way it was expected. So Q3, we were -- we started Q1 with double-digit growth. Sorry, Q2, we came up to double-digit growth. And we -- our PBT hit 60% more than last year. And then Q3 is when we were expecting higher growth even but that did not happen because of a very low Diwali in a very good December month as well. Then we expected January to pick up for the entire year to kind of like equalize in the last quarter, which is always the best for the whole year. January was also pitiful, very, very pitiful because of the -- I think it was possibly the lower, the slower economy situation in India. February, we saw a little bit pickup happened. And finally, in March, when we were about to break it at about double-digit growth is when the last 15 days is when the lockdown effect started to come into play. And unfortunately, that really made us like that the only saving base was at 1% growth that we had for last year. I think your second part was INR 40 crore loss we're not expecting in Q1 of this year.
INR 40 crore in March, sorry, INR 40 crore in March, yes. Yes. I just want to follow-up on the outlook, like you mentioned just now 10% to 12% sales growth for this financial year, FY '21 and 8% to 10% volume growth for FY '21. I just want help there.
Sure.
Next question is from the line of Lokesh Manik from Vallum Capital Advisors.
Sir, my question was regarding the top line. It's been pointed out even before that thumb rule for our sales growth, we look at 1.5x to 2x GDP growth. And even if I account called the INR 40 crores loss of business, we would have still managed to reach 5% sales growth year-on-year. I just wanted to understand that what are the sectors that may have caused a slowdown, which you were expecting to revise back in H2, maybe a customer segment, either SME or corporate or a sector-wise maybe auto, pharma or any other sector that...
So let me tell you that, that 5% growth actually came only from SME.
Okay.
I did not come from the big guys at all. And this was something which I knew which was coming on to be as we saw the economy was floundering. The consumption was pretty full. And this is something which I knew also that every time if there is a downturn in the economy in India is the SME guys would always go forward. I wouldn't be surprised also now in this year, growth will come from SME only. The big guys, and they are not willing to start the factory also because they know that if they don't sell 100 motorcycles, they will be at a massive loss. We had a bigger loss for not starting -- sorry, for starting for 100 motorcycles versus not starting at all. So I think the growth this year also will come from the SMEs and that's why in my plans, I've laid out to open at least another 30 to 40 more offices. And I think this will be driving the growth.
Okay. And going forward, sir, for the next year, what feedback are you getting in terms of disruption of the supply chain from your SME customers once the lockdown is over?
There is no disruption at all at least. First of all, India was like before GST, thousands of these possible disruptions, like VAT disruption, C&F agent disruption, it's all capitalized. I think this is really helpful. This will really push the economy going forward, at least, even if we get a 2% growth in this year, I think it will be fantastic in terms of the overall growth. And I think all the big, like the monetary, whatever, all the big -- these firms, they have given a target of 2% or something. So in this 2% is only going to come from the SME guys. It's more -- it's not going to come from Tata, Birla or any of these big people. That's one thing for sure. So I think clearly, my strategy also in this will hold true.
Ladies and gentlemen, due to time constraints. That was the last question for today. We still have questions in the queue, but we request all the participants to get in touch with the management for the follow-up questions. I'll now hand the conference over to Mr. Abhijit Mitra for closing comments.
Yes. Thanks. Thanks for taking time out to do this call Chander, and thanks to all the participants for asking all the interesting questions. There are a lot of questions left. We could see almost more than a dozen questions, which are still left. Unfortunately, we have run out of time. So any clarifications, I think both Chander and Mukti would be more than happy to take it up with you directly. So that concludes -- any concluding remarks, Chander?
Well, I would just like to say that please be safe, keep -- make sure your families are safe. And this year will be one of the most challenging years for India. And -- but of course, localized companies will sail through, I think.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.