VRL Logistics Ltd
NSE:VRLLOG
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Ladies and gentlemen, good day, and welcome to the VRL Logistics Limited Q3 FY '20 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, and good morning to all the participants who have joined in. We have with us the management of VRL. Mr. Sunil Nalavadi, the CFO, would be discussing Q3 FY '20 results, and it would be followed by a brief Q&A.So without any further delay, over to you, Mr. Nalavadi. You can start with an opening remark. Thank you.
Yes. Thank you, Mr. Abhijit. Good morning to all. Just I want to brief initially the year-on-year changes in the financials, then move to the summary of 9 months cumulative numbers.When we see the quarter-on-quarter -- when we see year-on-year development, Q3 of this year versus last year, the revenue of the company is increased by around 1% from INR 551 crores to INR 557 crores. And including other income, the total revenue increased from INR 552 crores to INR 559 crores. The growth of the revenue is mainly contributed by Goods Transportation segment. The revenue is increased by around 2.8% from INR 440 crores to INR 452 crores. And Passenger segment revenue is declined by around 8% on account of decline in overall number of buses. The revenue is declined from INR 103 crores to INR 95 crores.Even the revenue from the wind power is also declined by around 15%. One is on account of the seasonality and the other is on account of the one number -- 2 number less of the WTG machines. The overall EBITDA of the company is increased by around 16% from INR 71 crores to INR 82 crores, and percentage to total income is increased by around 1.82% from 12.8% to 14.6%. On account of Ind AS adjustment, the EBITDA of the company for this quarter is increased by around INR 20 crores, and percentage to revenue is increased by around 3.6%.The profit before tax of the company has increased -- decreased by around 22% from INR 42 crores to INR 32 crores, and percentage to total income is decreased by around 1.77% from 7.6% to 5.83%. And on account of Ind AS adjustment 116, the PBT of the company in quarter 3 is decreased by around INR 83 lakhs, and percentage to revenue is around 0.15%.The profit after tax of the company has decreased by around 3% from INR 26 crores to INR 25 crores. And percentage to total income is decreased by around 0.2% from 4.81% to 4.61%. And on account of Ind AS 116, the PAT of the company is decreased by around INR 64 lakhs, and percentage to revenue is around 0.12%.When we see the Goods Transport segment, the revenue is mainly contributed by increase in tonnage. The tonnage is increased by around 11% in this quarter compared to last year. And the realization is decreased by around 7% from -- compared to last year. And the increase in tonnage is mainly on account of increasing the good number of new customers. And when we see the EBITDA of the segment, it is increased by around 5% from INR 57 crores to INR 60 crores, and percentage to total income is increased from 13% to 13.43%. On account of Ind AS 116, the GT segment EBITDA is increased by around INR 18 crores and percentage to revenue by around 4.1%.And the changes in EBITDA is one on account of the good control on fuel cost. It is slightly increased from 0.48% to the revenue from 25.88% to 26.36%. Whereas there is a reduction in lorry hire service because of most of the services provided through own vehicles, the lorry hire service is decreased by around 1.7% from 10.23% to 8.54%. And there is a slight increase in the vehicle repairs and maintenance expense also in the current quarter compared to last year.And when it comes to Passenger segment, the decrease in revenue is mainly on account of decrease in vehicles, but there is a good improvement in the EBITDA compared to last year.If we see the 9 months summary, again, we have shown some growth in the revenue. Again, the overall revenue is increased by around 1.5%. And the growth in the revenue is, again, mainly contributed by the Goods Transport segment, around 3%, and Passenger is decreased by around 6% because of, again, number of vehicles.The overall 9 months EBITDA of the company is increased by around 31% from INR 190 crores to INR 250 crores, and percentage to revenue is increased by -- from 11.86% to 15.32%. On account of Ind AS 116, the EBITDA of the company is increased by around INR 58 crores, and percentage to revenue is around 3.6%.And overall PAT of the company for 9 months, it is increased by around 23% from INR 71 crores to INR 88 crores, and percentage to income increased by around 0.95% from 4.46% to 5.40%. On account of Ind AS 116, the PAT of the company is decreased by around INR 3 crores and in percentage to revenue by around 0.2%.This is just the summary of the financials. I request the participants to ask questions.
[Operator Instructions] The first question is from the line of Mukesh Saraf from Spark Capital.
First question is on the tonnage growth itself. You had mentioned about 8% tonnage growth, and you also said that is primarily driven by new customers. Could you give some more sense on that? Because realizations aren't up. Realizations are weaker. So are we kind of adding customers at a discounted kind of pricing? And if we have generated about 8% volume growth just on the back of new customers, how is our -- the existing customers, how is the volumes there? Is there a decline there? So could you just give some more sense on this entire growth on tonnage?
Yes. Basically, see what's happening from the existing customers, absolutely, there is no growth in tonnage. Just we are in a position to maintain the tonnage but not in a trend of decline. But whatever improvement in the tonnage is mainly on account of addition of new customers and addition of new routes. So that is resulting into the tonnage growth.And basically, when it comes to the decline in the freight rates, our realization, basically, we are doing on a sector basis, so depending on the certain routes, depending on certain products. It is applicable to all new and existing customers also. But more of the discounting structure or freight rates will be declined only for a new route, so -- which will attract the new customers and which will applicable to the each and every customer. That's how actually the strategy is going on now.
Right, right. And is there -- could you give some sense, are these new routes primarily related to Surat? And also are these new routes lower lead distance versus your average -- usual average lead distance?
So lead distance, definitely, it is a longer distance only. And moreover, yes, the new routes are more predominantly from the Surat. But Surat overall tonnage is not equivalent to what the growth is. Well, if you see the Surat tonnage, overall, it is improved by around 25%, 26% tonnage growth is there in the Surat. But contribution to the total tonnage of the company, it is increased by hardly around, say, point -- 0.15% or 0.2%. That's all.
So Surat is still very small in the overall scheme of things. That's what you're saying?
Yes, yes, yes.
Okay. Okay. And some bit on -- I mean when you talk about new routes, could you give some sense on market shares? Are we gaining market share from, say, other LTL operators? And also is there a phenomenon where your existing customers were earlier using somebody else for these new routes and now they're using you? Or are these completely new customers?
Yes. Earlier, just to -- one in Surat, it's clearly, there are -- the existing customers, actually, we are providing service to the new routes also. And even in other cases also basically, we are targeting them to shift to the entire route wherever the company is providing the service. And for them also in terms of compliances, it will become easy rather than getting the information and all these things from 3 or 4 people. Well, actually, about e-way bill and logistics compliances, it will be easy for them as well...
Yes. So this is something that we've been -- right. We've been hearing this from sometime so that it will become easier, and hence, customers will want to use one service provider. So you're saying that that is actually playing out now?
Yes, yes.
Okay. Okay. Okay. And just my last question is on your now status in terms of utilization of your vehicles. And any plans of addition of vehicles in the near future, sir?
Yes. See utilization, again, see, as our -- the method of operation, et cetera, is -- one is we are operating through own and outside vehicle combination. So that's the reason it's always our own vehicle for you -- we give a preference for loading and they get a complete utilization.But in terms of the new CapEx is concerned, we may add, say, another 150 -- around 100, 150 vehicles in last quarter. The total CapEx will be, say, INR 115 crores, INR 120 crores in the last quarter. This is predominantly for addition of the new vehicles. And when it comes to the BS VI, we will not add any vehicles, at least for 6 to 9 months, just to understand the technical scenario, how the new vehicles will perform and all these things. After that, again, new CapEx then will come.
So this fourth quarter addition will largely be a prebuy, sir? I mean it's not like you need it immediately, but you'll buy it for -- because...
Yes. There will be some prebuy also but not in, again, major quantity. I think around 100, 150 vehicles.
The next question is from the line of Pranav Jain from Iden Investment Advisors.
I wanted to get some clarity on the scrappage policy. So what percentage of our trucks are going to be affected by it? And if you could give us like a bucketing of the trucks by age, like how many of the trucks are less than 5 years old or how many will be affected by it in the next 5 years?
Yes, sure. So basically, about scrappage policy, the government is not yet clearly giving maturity age for -- they have not issued any specific note featuring that. That will be coming into force from 1st April. And even the age of the vehicles is not yet clear. So whether it is 15 years old, 20 years old, it is not yet clear. But if it is -- if they bring the policy of, say, more than 15 years, then overall, in terms of capacity, it's around 6% to 8% of our capacity we have to scrap over a period of next 1 year because whenever the renewal comes, actually, those vehicles will not be renewed.
Yes. Okay. And what would be the number -- the capacity of trucks you'd have in the 10 to 15 years range right now?
Now, overall, if you see the age of the vehicles, its average age is around 9 years. And more than 5 years, if we see, there's around 3,872 out of 4,525 weekly. It's -- just we have given 5 years better. If you need exactly after 10 years and 15 years, then definitely, we can share it after this call.
The next question is from the line of Alok Deshpande from Edelweiss Securities.
A couple of questions. One was just, again, a little bit more color on your market share gains. So you mentioned about 8-odd percent tonnage growth. So just wanted to get sense of is it coming from other competition in LTL? Or is it mainly because of the smaller truckers suffering a lot in this kind of environment? How is the profitability environment currently? So if you could just give a sense of the environment first.
No, basically, see, this additional tonnage, what we are targeting is mainly for a long haulage. See, long haul always, again, it will be from the competitors itself, not from the small fleet operators. And most of the small fleet operators, they concentrate on the state-wide operations or safety routes. So in our case, what is happening, you see our sense is to give multiple options to the customers, multiple routes. So that's the strength. On account of that, actually, we are in a position to gain the market share.
Okay. And also just wanted to -- sort of separate question was, do you also work with other 3PL players in the sense that -- or is it that you do direct business for the customers?
No, no. It's -- see, wherever, actually if we want to fulfill our requirements, we will [indiscernible] some cases, the FTL also. If we don't have a return load, then definitely we can provide service to them. We don't have any type of restrictions, et cetera.
Understood, understood. Actually, just one last question on CapEx. So you briefly mentioned about INR 15 crores, INR 20 crores in the last quarter and then no significant CapEx for the next 6 to 9 months. But overall then, have you earmarked some number for next year? And what will it -- what will...
Well, next year, in terms of CapEx, there are 2 things: One is the normalization in our Goods Transport segment; and apart from that, we may add some number of buses also around 40 to 50 number of buses because the number of buses have been drastically reduced over a period of last 3, 4 years. Now considering some good margin and wherever actually we are having strong presence in some routes, just to maintain those strong presence, we may add around 40, 50 buses in next year.
Okay. And what will be the CapEx for it?
That will be the CapEx of -- each bus cost around INR 40 lakhs, around INR 20 crores.
INR 20 crores is okay. And what will be the CapEx now for this year, accounting for this last quarter's INR 15 crores, INR 20 crores, for the full year?
Well, until date, actually, we incurred around INR 60 crores.
INR 60 crores?
INR 66 crores, and there will be another INR 15 crores, INR 20 crores to this number.
Okay. Okay. Just one last data point, Sunil. So 9-month tonnage growth is how much?
9-months growth is 8%. Yes. Year-on-year, if you see, it is increased around 11%.
Quarterly -- that's Q3 is 11% and 9 months is 8%, you said?
Yes.
The next question is from the line of Ankit Panchmatia from B&K Securities.
Sir, I wanted your growth on the priority segment, how has been that segment shaping up?
Yes. Priorities, the growth rate is much better as compared to this normal growth. Again, similar to tonnage, increase in the priority segment is around 10%.
Okay. Okay. Sir, how -- okay, sir, what would be the overall contribution of priority segment at the overall top line?
Priority?
Yes.
For Goods Transportation, it is around 12%.
12% of the overall revenue has been contributed by priority?
Of the Goods Transport revenues.
Okay. Okay. And sir, I wanted you view regarding how...
Moreover, one more change, see, about priorities, just the internal changes a bit. Now we are considering the all-door delivery services. Money is about door deliveries rather than door delivery -- there will be 2 services. This entire door delivery, even though it is -- earlier we used to call it as general parcel. Now we are considering it as a one segment. So if we consider like that, then overall door delivery will be around 25%, 26%. So that will be now we are considering for a fast movement and as equivalent to the priority service.
Okay. Okay. And sir, your view on the new customers added, any specific sector or how are we seeing this? Because as the industry -- overall industry is in a doldrums and we have been successfully adding new customers, so is there a strategy we are approaching new customers? How has been this -- we have been doing this?
No. Basically, you see, the strategy has been changed in such a way that, say right now, auto sector is going to a slowdown. Now what we did basically is use lot of this product like the TV from West Bengal and other states to the rest of the country. And there will be lot of the spices and all such kind of products which normally starts to grow from Southern India. And specifically, the product concentration like cashew nuts and all. And another Surat, the entire textiles take this. So in certain geographies, we are concentrating on certain products, so which are not at a slowdown or something else. See, those are daily needs of our customers. So we are concentrating on such products and such markets to gain the market share or to add the tonnage.
Okay. Okay. And sir, your planning regarding other facilities which have been planned, how are we kind of adding up newer facilities like Surat?
About the construction of the transshipment cargo or something like that?
Yes, sir.
Right now, we don't have any such plans. After [indiscernible], just now, there are no such plans, no.
[Operator Instructions] The next question is from the line of Prateek Kumar from Antique Stockbroking.
Sir, first question is regarding Passenger segment. Sir, can you give the split of passenger growth and realizations year-on-year, quarter-on-quarter?
Yes, Prateek, your audio is not clear.
Sir, can you hear me?
Yes, we can hear you, but it's not clear.Yes, now it's clear.
Yes, basically, the overall 9-months number is the decrease in number of passengers traveled around 11%.
Sir, quarter number is okay. So...
Quarterly, last year to this year, it has decreased around 11% again. And realization per passenger is increased around 3% -- around 4%. And the average seat occupation, it is more or less the same, around 87%.
Okay. And sir, similar numbers quarter-on-quarter?
Quarter-on-quarter, the number of passengers traveled increased by around 15% compared to last quarter. And realization per passenger is again increased by around 11%. Average seat occupancy, it is increased by around 5% from 81% to 86%.
Okay. Next, regarding this vehicle addition in Goods segment, which category is this? Is this for spoke movement which you're adding, smaller vehicles?
No. See we added some good number of these 20-tonnage capacities.
Sorry?
20-tonnage capacities.
20-tonnage capacity -- for the future vehicles, 100 and 150, which you mentioned?
Yes, those are a little bit smaller vehicles. It is a mix, again, smaller and larger vehicles, but more of a smaller vehicle list from our system.
And including INR 20 crores CapEx on bus segment, we should expect -- assuming we don't end up spending a very large amount on Goods segment, so around INR 60 crores, INR 70 crores should be normal CapEx next year as well?
Yes. Yes, totally.
Okay. And are we looking to take incremental price cut for further customer acquisition in Q4? Sequentially...
Actually, there are some rumors around the decrease in the fuel price and all because of some international markets there is a -- demand is declined on account of this China economy or something like that. So if diesel prices decrease, then again, we may further reduce the rate.
Okay. So assuming we don't decrease prices in Q4 versus Q3 -- yes. So if we don't decrease price versus Q3, so how much would be year-on-year decline in Q4 in price?
Q4, actually, last year also we started from Q3 -- mid of Q3, we started declining the rate, so that impacted the one on Q4 also. I mean year-on-year, it will not be more than around 2%, 3%.
So including the price cuts we took sequentially in Q3, so 2%, 3% would be year-on-year decline in 4Q?
Yes.
And sir, this customer acquisition, so like I think we have now stayed at like 9% to 11% growth in like past 3 quarters, which is, I think, meaningfully higher versus like 5-year trend. So this customer acquisition towards getting volume is expected to continue into FY '21, so basically, pricing remain -- I mean assuming diesel prices won't go anywhere?
Particularly you should have flexibility on -- little bit on the rate side, and definitely, this trend will continue.
I mean assuming the fuel price remains stable or don't move materially up and down, so we will continue to focus on reducing price to get more customers? Because otherwise -- I mean diesel price-led cut would be across the board for other players also. So -- but for company-specific, we would be looking to cut pricing in FY '21?
Yes. Basically, see what we are doing, as I said, on a specific market, still, that strategy will continue, but not to -- wherever we are revenue strong presence. There, we'll not do any cutting -- price cut or something like that. If we had, again, some more new customer -- respective products are concerned, that strategy will continue.
And our LTL and FTL is now -- has it been, now with the higher growth we've been gaining, in favor of LTL or similar?
It's more or less same, more or less same.
So around 80% would be LTL?
To the total revenue. If you see only Goods Transport, it is around 91%, 92% is LTL. Hardly around 8% to 9% is FTL.
And when you say priority sector, that's express segment which we talk about?
Yes. Basically, it's a priority consignment, but now our strategy has changed. Actually, we are considering all these door bookings, door deliveries, we are considering it as the priority segment. Priority in the sense, equal importance will be given to those consignments also. Because anyway the movement consists of the delivery point. Again, it has to be delivered to the customers, even though they book it under general person. So now we made only 2 categories: One is about the door-to-door service and then another service is other than door-to-door service where the customers can store their material in our branch.
So door-to-door is priority segment?
Yes. That, actually, we are more focusing.
But the speed of the movement or timeliness of the movement is not very specific on priority segment as well. So it's not express -- it's not...
It's not actually the commitment from our end. But based on efficiency in the segment, we can prove them that so and so route we can cover in these many days like that.
[Operator Instructions] The next question is from the line of Bhavin Gandhi from B&K Securities.
Sir, if I were to look at the EBITDA adjusted for Ind AS for the last 3 quarters, there's been a step change in the EBITDA numbers from 2Q onwards where a INR 50 crore run rate came down to almost INR 40 crore run rate. So can you confirm that this has nothing to do with the commissioning of Surat facility, which started around August? It's purely realization-led decline that you've seen...
Yes, it's purely because of the realization. It's not only -- See, Surat is, as you usual. See, we have -- I would say wherever there are strong routes from Surat, we are not at all reduced any cost -- any rates. Then cost-wise, it is only the CapEx. But the rest of the operating cost actually is, compared to earlier, it is reduced, in fact. Earlier, we used to pay heavy rent and all. See those needs to be cash to P&L. Now those expenses are not there. It's only the CapEx, and the maintenance cost is not so high. And so actually, operating cost has decreased in Surat facility compared to earlier.
Sure. Got it. Sir, like you mentioned in your comments earlier that you've been focused on getting volume growth. Most of it is actually long-distance volumes. And then what is the strategy as far as realization goes? So will it all be margin dilutive that we've seen it so far being? I mean if you look at the trends, it generally seems to be like a margin-dilutive strategy. So how are we thinking about profitability vis-à-vis volume?
No. Basically, what will happen, once we got some presence in the new market or new product, definitely, for us, everything will change. See whenever there is diesel cost changes or anything, we can little bit -- equivalent amount, which we are not targeting, we are not threatened. We assume that tomorrow diesel price is reduced by INR 2. We may not pass equivalent amount benefit to the customers wherever we acquire the new customers now. And if diesel prices increase a little bit, then what we can do is we can increase the prices a little bit higher.So through the year, what will happen, even the new market what we are targeting, these are good number of customers, not 1 or 2 customers or 3 customers. It's not like that. It's adding up here around 100 customers, 200 customers in a specific market in one city. It will be like that. So even though a little bit freight changes in the future, the entire customers will not shift to other operators.
Okay. So sir, what is the value offering for the, let's say, the existing set of customers where they have shown stickiness to remain with VRL despite pricing not being passed on? So what are those value propositions that...
See, one is about -- see, our presence and the kind of service work we provide, especially most of the -- these other operators, the damages and all, they will not settle the claim immediately. But in our case, we settle the claim immediately once we see that it is mistake from our end. And such kind of areas will often very less in our field because of all vehicles are owned by the company. And it's totally controlled service in terms of process and procedures are considered -- if you consider the operational process. Those are all very controlled in our case. That's why we can give more efficient service to the customers. So once they got the efficiency of service and something, then definitely, the stick-on will continue. The changes in customers frequently will not happen unless there are drastic changes, unless voluntarily we can increase the freight rate without considering the market and all. Only in such scenarios, people will shift. Otherwise, customer will never shift from there.
Got it, sir. Sir, second, on the GST compliance level, you used to give out the numbers as to how many of your clients are actually GST compliant. And second, about the annual returns that you had highlighted earlier, which was an issue for transition from unorganized to organized. If you can...
Now what is happening is -- first-year return, see, now it's -- the due date is over now. So most of the clients have filed their first-year return. Now government is taking one more step ahead, especially about the e-invoicing. For particular transaction, if the turnover is crossed certain limit, then compulsorily they have to generate e-invoices in the government portal itself. Well, if that comes into picture, each and every invoice of the party will upload it or it will come to that, we hope for, the department to become -- get all this MIS report.Now what is happening in e-way bill, say, INR 50,000 limit is there. Let's say, INR 50,000 e-invoice is there, then no e-way bill is required. In certain states, that limit is INR 1 lakh. So these invoices, actually, nobody can view unless the question was -- one to be filed annual return, so the returns they can compare with the financials and they can see the differences. Assume that if they were not in books as well as not in return, then nobody will come to know.Now another major weakness in the e-way bill is actually the cancellation of e-way bill, they have given 24 hours' time. So what this short distance people are doing, see, if the customer takes a delivery of the consignment within 24 hours, there are the chances that they will cancel the e-way bill as well as the invoice. So nobody will come to know about it. Now what is happening -- after this e-invoicing, what is happening, the moment the invoice is generated, compulsorily that information will go to the department website. So we'd be more informative to the government authorities. So once it happens, then again, compliance level will increase further. That actually is -- the proposal is there from 1st April for the e-invoicing.
Sure. Got it. And just one last thing, sir. On the bus segment, sir, I thought we had kind of decided to downsize this segment and let the licenses expire. So why the re-think on this side?
Well, just to maintain wherever the strong routes, we're operating. We want to have presence in those strong routes. Now what will happen, see, now the vehicle numbers are around 300 or something. See, now we reached around 350 vehicles. Now there will be further expiry of licenses in the coming days. So now 350 vehicles were -- see, our results itself are showing good numbers, good kind of EBITDA number and all. So we want to maintain it. See, whatever the vehicles will be scrapped now, and for replacement, we have to add vehicles. Otherwise, we have to close down some good routes also. So we don't want to do that.
Okay. Okay. But will it be fair to assume that overall net of scrapping, your overall size of the bus segment will not increase? Will it be a fair assumption?
Yes, yes.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Sir, just first, I want to understand if you see the branches and agencies, they've come down by about 10 number. So just wanted to know your thoughts, which are these branches where we are closing down and where are these located?
These branches actually are located in a -- not on a main route, some a little bit inside on the main route. And these are all small cities -- small towns where actually we are not seeing growth in the tonnage. So we identified such branches and we closed down.
Okay. So they're very small branches that we are closing?
Small branches, and for that, we need to incur additional cost to reach the vehicles there. So we identified and we are not seeing any growth over the last 3, 4 years. That's why we closed down such branches.
And then do you see opportunity to increase your network in terms of branches and agency? Or do you think it will likely stay the same?
So currently, we maintain the same numbers.
Okay. Fair enough. And sir, the second is that we see that there has been some addition in the tankers. We have rarely seen addition to your tanker fleet. I think last one was something in FY '11, FY '12. So I just wanted to hear your thought process behind that.
No, tanker is because now what happened, we -- the Surat transport hub, they have another new facility, new fuel pump has come in. Earlier, we were having only 2 pumps. Now that -- now total number of pumps is around 5 fuel pumps. So these 5 -- procurement of fuel to these pumps, we do it through own vehicles -- our own vehicles.
Okay. It's more of your own consumption there.
Yes.
Okay. And the last one is after, let's say, we have a reduced tax rate, corporate tax rate, so does that any way change the way you price your services to customers? Or the way you price is largely a function of fuel price and kind of competition? I just wanted to know how has that impacted your competitors.
Some are -- most of the things, actually, they will not discuss on this thing. But their main -- they will compare rates with other competitors.
Okay. But do you think, as a company and overall, there has been reduction in ranges because tax rates have come down even, say, 1% or so?
Not the case. The tax rate is advantage for us, being a corporate. Even other corporates will also have similar kind of a benefit. But this is more related to the prices, prices offering by the other operators.
Okay. And sir, last one, I could not note down the realization in GT business. I think you said 11% tonnage growth in Q3 Y-o-Y, right?
Yes.
And how has been -- how much has the realization gone down? Is it 8%?
Realization is around 7%, yes.
The next question is from the line of Mukesh Saraf from Spark Capital.
Just a follow-up on the GT segment. So you had mentioned that you're now kind of segregating it between door-to-door and the general parcel. What is the pricing differential, sir? Say, if I take the same route, what is the pricing differential between general parcel and door-to-door?
Normally around INR 2 because we added that local -- that general route. In metro city region, more than that. See, only difference in cost is about -- see, in terms of the cost, we have to consider this local pickup and local delivery service, that is the only added cost.
So that's what -- so in terms of percentage difference in the pricing for, say, a similar-sized parcel, similar route, what would it be, sir?
See, for example, let's say, like Delhi to Chennai, the rate -- change will be around 10% to 12%.
Okay. 10% to 12%.
If it is a smaller distance like Hubli-Bangalore, it will be more than that, around -- it will come around 15%, 20%.
Right. So the reason I asked was, typically, we had a sense that the difference in pricing between your general parcel service and an express parcel service was about 15% to 20%. So is your door-to-door now equivalent to an express parcel pricing? Or is it still lower than that?
Yes, it is a little bit lower, actually, compared to the other operators.
Compared to the express, okay. Okay. And -- but you're saying that in terms of the time lines or the number of days...
In terms of service, in terms of time lines, it's almost a little better than, we can say, in some of the routes. See, earlier, what used to happen, this priority was early around, say, 10 to -- around 9%, 10% of the revenue. We -- for those consignments, we used to concentrate. Now we increased that volume. See we consider door-to-door delivery, even general parcel also. So because of that what happened, the volume is increased to around 25%, 26%. Now this entire additional 15%, 16% of consignments also are getting delivered on a very fast movement. Because customer wants anyway the door pick-up and door delivery, whether it is general parcel or express.
There's no use of -- then you don't do a transit warehousing in this. I mean you kind of -- or rather, you don't keep the goods in your warehouse for long. As soon as it reaches the destination hub, it's on to a smaller vehicle and gets delivered to the door.
Yes, yes, yes.
Right. And sir, my second question is on Surat. So it's now probably, not even a year, but it's going to be probably 1 year of operations in a few months. So how do you see in terms of the potential that Surat offers you? Where are we now either in terms of revenues or, say, number of vehicles you can deploy there or just tonnage market share? I mean some sense on the Surat business?
Yes. Basically, the Surat tonnage is increased last quarter and this quarter. See, first quarter, it is increased around 20% tonnage. Now again, quarter-on-quarter, the increase is around 25%, even though Q3 is a little bit unseason. Even Q2 was a seasonal business. Now compared to Q2 and Q3, again, the business is increased by around 25% in Surat.
Right. So I mean...
And overall contribution -- yes, overall contribution early last year, it was around 1.8% to the tonnage. Now it is increased to around 2%, and considering half year.
Right, half year. And say, in a year's time or, say, in a 3-year period, how big do you think Surat can be for us? Because you mentioned that VRL will be the -- amongst the largest operator there, and so there was a good potential for Surat. So any sense that -- we are probably now only 10% of the market -- I mean of the market that we can achieve, and so there's a lot more to grow there? Or...
No. Earlier also I said, actually, to get good result on Surat, we have to double the tonnage. Now we reached, quarter-on-quarter, there is an increase of 25%. Definitely, we are on track. And the other advantage of Surat, even most of the return goods, what the -- even though from Surat to, say, other places, the other transporters will carry. But return load, actually, there are no good service providers to Surat because they don't have proper storage facility and all. Actually, we are capturing that business as well, so other places to Surat.
All right. So this can continue growing quarter-over-quarter at least for the next few quarters?
Yes, yes, definitely.
And we are way below the potential, sir. Okay, okay, okay.
The next question is from the line of Pranav Jain from Iden Investment Advisors.
Sir, my question was on the biofuel consumption side. So as you mentioned earlier, we started procuring from a new facility in Rajasthan. I wanted to get -- and you're experimenting with that. So I wanted to see how that is going and what our supply -- has the supply been steady? Or has there been any variation in that due to the ethanol consumption increase and the doping of crude, et cetera?
We are now -- since the 9 months, we procured almost around 31% of total quantity. And now in Q3, it is reduced to around 30%. More or less, it is there. So going -- coming days, actually, one threat to the biodiesel is now government is putting in a lot of restrictions on import of palm oil from Malaysia and all. So that will restrict most of the biofuel factories, they're depending on the palm oil. If palm oil price increases, then they have to increase the price. If they are going to increase the price, then nobody will buy because they will have diesel, they can buy that from the market. So this ratio may come down in the coming days. But alternatively, since we source from Rajasthan, actually, Rajasthan supply more, predominantly it is coming from Kanpur, and that biodiesel is not based on the palm oil. But whatever -- the South we are getting, there'll be some disturbance in the South, 7 digits.
Okay. And sir, what would the doping material be for the fuel coming from Rajasthan to Kanpur?
Kanpur, now out of the 31%, I mean say around 12% to 15% is from Kanpur.
Okay. Okay, sir. And another thing I wanted to know [indiscernible] the air transport passenger segment has been -- has got -- it's almost the numbers have doubled. So what do we see this growth from -- where do we see this coming from?
No, the utilizations are better, actually, the correct utilization. But see some fluctuation will be there in that revenue always. It depends on the demand. It's always fluctuating. It's not that one quarter it may increase and again another quarter, it will come down. And it depends on maintenance of the truck and so many factors. Since this is not a major segment, we continue as it is.
The next question is from the line of Depesh Kashyap from Equirus Securities.
Just a small clarification. The categorization of door-to-door service as a priority service is something internal? Or you are going to increase the price in line with the priority service for the customers?
No, no. Earlier also this door delivery, door booking, it's more or less equivalent to the priority rates only.
Okay. This is the internal share that you will categorize then?
We used to collect additional charges, but not in the freight rate. Now what we are doing, to have a common feature, actually we combined these 2 services in.
No, I didn't get, sir. So this is different, a new categorization, that you will categorize into the priority segment or...
Yes, it is only internal to focus more consignment to reach customers early. That is internal.
Okay. And sir, 11% tonnage growth in third quarter, was there any statistical impact? And what is your expectation for the fourth quarter, please?
See, to me, it's -- yes, always quarter 3 gives us a good number. But since we are growing continuously, even quarter 2 also the growth rate was there.
[indiscernible]?
And yes, around 3% to 4% is on account of the strong environment about festive seasons and all.
So fourth quarter will be, you're saying, around 7% to 8%?
Yes. But compared to quarter 3, year-on-year, definitely, we are at -- it will be within the range of around 6%, 7%, at least.
Understood. And sir, your EBITDA margin guidance for the second half was around 10.5% to 11%. Does it stay the same?
Yes.
And what is your guidance for the next year, sir? FY '21?
I should not give any guidance, but it will depend in the environment.
Okay, but it should not go below that, right?
Industry, yes, yes.
Okay. Sir, lastly, I just want your thoughts on FASTag implementation because what I hear is that with the FASTag, you're not able to get the return tickets, which are generally cheaper than the 2 one-way tickets, right? So has it increased the toll charges?
No. Since we are operating with the FASTag from last almost 3, 4 years, it's more than that. See, what will happen after the end of the month, if vehicle has crossed within certain -- within 24 hours for the same toll booth, then they will give a concession. I don't know about the retail how it is working.
Okay. But you are getting the concession from...
Yes, but we are getting the benefit.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
Sir, just one question on employee cost. So that employee cost for us is now stable like around INR 90 crores, INR 95 crores every quarter for like now 2 years. So is there any major increase expected there, like upcoming increase, which we had like in FY '18?
No. In fact, we have given increment in the month of November. But it is compensated with some of the reduction in employees because of some closure of branches and all. And there are some changes in the process also about -- see, we reduced some of the maintenance -- best maintenance staff and all. And wherever there are excess employees, excess in the sense, wherever the branches have been closed, those employees actually, we shifted to -- see, wherever efficient workers, those people have been shifted to the new location -- a new location or existing locations. But overall, since the number of employees have been reduced, the employee cost, more or less, it is under control, even though we have given increment from November. And the increase in employees is only in drivers, but rest of the employees are actually declined.
Okay. What would be the new number of employees? And how much the percentage reduction in employees?
Yes, new number, now it is 17,320.
And how much is the cut in the past quarter?
In past quarter, around 220 number of staff have been declined -- reduced for us.
Okay. And the tax rate for this quarter was lower, I mean reported tax rate. So we are expecting 25% going forward?
Yes, 25% will continue, but see one time this -- the full tax benefit has been taken in the second quarter on account of change in the tax rate. Earlier, we used to provide the full tax at 34%. Now after the change in the tax rate, one time that benefit has been accounted in quarter 2.
Even in quarter 3, it's lower?
See, that's why, because the deferred tax changes, there are changes in the tax rates. Otherwise, overall, if you see the 9 months, it will come around 25%.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Hello?
Yes, sir?
Yes. Is it over?
Yes, sir.
Yes. Thanks, for all the participants, for your patience herein. And if you need additional clarification or anything, directly you can contact me. Thank you.
Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.