VRL Logistics Ltd
NSE:VRLLOG
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Good morning, ladies and gentlemen. Welcome to the VRL Logistics Q3 FY '22 Results 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 Limited. Thank you, and over to you, sir.
Yes. Thanks, operator, and good morning to all the participants, and thanks for joining in. We are here to discuss Q3 fiscal year '22 results of VRL Logistics. From the company, we have Mr. Sunil Nalavadi, CFO. So without further ado, I'll hand it over to Mr. Nalavadi for his opening remarks. Over to you, Mr. Nalavadi.
Yes. Thank you, Mr. Abhijit, and good morning to all participants. I'm Sunil Nalavadi, CFO of VRL Logistics. And this is the earning call of our company for the quarter 3 of financial year 2021/'22.We are glad to inform that we have clocked the highest ever turnover in this quarter as compared to our earlier quarters with better profit margins. The improvement in turnover is on account of growth in turnover of Goods Transport segment, which is major segment in our operation, and also growth in revenue from Bus Operations. During this quarter, the total revenue of the company reached to INR 683 crores as against INR 568 crores during the same quarter of the last year and it has increased by around 20%. The increase in the revenue is mainly contributed by the Goods Transport segment of the company. The revenue from Goods Transport increased by 19% from INR 501 crores to INR 596 crores, and the growth in revenue of GT segment is on account of increase in realization per ton by 7% and increase in tonnage by 12%. The increase in tonnage is on account of addition of new customers in the existing branches, expansion in network by opening up new branches in untapped markets, focusing on geographic product-wise marketing, and shipping of customers from the unorganized transport service provider to organized service providers on account of reforms in GST and E-Way Bill compliance norms.We are hoping that considering our focus to increase our network, going forward to the untapped market by opening of new branches and the shifting of customers from unorganized players to organized players who are contributing major share in the Indian transport industry, our growth pattern will continue even going forward.The revenue from Bus Operations has also increased to INR 75 crores from INR 52 crores in spite of reduction in buses by 44 numbers. The increase in revenue is mainly on account of increase in number of passengers, increase in seat occupation and increase in realization per passenger.The total EBITDA of the company has increased by around 29% in the quarter from INR 104 crores to INR 134 crores, and the percentage to total income has increased from 18.28% to 19.6%. The increase in EBITDA is mainly contributed by our GT segment, which has increased by 24% from INR 103 crores to INR 128 crores and percentage to revenue has increased from 20.59% to 21.47%. The improvement in EBITDA is mainly on account of increase in GT volumes and increase in freight rates periodically.Further, during the quarter, on account of reduction of duties on the diesel by the central government and subsequently by some of the state governments from 1st week of November, the overall diesel price has been reduced by almost INR 12 per liter. Due to the same, the cost of the diesel as a percentage to the revenue is restricted to 29.41%. Otherwise, it would have been higher percentage.The percentage of diesel cost to the revenue is increased from 26.83% to 29.41%, mainly due to increase in year-on-year fuel price. To have a better control on diesel cost, we focused to procure more quantity of diesel from the refinery by establishing our own pump, which is more cost effective as compared to the diesel from the retail pumps. After the reduction of duties on diesel from November, the procurement of biodiesel is not much viable as compared to the procurement of diesel from the refinery. Accordingly, the quantity of biodiesel has been reduced in this quarter. Currently, we are having our own pumps in 6 locations and another 1 in the pipeline to commence. Further, we are continuously monitoring the fuel rates and passing the increasing cost by increasing the price rates. The other major cost, such as vehicle running and repair maintenance, as a percentage to the revenue is reduced from 7.48% to 6.55%. The tire cost is reduced by 1.1% from 3.43% to 2.38%, and the employee cost is reduced from 14.68% to 13.76%. In view of these changes, the EBITDA margin has improved from 20.59% to 21.47%. The EBITDA of Bus segment also improved from INR 5 crores to INR 11 crores on account of improvement in realization per passenger as well as occupancy levels. The total EBIT of the company has increased from INR 63 crores to INR 90 crores, and percentage to revenue has increased from 11.06% to 13.10%. The increase in EBIT is mainly contributed by our GT segment, which has increased from INR 71 crores to INR 93 crores, and bus segment EBIT also improved from INR 2 crores to INR 8 crores. On account of improvement in EBITDA and EBIT, the PBT of the company has increased from INR 55 crores to INR 78 crores, and percentage to revenue has increased from 9.59% to 11.38%. And PAT is also increased from INR 40 crores to INR 61 crores, and percentage to revenue increased from 7% to 8.93% (sic) [ 8.85% ].When we compare our performance in this quarter to the previous quarter, the performance is further improved in all the aspects. During the quarter also, the total revenue of the company has increased by 7% from INR 638 crores to INR 683 crores. And again, the contribution in revenue growth is contributed by Goods Transport segment, which has increased by 5% from INR 569 crores to INR 596 crores. And the increase in GT revenue is mainly the increase in realization per ton by 1% and increase in tonnage by 4%.The revenue from Bus Operations has also increased by around 49% from INR 50 crores to INR 75 crores, and the number of buses during the quarter have increased from 280 buses to INR 288 buses. And the total EBITDA of the company has increased from INR 115 crores to INR 134 crores and percentage to income has increased by 1.57% from 18% to 19.6%. And on account of increase in EBITDA and EBIT number, the overall PBT of this quarter as compared to quarter 2, it has increased from INR 66 crores to INR 78 crores, and simultaneously net profit has increased. From the quarter, it increased from INR 50 crores to INR 61 crores. Further, as of 31st December, the net debt of the company is INR 101 crores, which is almost equivalent to the debt as of 31st March. And during these 9 months, the company has invested around INR 137 crores in the capital expenditure. And the main investment is in the Goods Transport segment, which is around INR 110 crores. Going forward, considering the fact of expansion in branch network and shifting of customers from unorganized fleet operators to organized fleet operators, we expect that the volume growth will continue in the coming quarters also. Moreover, since the fuel rate has been reduced from November, the benefit of reduction in fuel prices was there only for 2 months in the quarter 3. If there will not be increase in the -- additional increase in the subsequent period, the additional benefit of 1 month will come in the quarter 4.Further, as we are having the best method of operations with our own infrastructure facilities, we can have a better control on key expenses and maintain the margins in the coming quarters as well. Considering the good cash profits of the company, the Board has declared a dividend of INR 8 per share to reward to the shareholders in this quarter. With this, I conclude my initial brief, and I request to the participants for question and answers. Thank you.
Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Mukesh Saraf from Spark Capital.
My first question is on the pricing. I mean obviously, you mentioned you've seen the diesel prices come off from November. So isn't there any kind of pressure on us to reduce pricing as we pass through this to our customers?
No. Just I informed the quarter-on-quarter, the realization per ton also increased by 1%.
My question is why -- I mean isn't there any -- aren't customers asking for a reduction in pricing is what I'm asking.
No. Since for the earlier period, there was a major increase in the diesel price, especially the quarter 1, quarter 2 and quarter 3 of this year. So we are in a position to convince the customers that during that period, see, once we increase the rate in April with around 10% we increased and effectively the realization has been improved by around 7%. So considering those increases in the diesel prices, we are convincing the customers that we have not increased price rates during that time, and we will not reduce during this time also.
Right. And we are confident that we'll have to hold on to this or say some of the large customers we might have to pass through? I mean like you mentioned that in the coming quarter, we'll have the benefit for all 3 months. But even beyond that, do you think we can hold on to the prices? Obviously, not looking at any further diesel hikes, but if I look at the status quo, then we assume that we can continue to maintain this kind of pricing.
Yes, definitely, we can maintain the current prices.
Okay, okay. Right. Understood. And my second question is on some of the comments you had made on adding branches especially in the untapped markets. In your presentation, you have mentioned about the 9 months, the percentage-wise split across the branches. And I see that East is 15% and West is 22%.I mean I probably have expected that to have gone up, the incremental branch additions in East should have been higher because South is 38%. So untapped markets, do you mean within South? Or are you looking at expanding in the East and in the Western regions also?
No, the major concentration will be the North and Eastern part, where actually the number of -- going forward, the number of branches are going to be increased. But in South, wherever possibilities are there, whatever potential areas are there, in such areas actually we will look at the branches. And see, we are having a plan to increase the branches to around 100-plus branches. And till December, we added around 60 branches. So still around 40, 50 branches are in the pipeline to open in this market, especially in Eastern and Northeastern areas.
So with this branch addition in these Eastern regions, et cetera, we can see our lead distances go up, and so first-time realizations can be higher. I mean can we factor some of those? And how do you see this branch mix being, say, 2 years down the line? The East, which is, say, 15%, how could that be, say, 2 years down the line?
Yes. Basically, see, now what we acknowledge is by opening of these branches, actually, the contribution from these new branches is around 2% to the tonnage, additional 2% for [Technical Difficulty]. So going forward, definitely, the contribution will be more from these branches. And apart from that, since these are the long distance, definitely, the realization will be better and the utilization of the vehicle will be much better.
The next question is from the line of Alok Deora from Motilal Oswal.
Congratulations on great numbers. Sir, just wanted to understand that the diesel prices have remained unchanged from start of December till date. So I just want -- so how has the freight rates moved, sir, during the last couple of months for us?
Yes. We maintained the freight rates. In fact, quarter 2 to quarter 3, the 1% realizations have been improved. Just I want to give some light on this diesel price. In the month of October, our procurement cost was around INR 95 per liter. And in the month of November, it was around INR 87. And in the month of December, it was around INR 83. And in the month of January, again, it is continued at INR 83. If it continued further February and March as compared to average price of these 3 months in the quarter 3, it will be much less in the quarter 4.
Sure. And so the freight rates will continue to kind of remain at the current level?
Again, with this reduction, we are going to maintain the existing freight rates.
Sure. So margins in Q4 could be better than what we have done in Q3 then?
Yes. We can maintain the margins because there are some increase in other expenses also, say, like employee cost, actually, we have given a hike from this January onwards. So the employee cost will increase around -- other than drivers and labor, actually, we have given an increment to other employees. So that will be increased by around 10%. Around 10% increase is there in employee cost. But with this reduction in the diesel price, definitely, we can maintain the margins.
Sure, sure. And sir, the bus segment has also seen a turnaround at the EBITDA level. And so what is the outlook there, sir? It seems to be more sustainable as the COVID situation further normalizes and the activity started. If you could just throw some light on the bus segment side of it.
Yes. Definitely, it will be a sustainable business. One thing is -- so like otherwise, earlier, they used to put a lockdown and took a lot of restrictions on the passenger travel. But this time, actually, there are no such restrictions in the sense of only thing is about inter-state transport and all, RT–PCR report needs to be provided. Even some of the government, especially Karnataka government is also rethinking to withdraw that RT–PCR requirements as of now. So people are traveling. So definitely, it will have a good kind of numbers in the coming days.
Sure. So how fast we can reach our earlier run rate, sir? I mean INR 350 crores sort of a revenue which you were doing before on an annual basis. So...
During INR 350 crores turnover, we used to operate with around 350, 360 vehicles. Now overall, the number of buses have been reduced to around 280, 288 number. So with this reduction, proportionately, that revenue will be less.But margin will be -- definitely, we are hoping that it reach again at an EBITDA level of around 16%, 17%. But Q4, it will be lower because of this examination and all these things. But Q1, again, from Q1 of next year, definitely, the segment is going to do well. And definitely, it will be back to the earlier levels.
Sure. And so sir, here, we are now since the situation is improving, we are looking to now again add buses or we'll just wait for some time?
No, definitely, we'll wait for some time. We are not having plan to add a good number of buses today. We want to acknowledge from the market that if there is a sustainable growth, then only we will put additional CapEx.Otherwise, there will be some minor CapEx will be there in the bus segment wherever the established routes are there where actually we need to put on buses. Only in those areas actually as a replacement, we'll put some additional buses. But as of today, there will not be a major CapEx in that segment.
And with this 280 buses, how much revenue we can do?
with 280 this quarter, we did around INR 75 crores. Definitely, we can reach around INR 80 crores, INR 85 crores quarterly.
Sure. So that would mean roughly around INR 320 crores. Okay. Got it. And sir, what would be the full year CapEx, sir, for this year?
This year, we did around INR 137 crores in the 9 months period, and there will be another around INR 30 crores CapEx in the last quarter.
Sure, sir. Sir, just last question from my side. We had this CapEx plan of around -- as in the [indiscernible] you are looking to buy for INR 175 crore. Any update on that, sir?
Yes, since the documents are not cleared, that we hold as of today and there is no clarity as of now because we're also anticipating that this will take a longer period because some of the documents are not yet clear at the government level.
The next question is from the line of [ Devesh Jawar ], an individual investor.
Congratulations, sir, on a good set of numbers. I just wanted to know the dividend policy of the company and the company has announced a dividend of INR 8 per share on a [ cash amount ] EPS of INR 11.76. So how would be the CapEx going forward? It would be funded through debt or through reserves of the company?
Definitely, if we see the quarterly cash profit, we are generating almost around INR 100 crores cash profit in a quarter. So in a year, there will be a cash profit of in the range of around INR 400 crores. Out of that, currently, if we consider the current dividend, which is almost around INR 70 crores and even if we consider a CapEx of around INR 150 crores, still then we have a surplus cash flows in our hands. So that will be utilized for the repayment of existing debt. And in my view, definitely, the debt level will come down instead of increase in the debt level in spite of a CapEx of around INR 150 crores, INR 160 crores in a year.
Okay. So I think due to depreciation and other accounts measures, the EPS is not the correct measure to calculate the cash flows of the company. I think you will be generating a lot of cash. So dividend payout ratio will always be higher for the company.
Yes.
The next question is from the line of Harsh Shah from Dimensional Securities Private Limited.
Congratulations for great numbers. Sir, my question is on the underlying industry. So can you just throw some light on which are the major industries that form your volumes? And from where are you getting good traction? If we talk about volume growth of 12-odd percent. And even you're guiding 12% to double-digit kind of growth going ahead. So which are the industries that you are thinking is expected to do well?
Yes. Basically, by expanding this branch network, what is happening, the contribution from the existing branches are going to increase because the moment we open one of the branch in Assam, that branch will be contributed by the all branches to Assam. That's how actually the network will contribute. So in terms of goods, again, the major contribution is happening from the textile, which is earlier around 16%, 17% in the normal period of operation, it used to contribute around 16%, 17% to the tonnage. But last quarter, the contribution from the textile has increased to 19%. And similarly, the agriculture commodities and other kind of stuff, it was in the range of around 8% to 10%. Now that contribution has increased to 10% to 12%. Whereas rest of the commodities like industry goods, spare parts, machinery, pharma, even a lot of these books and periodicals, general items, these are all in the range of around 4% to 5% to the overall contribution. So major contribution is again textile and agriculture commodities, we can say.
Okay. Understood. And sir, how much percentage of our business would we be generating from SME and MSMEs?
That is -- this is -- but we are considering it as a B2B rather than SME or MSME. B2B, almost around 95% of the commodities, we are booking B2B consignments. Basically, how it will happen is we're having a 3 more of booking to the customers. One is the account customer where actually we provide monthly billing facilities. There actually a lot of this corporates and other companies will be there. So the overall, that contribution is around 20%, 21% to the revenue. Whereas rest of all paid and to pay business we are having, which is almost around 80% of our business.So there actually one leg of operation is by the corporates. Other leg of operation in SME. So payment will be -- many payments will happen from the SME segment, whereas the consignment fee [Technical Difficulty] corporate to these SMEs. That's how it is.
Okay. Understood. And sir, increasingly, we are seeing that many corporates are moving towards 3PL logistics. They want to integrate their supply chain. So in such a scenario, how do we see ourselves in this industry to do? Will we work for such 3PL logistics or we will continue to operate the way we are and we will still survive and thrive in such scenario?
So basically, the 3PL operators, we ourselves still are not providing extremely warehousing facilities or something like that, inventory management and warehousing facilities to the customers. But what we are doing is actually we are giving our space on hire to the some of the corporates. So they are using our space and giving us monthly rentals. But we are carrying many of the commodities from the warehouse to distribution -- to distribute their commodity to multiple areas.
Okay, okay. So with the importance of 3PL logistics continuing to increase, how do we -- will we continue to see the kind of growth in our business that we are doing?
Yes, definitely. See, as I mentioned, because of a lot of shift is happening from the unorganized fleet operator to organized fleet operator, definitely, we are anticipating good growth in the existing segments. See, like many customers, we are providing service to like WABCO, [ D-Link ], Ashok Leyland, Bajaj Auto. See, even though -- Hindustan Unilever for that matter, they might be having a warehousing and inventory management with a third party, but these are the direct -- actually, the corporate -- actually, we are billing to them.
[Operator Instructions] The next question is from the line of Suraj Nawandhar from Sampada Investments.
I just have one question, sir. What is our capacity utilization in both the segments, buses and the Goods Transport?
Yes. Hub to hub operation will be 100% capacity utilization. And hub to spoke normally it will be in the range of around 65% to 70% utilization.
And in the passenger vehicle segment, what has been the utilization level?
Yes. Passenger utilization is around 85%. So in quarter 3, that -- seat occupation went to around 86%. And the realization is around INR 1,100 per passenger.
The next question is from the line of Kaushal Shah from Dhanki Securities.
Sir, if you can share some details in the bus segment, the number of passengers that we have done or the average realization, that would be helpful.
Yes. In quarter 3 of the current year, total number of passenger traveled is around 6,58,000 with a realization of INR 1,131 per passenger and average occupation is around 86%. In quarter 2, the total number of passenger travel is 4,77,000 with average realization of INR 1,047 and occupancy levels were at 78%. And in last year quarter 3, the total number of passenger traveled is 5,17,000 with a realization of around INR 1,000 and average occupation was around 85%.
Right. And sir, you mentioned about debt reduction. So any number that you would be looking at to kind of retire debt? So let's say 1 year down the line, what could that number be? And also on the capital expenditure front, now that the scenario is looking more buoyant, what will the likely CapEx number be for the next year?
Yes, definitely. See, basically with this routine CapEx work we are doing, definitely, we've been in the range of around INR 150 crores, INR 160 crores in the next year. And the CapEx even if we consider, say, around INR 400 crores -- so still, we will have a surplus cash flow of around INR 250 crores. And some portion will go for a dividend, and some portion will go for a reduction of debt.
So the total debt number, what will it look like maybe, let's say, 1 year down the line or for...
It will drastically -- it might drastically come down. Currently, we are having INR 100 crore debt. So probably, it will reach hardly around INR 25 crores to INR 30 crores. But again, it depends on the CapEx. And CapEx in our case, always, we take a very short-term call based on the requirement of the vehicle, based on this kind of a stuff. If any warehousing we need to add, then definitely there will be more CapEx.
And one final question, sir. The budget has spoken about blended fuel. And being -- blended fuel being made compulsory otherwise, there will be an additional INR 2. So do you think now the availability of that blended fuel and in our terms, the costing of it, do you think will it make a tangible difference to players like us?
No, basically, blended fuel, they are more concentrating towards the petrol because the ethanol mix is happening only in the petrol, not in diesel. And diesel, the alternate fuel is about the biodiesel, which is mainly producing out of the palm oil importing from outside India. And since the palm oil prices are increasing, and on the other side, even the biofuel rates are increasing, so this, I mentioned in my initial remarks also that, compared to our procurement costs with the refineries as compared to biodiesel, it is not viable as of today.So definitely, always we think about the alternative, wherever the cost savings is possible. If tomorrow biodiesel is available again at INR 5, INR 6 cheaper than the existing price, definitely, we will add biodiesel in our total usage of fuel. Always, we are open for that.
Right. And sir, just 1 last point, on the Surat hub, if you can share for the 9 months, what number we did in terms of either tonnage or revenues?
Yes, definitely.
The next question is from the line of Vikram Vilas Suryavanshi from PhillipCapital India Pvt. Ltd.
Yes. Sir, I think most of the questions were answered for me. So thank you.
The next question is from the line of Kaustav Bubna from Rare Enterprises.
Just wanted to understand what are the current freight rates versus pre-COVID levels? I'm just trying to get an understanding of to what extent can you keep increasing freight rates if commodity prices and diesel keep going up?
Sorry. Your voice is not clear.
Can you hear me now?
Yes, please.
Sir, I'm trying to understand what is your average freight rates currently versus pre-COVID levels. I'm trying to get an understanding of to what extent can you pass on these higher diesel prices to end customers through freight rates?
No, just I mentioned that our realization improved by around 7% year-on-year.
Correct. But let's say...
We will not share the hard number of the realization.
Sorry?
We will not share the hard number of the realization, the absolute number of realization.
No. What I'm trying to understand is how much longer can you keep passing on higher fuel cost to the end customer? Is there more room?
Yes, normally, we pass it on to the customers on an immediate basis. Basically, what we do is we will not increase on a daily basis or a monthly basis. At least on a quarterly basis, actually, we will revisit our freight rates.And just I want to give -- in earlier question, they asked about the Surat volume. Currently, we are handling around 3 lakh plus tons in Surat facility. Yes. So there is an improvement of around 22% year-on-year growth in the tonnage.
The next question is from the line of Alok Deshpande from Edelweiss Financial Services.
Yes. Sir, just a couple of questions from my side. One, sir, you mentioned about double-digit tonnage growth for next year. We are looking at this year as a base, right? Or are you looking at from the current levels that we are doing?
Yes, this year as a base.
This year as a base.
Yes.
Okay, okay. And Sunil-sir, the other thing is I just wanted to, again, go back to the Bus Operations part. You mentioned that we are operating with a lower number of buses than what we were operating earlier. Sir, do you think that we will reach that utilization number even with a fewer number of buses sometime in the next 2, 3 quarters, compared to the level that we were doing earlier?
In quarter 3, more or less, we reached that occupancy as well. Even earlier, when there was a normal period of operation, we used to do the occupancy levels in the range of around 86%, 87%. In quarter 3 also, we did around 86% occupancy level. Whereas realization was in the range of around INR 1,200, INR 1,300 during that time. Now it is around INR 1,100. So there is a scope for increase in the realization. And that will help us to increase our margins in the bus segment.
The next question is from the line of Mukesh Saraf from Spark Capital.
My question is, firstly, on the lorry hire charges, I'm not sure if you mentioned that number. Could you give that number this quarter?
Yes. So what do you want in that?
The lorry hire charges in the 3Q as a percentage of revenue.
Yes. See, lorry hire charges has increased by around 1.38% from 7.25% to 8.63%. And the overall lorry hire expenses increased by around 25% from INR 41 crores to INR 51 crores quarter-on-quarter. If you want year-on-year?
Last year same quarter?
Year-on-year, it is almost same percentage, around 8.75%. Actually, it has decreased to 8.63%. And overall, lorry hire expenses increased around 17% from INR 44 crores to INR 51 crores.
Right, right. So on this lorry hire charges as well, we would have made better margins because the lorry hire charges would have come down as the diesel prices went down. But we didn't have to...
This is not our case actually.
Okay. You had to hire the lorries at the same prices?
Yes. Even during the -- so prior to when the diesel price was high, at a peak level, during that time also, at that time, actually, they compromised with the margins and the operators, yes.
Right, right. And sir, secondly, you had just told us that you hike prices every 3 months or like every quarter or so. But I mean, historically, what you have been doing is you've been doing once a year around that 8% to 10%. So is there any change in thought process there from your side?
It always depends on the changes in the cost structure. So basically, what we do is we review on a monthly basis to see how the EBITDA number, how the profitability. Then accordingly, we will take the call.
Right, right. So are we -- I mean, since last April...
Sorry for interrupting, Mr. Saraf.
So I'm just finishing up the same question. Just the last one. So last April, we took a 10% hike. Are we looking at any hike this April again, like the once a year hike?
No, with the diesel price, if it continue this trajectory, there will not be an increase.
Okay.
If there's a change in the fuel price, then definitely, we will think about reducing the price rate.
The next question is from the line of Manish Ostwal from Nirmal Bang.
I have a question on our Slide #16, where we have mentioned that procurement of biofuel at 8.01% of the total quantity 9M FY '22. So what is the reason of decline of contribution of biofuel in the total fuel purchase?
Yes, that's not cost-effective as of today. After the fuel prices have been cut from November, so that is not viable to buy the fuel, biodiesel.
Okay. Second, sir, what is our strategy on the electric vehicle addition in our fleet, both the goods and bus segment? So what is your overall strategy? Can you elaborate?
Bus segment anyway is still, we are not thinking. But in last-mile connectivity, the smaller vehicles, we are planning to add some of the vehicles. So in the 9 months also, we added around 19 vehicles. So around 40-plus vehicles we are operating today as a smaller vehicles, say, 1 ton capacity vehicle. So going forward, wherever it is necessary, especially in metro cities, just we are contemplating to add more electric vehicle, which is very cost effective.
So in your view, the electric vehicles are cost effective within the city, if we are taking goods from city A to city B, then it is not that viable. That is what you are saying?
That kind of vehicles are not yet available in the market. These vehicles are, say, around 1 ton capacity vehicles.
The next question is from the line of Bhargava from Emkay Global.
My question has been answered. So thank you so much.
The next question is from the line of [ Shivaji Mehta ], an individual investor.
Hello, am I audible?
Yes, please.
Sir, historically, whenever we have slipped to a mid-single-digit kind of a growth rate -- revenue growth rate, when we look at the margins in those years, generally, whenever we come down to those kind of growth rates, our margins take a big hit. So what I'm trying to understand is going ahead if in any year, we kind of fall back to a mid-single-digit kind of a growth, will margins take a hit? Or has something structurally changed in our cost structure, which can help us sustain these kind of margins?
No, basically, earlier also, I used to say in my calls, whenever the volume growth is there, obviously, we'll have more flexibility on the margin side. Definitely, there is more scope to increase the margins. Basically, since we are operating with our own infrastructure facility, definitely, the utilization levels will be much, much better. So considering that fact, as of today, what is happening, we are having the very optimum level of infrastructure with the current tonnage what we are handling. So going forward, if we maintain the same infrastructure, even with the minimum growth of tonnage, the EBITDA margin, our operating margins are maintainable. If volume growth, double-digit growth, what we are talking, definitely, there is a scope for further improvement in the margin.
Right, right. Makes sense. Sir, also, if you can give us some color on how the shift is happening from the unorganized to the organized sector. And are you seeing an acceleration in that pace? Or just some color around that would be helpful.
Yes. Just I want to highlight one of the government remarks in the recent GST collection. In the January collection, given the Finance Ministry has made it clear that the collection is improving, one is apart from the growth in the economy, there is lot of control or curb on the fake investors or fake transactions.So normally, the fake transaction, whatever the noncompliant transactions are there, these transactions are mainly routing through the unorganized fleet operators. Since the government is bringing lot of restrictions and lot of control on these kind of transactions, definitely, it is going to help to the organized players.And moreover, it is to VRL. The reason is, currently even in our case, many of our customers or kind of the commodities what we are handling, these are all noncorporates. Or earlier, they may do some of the noncompliant transaction, now they are shifting to compliant transactions. That's the reason actually it is going to help us to increase the tonnage.
So is there any number you can provide? How much it was 5 years back versus how is the unorganized sector currently?
See, overall financial growth, what it is happening, see, out of the existing customers, there will be growth of around 2% to 3%. And out of the network expansion, it is in the range of another 2% to 3% growth we are anticipating. And rest of the growth actually, it is all new customers. They are coming with the compliant transaction.
Right. Makes sense. Sir, last question. With the kind of cash flow that we'll be generating and the kind of debt reduction that you just talked about, should we not look at certain adjacencies and look at some other areas in logistics which we can naturally extend into like 3PL or some related area with this kind of a cash generation that we'll be having? Just your thoughts on that.
No, basically, we want to concentrate on the existing line of operations because it is giving good kind of a growth as of today. And that's the reason actually we are going for an expansion in network. As an immediate target or achievement, basically, we plan to open 100 branches. Out of that, around 60 plants which have been already opened. Next 30, 40 branches we'll open very soon. And after that, again, we will have a plan to, again, further expansion in the network. So basically, and wherever the infrastructure facility required for this operation, say, to buy some of the transshipment or something like that, which will make more cost effective to us. So we do such planning rather than going for the other line of operations.
Sir, if you look at it, the only 2 white spaces, which you're going to kind of fill is, by expanding into North and Northeast. Post you have kind of set up hubs in those 2 geographies, don't you think growth will saturate post, say, 1 or 2 years once that expansion has been done?
No, absolutely no. Why? The reason I'll tell you. Currently, the South region is contributing almost around 40% of the tonnage. The Western region is contributing around 20%, 22%. And another 20% is coming from the North and Eastern part. So that region is contributing very less tonnage as of today. And even Western region also, see, within Western region, we do not have much of service as of today. So considering how we developed in the South, we want to replicate in these regions also. So whenever we start growing in those regions, automatically, South region's volumes will also improve. There are tremendous growth opportunities in the existing line of operations. Just we want to concentrate on those opportunities rather than diluting our concentration.
The next question is from the line of Prateek Kumar from Antique Stockbroking.
My question is, can we say that diesel prices are like INR 83 per liter in January and if it remains there, we'll maintain freight rate. So our margins exceeded 21.5% in GT segment this quarter. So did you say that they can further expand or some other cost inflation will catch up, which will help offset the benefit of higher freight rates?
No, just I threw some light on increase in the employee cost also in this quarter. From January onwards, around 10%, 10% to 12% increase will be there in the employee cost. But apart from that, just I highlighted about the diesel price, the last 3 months, how was the price and how the price is in the month of January. So if January price will continue as it is, then definitely, there is a scope for improvement in the margin.
Okay. Sure. And just some questions on when we say that we are adding more pump, diesel pump, so is this a capital expenditure? Or is it some OpEx which we do? Like we have [Technical Difficulty] we are adding?
Yes. The total investment for one pump will be in the range of around INR 2.5 crores to INR 3 crores. So currently, we are also having our own pumps in 6 locations and 1 more pump is coming in Salem.
Okay. So these pumps largely cater to the 40% tonnage of South? Or these are like all India pumps and service just going all over the -- I don't know, across...
We are having a pump in Bangalore, Chitradurga, Hubli, Hyderabad and Kishangarh, Surat. So Surat is another place. Kishangarh and Surat, these are connecting places from north to south, north to west and south. And Hyderabad is connecting again towards the Eastern routes also.
And when we say that INR 83 per liter is our [ petroleum claims ], so this is from these pumps or other refineries which we procure from?
No, this is -- INR 83 includes even purchasing from the retail pumps also. This is the average price.
Sure, sir. These are my questions.
From refineries, again, it will be lesser by around INR 2 to INR 3.
Sure, understood.
The next question is from the line of Vikash Khatri from Aviral.
My question is that your largely revenue in Goods Transport comes from the part truckload. Obviously, you have started a service in the express domain also. Is that service continuing? If continuing, then what is the contribution of express services in the revenue? And second part of the question is part load industry is facing tremendous pressure from the express industry that express is snatching volume. How we are planning to retain our volume and it doesn't move to the express industry?
No, basically, the kind of commodities what we're having, the kind of commodities, even the customers with whom we are getting the tonnage, these are lot of general parcels which are part truckload. So even in our service, we are having a door collection and door delivery service to the customer.That is almost around 30%, 35% of our tonnage is door collection and door delivery service. That option is always there to the customers that if they want door delivery services, we are in a position to give that kind of a service. So even that is growing in our overall tonnage. So considering this fact, we are not facing much of a threat from the express service company.
Okay. As with express, are we offering any service within our portfolio?
Sorry?
As express offering, are we offering any service within our portfolio? Or are all the products are same time-sensitive?
Definitely, the service, what we are providing, it is in line with what the express serve companies are giving. That's why we are having a lot of corporate clients, around 20%, 25% of the -- 21% of the business.Actually, they are much, much happy as compared to other express serve companies. Like WABCO, [ D-Link ], Ashok Leyland, I mentioned. Even the recent -- last 1 year, we started Reliance Retail. And they are expanding the tonnage, considering our service level.
The next question is from the line of Depesh from Equirus.
Sir, last quarter, you were guiding to add 100 GT vehicles per quarter in the second half. But in Q3, you added only 54. And with INR 30 crore CapEx guidance, I think you're guiding the same 50, 55 vehicle addition in fourth quarter. So just wanted to understand any decrease in your volume growth outlook that you have tapered down your vehicle additions?
No, basically, see, how it happens is even though currently we are hiring the outside vehicles in some of the routes, there actually we can replace with our own vehicles. That possibility is there. So the vehicle addition has nothing to do with the volume. Once the sustainable volume growth is there, then we will decide on the CapEx.
Okay. Now sir, generally, like after the second quarter, everybody was upbeat, but like November was a weak month, and then obviously, in January, again, the lockdowns happened partly. So any changes you're seeing on the ground in the volume growth uptick that was supposed to happen in second half but that has not happened?
Yes, basically, even in January, year-on-year, again, there will be a growth even for January month. So in February, it will be much better because a lot of things have normalized now.
Understood, understood. And sir, to one of the earlier participants, I think you spoke about some CapEx but the documents are still not ready. I did not understand that fully. If you can please elaborate on that.
No, we were planning to have the warehouse, what we are operating in Bangalore as of today, we wanted to buy that property. So the total CapEx for that property is in the range of around INR 150 crores. We were planning to buy that property, but since the documents are not yet cleared, that is on hold. And in short term also, I don't think it will happen.
Okay. Got it.
But it will continue as a lease premises, what we are operating today, it will continue. It is a long-term lease as a property. Currently, the 20-year lease period is there. Out of that, almost around 10 years completed now. So another 10 years, we are having a lease term.
But, sir, any reason why you're like looking to buy that instead of leasing. Like Surat, you did that and you are doing amazing volumes there. So any similar kind of...
No, in Bangalore, actually, that owner wanted to sell the property. And apart from that, currently, we are paying a rent of around INR 110 crores per month to that particular property. Even if you see the return on the investment, it will be a good proposal compared to continuing as a lease premises. And we can bring in a lot of additional added facilities, like good maintenance facility. Anyway, own fuel pump is there, but apart from that, we can give some of the premises for warehousing and all these things. That was the plan. But we are very -- until the title and other things are cleared, we will -- we are not going to do that.
Understood. Sir, lastly, I just observed that your number of agencies were declining for the last 2, 3 years. But this quarter, there is a slight uptick. So just wanted to check, is there any change in thought process of agencies versus the own branches kind of growth?
No, no, no. Agencies will be restricted again. Wherever -- most of the new branches we are opening through our own branches because agencies there having their own limitations. So that's the reason we are giving more focus to our own branches.
Got it. So going forward, in the untapped markets I just spoke about, the growth will be led by the own branches only. That's what you're...
Yes, yes, yes.
Understood.
The next question is from the line of Alok Deora from Motilal Oswal.
Just you mentioned about this new pump you are looking to buy. So just if you could just elaborate on this, these pumps actually help -- it's for us -- our captive use only, and it helps us reduce the fuel cost. That's what understanding we get. Is that correct?
Correct. Yes. see, wherever the long lease properties we have, see, Hyderabad, actually, last year, we moved to the longer lease rate, the new premises. There, actually, we established our whole pump. Even Salem also, we shifted to new premises. There, actually, we are establishing our own pump. So that particular area is not belong to us. But whatever the investment belonging to that particular pump is that the storage tank and all, we invest those infrastructure. That will be in the range of around INR 2.5 crores to INR 3 crores per pump. And always, we'll see that average consumption should be at least around 15,000 to 20,000 liters per day. Only in such potential areas we are establishing our own pumps.
Sure. So sir, if the diesel price is, say, INR 90 at the retail outlet, then these -- what would be our cost then for if we use?
Always it is cheaper by around INR 3, INR 3.5 as compared to retail.
Okay. And if you take delivery from refineries, then?
No, refiner is answering.
Okay. Okay. So this is actually refinery only but having...
The fuel price compared to retail fuel pump versus our own pump will be cheaper by around INR 3, INR 3.5.
Got it. Got it. Got it. And what would be our current consumption pattern if we take it from -- how much we take it from retail outlet and how much is through our business?
Current thinking is, see, own pump we're consuming almost around 40% of our requirement and around 60% with the retail outlets.
Okay, okay. So sir, here also, there is a big scope to kind of save, right? I mean because you're not using...
But again, the usage should be in the range of around 15,000 to 20,000 liters. That's what I mentioned. And see, Salem is in the pipeline. Just we are thinking about Vijayawada also but Vijayawada actually is we are getting a biofuel. The source of biofuel is very near to that Vijayawada. That's the reason actually, in Vijayawada, still we are buying the biofuel, whatever the small quantity is coming, it is from Vijayawada.
Got it. So sir, by doing this, actually, we are saving on the commissions which we -- which the retail outlet would typically make.
Commission is one part. Even the prices also differs. Bulk quality we buy. So whenever we buy from the refineries, it always is on bulk quantity.
Sure, sure. So when you say that you buy from refinery, that means you mean your own pump only there?
Yes, yes.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sunil Nalavadi for his closing comments.
Yes, thank you very much for all the participants for your patient hearing. If any additional clarifications or any requirements are there, directly you can contact me. And apart from that, considering the present business structure and the growth in the business, we are anticipating that this growth pattern will continue even in the coming quarters with good operating margins. Thank you one and all.
Thank you. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.