VRL Logistics Ltd
NSE:VRLLOG
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Earnings Call Analysis
Q2-2024 Analysis
VRL Logistics Ltd
In the insightful narrative of VRL Logistics' quarter, the CFO, Sunil Nalavadi, divulged a promising growth story with revenues climbing nearly 9% from INR 650 crores to INR 715 crores compared to the same quarter last year. This climb resulted from an 8% tonnage increment, buoyed substantially by an expanded branch network with 120 new branches contributing 4.45% to the total tonnage. With intentions to persist in this expansions strategy, the company anticipates opening 25 to 30 branches per quarter, targeting markets previously untapped.
Against the backdrop of enhanced compliance under GST law, VRL Logistics is witnessing a beneficial shift of customers from unregulated operators to their organized services. However, festive seasons, notably a linchpin of demand, witnessed a delay that temporarily affected the cloth and textile material demand. Expectations of rebounding during the upcoming festive-rich third quarter remain high.
With a pricing model intricately tied to the stable retail fuel prices, VRL faced challenges in raising rates. Nevertheless, EBITDA saw an uptick from INR 95 crores to INR 98 crores, partially due to strategic bulk purchasing of fuel at discounted rates from refineries. This savvy procurement increased the refinery fuel proportion from a mere 1.7% to a substantial 30.41% of total quantities, even as overall vehicle-related costs escalated on the back of fleet expansions and increased vehicular operations.
Aligned with the company's growth trajectory, various costs - from toll charges and maintenance to rent expenses for new branches - have risen. However, these were somewhat offset by a cunning decrease in overhead costs and a lessened reliance on hired vehicles, which collectively managed to keep the EBITDA margin check.
VRL Logistics' quarter was marked by robust CapEx investments, predominantly in vehicle acquisitions, leading to a net debt climb from INR 193 crores to INR 280 crores. Nevertheless, the optimism stems from remarkable October tonnage growth figures and a strategic uptick in freight rates poised to bolster future revenue growth and inch EBITDA margins towards a targeted 15% to 16% bracket.
The roadmap ahead for VRL Logistics includes a formidable branch network build-out across East, North, and West India regions. This expansion, coupled with a stable employee cost post-increments, positions the company favourably for revenue upswing. Expenses, albeit higher currently due to underutilization, are expected to align better proportionately with revenue increases, lending support to improving EBITDA and profit before tax margins in forthcoming quarters.
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Ladies and gentlemen, good day, and welcome to the VRL Logistics Q2 Earnings Conference Call, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Alok Deora. Thank you, and over to you, sir.
Good morning, everyone, and welcome to the 2Q FY '24 Earnings Conference Call of VRL Logistics. So we have with us today Mr. Sunil Nalavadi, CFO of the company.
I would now hand over the call to Mr. Nalavadi to give opening remarks and discuss on the performance of the company, and then we can take the Q&A session.
Thank you, and over to you, sir.
Yes. Thank you, Mr. Alok. I'm Sunil Nalavadi, CFO of VRL Logistics. I once again welcome all of you for Quarter 2 Earnings Call of FY '24.
And just to highlight about the results, during the quarter, the revenues increased by around close to 9% from INR 650 crores to INR 715 crores on a year-on-year basis. The increase in revenue is only on account of growth in tonnage by around 8%, and the tonnage has increased from 9 lakhs 66,000 to 10 lakhs 47,000 tonnes.
The increase in tonnage again is, the main reason is on account of increase in the branch network of the company. Year-on-year, we added around 120 branches, and these branches have contributed around 4.45% of the total tonnage in Quarter 2 of FY '24. Our strategy of expansion of branch network is going to be continued and planning to add around 25 to 30 branches every quarter, especially in untapped market. Apart from the expansion in branch network, the contribution from the existing customers also supported for our growth.
Further, we are acknowledging that many of the customers are shifting from unorganized operators to organized operators on account of increasing compliance under GST law. On the other side, due to delays in festive season in the current fiscal by a month has resulted into lower demand of cloth and textile materials in the current quarter. The year-on-year contribution of these commodities declined in the current quarter. And we are expecting that this is going to benefit us in Quarter 3, which covers most of the festive seasons of the year.
The barcode and QR code system is stabilized and working smoothly across our booking and delivery processes, [ over containment ]. During the quarter, the realization per tonnage maintained at around 6,680%. Since the price rate predominantly linked with the retail fuel base in India and the fuel rates are constrained, we are unable to increase the price rate.
When it comes to EBITDA, it has increased from INR 95 crores to INR 98 crores. And the percentage of revenue decreased slightly in the current quarter. The year-on-year EBITDA benefited due to decrease in average fuel procurement cost from INR 89 to INR 87 per liter. The decrease in diesel cost is also due to increase in bulk purchase of fuel from the refinery at a discounted price.
The purchase of fuel from the refineries as a percentage to the total quantities increased from 1.7% of the total quantities to 30.41% of the total quantity. However, the overall cost of diesel has increased due to addition of own vehicles and increase of their kilometers in overall kilometers operated by the vehicles.
Similarly, the vehicle reset and maintenance costs, toll charges, tire costs are increased due to addition of old vehicles and increasing kilometers operated by these vehicles. The increase in these costs has been compensated by decreasing overhead charges by around 3% over revenue.
[ Lorry and special vehicle ] prices have been reduced on account of low dependency on hired vehicles in the current quarter. The total tariffs further have increased due to increase in toll charges from 1,182 to 1,285 toll charges and also due to increase in toll rates and [ local cap in ] toll rates. The loading and unloading cap also increased on account of increase in rates resulted into increase in vehicle costs and impacted on the EBITDA margins.
The rent expenses, which is fixed in nature, is increased due to increase in number of branches and increasing placement of majority of branches and transshipment during the current quarter. We increased the space in key location considering our expected growth in tonnage for the subsequent period. The same is resulting into lower inflation of space in the current quarter and impact around EBITDA margins.
The employee cost increased in the current quarter because of annual increments effective from September '23 and also increase in manpower and internal promotions to the staff. The EBIT of good [ sapour ] segment is reduced in the current quarter, only on account of increasing depreciation. And the depreciation and amortization cost has increased. One is on account of increase in CapEx. And second thing is on increase in the right-of-use assets. As per IND AS 116, there is accounting of rental expenses on a long-term lease agreement entered corporate enhancement in major plant and [ plan system ] space.
The finance cost also increased in the current quarter on account of one is increase in the debt. And the second one is, again, amortization of rental expenses based on the IND AS 116 accounting policy.
This has been resulted into further reduction in profit before tax. And again, that impacted on the reduction of profit after tax in the current quarter. Similarly the revenue of duty segment has increased by around 5% and mainly on account of increasing the tonnage. And moreover, realization is constant, which is again, the realization is mainly led to the retail fuel price in India. So the retail fuel price did not change much. We are unable to increase the rates.
Next, I want to highlight that during the quarter, we invested around INR 120 crores in the CapEx, predominantly for additional vehicle. And on account of this, the net debt of the company reached to INR 280 crores, and it was INR 193 crores as on 30 June 2023. The increase in debt, one is on account of CapEx, and also some internal cash accruals have been deployed for payment of final dividend of the company.
Going forward, as a reference, I would like to mention here that in October, we reached a tonnage growth of 16% year-on-year basis. And the cloth and textile materials alone grown by around 45%. It is a major commodity we are handling. If we do this kind of a growth for the remaining period of the year, that will support to increase the EBITDA margins at around 15% to 16% level.
We have taken a call to increase in freight rates by around 5% to 10% of contractual customers from December, and their contribution is around 20% of the total tonnage. Our network expansion is going to continue, and there is a lot of scope to increase our branches, especially East and North and West [ regions ] of India. These steps are giving us to support increasing revenue growth in the coming period. Further from the expenses side, the rent expenses is fixed in nature and impact of these expenses is much higher in the current quarter due to lower utilization of the space.
The same space and rent expense is going to suffice the requirement of space for the enhanced tonnage growth in the future. The percentage of these costs may reduce going forward and support for increase in EBITDA margin. The increase in employee costs forward from September '23 is going to remain constant, at least for a 1-year period.
The impact of these expenses is material in the current quarter due to tonnage growth is not at an expected level. The same expenses as a percentage to the revenue will decline once we reach the volume growth by around 15% to 16% for the remaining period of the year.
Similarly, the increase in depreciation and interest in the current quarter is fixed and periodical in nature, and these costs will not increase in proportion to the increase in revenue and will support improvement in EBITDA and PBT margins going forward.
With this, I'll conclude my initial remarks, and I request participants to open for question-and-answer session.
[Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.
I have 2 questions. The first one is on the contribution of new branches to tonnage. While you have indicated that they contributed 4.48% to total tonnage, if you can also highlight the contribution in terms of revenue and EBITDA, if possible, that would be helpful.
No, we do not have the revenue, the realization will be more or less similar. But when it comes to EBITDA, even again, we do not have enough branches showing something like that. It is a consolidated EBITDA number. Because most of the expenses we are incurring at a centralized level.
But these branches also for example, the minimum tonnage to reach EBITDA of new branches is around 100 tonnes per month. Once these branches reach 200 tonnes, they then definitely will contribute to EBITDA margins. Now whatever branch is around 120 branches we opened in last 1 year, so almost all branches are contributing more than 100 tonnes in a month.
And typically, how much time it takes for these branches to reach 100 tonnes per month?
See, prior to earlier around 4 to 5 years back, if we see, it used to take at least around 6 months, sometimes 1 year period. Now that period has been reduced largely around 2 to 3 months. In 2 to 3 months, 13 branches are reaching 200 tonnes per month.
Okay. That's very helpful, sir. The second question is essentially on the overall guidance. So now volume growth, if we look at it, I mean compared to last several quarters, it was low and you mentioned it was amongst cloth and textile. What is the volume growth that we could pencil in for the entire year FY '24?
So in next quarter '23, if we achieve around 15% growth, then overall, our growth in tonnage will be around 13% for full year, 13-plus percentage.
So H2 will be 16%, that is what you're saying, 16% over a year ago.
Yes. This quarter, what happened in the cloth which has contributed almost around 17% to 18% of our tonnage, which has grown negatively by around 3%. Whereas the same has been, because of delay in festival season, actually negative by around 4.61% in 5 years. And this tonnage has improved by around 46%, 47% in October alone on a year-on-year basis. So definitely, momentum is going to be continually the case for us.
The next question is from the line of Abhishek from Dolat Capital.
Sir, as fuel expenses has gone up quarter-on-quarter basis, are you looking to take any price hike to compensate it and that margin at a 15%, 16% level? Hello?
[Technical Difficulty]
Ladies and gentlemen, thank you for patiently holding. We have connected the management line back. And Mr. Abhishek, could you please repeat your question once again, please?
So my question was related with the fuel expenses, which has gone up quarter-on-quarter basis. So are you looking to take any price hike to compensate it? And how is the pricing environment right now? Hello?
Yes, in India, price rates are mainly linked with the retail fuel price. But since the retail fuel price is stagnant over more than 1 year period, many of the customers, whenever we go for a rate hike, that is for only fuel debt. But having said that, now for the contractual customers, we have not approached even for the last more than 1 year period to enhance the rate. Now we have already decided to increase around 5% to 10% rates for our contractual customers from first December. So around 20% of tonnage is contributing by these customers. So this is going to support us for some of the enhanced, to take care of some of the enhanced expenses.
So most probably that in second half FY '24, we'll see there's some pressure on the margin because of the increase in fuel prices?
No, the fuel price is still [ in that ] we can increase the price rate across all customers. That is not at all issue. But apart from fuel rate, whatever costs are increasing, that is the customer acceptance on those parts is a little bit [ different ].
So how is the margin guidance for the second half FY '24?
Yes, if we grow by around 15%, 16% for the remaining 6 months, then definitely, we will be back to sales around 15%, 16% margin on an EBITDA level.
Okay, sir. And my next question is on the geography-wise revenue in the first half, our north and west have been historically weak versus the other zones. So what steps you are taking to increase your presence there?
No. Most of these new branches which contributed around 4% in the overall tonnage, the branches are situated at in eastern and northern state of India. And definitely, the contribution from that [ gaining ] increases. But on a overall terms, it is not as significant. Again, even in current scenario, the South is contributing almost around 40% of their tonnage. And North and West is contributing around say, 20% each and remaining 10% is coming from the Asian part of the country.
[Operator Instructions] The next question is from the line of Mukesh Saraf from [ Tamil Nadu Spark ].
Yes, sir, my first question is just looking at your sequential, that is first quarter to second quarter movement in costs. First question is regarding how the economics change between owned vehicle and hired vehicle. Obviously, your non-hire charges have gone down about 1.5 percentage points, but -- it seems like your vehicle running repairs and maintenance, like tire cost, all the other things are more than kind of compensating this benefit of lorry hiring?
So is it just because with like initial days that you just added vehicles and we should start seeing a benefit of owning vehicles rather than hiring? Or is there some other explanation for this surge in terms of owned versus hired?
Basically, what happened, the owned vehicle addition happened on a per [ diem basis ]. In this sense, it was not added on the first day. So these rates are added during the period of the quarter. And subsequently, that benefit is going to come in next quarter now.
Right, right. So the actual benefit of these owned vehicles will only come in now, is what we should think?
Yes. These are added value. But as and when tonnage comes [ see then middle ], we engage outside of and sometimes we have to do a maintenance of the remaining loaned vehicles and [ over them ]. Since the capacity is available as on 30th September, that will continue going to come in [ for this year ].
Right, right, right. Understood. And secondly, on growth, you did say that October has been very strong at 15% plus growth. Even if we kind of assume that the second half is going to be closer to 15% mark, we land at just below 13% kind of a growth rate 12.5%, 13%. So this seems to be slightly lesser than what I think we were looking at. I mean, our guidance was slightly higher than this, especially given the move from unorganized to organized et cetera. So even adjusting for this festive change versus last year, the growth seems to be slightly lower. Is there -- are you seeing some weakening in terms of demand trends -- so -- or are you also going to be changing some of your vehicle procurement plans because this growth is slightly lower? Anything that you could talk on this?
See basically, what happens if you see on an overall economic level, there are certain lower demand in certain sectors. So one is the [ pro act ] is impacted because of the festival in the current quarter. Apart from that, on a full year [ basis is paid ] most of the commodities which are linked to agriculture and global economics, there is some slowdown. Basically, it may be the agri related facilities that moment. Actually, we've grown hardly around 7% out. Whereas some of the rural sales, for example, consumer durable, there also we are having some low growth as compared to the overall average growth of [ fuel ] tonnage.
So on account of these reasons, the key reason of lower of demand is on account of staggered monsoons that have not equal impact across the country. That is also another reason why the lower demand is. And especially if you take the Karnataka it faces major competition from our [ tonnage ]. In Karnataka, there is a lower demand because of the low margins in the current year.
So this is impacted on an overall basis of reduction in tonnage at least around 2% to 3% on overall basis. But whereas the rest of the state branches, for example, branch networks in country we are doing and to continuously, we are doing a marketing -- aggressive marketing across all the sectors.
And not only is that about the vehicle maintenance part, about the momentum of the group, everything we are consolidating and monitoring it. But sometimes because of these external factors on an overall basis around 2% to 3% became the expected level in tonnage growth.
And because of this, the vehicle performance, again, that will be staggered and whatever we plan for this current year on the vehicle addition may shift to next financial year.
Okay. So is it fair to assume that what we have done in first half will be for the full year? Or we still see still some addition of vehicles this year?
No, there will be the lesser addition in the second half year.
Okay. Okay. Got that, sir. And just one last thing on fuel procurement from refineries. I think last quarter, you had mentioned that because you're adding 2 new pumps, it can go to 40% plus. But it seems like you're still at that 30%, 31% procurement from refineries. So I mean could you remind me the reason [ it is lower ].
One is that the 2 additional pumps were not [ at sited ] it will commence shortly. But then the other what is happening because of the war situation, the Israel war and other kind of things, the oil prices has been increased. So because of this reason, what is happening, the [ 20% ] price has been increased, and it has impacted into September and sales continued in October also. So definitely will be some lower procurement going forward on digital [ prices ].
Okay. So it will remain at this 30%, 31% for now until the bulk purchase prices kind of come down.
The next question is from the line of Mani Raju from [ the Investor ].
Sir, I have a question, sir. That is -- I noticed that the EBITDA margin through September '20 is 20%, September '21 is 18%. September '22 is 14%. And now, September '23 is 13%. Yes. Every September, the EBITDA margin has been decreasing. May I know the reason?
In first initial September, what happened, you are asking September '21 also. During that period, see the economics immediately [ went down ] after the price -- and on account of that, suddenly, there is a growth in tonnage. If you see the tonnage growth during that time, we reached almost around 20% plus tonnage growth. So that will result into reduction now of the fixed percentage margin percentages as a percentage to the revenue.
So on account of those things seem the margins have improved. Now what is happening, it is standard operating across all the years. So that -- there is no sudden growth. It is a gradual or normal growth happening across the year. During earlier, those periods, if you see, there is a sudden demand in the tonnage, there is a sudden growth in tonnage. On account of that [ pace ], there is a good [ momentum in the ] market. That's the only reason.
But every September, [ it seems that ] EBITDA is down.
In September, so this September, we are having a reason because we announced most of the space rent expenses and the employee cost increases on account of annual increments. Actually, that was due in April but we struggled to till September.
On September, actually, we invested the annual increment again, is impacted on the EBITDA margin. And in fact, again, because of the variance in the festival season also once in 4 years, this issue will be there. Now last year, the Diwali and all receivables due in September itself. Now they will push to November this year. So again, the demand of certain products have been pushed for 1 month.
Should we then expect the best EBITDA margin coming up.
We are taking a lot of steps on that front. One is we are focusing more on an increase in the tonnage. Basically, we want to increase the warrants because that means exposing the real percentage of fixed expenses as a [ percentage ] to the revenue. And that's the reason, actually, we are expanding the branch network. And apart from that, wherever possible, actually, we are increasing the contractual customer rates we are increasing.
And as I told earlier, even because of the stagnant of these fuel prices for more than 1 year, that is another reason that we are unable to pass on other increase in costs, like full data increasing floating and loading [ taris in ]. But we are unable to pass on these costs to the customers because already customer [ has the new ] fuel rates and they will not consider increase in other costs.
[Operator Instructions] The next question is from the line of Ankita Shah from Elara Capital.
Sir, so would you help us understand on the CapEx now? How many trucks are we planning to add in this financial year and what could be the CapEx for FY '24 and '25?
Yes. Now in the half year, we [ have had our 2 festivals ] and predominantly [ had our ] festivities. So the overall plan of around INR 400-plus crores in the current year. So we may invest another INR 120 crores to INR 150 crores CapEx in the next 6 months. And for the next year, at least around INR 200 crores to INR 250 crores annual capacity to that for FY '25.
In FY '25, if we plan to use the surplus [ to build ] our cash flow for one is our purpose is to repay the debt. And apart from that, if debt level is reduced substantially, then we may plan to add 1 or 2 properties the transshipment [ half ]. [ If we have 31 ] only after in FY '25 or '26.
What would be the average cost for a transshipment [ half ]?
That will cost at least around INR 80 crores, INR 100 crores. We may add around 1% or 2%.
Okay. Okay. Any particular markets that you're seeing where we need to have a transshipment at present?
So this is actually just whatever rent costs are on the higher side or wherever we are not getting a proper infrastructure, there we are planning. But we have not identified the [ stated port ].
Okay. So sir, this first half, you added a net addition of around 111 vehicles. So second half will be how many vehicles and in that INR 150 crores of CapEx. And next year again...
Around 400 vehicles we are going to add in second half. 400 to 450 vehicles, yes. And the scrappage will be lesser in the second half. Basically, most of the vehicles have been scrapped and whatever the vehicles are running today, these are running in a good condition and except some major accident or something, otherwise, these vehicles will operate for a full year. And on the scrappage side, again, there is not a mandatory rule as of today. So this we want to continue to -- with the rules.
Okay. And FY '25, how many vehicles will be added?
Again, for INR 250 crores each vehicle will cost around INR 30 lakhs [ apiece ].
The next question is from the line of Rahul Soni from ICICI Bank.
Sir, just 2 questions, mostly on the sector side. So once this scrappage policy becomes mandatory, what will be the impact on the sector and your company?
Yes. For us, currently, around 900 vehicles are more than 15 years as of today. And as compared to the capacity, around 67% of the total tonnage capacity in aggregate.
But in the market, if you see or in the industrial around 35% to 40% of the vehicles are more than 15 years, especially in the shorter route. In long route, anyway because of the actual permit, the life of the vehicle is 15 years. Where all vehicles will operate up to 15 years, we can have a national permit. But other than national permit category, especially the vehicle will stop operating [ in northern ] states. There actually the maximum quantity of older vehicles are operating [ alefter ]. So there, they have very little value on the market if it is a mandatory rule.
You mean the smaller -- on the smaller players, the margin -- the impact will be higher?
Smaller players and even in our case, for example, we are operating them even [ the ones ] when we are expanding the core. For us also where some of the local competitors are [ actually competing ] that competition [ where ] we become very weak once it is a mandatory [ lease ]. And there is a huge amount of scarcity of the vehicle will be there in the market, and that will lead to increase in the price rate. Since we are having a lower older vehicles that will [ impetus is ] to get the right rate on a higher [ groups ].
But in the long term, that will be also a deterrent of also new players also to enter into this?
Sorry?
So this will also like benefit bigger players like you?
Yes. But in India, nobody is having the old vehicle on infrastructure. Most of the operators are depending on the outside leases. So the moment it will become mandatory [ deliver sub the leases ] to the market then the local higher shares are going to be [ related ] -- but that risk will not be there for us.
Okay. Understood. And sir, second question is on the impact of the -- after the DFC is operational, what kind of a volume shift you are expecting from road to rail would be [ out there ] full after the full operation of the ICBR [ DSPs ]?
See one is our commodities are much different as compared to what DSP can carry. Most of our commodities are parcel. The small parcel, which changes from a use to [ which be ] a single article. That kind of commodity we are not transporting. And more towards, for example, if the person sitting at the lease, we want to distribute these material goods in India. Then these distributions will be at least around [ 111 demonlisters ]. So we have to carry these goods from one location and segregate those groups in our transit later, then we have to arrange the load from say 10 to different [ coach ]. So customers cannot depend on a DSP, which is connecting only the delivery [ man drivers ]. And basically, the commodity was DSPs going to carry versus the customer nature and commodity what we are carrying are different, so the impact will not depend on it.
So would be that will lead to increase in the shorter distance travel to provide this gap, which is a first mile to last mile connectivity? They will not be -- they want to be able to provide the first mile and the last mile connectivity. So sir, they are operational. So will that be a scenario where the demand for a shorter distance will be more -- or the share of shorter distance travel for the logistics operator will increase?
Sorry to interrupt, Mr. Soni. For any further follow-up questions, may we request you to return to the question queue, as there are several other participants waiting for their turn. The next question is from the line of Mr. Rohit Pawar from RV Investments.
My question is, what is the level of OPMs and revenue we are expecting, in the context to what level we are ready to take a hit on OPM to reach preferred revenue levels?
Sorry, your voice is not audible. Can you repeat your question?
Sir, my question was, what is the level of OPM on revenue we are expecting in the context? What level we are ready to take a hit on OPM to reach preferred revenue levels?
One is as I told, the once we reach that 15%, 16% growth in the tonnage, definitely, we can maintain income revenues of anywhere to 15% level. So in the current quarter, because of some of the shift of combining with an exporter. And again, overall [ relying ] in decline in tonnage 2% to 3% on account of global economic scenario. That impacted on the margins. So if we grow at a 15%, 16% tonnage in the remaining years, then definitely we can see EBITDA around 15%.
Also, sir, the tonnage growth target was of 15%, right? So currently, it is up 8%. So when do we expect to reach the targets of 15%?
See in our first half, we reached on overall basis around 10% growth in tonnage. For the remaining quarters, we are expecting at least around 16% growth in the Q3 and Q4. So overall, it will result around 13% growth in the tonnage. The 2% gap is on account of this I told you because of the monsoon, lower monsoon or the priorities really because the monsoon is not active during the time. It was getting one reason. And that may impact. On a full year basis, that 2% gap [ factors ] on the overall rate.
It is a normalized and again, [ we'll back ] it is around 15% plus growth in the next year.
The remainder that so important for EBITDA [ each year ] which were to be used for the repayment of debt. But now the debt has been increased. So may I get the bifurcation for the [ second ] spending accordingly?
Yes, So 197, we realized in the last year result. And accordingly, the debt levels have been reduced. Now what happened in the current year, we incurred a CapEx of around INR 200 crores in first half year. And that has resulted in increase in debt. And apart from that, we paid a certain amount for the final dividend. That also is another reason for increase in the debt in the current half year.
Yes, sir. And sir, the truck utilization percentage currently?
Yes, our operating income, reporting capacity, up to there is around 60%, 65% utilized.
Can we expect 80% in the coming future until when?
The volume base, again, as I said, always supported, even see some [ hot so ] operational vehicles, the turnaround time will increase. and even hope the [ spot ] capacity deflation is going to shift to see around 10% to 20%. So always the volume growth will [ succeed ] to one for the inflation and reduction in the overall variable and fixed cost. So that's the reason we are more concentrating on the volume growth.
The next question is from the line of Mr. Mukesh Saraf from [ Tamu Nidal ] Spark.
Just had one question on the pricing that you mentioned, 5% to 10% hike for contracts in customer. So would we kind of start seeing the benefit of the price hike from January? Or does this gradually come into effect through the next year? Of these 20%, 25% of your customers.
What we are expecting now that [ expecting ] already on some of the customers are acting we are not able at per as some of the customers have expected even for the November month also. But the benefit will start from December.
And for the remaining 75-odd percent of your customers, I think you took one general price hike last year. So around April will there be a plan for a general price hike also? I think once a year or something you do plan to do that.
That we can plan. I mean, moreover, it led to the fuel rate. Whatever price hike for fuel rate changes then definitely, we will take one for an increase in price.
Okay.
So in that case, what will happen along with the increase in the fuel rates, you can take to consider the increase in other costs also and increase the rate.
Yes. Yes, because your general rental cost, your rental costs are all going up so hence the general price hike. Okay. Okay. So that's not going to happen immediately, but it can happen after a few months is what it is.
Yes.
The next question is from the line of Mr. [ Shiraji Mehta ], who is an individual investor.
Sir, I had a question regarding these last 2 years since you have embarked on this journey to expand the branches in North and West -- North and East. So could you give an approximate contribution that these new branches that you've added in these locations in the last 2 years, how much would they have contributed to the revenue?
Yes. See, we give the contribution in the tonnage by around 4.5% on overall tonnage.
That's for the current quarter, the new branches? Or is it for all the new branches that have been added in North and West for the last 2 years?
No, no. Only it is on a year-on-year basis and quarter-on-quarter basis. So for example, year-on-year as compared to 30th September of '22 versus 30th September '23, we added around 120 branch. These 120 branches have contributed around 4.5% to the overall tonnage.
Right. Right. Makes sense. Sir, the last question from my side is any split that you can give in the volume between, say, the exim volume versus domestic volumes?
No, most of the volume related to the tonnage.
The next question is from the line of [ Nirav Seksaria from Living Root Analytics. ]
I [ came in late], could you -- could you also repeat the CapEx guidance for H2?
For H2 CapEx, you're asking.
Yes for H2.
Yes, around INR 120 crores to INR 153 crores.
Okay. And sir, for the CapEx that you have mentioned in FY '25, it will be mostly through external borrowing or will there be some amount of internal approvals for it?
Yes. Predominantly, there will be some internal approvals, but wherever there is certain shortfall, then we'll go for a debt. [ I will mention ] on an annual basis, we are generating around INR 350 crore to INR 400 in non-cash accruals. These cash accruals predominantly used for the CapEx plan. Overall you see declare [ and most of all ] some of the projects were used in the last year. So some approvals will be used for that purpose. And for the performance CapEx, we use for the debt. But if we do the dividend and all put together, even if we spend around INR 350 crores to INR 400 crores in a year, our debt level will not increase..
Okay. And sir, is this will assume that there can be some amount of scrappage in FY '25?
Scrappage until, see what we decided now we did a good amount of scrappage of vehicles in the last 1, 1.5 years. Considering that there is a scrappage which is going to be implemented or which is going to be mandatory. Now what internally we -- our management has a preference for is, let the policy to be a mandatory then only we will take a call on scrapping of major older vehicles. We believe that it wherever -- whatever are [ really conservative ], no major accident happens to the vehicles which we are unable to maintain again. Only those vehicles we are going to scrap. The number of vehicles which are going to be scrapped, we reduce in the coming year [ period ].
So sir, you have also mentioned that 900 vehicles are 15 years and older. So if the policy takes the 900 vehicles you scrap, [ so then ] it will be general over this time of FY '25?
Sorry?
You have mentioned that 900 vehicles are 15 years older than 15 years, right?
Yes.
So sir, if the scrappage policy kicks in, the 900 vehicles will be scrapped over a period of time? Or it will be like minimized to whatever is to...
See, even in the policy, what will happen, even though they made it a mandate -- so whenever the policy has to do for any [ plentiful ] during that time, there were vessels unable to run, then they will not issue a [ fitness setting it ], then we have to scrap. That's what the rule is. [ 36 ] 1-year period gradually. Some vehicles are due for a [ decommissioning ] that in May or June like that. It will not happen on a single [ list ].
And sir, it's not competing about all 900 vehicles in this plant, right?
Yes. Mandatory is in definitely and even other operators. Okay.
Only if it's not. If it's not [ minded ], there will be a [ practice ] of the week and post which vehicles to save?
Yes.
The last question is from the line of Mr. Alok Deora from Motilal Oswal.
Just a couple of questions. Sir, one is the shift in tonnage because of the festive season. So if this differential was not there of the festive season days, so what would have been the volume growth really for Q2 if we would have not seen the change?
Now the cloth and the textile material fiscal have degrown by around 4% -- 4.5% year-on-year. Now precisely it is at 4.61%, even if it would have grown normally. So our tonnage growth in the current quarter, it should be at least around [ 20 ]% plus.
Got it. And sir, there was this strike in Bangalore in last week of September. Any impact that had on the tonnage or not traded?
No, no. It's not impacted much. You are saying the Tamil issue.
Yes.
No, there is not much impact.
Got it. And just 1 last question is net debt, which is right now there. After -- since we are going now to be low on the CapEx, so where do you see the net debt stabilizing now ahead?
Now, as I said, every quarter or every half year, we say, INR 150 crores to INR 200 crores cash flow will come in the next months. Free cash flow. And the free cash flow, again, as I said, we have to plan around INR 120 crore, INR 150 crores CapEx. So the free cash flow is predominantly used for the investment in CapEx. And over and above may reduce around some INR 20 crores, INR 30 crores reduction is possible as of 31st March.
Got it. But it won't increase in any [ modernization level ] scenario.
Yes. It will not increase.
Thank you so much. I would now like to hand the conference over to the management for closing comments.
Thank you all the participants for your patience. And basically, as a closing remark, just I want to highlight that see, this tonnage variance in the current quarter is on account of some of the specific reason, especially because of the festive season. And because of some of the impact on certain sectors like agriculture and global economic demand. And the festive season, again, that is going to recover in the coming years. It has been already recovered in October that I already conveyed to you. And based on that, we are expecting that at least around 15%, 16% growth of tonnage in the coming 6 months.
So once we grow at a 15%, 16% [ geo mali ]. And for this kind of growth, we have already culled a [ mothabode ], we have already planned for our expansion in the neighboring region. We have already invested and incurred expenses about basically the godowns and transshipments have been what we required. So these expenses may not be increased in proportion to the increase in revenue going forward. So definitely, based on that, our margins are also going to improve. So with this, definitely, again, we will back to our EBITDA margin of around 15%, 16%.
With these remarks, actually, I would like to conclude this call.
Thank you so much. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your line.