VRL Logistics Ltd
NSE:VRLLOG
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Good morning, ladies and gentlemen. Welcome to the VRL Logistics Q3 FY '21 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [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, and special thanks for joining in early on a Monday morning. We have today with us Mr. Sunil Nalavadi, CFO of VRL Logistics, to discuss Q3 FY '21 results conference call. So without any further ado, I hand it over to Mr. Nalavadi for his opening remarks. Over to you, sir.
Yes. Thank you, Mr. Abhijit. Good morning to all. I'm Sunil Nalavadi, CFO of VRL Logistics Limited, and this is the earning call of quarter 3 for the financial year 2021. I would like to mention here that even during the tough time of the pandemic, the company's management's proactive steps ensured that the business operations are more than normalized during this quarter by showing the growth in turnover and also achieving highest number of EBITDA as compared to our recent past results. The growth in turnover is on account of increasing Goods Transport business, which is a major and key business segment of the company. The Goods Transport revenue is increased by around 11% from INR 452 crores to INR 501 crores in this quarter as compared to the last year. The increase in Goods Transport turnover is on account of increase in tonnage by around 1% and increase in total realization per ton by around 10%. And the growth in EBITDA of the company is on account of increase in EBITDA of Goods Transport segment by around 61% from INR 61 crores to INR 97 crores. And percentage to total income is increased by around 6% from 13% to 19.5%. The increase in EBITDA margin is mainly on account of better improvements in realization per ton, which has taken care of increase in operational costs, including the drastic increase in fuel rates during this period; and also the better control on employee cost, which has been decreased by around 3.77% from 18.46% to 14.68% to the revenue. Apart from this, the other cost that have been reduced as a percentage to income are the vehicle maintenance cost, which is reduced by around 1.6%; and the rent expenses, which is reduced by around 1%. The other segment of the company, that's Bus Operations, is still in the process of recovery and hoping that this segment will also turn its operations to at a normal level soon. When we compare our performance on quarter-on-quarter basis, the total revenue of the company is increased by around 29%, from INR 441 crores to INR 568 crores. The increase in revenue is again contributed by the Goods Transport segment, which is increased by around 23% from INR 407 crores to INR 501 crores; an increase in Bus Operation by around 210% from INR 16 crores to INR 52 crores. The entire increase in Goods Transport revenue is on account of increase in tonnage and maintained the realization per ton at same levels. The increase in passenger revenue is mainly on account of increasing number of passengers traveled. The EBITDA of the company quarter-on-quarter basis increased by around 16% from INR 89 crores to INR 103 crores. And percentage to total income is decreased by around 1.97% from 20% to 18.28%. The changes in EBITDA is on account of increase in, again, Goods Transport EBITDA, which has increased by almost around 22% from INR 79 crores to INR 97 crores and maintained the EBITDA percentage at around 19.5%. We are in a position to maintain the EBITDA margin in spite of increase in diesel price due to proportionate reduction in fixed costs due to increase in tonnage. The main fixed expenses, that is employee cost saving decreased by around 1.31% from 15.99% to 14.68%; and the rent expenses by 1.39% from 2.5% to 1.19%.The same is compensated by an increase in lorry hire charges by around 2% because of the increase in tonnage and more kilometers also covered by the outside vehicles; and increase in tire and flats by around 1.77%; and the diesel cost is maintained at around 27% total income. The EBITDA Passenger segment is increased by around 485% from minus INR 1 crores to positive of around INR 4.7 crores. And percentage to total income increased by around 16% from minus 7% to 9%. The increase in EBITDA margin is on account of, again, percentage of fixed expenses to the revenue have been reduced due to increase in revenue from the Bus Operations on account of increasing number of passengers traveled. With these results, the YTD performance of the company is in a position to recover the losses incurred during the first quarter of this financial year and report a net profit of around INR 8 crores. On account of lower CapEx during the year and also the good earnings, cash profits of INR 128 crores during this 9-month period, the net effect of the company is reduced to INR 64 crores as of December 31, 2020. Considering the lower debt and to revolve shareholders during this period, the Board of the company has approved to buy back 20 lakh shares from the open market with a maximum buyback size of INR 60 crores. With this, I will conclude my initial remarks, and now the session will open if any questions from the participants. Thank you.
[Operator Instructions] The first question is from the line of Ashwini Agarwal from Ashmore Investment Management.
Congratulations on a good set of numbers. A quick question is that, obviously, the control on costs has played a significant role in improving profitability, and I'm thinking that some of these costs will come back as business gets back to normal later this year. So could you help me understand your rent renegotiations or your rent savings? How far are they sustainable? And similarly, your employee savings, how far are they sustainable? That's question number one. And the maintenance costs on your fleet that have come down, is it a short-term feature where you've controlled on a certain amount of discretionary maintenance? Or is it something structural?
Yes. One is about the reduction in the employee cost. Yes, definitely, this is going to be a sustainable reduction. This is mainly on account of -- what we did during this period is we studied the trend-based study of each and every operational process, and wherever there are possibility of improvement, actually, we -- most of the processes have been mechanized. And also, we studied the branch-wise performance. Depending on the tonnage growth of each branch and how the operation levels at each branch and transshipment hub. So depending on this process study, we have taken a call of some reduction in the employees numbers. So this is going to be continuous process again. And definitely, this is a sustainable reduction, I can say. And with respect to the reduction in rent expenses, yes, we negotiated with some of the landlords or the property owners. And some of the people have expressed their commitment up to 31st March. After that, again, the normal rent will come up. But once the tonnage starts growing up at this level, so definitely, the percentage of these expenses will be maintained as a percentage to the revenue. And with respect to vehicle maintenance are concerned, vehicle maintenance, again, similarly, some of the scheduled maintenance, actually, we have changed certain time lines. And this is, again, sustainable for some of the time -- some of the period. And in the meantime, we have reduced some of the old vehicles, the scrap -- we have reduced -- scrapped some of the vehicles also during this period, around 1 out of 5 vehicles. So that's on account of -- that also the maintenance cost has come down. So again, it is a sustainable one, we can say.
Okay. And one more question, sir. If you could help me understand how are the passenger numbers on the bus side looking, in January, for example, over December; and December over November? Is it sort of a growth that you're witnessing? Or is it sporadic, a few weeks up, a few weeks down kind of a thing?
Yes, it is more or less, see, in line -- the numbers are like in a quarter 3. There are no substantial improvement still now. And moreover, what's happening, now we are looking for some work. Again, the rules have been changed about pandemic and all these things. About COVID-19 rules, now people are coming to more travel. So definitely, we are hoping that things may recover, say, after March, you can say.
The next question is from the line of Ankit Panchmatia from B&K Securities.
Sir, more to do with our tonnage growth. As far as what industry has been posting, just to get your view that why this study's growth appears to be slight lower compared to the industry. Is there something to do with SME recovery? Or how are we now seeing being into -- already Jan is through, so are we seeing tonnage growth getting back to those 3% to 5% levels? Any view on the same would be helpful.
No, basically, when you see the movement from -- after the lockdown is announced, the industry is -- was badly impacted during the first quarter, the whole economy. Then later on, there were some recovery during the second quarter. And third quarter, definitely, we did tonnage more than the normal tonnage as compared to this period. Even though year-on-year comparison -- see last year, there were no such disturbances, there are no such incident. But in current year, in spite of these disturbances, we crossed the last year tonnage. And about -- just you mentioned about SME and other things, see some of the key segments, say, like textile business. Still, we are not at a level what we used to do even earlier. So there actually still improvement has to happen. And whatever growth we achieved in this difficult period, this is on account of addition of more number of new customers. So still the business from the existing customer or from the existing sector, still it has to come at a normal level.
Okay. Okay. So sir, just to get your view, what percentage would be textile of our overall revenue? And the other, any other flavor around top 2 or top 3 commodities which have been kind of contributing to our overall top line?
So basically, when it comes to textile, earlier, we used to do around 15% to 16% of total tonnage. Now still, we are at around 12% to 13% of the tonnage is coming from this segment. So still, that segment has to come with a normalcy by increasing around 4% to 5% in the tonnage. And see again, in spite of adding more number of new customers even in the textile business, it is unable to contribute to the equal percentage of what it -- that segment used to contribute earlier. And other segments, if you see, one is about overall manufacturer, the finished goods, still those commodities are not coming up to the mark. But there are good improvements in this agriculture commodities, especially the agriculture-related pesticide movement or even some of the movement of food grains and all seeds movement, those are all improved, even some of the equipment related to these agricultural activities.
So sir, do we mean to say that the next bigger contributor in the overall pie would be -- would -- apart from textile, would be agriculture or pesticides?
Yes, agriculture, earlier, it used to be around 4% to 5%. Now it has been increased to around 7% to 8%. And the rest of the segments were not major changes.
Okay. Okay. Sir, your -- wanted your view regarding the whole scrappage policy, which has been kind of contemplating into announcing the same. Sir, your thought process around the same, how it will help to get the market balance coming FY '22, '23? Or what more could have been done to kind of benefit an organized player, like VRL?
No, with respect to scrappage policy, there are 2 things. One is, it is a voluntary scrappage policy for the vehicles which are older by 15 years for the commercial vehicles. And along with that, there is -- there was another announcement with respect to charge of green tax on the vehicle taxes. If we compare these 2 -- the voluntarily vehicle scrappage, again, it depends on the fitness certificate what the authorities are going to issue. And depending on those fitness certificates, again, the government is going to put a green tax on the vehicle taxes. So compared to these 2, VRL per se is concerned, we do not have a much problem because our vehicles are always used to maintain at a updated level. And even during the fitness certificate, as of now, we are not facing any issues. Because before the vehicle is going for fitness, actually, we do all -- whatever maintenance is required. And based on our preventive maintenance policies, the vehicles are at a much, much updated conditions. And since it is a voluntarily, depending on how the government will react, how it will notify about different aspects in the scrappage policy, accordingly, we will take a decision. And another aspect of the government, with respect to charge of green tax, which is applicable given the vehicle which is older for 8 years -- and they have mentioned the percentage in the range of around 10% to 25%. So as of now, we don't have much clarity to comment more on this. And further, the impact on the industry will be very high because one is much of the operators or much of the vehicle owners or the maintenance, their maintenance of the vehicle is one question mark. And the other thing is about the whole industry is having the large number of older vehicles, the aged vehicles. So since it is a voluntarily, depending on the fitness certificate, again, the vehicle scrappage may come. But it is very difficult to say as of now because there are no clear notifications from the government.
The next question is from the line of Manish from [ General ].
Sir, my first question was about the -- how much of our load originates from South of India, sir?
From South, it is around 40%.
40%. And from other states sir, either North or West? The rest you saw North or West?
North and West is around 25% each, and rest of all from other parts.
Okay. 25% each. Sir, the -- another question was about this tonnage. Sir, the tonnage has only increased by 1% year-on-year, but you told that the price realization has gone up by 10%.
Yes.
Can you elaborate more on this, sir?
No. Basically, what happened, say, about tonnage growth, it is again the comparison of the tonnage what we carry. And with respect to the freight rates are concerned, after the pandemic, see, from April 1 to -- April 1, actually, we have increased the rate because the operations were at a -- not at a normal level. So at that moment, actually, we increased rate at around 10%, and that has been continued for the entire period.
Sir, is this sustainable, sir?
Yes, definitely. You see, even after the second quarter also, we thought that there will be some reduction in the prices, but still we have maintained in quarter 3. So we are hoping that definitely it is sustainable.
And sir, the contribution from biofuel has come down in this quarter. What is the reason? And how much does biofuel cost less than the diesel?
Biofuel is cheaper by almost, say, on an average, around INR 6 to INR 7 per liter. And during this quarter, it is reduced because of the temperature levels. See, if temperatures go beyond certain limit -- go down beyond certain limit, we cannot use biodiesel. That's one of the reason why the quantity has been reduced in this quarter. So again, depending on the temperature. So for example, in North India routes, we have not used biodiesel in this quarter. But again, it will start from this -- from January, it has been already started now.
[Operator Instructions] The next question is from the line of Krupashankar NJ from Spark Capital.
I had a question on our focus going forward. So are we going to place more emphasis on tonnage growth, given that we had added in capacities in Surat and we also aim to expand our operation? So is there going to be more focus on tonnage, wherein we will have some flexibility towards pricing? That's my first question.
Yes. Basically, see, what -- our thought process is very clear. And see, we are more concentrating on the increase in tonnage. That's why even on quarter-on-quarter basis, if you see, the tonnage growth is around 20-plus percent. So basically, how we are planning is, basically, we are setting on the commodity moments of each locations. And always, we are seeing that the from and to tonnage from a particular location should be, more or less, on an equal basis so that even utilization of the vehicles will be on a better level. Because of this reason, we are conducting a lot of area managers' meeting and even branch-level meetings just to ensure that actually to capture more and more new customer to increase the tonnage. The guidelines or the thought process from the management is very clear to the down line, to work very hard to increase the tonnage. That's how, actually, even we are doing -- from the last -- even during the pandemic season also, we traveled across the country to acquire more and more new customers and more and more concentration of the commodity market to see that both from and to tonnage should be -- in particular, really, it should be more or less equal so that the utilization of the vehicles will be improved. And moreover, we can capture more number of customers also. To do this activity, depending on the commodity movements of those locations, yes, wherever possible, we are increasing the rates also. And wherever possible, we are giving concessions in the rate also. But this thought process is very clear from the top management to the branch-level operational people so that the thing should be moved in very right way.
Okay. So given -- can -- just a follow-up on that. So can you specify as to what would have been the average utilization of trucks at -- in 3Q versus 2Q?
Q3 versus Q2?
Yes.
Yes. In Q2, yes, definitely, there were underutilization. But what we did is, we have not used the available vehicles which fell under underutilization. What we did is we passed certain vehicles with a low renewal by paying the taxes. Actually, there is a option called a no-use option in the vehicles. So we opted for some of the vehicles as non-use vehicles so that there will not be any additional cost on those particular vehicles. But in Q3, all the vehicles were used. And apart from that, we hired some of the more outside vehicles also. That's why the lorry is -- has resulted increase in quarter 3.
No percentage can be specified on 3Q versus 2Q?
Yes.
Percentage-wise or anything, any number?
About lorry hire charges?
No, sir. It's okay. I think the lorry hire charges you already provided. So that's fine.
Yes.
So second question was more on the fleet addition side. So this is what the follow-up was. So given that you're doing a buyback right now, does that mean that there's not going to be any fleet addition plans over the medium term, given you are also focusing on tonnage going forward?
Basically, see, for CapEx plans for 2021, '22 is we are planning to invest around INR 150 crores for the entire year. That's what the plan is. Out of that, we are going to add around 414 Goods Transport vehicles. And some of the -- around 40-plus number of buses also we are planning, because some of them, again, further number of buses will be reduced on account of the fulfillment at the license period, or actual license will be expired. To maintain that segment in selective route, we have to add around 40-plus buses also. And the Goods Transport fulfill, we are planning to add around 400-plus. So total CapEx for the next financial year, we are planning at around INR 150 crores. Out of that, the debt will be around 50%, and the balance will be funded through internal approvals.
The next question is from the line of Vikram Suryavanshi from PhillipCapital.
Congratulations for a good performance. Most of questions answered, but can you share what was the average realization in the passenger segment and basically realization growth?
Do you want quarter-on-quarter realization or how it is?
Y-o-Y.
Yes. Yes, about Bus segment, the revenue is -- number of buses actually realized around 22 numbers. And the increase in number of passenger Y-o-Y, it is minus 72%. And the realization per passenger is improved hardly around 1%.
Okay. Would it be possible for -- in rupees per passenger or average route?
Yes, it is increased from INR 1,062 to INR 1,073 for the 9-months period. And if you see the quarter-on-quarter, year-on-year, it has increased from INR 1,032 to -- it has decreased actually, INR 1,032 to INR 1,002. It is minus of 2.94%. On quarter-on-quarter, still, the realization is lesser because, again, we concentrated to increase more number of passengers.
Okay. Yes. Got it. And just one clarification. You said that most of growth is from pricing and tonnage growth, obviously, is happening but relatively at a gradual pace. So from nonuse of almost 700 vehicles, so we are now having almost using our fleet as well as outsourcing. So is there an impact on fill factor or return cargo? Or can you just help how is the actual vehicle utilization compared to Q2 and Q3?
No, basically, when we start hiring the outside vehicle, it means that always our vehicle's operation levels reached at a maximum level or 100% utilization. And hire vehicle, always we use for one set. So whatever load is allowed, say, from Surat to Chennai, if load is available, then we engage outside with only from Surat to Chennai. From Chennai to Surat, again, we don't know how that vehicle, because if you have outside vehicle, we'll not have a contract for return loads. So that's how -- actually, we always engage outside vehicle on a spot basis. But with respect to our own vehicles, always we'll see that wherever possible, the both return loads, and then only we put our vehicles over in those routes.
The next question is from the line of [ Rushit Shah ] from [ Bandy Securities ].
So congrats on the good set of numbers. So first thing, basically, I wanted to ask about the fuel prices. So as you said, currently, the fuel prices basically will be -- you are -- you were able to pass it on based on the realization increase as well as our control of fixed costs. But going forward, if you see any further similar kind of increase, so will it be -- I mean will we be able to pass it on any further because of the price competition or because of fixed costs having saved at -- to great extent right now?
Basically, one is since we are more focused on increasing tonnage. And definitely, the tonnage it start to increasing at an expected level, then again, the percentage of future expenses will come down. So depending on that position, if fuel prices increase within that range, then there will no need to increase any freight rate. If at all, the fuel rate -- fuel rate changes beyond the expected level, then obviously, again, we have to increase the rate. Since it is applicable to whole industry, then everybody has to take a call on that. And moreover, we are having advantage in fuel cost that one is about the biodiesel, that quantity we can increase. And apart from that, since we are having our own fuel tons, we buy for some of the fuel from the refinery in it, those quantity can be increased. So these are some of the avenues available for us to have a control on fuel cost compared to other operators.
Got it. Right. So maybe from January onwards, as you say, the biofuel consumption is heading back to normal.
Yes, it is going to.
I guess at around 40% levels, 35%, 40% levels?
The average, it will be around 25% to 30%, average. Yes.
Okay. And secondly, so as we saw, there is a -- I mean, a great deal of reduction in the debt that we have. So what is the kind of impact that we expect on the interest cost going forward?
Interest cost, our cost of funding on an average, around 8.5% to 9%, around 8.5% there. And whatever reduction on that 8.5% are savings.
Okay. Okay. And the last thing, basically, I was -- in the budget. So the finance minister announced, basically, they aim to increase the overall model share of the railways in the transportation to around 40% from maybe, say, 25% currently. So maybe this is not...
Which one?
They are looking to increase the share of railways in the overall transportations from 25% to 40%, is the long-term goal.
Yes. Yes.
I mean what kind of impact that can have on our operations in the long term?
So basically, one thing I would like to highlight is, still, this industry is contributing by a lot of these unorganized people. So considering this, even during the pandemic and the post-pandemic period, still some of the unorganized people, they are facing problem, and they are unable to come at a normal level. So these are the situations and others because of the scrappage policy and other kind of stuff, why the government is changing policies frequently. This industry is going to convert from unorganized to organized. So since the unorganized contribution still is around 70% to 80% level, there is a scope for everyone with the organized level as well as the railways. So depending on that, the overall -- plus industry size will also improve, depending on the growth in the economy. Since everybody is having a scope, so the consolidation process will be always on over next period of -- next couple of years.
The next question is from the line of Shrenik Bachhawat from JM Financial.
Sir, could you please show light on which sectors have we added clients in? And on overall tonnage, which sectors we have seen healthy traction from?
So basically, about textile, I mentioned. Textile, we put something -- special effort in Surat and as well as the receivable market in some of the South market as well as the Northwestern market as well as the Northeast areas also. There, actually, we added a lot of new customers. But in spite of that, we are unable to reach the normal contribution from that segment because of the low -- there is no degrowth in that particular segment. And apart from that, there are a lot of improvements in the new clients added in the agriculture sector, and that is another plus point. And apart from that, say, some of the clients we added in other sectors like a lot of this -- the routine usage of the vehicle, the consumer goods -- or including the paints and all these things, the FMCG and the paint section also.
The next question is from the line of [ Nirav ] from Anand Rathi.
Sir, my first question pertains to the availability of drivers. So sir, just wanted to check how is the scenario on that front? Because I believe at the start of lockdown, there were a lot of issues with regards to availability of labor, especially train drivers. So any update on that?
Yes. See, in the second quarter, I mentioned that we are having some of the excess drivers or services. Because of our efforts, we are in a position to get the sufficient driver. So even during this period, yes, there is a shortage of drivers, but it is not beyond around 4% to 5%. And again, we are putting our effort to bring drivers from various areas to see that there will not be any shortage of the drivers. But if we see the industry where, again, the people are facing a lot of problems because of the shortage of drivers.
That's it exactly. Because that was the biggest concern because loaders, unloaders, drivers were very difficult to get, and they were all [indiscernible].
Yes. In our case, average, it is around 2% to 3%. And there will be some fluctuation depending on the seasons and because of this -- again, the marriage seasons and all started again. Some of the drivers will go back to their family functions and all. Again, they will come back. But it is under totally controlled manner. It is not that we are facing this problem forever.
Sir, my second question pertains to the -- specifically towards the cargo or container movement, which is happening earlier via trucks and those kind of things. So indeed, I mean the lockdown, it went -- there were a lot of issues with regards to state borders. So several shipping lines were requesting their clients to shift their cargo from rail -- from road to rail. So do you think that can be a continuing trend? Or that can have an impact on our business?
No. Actually, see, there were some routes started here also in Karnataka, say, from Bangalore to Solapur. The railway line has been started. But if you fully believe -- the delay which used to cost through railway is much, much higher as compared to the transported vehicle via road. And what they did initially, they started, we think, 2 days, then 3 days. So nobody can do like that. It is such a continuous journey -- it is a scheduled journey. For us also, the hub-to-hub moment, always we have to keep vehicle movement on a daily basis. The moment, even the short delay, can cause delay in the entire journey.
I get your point.
That's why it is very, very, very time-sensitive business. So even railway, if at all, they want to improve, they have to concentrate on -- more on these things.
I get your point, sir. Sir, and my last question is like, sir, now with regards to tariffs that we are able to charge for our cargo transportation business. So because we are organized and we are able to deliver much in time as compared to small and unorganized fleet -- unorganized players, are we able to charge any kind of a premium to our customers for the brand value or the commitment of the size of organization that we have?
Yes. Compared to, say, the unorganized market, yes, we are charging the premium because we give additional service to the customers. One is the transit time will be lower. And apart from that, we give storage facility to our customers at a delivery point. In each and every of our delivery points are having a storage facility. So first thing, we give a 7-day free storage facility for other than closed containment. For closed containment, we give a free storage facility even up to 60 days. So these are all add-on services which the unorganized people cannot offer to the customers. That's why we charge a premium rate. And when it compares to, say, other organized players, yes, depending on the route, actually, we compete with them. And accordingly, our freight rate will be fixed.
The next question is from the line of Kaustav Bubna from Rare Enterprises.
Sir, the first question was last quarter, you had mentioned something about getting to almost 0 net debt by the end of quarter 4. So are you still on track with that?
Yes. Again, on account of this buyback, there will be funds which should be categorized to buyback also. So considering that, it will not happen.
So do we still see reduction? How do we see this net debt going forward?
Net debt, more or less, it will be at a similar level, you can say, INR 60 crores. See, initial -- immediately after this buyback, since that entire international accruals, whatever we part, that will be used for buyback now. So on account of that, again, the debt number will increase. When again the cash flows of the companies are good now. And again, the January, February, March, we don't have any CapEx. So this entire cash flow, roughly, it will be in the range of around INR 18 crores to INR 20 crores per month. That will be again used for the return of the debt.
Okay. Great. And one more question. See, I noticed if you look at your segmental results, there are a lot of -- like your Bus Operations, which is the second biggest part, it's still EBITDA-negative in 9 months. So going into FY '22, I wanted to understand, could you give some sort of sustainable EBITDA margin ballpark for your Goods Transport business? And if that -- so right now, you're at about 19.5%, right, for the Goods Transport business EBITDA margin. So let's say some of those expenses come back and you're -- but you're still higher than your FY '20 margin level, which was around 14%. And let's say, your Bus Operations EBITDA also comes back, which was around INR 50 crores in FY '20, shouldn't we comfortably -- and let's say the small business is also about -- they're very meaningless, but still INR 2 crores, INR 3 crores still adds to your EBITDA in your transport of passengers via et cetera. And so my main question was, is that should we -- is it fair to assume that your FY '22 EBITDA would be higher -- reasonably higher than your FY '20 EBITDA?
No, definitely, it will be much higher as compared to FY '20 because whatever we show in our performance in quarter 3 -- quarter 2 and quarter 3, these are -- especially in Goods Transport segment, is hardly around 1% or 2% here and there, but this is a sustainable margin. And apart from that, the bus is at the lowest operating margin as of now. Now whatever things will happen, again, it will be improvement in the bus segment.
So in FY '20, can you get back to -- because in quarter 4 FY '20, you had an impact of COVID.
Correct.
A little bit, right? So that 1 quarter of Bus Operation EBITDA is also missing.
Yes.
Which was only INR 6 crores. So can you get back to above INR 50 crores of EBITDA in FY '22? Let's say there's no more lockdown. But obviously, there's a lockdown in parts of India.
Specifically, even in bus segment, we can do EBITDA is around 14%, 15% on the revenue.
Okay. And what would be sustainable EBITDA margin levels for Goods Transport business going into FY '22? And what would you estimate as revenue growth rates for this Goods Transport business going into FY '22?
Considering the present margin trend, definitely, the 17%, 18% margin, even at 22%, is not an issue in Goods Transport. When it comes to growth, yes, again, we are putting a lot of efforts for increase in tonnage. If the things are continued, then definitely, we can see the double-digit growth.
Okay. And in second half FY '21, you still -- because last quarter, you had guided that second half FY '21 will show reasonable growth over second half FY '20. So for that next quarter should be a good growth quarter. How is that tonnage growth shaping up for quarter 4?
Yes. We will show some growth even in Q4.
The next question is from the line of [ Agrawal ] from Emkay Global.
I just wanted to know, were there any new truck additions in quarter 3? And assuming that you had told that there was 100 -- you had hired additional outside vehicles, so should I assume that it was 100% utilization level in trucks?
Yes, sir. There were no additions in trucks within quarter 3. And that's why the lorry hire charges has been increased by around 2% to the revenue in quarter 3, because we have to cover more kilometers from -- after utilization of -- 100% utilization of our own vehicles.
Okay. And sir, you have told that the investment for the entire year would be INR 150 crores. So this is for FY '21? Or that will be next year?
No. Next year I said, FY '21 and '22.
The next question is from the line of Depesh from Equirus.
Congrats on good results. Sir, you have reduced your number of branches and agencies this year. And this quarter also, you have closed 2 hubs. So this year clearly was a one-off year, but what is the strategy in terms of branch and hub expansion going forward as you're looking to increase the tonnage?
Right now, see, based on certain branch performance study and all, wherever there are certain weak branches, we have closed. But there will not be further closure of branches. But there will be some addition of the branches in the next year, financial year. And transshipment hub, it is basically -- it depends on the connectivity of the roads and all. Say for example, in Hyderabad, earlier, we used to have 2 hubs, now we consolidated into 1. But overall, it will not make -- it depends on the operational this one, the -- basically, connectivity and the availability of the area. So the increase or decrease in transshipment hub is not a considerable thing because it is just to change in the process or change in the efficiency or improvement. But about the branches, yes, because since -- during this period, we studied the branch performance and accordingly, we decided to close some of the branches. But depending on some of the newer areas also, we are thinking, and accordingly, the number of branches will be increased in the next year.
So was the broad idea...
It's completely based on the proper study and all these things. If it is feasible, then only we'll add. Otherwise, no.
Understood, sir. But the broad idea, sir, is that the branches would increase and the agencies would come down, right? Is that understanding correct?
Yes, yes. That -- for anywhere, whatever new branches we are entering, we are not giving to agents. And wherever possible, we are cut down in the agents because their performance is not as I expected. You see, we'll study the market. If they are unable to perform, depending on the market, then better we'll convert them -- these agencies into branches.
Understood. Sir, second question is how many of your vehicles and, more importantly, how much of the capacity will be above 15 years of age? And the 400 vehicles that you're adding next year, how much, in terms of capacity addition, is going to happen?
Yes, most of these vehicles average, you can say, around 20 tons, 20, 24 tons per vehicle. And some of the smaller vehicles, also some -- it is a mix of both. But average, you can assume around 20 tons per vehicle. And with respect to 15 years and above, we are having currently around 850 vehicles.
And then in terms of capacity, there must be smaller ton...
Yes, all these are smaller-capacity vehicles in the range of around 12 to 15 tons.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
My first question is, like this 1% tonnage growth, how should we understand this? Like if you -- like just see if like during the month, did it accelerate like during the month, and we should see like a much higher tonnage growth in Q4? So this -- and like just following up on this, is like how different regions contributed to this growth during the quarter?
Basically, December, we did a much better tonnage compared to even October, November. And the similar trend we are hoping. See January, again, there were some seasons, but there were some weakness even in some of the routes also. But February, again, the trend there is good.
Like this 1% would be like 5% growth in December? Like if we just want to see growth month on month?
Year-on-year, yes, there will be a growth better than Q3 as compared to Q4 of last year. If you see the year-on-year Q4 performance in terms of tonnage, it will be better than last year Q4.
I mean sir, better is expected because like our economy is like -- I mean turnaround like significantly. But I mean...
Yes, I cannot put the exact percentage here. It is better than Q3 growth of 1%.
Okay. It is better than Q3.
Yes.
Okay. So sir -- and sir, secondly, on this Bus Operations, this 45% decline in revenue this quarter, so this 3% decline in the realization, and rest is the decline in passengers. So 41% decline in passengers numbers?
Year-on-year?
Yes, year-on-year?
Yes.
So 41% is passengers negative, and 3% is decline in realization?
Year-on-year, the number of passengers is around 37%.
And realization number, if you can confirm?
And the realization year-on-year, it is reduced around 3%. See, some mismatch in overall revenue is there because of the drastic change in the passenger realization.
Right. And you -- sir, on regions, if you can highlight, like which regions have been like positively contributing to growth versus like second quarter?
See, about second quarter to third quarter, the key highlights are -- one is there are improvements in all the areas. See earlier in quarter 2, what happened still in some of the areas, there were lockdowns, especially in Maharashtra and some of the past investment or -- even in Delhi area and all. Actually, we faced some of the -- depending on the pandemic or COVID situation, the local governments have put certain lockdown procedures. But that was not the situation in quarter 3. In most of the areas are opened, and again, we are in a position to do business from all the geographies. And again, in quarter 3 also, there were certain disturbances in Delhi surrounding area. Again, still it is continuing because of this farmer unrest and all. So that is -- that impact is not a major impact as of now. And there are certain delays in those areas because of the strikes and disturbances. We were -- our services were delayed. And once it is resolved, again, there will be further improvement on the operations, you can say.
[Operator Instructions] The next question is from the line of [ Manish ] from [ General ].
Sir, in the Bus Operations, a lot of the players in the unorganized sector have shut shop. And basically, in Karnataka, we have only 1 big competitor, and that also has been hit very hard. So you think in the future, you may gain market share?
Yes, definitely. But see, as of now, the situation, still, we are unable to charge more passenger -- charge more to the passenger. Basically, the realization, still it is under that kind of -- the ground is not yet created, you can say, because if the demand is more, definitely we can do the increase.
But maybe 6 months down the line?
Yes, definitely. We are hoping that after March that things are going to change.
So another small question.
Yes?
In FY '22, can we expect 8% to 10% tonnage growth at the same realization rates?
Yes. We are expecting but -- see, overall, the growth will be the double-digit growth.
Overall realization plus tonnage?
Yes.
The next question is from the line of Mukesh Saraf from Spark Capital.
Firstly, again on this tonnage growth, 1% that we have reported. So we have lost market share this quarter, is that fair to say?
No, no, it's a gain in market share, you can say.
Okay. So the industry tonnage is negative still in the third quarter, sir? Because, I mean generally, look at various sectors, the production levels have all gone up significantly Y-o-Y. So it's 1% tonnage growth, will we still say that we have gained market share?
Yes, yes. See, I highlighted about the textile.
Yes. Textile was one. But in general, overall, if I look at it, I think that industry is still negative.
Yes, yes, yes.
Okay. Okay. And so in the past, like we have seen that for us, there is generally a kind of a negative pricing and volumes. And so in this call, also you had mentioned that your focus is on volume. So have we started some bit of this discounting? Or have customers come back to us asking for a lower pricing already, say, in the month of January, February? Are you already seeing that trend?
No. Basically, see, what we are doing is we are more concentrating on the route-wise analysis. And apart from that, wherever we are getting a big contest, say monthly billing beyond certain threshold limit. Then we are offering certain concessions in our rate. So there, actually what will happen, the moment we get a high volume from the single customers or something, definitely, the -- our operational cost will be lesser. The utilization will [indiscernible] same brands will handle more tonnage. So on account of this, obviously, there will be a reduction in the operational cost also. That, we can pass it on to the customers.
Okay. And again, on the operational cost, like INR 85-odd crores of employee cost that we are at this quarter, that number can stay as it is, INR 85 crores?
Yes, there will be -- yes, quarter 3, again, see, whatever we used to reduce in salaries that has been up from April, October 1 onwards, we started giving the normal salary. So more or less, this amount will continue.
Can stay? Okay.
Yes. It will stay. Right.
And just lastly, this 400 vehicles that we are adding next year, what would be the net addition? Because we'll also be retiring some vehicles in the normal course of business. So net addition would be around how much, sir?
So this year, we scrapped around 100-plus vehicles. And so again, wherever -- see, after this, it depends on, again, the scrappage policy, how the government is going to notify [indiscernible].
No. No. I mean we are not looking at the scrappage policy but apart -- I mean other than...
Before that, in the normal course, say around 50, 60 vehicles scrappage will be there in the normal course.
Okay, another 50, 60? Okay.
Yes.
The next question is from the line of [ Lakshya Agarwal ], an individual investor.
I just wanted to understand that after the budget, which sectors do you see your growth opportunities coming from in the near future?
Yes, after the budget, basically, what is happening, they are boosting -- MSME, actually, they are boosting very hard. Since our clientele is many of this kind of a sector, we are also definitely hoping that it is going to support us a lot. The MSME, basically, we cannot specifically categorize based on the product price or nature of the industry. But all commodities, wherever -- even in our -- if you see the total customer base, see with the account customer, that's what we call a corporate. It's accountable to around 18% to 20% of the revenue. But around 60%, 70% of our business is from the small industry operators or MSME sector. So boosting to that MSME operator, definitely, it is going to help to us.
Okay. Okay. Sir, just another question. You have said that...
The next question is from the line of Ankit Panchmatia from B&K Securities.
Sir, I wanted a small data point about the average leads which we used to share earlier. Can we share for this quarter as well?
Which one?
The leads, the leads toward or the kilometers traveled, we used to share this data earlier, I think.
Yes. You want GT kilometer?
Yes, sir.
See, overall, the Goods Transport kilometer increased by around 20%.
Okay. Okay. And just -- and sir, I just want to understand the whole thought process of adding a higher tonnage vehicle. Is it more to do regards...
Which is on quarter-on-quarterly basis? Excuse me?
The GT kilometers?
Yes, yes. And year-on-year basis, it is around 5%.
5% higher?
Yes.
Yes, sir. Yes, sir. And continuing to my question, sir, understanding the whole thought process of adding a higher ton vehicle, is it more to do or is it more to strengthen our hub-to-hub movement? Or how are we seeing the demand side of it? Are we analyzing that post this -- or the benefits of GST, would they tend to percolate over the next 2, 3 years? How are we planning these tonnage additions? Or which then category we should add the capacities to?
No, basically, whenever we add the vehicles, basically, we will consider that always it will be for the longer route. Yes, whatever existing vehicles are operating in that longer route, that can be, again, rescheduled to operate at a little lesser -- or initially long distance and the next level of distance like that. So like that, we are having a various laps. Accordingly, we put the vehicles -- the new vehicle always will go for a longer vehicle. Then the vehicles which are operating in a longer vehicle, it will come to next level. And like that, always, we schedule the vehicles accordingly depending on the age of the vehicle. And whenever we add a smaller vehicle, it will be for the local operations.
The next question is from the line of [ Lakshya Agarwal ], an individual investor.
Actually, I wanted to understand one more thing. So you said that you have gained quite a few clients in the textile sector. But unfortunately, they haven't been able to contribute as much to the revenue. So I just wanted to understand why is that and how you are combating it?
Because still, the demand is not so high in textiles.
The next question is from the line of SimranJeet from SMC Global Securities.
Sir, I just want to understand, can you give some guidance that -- what will be your top line growth in the FY '22? And in terms of the EBITDA, means in FY '22, if you can throw some light on that?
No, I already highlighted about the segment-wise. Also, I highlighted about the growth in top line also. You can refer to the...
Okay that has been -- yes. So assuming that is in terms of FY '21 or is it FY '20 you have guided for means over the...
FY '22.
Okay. No. I mean FY '22 in comparison to FY '21 or is it FY '20?
In comparison to FY '20.
Next question is from the line of Abhijit Mitra from ICICI Securities.
So I had 1 question on Surat hub, if you can sort of point out the profitability that you are seeing now at the EBITDA level. Has it turned profitable? And what is the sort of -- how do you feel it to sort of move over the next few quarters?
Yes. Definitely, it has turned a positive EBITDA number. And basically, what we did, another change in the Surat is we added a lot of the small, small offices in Surat, basically, the booking offices, so that it will help again the book at a very nearest space to the customers and, again, send it do the transshipment hub. And just I would like to mention that during this festival in Q3, there were sudden jump in the demand for some few days. So some of the transporters were unable to book the containment because of sudden growth in the demand. But only for some very, very few days, but only we are -- we accepted goods from each and every customers, and we are in a position to reach those goods to the customers. It is only because of that facility, we can say. So once the sustainable growth comes in textile market, definitely, that will support this loss. One is about the increasing tonnage as well as to maintain the growth in the tonnage also.
And the CapEx that you have incurred, you feel by when you can sort of achieve either I guess [ IRR ] '21...
No. Other than -- see, if you assume that this pandemic was not there, we are in a position to have a parallel level of our returns on investment, what we are investing in other assets also. But again, there will be a shift because of the shift of 1 year because of this pandemic. So next 1 year, again, the level of returns on those investments will be parallel to the other investment what we are doing.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.
Yes. I'm very thankful for each and every participant for their patience herein. Thank you.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. Thanks for joining us, and you may now disconnect your lines. Thank you.