VRL Logistics Ltd
NSE:VRLLOG
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Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Earnings Conference Call of VRL Logistics Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Alok S. Deora from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Thanks. Good morning, everyone, and welcome to the 3Q FY '23 Earnings Conference Call for VRL Logistics. We have with us today, Mr. Sunil Nalavadi, the CFO of the company. I would now hand over the call to Mr. Nalavadi to give opening remarks and discuss on the performance of the company. Thank you, and over to you, sir.
Yes. Thank you, Mr. Alok. Good morning to all participants. I'm Sunil Nalavadi, CFO of VRL Logistics Limited here. I welcome all of you once again for the earnings conference call of the company for the period ended December 2022.
We are glad to inform that as we strategize to focus on high-growth good transport business, the exit from the remaining segment projects have been completed as on date. We wish to inform that the other key segments, such as wind power business and bus operations business are discontinued and received the applicable relevant regulatory approvals. Since the said approvals have been received in the month of January 2023, the profit on sale of these businesses having -- will be accounted in quarter 4 of this year. As mentioned in the press release, the profit before tax on sale of these businesses is to the tune of INR 187 crores, that is from wind power business it is around INR 10 crores and for bus operation business, it will be around INR 177 crores. This is profit before tax.
The company has received the consideration on these sales transaction as on date and predominantly used for the repayment of debt, capital expenditures. And also, we invested around INR 50 crores in mutual funds to take care of related tax expenses on these transactions, and it will be paid prior to the due dates. We wish to state that the net debt of the company stands at INR 46 crores as of 30th -- 31st December. And it was around INR 130 crores during the beginning of this financial year. And as of second quarter-end, it was around INR 164 crores. If we consider our investments in mutual funds, we are debt free as of today.
With respect to the performance of the business is concerned, the performance of the goods transport business was better than the expected level in the current quarter. The revenue from goods and transport segment has increased to INR 675 crores from INR 596 crores on a year-on-year basis. The increase in revenue is mainly on account of increasing tonnage, which has been reached to 1,010,000 tons in the current quarter and reached 877,000 tons in the previous year, which has increased by almost around 15%. We wish to state that our average daily tonnage handling has been reached to 10,900 tons in the current quarter. The increase in tonnages on account of increase in the branch network by the company. We added around 218 branches post pandemic, and these branches have contributed around 12% to the total tonnage in quarter 3.
Our strategy of expansion of branch network is going to be continued and planning to add around 25 to 30 branches every quarter, especially in the untapped market. Apart from the expansion in branch network, we are acknowledging that many of the customers are shifting from unauthorized operators to us on account of increasing compliance under GST law.
Some of the sectors have grown tremendously in the current quarter, to name a few, the agriculture products and equipment, these commodities have been increased by around 47% on a year-on-year basis. The automobile side has been increased by around 25%. The educational goods related items, which has increased by around 31%, FMCG products have increased by around 23%. Footwear is around 36%. Metals and the hardware around 28%. Further, we wish to inform you that the turnover related for e-invoicing requirement is further reduced to INR 10 crores to the business entity from October 1, 2022. This will force the many business entities to fall in compliance network which is going to support us in the process of shifting of clients from unorganized sector.
Considering the stagnant or little dip in realization we have increased the freight rates by 5% on noncontractual freight business. It is contributing almost around 60% to 65% of the tonnage. And the -- this rate increase we did from mid of December 2022. This will support us to increase the realization and pass on the increase in cost to the customer to maintain the better margins in coming days.
When it comes to EBITDA margin for the goods transport segment we are again back to the normal EBITDA in the current quarter. We have reached to 16.5% EBITDA. The year-on-year EBITDA is impacted on account of increase in fuel cost. As we informed earlier the bulk purchase of diesel from the refinery has stopped from February 2022 due to abnormal increase in the cost as compared to the retail price. And it impacted an additional cost of INR 2 per liter, we used to save earlier.
We wish to state that currently on account of reduction in crude oil prices, the bulk purchase diesel prices are in line with the retail prices. And again, we started to buy the bulk fuel from the refinery from mid of December 2022. As of today, we are procuring 30% of our requirement, say approximately 80,000 liters per day from the refinery as compared to the total fuel requirement of around 250,000 liters per day.
The Lorry Hire tariffs also increased as a percentage to the revenue as compared to last year. It was around 8.63% in the last year, which has been increased to 10.2%. This is mainly on account of engagement of more outside vehicles and increasing the kilometers of hired vehicles. And also the Lorry Hire service for kilometer has been increased. The toll charges also had been increased as compared to last year, the percentage to revenues increased to 7.42% from 5.98%. The increase in toll rate base is one is increase in toll base from FY 2022 to around 5.6%. Not only that, if we compare the toll plazas across India, last year, this number was around 867 numbers. Now the toll plazas in the country increased to 1,024 numbers. So on account of this, the toll charges are continuously increasing. The loading and unloading charges also increased from 5.97% to 6.56% is only on account of increase in the rate to the loading and unloading labor.
The employee cost also increased from 13.76% to 14.45%. This is on account of annual increment effected from the month of January 2022. Against these expenses increase, the vehicle repairs and maintenance cost has been reduced. This is on account of increase in the kilometers covered by the new vehicles. So on account of that, the vehicle repairs and maintenance as a percentage to the revenue has been declined.
Similarly, in the current quarter , the revenue from Goods transport segment has increased by around 4%. And EBITDA margins, we reached again from 15.5% to 16.5% almost 1%, there is an improvement in the EBITDA margin in the current quarter. This is mainly on account of one is the decrease in the diesel cost, around 0.33% digital cost has been decreased. And similarly, the vehicle running and repairs expenses have been decreased. The tire cost is also decreased. The employee cost which is mainly increasing in nature, this also has been reduced.
So with this and considering the expansion plan in terms of expansion of branch network, shift of customers from unorganized to organized players and increase in the fleet size, we are very much confident that our growth plans or the growth rate what we are maintaining today will be continued going forward.
On margin side, also, since the bulk purchase of fuel has already started. And also, we increased the price rates on noncontractual freight, which is almost around 60% to 65% of the total tonnage from mid of December, these 2 factors are going to help us to increase the margin side also and pass on the increase in expenses to the customers. So we are hoping that there will be further improvement in the EBITDA margins in the coming quarters.
With this, I conclude initial remarks. Now I request to the participants who have any questions or give more clarifications, if any doubt. Thank you.
[Operator Instructions] We have the first question from the line of Mukesh Saraf from Spark.
My first question is on the volume growth. You have mentioned that 12% of the volumes this quarter have come from the branches that you've added last year and this year, which is about 218-odd branches. So I was just wondering given that we have reported a 15% volume growth and one profit is coming from the branches that we have added these 218 branches. So -- and we have like 1,000 plus branches. So it seems like the growth is not so much in the remaining 800-odd branches. So could you give some sense about why the growth is -- I mean, it's just maybe a couple of percent, 1% or 2% growth as in other branches. Is there still some kind of competition there? Or what exactly is happening there?
So basically this 12% was -- how we are computing is it is from both the sides, bookings as well as delivery happening from these branches and connected with the existing branches. The reason why we are putting the 12% is if these branches were not there, even the existing booking branches were unable to contribute to this business. That's point number one. And point number two is, even many of the existing customers are using our network to increasing the tonnage. That is also another reason. And if you see on a one-player basis, if we consider the net increase will be around 6%. The remaining all, again, is from the existing branches also. Operations already happened, it is connected, both booking and delivery offices.
Right, right. So the tonnage that you report for the quarter like this 1 million tons that are reported, that is one side only, that is not like both sides?
Yes.
Okay, okay. So actually, that 12% is not a comparable number?
Yes, yes.
Right. And my second question is relating to pricing. I think in this quarter also, you -- generally your commentary suggested that your focus is going to be more on growth, and you might not actually look at price hikes. But now in December, we have taken price hikes of 5% for the noncontractual customers. So what -- I mean is there some change? Or I mean, do you see competition increase hence you want to opportunistically increase? So what has led to these price hikes, which was earlier not envisaged?
No, basically, see what happens, this expansion plan we are doing now after the pandemic which is almost more than a year now. So -- and the necessary -- the volume growth is also happening, what we anticipated actually the growth is much better than that. So at this scenario, considering the growth as per our plan, the tonnage is growing as per our plans. So at this moment, we thought that vehicle we passed whatever additional expenses are we are incurring. These are all mainly the variable costs like toll charges and other things say like the lorry hire charges. So I can't keep passing it on to the customers. That is the thought process. And accordingly, we increased -- we took a decision of increasing the 5% rate.
Okay. So this 5% will entirely accrue to us. It's not like there will be some additional discounts, et cetera. This 5% will flow through in terms of realizations for us?
Yes, yes, yes. Definitely. And in the quarter, again, we opened around 25, 30 branches. In the December quarter also, we opened around 30. So these routes wherever we are entering there, actually, there will be some competitive price, but not across all the way .
Okay, okay, okay. Understood. Understood. And just one last one. Very quickly, last quarter, the margins were impacted because there were some goods in transit where the costs have been accounted for, but revenue is not and so this quarter, that has got normalized sir, that cost and revenue that mismatch?
Yes, it is normalized. See, as I indicated, the margins on account of that, around 40 to 50 basis points. So that has been normalized in the current quarter.
The next question is from the line of Harsh Shah from Dimensional Securities.
If I look at your lorry hire charges, it has been consistently increasing. So you have also mentioned in your presentation that cost per kilometer is also increasing. So on one hand, we are not able to do up until now. I mean, you took a price hike in December, but up until now, we were not able to take a price hike. But the lorry hire -- but the lorries which we used to hire they we're able to take the price hike with us. So how would you explain this sort of dichotomy?
No, about increase in freight rates is before our internal strategy since we were into more of an expansion mode and to accustom a lot of these -- many of the new markets, new customers, that was our strategy not to increase the freight rate. It has nothing to do with the market. Whereas on the other side, since the fuel rates increased and the cost of toll charges have increased, so these lorry owners continuously they have increased the rate.
Okay. Okay. And ...
Lorry hire charge rates are increasing. Now to take care of these increases, again, we also take a rate hike in the mid of December to increase around 5% rates on our noncontractual customers.
Okay. And while we have the guidance that will continue to increase the number of branches, what would be the guidance on vehicles, will we be adding more vehicles or these lorry hires will continue to stay where it is right now?
Now if we see on quarter-on-quarter basis the lorry hire charges is stagnant. So at this stage, actually, it will not increase beyond this level, it will be around, say, 10% to the revenue.
If I have to compare your own vehicle versus lorry vehicle, what would be the different -- margin differential? Where would we be making higher margins?
Higher margin, obviously, it is in the company-owned vehicle because our vehicles are built as per our requirement. We are having a lot of advantages in our own vehicles. One is on account of size of the vehicles. We carry more load in our vehicles. Not only that, we are having effective cost control, be it price, be it driver payments and even the maintenance costs. These are all costs are very, very controlled expenses in our own operations. But these things, we do not have control on the outside vehicles. .
See, outside vehicle diesel is going to increase at whatever we want, the drivers cost fee is going to increase. And apart from that, the vehicles there are not maintained properly. That will be additional cost for them. And even the size of the vehicle, the structures of the vehicles are not as per our requirements. But that is the reason essentially we focus more on our addition of our own vehicles rather than depending on the outside vehicles. But under these circumstances since it is responding beyond our capacity expansion, so we need to depend on the hired vehicle until we increase our own capacity.
Sir, that is what I was coming to. Since we are very confident about 18% to 20% volume growth for next, say, 2, 3 years, why aren't we being aggressive on adding our own vehicles as well?
No, we are very much aggressive now. See in the current year itself we plan to add around 1,600 vehicles. Out of that, around 800-plus vehicles have been already procured, the remaining 800 vehicles are going to come before September. See, moreover, see 100% we cannot own and operate. Sometimes what will happen is, there will be change in the demand supply. Some seasonality will be there, beginning of the month it will be less load, at the end of the month or quarter-end, there will be substantial demand.
So considering all these factors, we are very cautious on increasing our capacity also. So with these all metrics, we will analyze it properly. We have to study route wise analysis, route wise demand also. See sometimes what will happen is, there is a sudden demand from the -- during festivals and all, there will be huge demand from Surat and Ahmedabad route. But there will not be a return load to Surat. All these vehicles have to come empty to Surat, we cannot run empty, again it will impact on the margins. So considering all these parameters, we will add our capacity to see that our vehicles should be used at optimum level and wherever excess demand will come, excess tonnage we are going to handle that has to be handled through outside vehicle only.
Okay. Sir, if I look at it ...
Mr. Shah, may we request you to kindly ...
Just okay, just one last question pertaining to buyback, will the promotors be participating in the buyback?
Yes, promoters are participating. And size of the buyback is around INR 61 crores. See, this buyback is, again, just to have a clarity. This is only to the alternative to the dividend because of the effective tax structure. Every year, we are paying the dividend. Now this buyback is as an alternative to the dividend payout.
The next question is from the line of Ritesh Poladia from Girik Capital.
I just want to understand this realization per ton of INR 6,649. Sir, what would be the average distance covered in this?
See, average distance, we are not monitoring. And this is across all the routes because we are handling the multiple routes, in a state alone every city is covered, every town is covered. And like we cover entire state there will be a huge number of routes. So do not have that average kilometers.
But sir, pricing is always on per kilometer per ton basis, right?
No, it is not so. It's always on a route basis.
Okay. Sir, other question is when we say that company does about 11,000 tons per day, and your carrying capacity is 80,000 per day. So is it that your goods from point A to point B average days covered would be something like 5, 6 days?
Yes, that is the case and again, we have to consider how the maintenance, some capacity will be hard for maintenance, the loading and unloading factors. All these parameters we have to consider.
The next question is from the line of Ash Shah from Elara Capital.
So congratulations for good set of numbers. So first question was, do the contracts that we have, the 25%, do they have a price hike clause? And if yes, then when do we see that -- when do we see a freight rate increase in those also?
Yes. Most of these contracts are having the price escalation clause, but it is related to only the fuel rate. If the increase in other costs are not a part of these contracts, only when the fuel escalation will be there, fuel increase or decrease, accordingly, those prices will change. But if you see in the last one year, the fluctuation is there. But again, it is very temporary. Again, there are reduction in excise duties. And if it is quarter 2 versus quarter 3 there is a stagnance in the diesel price. But in spite of that, there are increases in others, which we were unable to pass even on a contractual this one. But these contracts are renewable once in a year. At that moment, other than the fuel escalation we will consider increasing the prices as and when these contracts are due for renewal.
So will that also be 5%? I mean or will it be dependent on the client to client or ...
Yes, it depends on the clients. It depends on the tonnage what they are contributing. It depends on the routes also where they are contributing.
And second question was that earlier last quarter we were focusing more on the volume growth and we are -- we did -- we weren't focusing much on the freight rate increase and with a EBITDA margin cap of floor of 15%. So has that stance changed right now? So will we focus more on margins? Or how will it go ahead?
So absolutely, that spend has not changed. If you see the volume growth is continuously going to increase. And the volume growth is basically the expansion of our network and expansion of our branch network capacities and all those, that actually anywhere we are doing. And apart from that I mentioned very clearly that wherever we are entering into the new markets, new customers, obviously, we have to offer a competitive rate. At that time, again, there will be the lesser realization in those routes. But in rest of the routes wherever we are established, wherever we are not taking much of our competition, and in those routes and those customers the rates haven't increased. It has nothing to do with the increase in tonnage versus increase in the freight. That increase in tonnage, enhancement in the capacity, those plans are going to continue even going forward.
The next question is from the line of Amit Dixit from ICICI Securities.
Just a few questions from my side. The first one is on the fleet size. So is there any specific target you have for addition in fleet? And what category are you focusing on in terms of fleet size additions? Also, is it possible to let us know the related profitability of your fleet? I mean if you have at -- which category is more profitable than the others. That is the first question.
No. One is about the vehicle additions, as we explained our CapEx plan earlier, we ordered 1,600 vehicles in the beginning of this current financial year. Out of this already 800 plus vehicles have been procured. And remaining vehicles are going to be added in the next 6 months. And the category of the vehicles largely to be in the range of 15 to 25 tons, in that category. And there are some smaller vehicles also. But predominantly, it will be around 15 to 25 tons, in that category because these vehicles we are mainly using for hub-to-hub operations. And there actually, we want to add more capacity. And there actually we are engaging more of outside vehicles also. And when it comes to, your second question was...
Sir, the related profitability, is it possible to share with us which category ...
As far as the profitability, we do not have those working. Always, we do a group wise how that particular route, what is the rate and how the relations are there and what is the net we are seeing out of it. But we do not have a product-wise calculation of the process. See in a single vehicle we carry multiple goods. For example, when it comes to Bombay, in a particular branch, if you take FMCG or machinery. In any particular branch there actually the branch person will accept the goods as per our rates based on the weight as well as the square feet. So depending on the size of the material, depending on the weight of the material, the rates have been increased irrespective of the commodity, whatever nature it is, he has -- he will book accordingly. So it will not be on product-wise.
Sir, just a follow-up on this. You said 1,600 vehicles this year. Is it a similar target every year you're planning to add 1,000 to 1,500 or something like that. Is it possible to give a longer term target per year addition of vehicles that you will do?
Yes, definitely, see now this is our plan till September. So again, quarter 2 of the next financial year, again, we will pay a visit on our CapEx plan. And based on that situation, how the market is turning, where actually we have already established, how the tonnage is contributing. Accordingly, again, we will define our CapEx plan. And even in the past, if you see, always around 85% to 90% always our own capacity we are using in our business. That trend is going to continue even going forward.
Okay. So the second question is on procurement cost of diesel, it's a bookkeeping question. If you can let us know the procurement cost of the diesel in this quarter versus the last one?
So Q2 versus Q4, it's almost around INR 89 to INR 90. And even in the last year also, it was similar, say, in the range of around INR 88, INR 89. But here, what happened in Q2 and Q3 of this year, we were not having the bulk purchase. See, around 30% -- 40% to 45% of procurement, we used to buy from the refinery in the last year, December. That opportunity was not there in the current year from Q1, Q2 and Q3. Because the government has returned subsidiary on the bulk purchases and the rates have been sometimes around INR 25, INR 26 the bulk purchase -- bulk fuel was costlier than the retail fuel rate. Now what happened because of the reduction of crude oil prices, and now again, these prices are matching now. So the crude -- the bulk purchase price is similar to the retail price. If we buy from the refineries then we will save around INR 2 per liter that we started now.
We have the next question from the line of Rakesh from HDFC Mutual Fund.
Just one question on your capacity. So based on the capacity plan that you have now, how much volume growth is possible next year and the year after that?
No. Again, I want to clarify, the capacity ownership and the increase in the tonnage both are independent. The tonnage increase always depends on our increase in the clients, increase in the branches, increase in the network like that. As and when the increase in tonnage happens, accordingly, we increase our capacity. So in the current scenario, since the increase in the tonnage is more than the capacity increase what we are doing, that's why the engagement of outside vehicles are increasing. But going forward, we are very much confident that the current trends are going to continue. And even in the next financial year, we are expecting that around 20% growth in the tonnage. That is possible based on the current plan, what we are doing.
Sir, for this 20% tonnage growth based on the capacity addition what you have, will the composition of your outside vehicle requirement will go down or will that remain the same? The reason I'm asking is, this will have a bearing on your EBITDA margin, right? Because when you own the truck, the cost actually goes through your depreciation and interest line. But whereas when you hire the truck from outside, it goes from your EBITDA. So I just wanted to get the equation right, what is the right sort of look at for the next 2 years margins considering you are in a high-growth tonnage presence, you have a certain plan to hire vehicles from outside also?
Yes, our plan is very clear. We want to grow the tonnage at around 20%. And accordingly, the capacity is also going to be increased, see because of some temporary tonnage there will increase or decrease in the lorry hire, but we cannot increase more than 10% to 12% to that. So we'll maintain EBITDA also.
Sir, is it fair to say that if the tonnage continues to grow at let's say 20% then the contribution of the cost from outside vehicle will remain in the range of 10% to 12%, would that be right understanding of the economics of how your payment is working currently?
Yes, yes.
And if the tonnage growth were to lower, so let's say, if tonnage growth comes down from 20% to let's say 10% or 15% depending on the economic situation, how it pans out next year. Would that mean that our costs would go down in a similar proportion?
Yes.
Okay. And secondly, how much price hike we have taken during the last quarter? And I mean, how -- what is the benefit we will have in the P&L in the sense that how much of the cost we are taking on our P&L, which is currently hitting and which we would be recovered going forward?
So basically, this price increase is on the 60% of the tonnage what we are handling today or 60% of the business. On that, we increased 5%.
So does that mean that all things equal your margins would increase by 300 basis points?
Yes. See, if costs are stagnant definitely there will be the additional EBITDA, but again costs are increasing. So we can see at least around 1% improvement in the EBITDA margin, considering the increase in cost also.
Understood. And sir, one bit more on the margins. So next year, again, we are talking about 20% tonnage growth. How should we think about operating leverage in the business in the sense that let's say you are probably would get to 17.5% margin, if I go by your price hike commentary. So from that 17% margin and you have a 20% tonnage growth, what is the operating leverage that can play out for the margins to either remain same or even go higher?
No, whatever the operational leverage will be there, that actually we have to use for the expansion in the business. See wherever we enter into the new market, obviously, we cannot earn the equivalent margin what we are earning in the established market. So on a net-on-net basis, actually, we are seeing that around 17% of EBITDA level is maintainable.
Understood, sir. And last one on the CapEx plan. So after this capacity expansion plan, how much CapEx should we sort of think about the sustainable CapEx in your business? Or will you keep looking for adding more trucks probably next year also?
Next year, there are 2, 3 developments here. One is about the scrappage policy, still we are getting some clarifications from the government. See, it is a voluntary scrappage policy, but every operator has to get a fitness certificate for the vehicle. So how good it is going to work going forward we have to see. That is one. And more than 15 years age, we are already having around 1,200 vehicles with a capacity of around 8% to 9% of the total capacity that we are having today. So how those -- that capacity is going to be used after the scrappage policy. That is Point number one. Point number two, considering this expansion plan, what is the capacity we required that also we need to work out. But these are all more clarity we can give only in quarter 2 of the next year.
The next question is from the line of Vikram Suryavanshi from PhillipCapital.
I think most of the questions are answered. But just to look at the fuel side, one more opportunity we used to have was biodiesel. So how is the outlook on that front to save further costs? Or are biodiesel prices are still not attractive?
Biodiesel, again, see some interactions are happening. And currently, we are using very, very low quantity. And again, see still there is a gap between the retail price and bulk, which is not economical. But definitely, considering the current fuel trend, what is happening in the market, if it goes down further, then obviously, there is an additional opportunity for us to buy or to use biodiesel. But now it is not something which is materialized as of today.
Got it. And this bulk purchase what we used to do that government has changed the tax structure or OEMs have changed the pricing to match the -- with the retail price? How is that basically turned out?
No. The government has not changed its policy. But the crude oil, bulk fuel price is always linked to the crude oil price. No, what happened in retail again, the government intervention is there actually, they can still control the retail price. But on a bulk ...
Ladies and gentlemen, the management line has been disconnected. Kindly stay connected while we try to reconnect them.
Ladies and gentlemen, thank you for your patience. The management line has been connected. Over to you, sir.
Yes, I'm extremely sorry on this issue. See about bulk fuel, just to have a clarity, it is not a government regulated, it is something directly linked to the crude oil price. If the crude oil price is continuously declining then refineries are in a position to supply the fuel even to the bulk buyers, which is equivalent more or less equivalent to the retail price. So considering this opportunity, now we started buying from the refinery. Since we are buying on a bulk basis, actually, we can save around INR 2 per liter.
Got it. So basically if fuel remains lower than probably at least some 30%, 35% of bulk purchase we will continue to see that advantage, at least for us?
Yes, yes, yes.
Got it. I think that -- and last on this, we also used to have some electric vehicle in our fleets, particularly for last mile and so, so how is that addition we are looking going ahead?
See as of now, we are operating around 60 to 70 vehicles, whatever in small capacity. And there also, lot of these technology changes are happening. So accordingly, we are continuously focusing on those assets as well. So once these -- these are definitely useful for us as an investment side or even on the operating side, that is -- definitely we are going to add a good number of electric vehicles. Continuous research and analysis everything is happening on all the aspects. It will be CNG, it'll be electric vehicles. And even we are working with some of the OEMs to convert the existing fuel diesel vehicles to electric vehicles per se, we are working on those projects as well.
And last question for me because if you look at our business is more on the B2B side, so there might be very insignificant or low walk-in customers. So when we say noncontractual, what does exactly it mean because B2B actually ...
So even in B2B -- yes, even in B2B, we do not have a contract with the customer, see around say 40% of what I mentioned, with those customers who are having annualized annual contracts. In that 25% is monthly billing and even some of the contracts there paid and to the customer service. So on a net basis, around 60% of the customers, we do not have any contracts with them. And those customers are B2B again.
The next question is from the line of Sanjaya Satapathy from Ampersand Capital.
Sir, my question is that you mentioned that since you were going into newer locations in your network, you are keeping your prices unchanged despite cost. So now that you have taken a price hike, are you going to lose out on market share?
No, no. See, after analyzing all those metrics only we decided to increase the 5% rate. Now to give more clarity on this. So basically, after the pandemic almost more than a year now, from that date to till date we have not increased the rates. And some of the routes have been already established. Whenever you want to open a new branch network those markets have been already established. So considering these metrics we are considering these parameters to increasing the rate hike. Now wherever again, we are expanding, wherever we are going for the new locations, new branches, new markets, henceforth. Again, in those markets again, we offer a competitive, right? There, again, the realization will be lower. But that strategy again it will be for a 1-year period or so. So once that market is entered again we can take an increasing rate hike in those areas as well.
Understood. Sir, if that is what is the case then you will be constantly adding your network in as well proportions as you have been this year. And so the new routes will continue to be less profitable. So considering that the mix will always remain somewhat like this, then how will your margin improve?
So the margin improvement, see, now just to -- before opening up these new branches, just to give one more example, if you see just the year before, okay, our tonnage was almost around 25%, 30% lower than the current tonnage. On that tonnage actually now whatever increase is there on the tonnage, whatever the existing tonnage is also there, on the entire tonnage we increased the rates. So whatever the additional tonnage is going to come say 20%, 15%, 20% substantial tonnage is going to come, only on that tonnage is the realization will be lower.
And sir, what kind of price difference is there between you and your competitor in new routes and old routes?
See, old routes, again, when it comes to comply transaction, see, definitely, we are charging little bit premium to them. When it comes to noncomply transactions, the other people are charging hefty rates. It is just not at all comparable 2 to 3x more than our rates. So that's why still they're in the market, most of the unorganized operators, but that ratio is drastically going to come and it is coming down. So that's how it is going to help us.
Understood. And sir, last thing, just wanted to understand is that this quarter your volume growth was about 13-odd percent. And -- so considering that there is kind of a slowdown, which we are seeing almost everywhere, how is it that you are looking at sustaining 20% volume growth? Is that what I heard correctly, sir?
Yes. So see the thing here is, again, see, we are highly diversified. That is a plus point in our case. So dependence, even the top customer contribution is not 1%. Even top 10 customers contribution is not even 3%. And even just I want to give one more information. Even if you consider the top route contribution, it is hardly around 1% or 2%. See that is the kind of diversity we are having. It is highly fragmented. We are having 700-plus customers with all the sectors. If one side down falls other side will improve, like this, so the Indian -- whatever the daily requirement to the Indian population we are carrying, the slow down and all, the basic needs of the people, the basic commodities, that demand is not going to reduce.
That is true. But sir, your growth rate came off this quarter?
Sorry.
Your growth rate was lower than this 20%, which you were targeting in quarter 3. Quarter 3 growth was some 13-odd percent, right, sir?
Correct. See, quarter 3 is always a good quarter. Now what will happen, this phase will continue in Q4 and hence onwards. So in Q4, Q1, if you see the last year, those bases are small. So with this base, Q3 as base definitely the percentage will be more in the incoming quarters.
Sir, very last question, if you can just explain sir, lot of your -- these one-off transactions will get completed in quarter 4, including buses and power. So can you give us a sense like what would be your actual gross debt and net debt at the end of all this transaction getting over?
After these transactions are over, see, as of now, I said, including that investment in the mutual funds if you see we are debt-free as of today. And going forward, whatever new CapEx we are going to increase, there actually we use our further internal accruals to meet our capital expenditure and a little bit debt we may take. But debt level will not cross around INR 50 crores to INR 60 crores at any point in time. This is our view.
This is gross debt or net debt, sir?
It is a net debt, what I'm saying. And after this buyback also, again, there will be change. See, you can assume that debt levels will be always less than, say, around INR 100 crores net debt.
The next question is from the line of [ Keshav Bakri ] from VT Capital.
The first question which I have is that the industry is moving to an asset light model and we being the only player with a large fleet size of around 5,000 plus vehicles, so depreciation eats a major chunk of expenses leading to difficulty in obtaining double digit PAT margins. So how do you see this going ahead?
Your question was not clear. Will you repeat please?
So the entire industry is moving on to asset light model and we are obviously...
Sorry to interrupt. Please slowly, I mean ...
Yes, I wanted to hear it properly.
So my question is that the entire industry is moving on an asset light model. And VRL Logistics is the only player which has a fleet size of around 5,000 plus vehicles. So this leads to depreciation being a major chunk in our expenses along with the interest cost, which leads to difficulty in attaining double digit PAT margins. So how do you see this playing out in the future? Like will you be able to achieve double-digit PAT margins?
As I said, our strategy is very clear. We have -- we will continue our operations with having our own infrastructure facilities, especially the vehicles, that is going to continue. The depreciation, yes, that is the additional charge in the depreciation, but always we more concentrate on the cash flows, the cash profit, which is much, much better than as compared to other players in the industry. So that's the reason this trend is going to continue. Around 90% of our operations, we want to invest in infrastructure and operate. That is very clear in our mind.
Okay. Sir, my next question will be that this is time sensitive business. So how do we plan to invest in automation of our hubs or we are planning to build some sorting centers because it will help in reducing our turnaround time?
Yes, definitely, we are continuously working on it. And wherever on need basis, definitely, we are doing a lot of automation. And even if you see the hub operations, even the material handling, compared earlier the technology updations and everything are much, much changed now. So that's the reason the turnaround times have been improved even that's why we are in a position to add more of corporate customers also and more the customers who need the commodities on time.
The next question is from the line of Nemish Shah from Emkay Investment Managers.
So I had a question on the branch expansion that you are doing. So like you mentioned, we have added about 218 branches post pandemic and about 127 branches in the first 9 months. So can you help us understand how much of the branches would have breakeven by now? And what would be the utilization levels for those branches?
See, except around the branches which are opened in the last quarter, say around 15, 20 branches have not reached breakeven, but all rest of the branches are -- have reached breakeven. So now to reach a breakeven it is hardly around 2 to 3 months, the branches are reaching breakeven.
Understood. Okay. Okay. And sir, if you could help us understand what would have been the organic growth this quarter and in the first 9 months? Like you mentioned the new branches contributed 12% to the tonnage, if you could just help us understand what would have been the organic growth excluding these branches?
See the overall growth is around -- if you see the 9 months to 9 months, we've grown -- the tonnage has increased around 34%. Out of this, in the current quarter, this 12% growth is coming, but this is since I clarified in the first question itself. See overall this is contributing to both booking and delivery of the consignments. If you see the growth metrics it is contributing around 6% and the remaining is contributing from the existing branches.
So 6% would be for the first 9 months of this quarter?
For the year-on-year growth, I'm saying.
Yes. But for the first ...
Year-on-year growth is around 15%. On that, around 6% from the new branches and remaining 9% from the existing branches.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Sunil, given in terms of there are too many moving parts in terms of buyback received from the divestment of the business and the ongoing CapEx program. wondering would it be possible to guide us on likely level of net debt as we end this financial year?
Yes. By end of this financial year, the net debt will be around say INR 50 crores to INR 60 crores. Because -- see, as of now, whatever consideration has been, received out of that the INR 50 crores is invested in the mutual fund, which will be used for the payment of taxes related to these transactions. And excluding that, we are having a debt of around INR 50 crores to INR 60 crores, and we have to do CapEx also. Buyback, it will be around INR 100 crores, instead of INR 50 crores to INR 60 crores it is around INR 100 crores.
Sorry, so including buyback, you are guiding for about INR 100 crores of net debt, right?
Yes, yes, yes.
Okay. understood. And Sunil correct me if I'm wrong, in the last call, you guided that our margin in the contractual customer as well as noncontractual business is broadly similar. Is that correct?
In what terms?
In terms of EBITDA margins?
Yes, it will be similar. Now after increase in the rates, the noncontractual EBITDA will be better. But again, it is a time gap because in contractual what happens as and when we renew those agreements, see, we will do some rate hikes. That is not possible in noncontractual . Over a period of time, again, it will be similar. But as of now, the noncontractual customer margins are better.
Okay. And Sunil, in which month or in which quarter typically we revise contracts for the larger customers?
So it will be on a continuous process, but most of the contracts will be renewed in the month of April.
Okay. Yes, in the start of new financial year basically?
Yes.
And last one, Sunil, we typically ...
Sorry to interrupt Mr. Karlekar, we have to take the next participant, there are many others who are waiting for their turn. The next question is from the line of Alok Deshpande from Nuvama Institutional Equities.
Yes. Sunil sir, congratulations on a good set of numbers. My first question is, in this quarter gone by and looking forward, which are the top 2, 3 sectors from which you're expecting this 15%, 20% kind of volume growth to come in. So 2, 3 big ones which can contribute to that volume growth number?
See, basically, contribution is seen across all the sectors because we are depending on many sectors, as I said. But typically, wherever the unorganized contribution is on a higher side. From there, actually, the contribution of growth rate will be much higher. As I said, even in the current -- some of the factors I mentioned about the fabric commodities, the footwear, and see agri commodity is basically again the coconut products, the dry fruits market and even some of the sectors what I mentioned earlier also. That is continuously shifting across. These products, we are expecting higher growth.
And similarly, the leather market, especially from UP and surrounding areas those markets are improved. And apart from that, even on the textile front also, the Surat and other areas, most of these earlier businesses engaged lot of these small players and everything. So even that market is shifting to us.
So broadly, if you see even some of the FMCG commodity in the organized market also that growth is coming to us. That is -- see, one is because of the change in the regulation, because of the GST control, because of the invoicing, these markets are contributing to us.
Apart from that, because of expansion in our network, because there is a good connectivity as of today, even lot of these additional customers also contributing to the good growth. So in my sense, the more growth will come from the unorganized to organized market, and the remaining will be in the ranges, again normal growth, in the range of around 12% to 18%. And since we are getting the newer market and new customers on all sectors definitely we are confident to grow at around 20%.
Sure, Sunil sir. Understood. And one other bookkeeping question was, I see this transaction of the bus business that you have contributed since it is completed in January. Now in quarter 4, do we see any profits from discontinued operations at all? Or will it be like only -- I mean, how would Q4 look like when you report it, only the trucking business? And then we'll see the cash on the balance sheet, right?
Yes.
Okay. Understood.
There will not be a P&L item from these discontinued operations in the Q4.
From quarter 4 itself?
Yes. For comparison purpose, we have to share the previous numbers. But for the current Q4 stand-alone as such, there has not been any revenue or expenses related to these businesses.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sunil Nalavadi for closing remarks. Over to you, sir.
Yes. Thank you all participants for your patient hearing. If you have any further questions or any clarification, you can reach out to me. And as I said, again, I want to put the closing remarks in such a way that our expansion plans are going to continue. Our branch network is going to continue, the enhancement in the branch network. And definitely, this will help us to grow further in our volumes.
And there is a lot of shift from unorganized to organized players. That is also the additional benefit for us being an organized player. And the rate increase is only to focus or only to pass on some additional expenses, the variable costs like toll payments and other costs, these are directly we can pass it on to the customers. Considering these expenses, actually, we have increase of 5% rate only on the noncontractual customers. But our growth plan, our expansion plan, our increase in tonnage plan is going to continue. So with this, actually, definitely, we are confident to maintain our growth rate in the range of around 20% and with the EBITDA margins of around 17% going forward. With this, I wish to conclude this call.
Thank you, sir. On behalf of VRL Logistics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.