VRL Logistics Limited (VRLLOG) Q2 FY23 Earnings Concall Transcript

VRL Logistics Limited (NSE:VRLLOG) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Sunil Nalavadi — Chief Financial Officer

Analysts:

Alok Deora — Motilal Oswal Financial Services — Analyst

Amit Dixit — ICICI Securities — Analyst

Rakesh Vyas — HDFC Mutual Fund — Analyst

Dhaval Shah — Girik Capital — Analyst

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Vikram Suryavanshi — PhillipCapital (India) Pvt. Ltd. — Analyst

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Vikash Khatri — Aviral Consulting Pvt. Ltd. — Analyst

Sanjaya Satapathy — Ampersand Capital Ltd. — Analyst

Ash Shah — Elara Securities (India) Pvt. Ltd. — Analyst

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Alok Deshpande — Edelweiss Securities Limited — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to the Q2 FY ’23 Earnings Conference Call of VRL Logistics Limited, hosted by Motilal Oswal Financial Services. [Operator Instructions]

I now hand the conference over to Mr. Alok Deora from Motilal Oswal Financial Services. Thank you. And over to you, sir.

Alok Deora — Motilal Oswal Financial Services — Analyst

Thank you, Michelle. Good morning, everyone, and welcome to the 2Q FY ’23 earnings conference call for VRL Logistics. We have with us 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.

Sunil Nalavadi — Chief Financial Officer

Thank you, Mr. Alok. Good morning to all participants. I am Sunil Nalavadi here, CFO of VRL Logistics Limited. I welcome all of you once again for the earning conference call of the company for the period ended September ’22.

As we indicated earlier, the management of the company is going to focus only on the higher growth-oriented Goods Transport business. In view of the same, we have taken many steps, including sale of non-Goods Transport segment, which were part of the company earlier. I also would like to thank the non-promoter shareholders who have supported our decision by voting in favor and our decision of sale of Bus Operations to the promoter entity.

In Goods Transport business, we are taking many key steps to expand our business at unparalleled growth. The key steps mainly consist of expansion in branch network, addition of new customers, increase in infrastructure back-up by increasing in our own fleet, enhancement in this space in the transshipment hubs and branches, route optimization in line with the increase in tonnage, etc. And this is going to be continued even going forward.

As we envisaged, we are on a track to increase our volume growth by 20% plus in the current fiscal year as compared to the last year. During the quarter, we have handled total tonnage of around 9,66,000 tons, which is almost 7% more than the previous quarter and 14% more than the same quarter of the last year. Further, in the current half year, we have handled total be around 18,58,000 tons, which is 27% more than the last year H1.

With this background, the total revenue of the company reached to INR733 crores in the current quarter, which is again the highest-ever revenue per quarter as compared to the previous quarters. This has resulted into year-on year growth of 15% and quarterly basis the growth is around 2%. The major contribution to the revenue is coming from our Goods Transport segment. And the revenue from this segment reached INR650 crores in the current quarter. This has resulted into 14% year-on-year growth and 7% quarter-on-quarter growth.

The growth in this segment is mainly from the increase in volumes without increasing in freight rates. Apart from the better economic conditions and festive seasons in the current quarter, the increase in tonnage in Goods Transport segment is also due to expansion in network by the company. During the quarter, we have opened around 29 additional branches. And from April ’21, we have opened totally around 188 branches. These branches have then contributed around 8% tonnage, this is additional tonnage to the company.

As we already mentioned that our industry comprises of many of or majority of the small fleet and unorganized operators. To curb on the evasion of the tax, which were supported by the unorganized operators in India, the government has modified the E-Way bill regulations. From April 2022 onwards, for the business entities who are doing the business INR10 crores and — INR20 crores and above, compulsorily they have to generate a e-Invoice. The same limit has been reduced to INR10 crores from 1 October, 2022. This is further going to support us because of the increase in the compliances.

We hope that the steps taken by the government clearly indicates the business transaction needs to be done in a compliant and organized way rather than the non-compliant manner, which were being supported by the unorganized transporter while transportation of the goods, due to which we are acknowledging from the market that many of the commodities transportation, which used to be transported only by the unorganized operators till-date are gradually shifting to us. To name a few of the products, like the coconut product and the leather products, the areca nut or supari product, etc. On account of shift from unorganized operators and the expansion in our network, the base of the customers have been enhanced to 7 lakh customers as against 4 lakh customer base prior to COVID.

When it comes to the profitability analysis during the quarter, the EBITDA of the Goods Transport segment reached to INR101 crores, which is around 8% lesser than the same quarter of the last year and increased by 1.4% as compared to the previous quarter. The EBITDA margin of Goods Transport segment in the current quarter is 15.56%, which is reduced from 19% as compared to the same quarter of the last year, and sequential basis, this is reduced from 16.38%. The detailed [Indecipherable] [05:56] with the analysis along with the reasons have been provided in Page number 10 and 11 of the presentation.

Just to brief some of the regions we handled. If you see the year-on-year decline in EBITDA, it’s mainly on account of increase in lorry hire charges as a percentage to the railway. This cost has increased from 7.25% to 10.16%. The increase in cost is mainly due to sudden surge in festive bookings during the fag end of current quarter, especially from Surat and Ahmedabad markets. And to meet this requirement, we’re forced to engage hired vehicles since our own vehicles were deployed in other routes and geographies. Further, the lorry charges per kilometer has also increased.

The toll charges are impacted in the current quarter. And the percentage to the revenue of this cost has increased from 6% to 7.33%. The increase in toll charges is due to increase in toll plazas, toll charge rates and increase in kilometers tolled by the own vehicles. The another increase impacted on the margin is on account of increase in the employee cost, which has increased from 13.76% to 14.91% due to annual increments effected in January 2022. The decline in some of the costs such as vehicles repair and maintenance, diesel costs and other expenses were supported in increase in EBITDA margins. The diesel cost is under control in spite of no bulk purchase from the refineries. And the cost per liter is less due to reduction of excise duty by the government on periodical basis. The procurement cost of diesel, it was around INR90 earlier. Now in Q2, this has been — it is almost same of around INR90 only.

The quarter-on-quarter decline in our EBITDA is mainly on account of increase in lorry hire charges as a percentage to the revenue. This cost has increased from 9.37% to 10.16%. The increase in cost is mainly due to sudden surge in festive bookings during the fag end of the current quarter, especially from Surat and Ahmedabad again. And further, we’re forced to engage outside vehicle on account of this sudden surge in the demand. Further, the vehicle repair and maintenance charges on account of increase in the spare parts prices has also increased. And employee cost as a percentage to revenue has been declined from 15% to 14.91% on account of the increase in the volumes since the employee cost is fixed in nature, on account of surge in the revenue, the percentage to the revenue has come down. Moreover, if you see the fuel cost, which has declined from 31% to 30%. And this is mainly on account of decline in the overall reduction in the procurement cost. In the quarter one, the procurement cost of the fuel was around INR93, which has been reduced to around INR90.

I would like to quote another impact in the current quarter on account of sudden increase in the transit tonnage during the fag end of the quarter. Normally, this freight amount is around INR45 crores to INR50 crores at the end of each quarter, but in this quarter, this amount is increased to around INR65 crores. Since most of the tonnages are in-transit, we have not accounted this tonnage as the revenue in the current quarter. And further some of the expenses incurred on this transit tonnage has been additionally burdened on the P&L account. In our view, around 50 basis points of margins have been reduced on account of this.

The net profit of the company reached to INR31 crores in the current quarter. And decline in net profit from the run rate of INR50 crores profit from the previous quarters is only on account of decrease in the Bus business. If we see the EBIT of Bus segment, it is around INR17 crores, which has been reduced as compared to the first quarter. The reason is always, if we see the Bus division, the first quarter already we’ll see more demand and more profitability, whereas subsequent quarters, the margins of the Bus business will come down. Further, as we presented earlier also, the Bus business is facing lot of competition, especially from the railways and even on the local air segment.

So on account of this, overall, there is a reduction in the demand. Our number of passengers have traveled less in the quarter two. And even realization per passenger has come down. On account of this, the Bus business is impacted very badly in the current quarter. Further, there is a reduction of profit in around INR3 crores to INR4 crores on account of the windmill transactions. The windmill transactions has effective from 1 July to 1 July. And the profitability of August and — sorry, the August and September profitability have been — have not been considered in the current quarter. Because of that, the profitability is reduced by around INR4 crores to INR5 crores in the current quarter. So on account of these two impacts, the overall profitability has come down. But in terms of Goods Transportation business, it has maintained EBITDA and EBIT level profit.

Other things just I want to highlight about the Goods Transport vehicles, we almost — we have purchased around 560 vehicles in the current half year. And as we committed the capex plan, we are on track and the rest of the vehicles are going to be added in the coming one year period. By September ’23, definitely this order is going to be completed.

And another thing is about the net debt, which has increased from INR130 crores to INR164 crores in spite of increasing in the capex to the tune of around INR170 crores in the first half year. And as we disclosed, the bus transaction is going to be conjugated in the quarter three. And because of this transaction, the company is going to realize around INR190 crores additional cash cash flows, the net of taxes. And this entire cash flows are going to be used for retirement of the debt.

So on account of this, there will be savings in the interest-bear loans, INR3 crores to INR4 crores in the quarter. So overall, on a future period, definitely we are expecting that the tonnage will be growing in the range of around 20% on year-on-year basis and further the profitability will be maintained. At the EBITDA level, we’re going to maintain at the range of around 16%. And at a PAT level, the reduction on the debt is going to be supportive for us to increase at a PAT margins.

With this, I conclude my initial remarks. Now I request the participants to ask questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We have the first question from the line of Amit Dixit from ICICI Securities. Please go ahead.

Amit Dixit — ICICI Securities — Analyst

Hi. Good morning, everyone, and thanks for the opportunity. I have two questions. The first one is that you mentioned in your opening remarks that there was — there were services provided due to certain surge in festive bookings, however, the corresponding revenue was not booked. Is it possible to quantify that revenue? And will it come in third quarter? And if so, what could be your margin — EBITDA margin for rest of the year? That is the first question.

Sunil Nalavadi — Chief Financial Officer

Yeah. So in the normal period of operations or even in the normal festive seasons which are spread in months, this transit price will be in the range of around INR40 crores, INR45 crores value. But in this quarter what happened, this amount has been reached to around INR65 crores.

Amit Dixit — ICICI Securities — Analyst

And this entire INR65 crores have not been booked, that’s what you’re saying, sir, in this quarter?

Sunil Nalavadi — Chief Financial Officer

Yeah. The INR65 crores of the transit freight is not booked as a revenue in this quarter. And apart from that, what happened, there are certain expenses which are incurred by the company. So for example, if the material is booked from Delhi, the booking office expenses have been increased, the booking loading and unloading charges have been increased. If it reaches to the transshipment, transshipment costs have been incurred. And all these expenses have been already charged to the P&L account. See in our estimate, if it would have been a normal tonnage, transit tonnage, the profitability would have been improved by around 50 basis points in the current quarter.

Amit Dixit — ICICI Securities — Analyst

Okay. That’s good. The second question was essentially, if we look at the revenue growth in this quarter Y-o-Y, it has been [Indecipherable] there have been no [Indecipherable] and we have seen your costs increasing. So is there any chance of passing these costs to the customers through price hike?

Sunil Nalavadi — Chief Financial Officer

Yeah. Basically, we are in a expansion mode as of today and we are more concentrated into increase the volumes. Because of that reason, we have not taken a call on the increase in the freight rate. And since we are maintaining the EBITDA level at around 16%, we want to continue this strategy even going forward. If the increase in costs are beyond this level, say, sudden increase in the fuel rates or something like that which are beyond our control or which we are going to impact on our EBITDA margins, then we will think about the increase in the freight rate. Otherwise, we want to continue the same strategy and we want to acquire more and more number of customers and more and more number of sectors which were in the hands of the unorganized players till date.

Amit Dixit — ICICI Securities — Analyst

Sir, what is the threshold profitability level that you are considering, beyond which you would consider price hike?

Sunil Nalavadi — Chief Financial Officer

Yeah. EBITDA margins, our strategy is to maintain at around 16%. And if it is below around 15% or so, then definitely we will think about increasing the rate.

Amit Dixit — ICICI Securities — Analyst

Wonderful, sir. That’s very helpful. Thank you, and all the best.

Sunil Nalavadi — Chief Financial Officer

Yeah.

Operator

Thank you. We have the next question from the line of Rakesh from HDFC Mutual Fund. Please go ahead.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Thank you very much, sir. Just wanted to probe a little bit more on the margins. If I look at your margins and forgetting about the first half of this year, you have been in the range of about 19% to as high as about 20%, 21% in the Goods segment margin for almost seven, eight quarters in the past. And now you are talking about 16% margin. So I’m just wondering that even with the higher volumes, why shouldn’t our margins be going back to previous levels? What explains the difference between the 19% margins we were doing and versus 16% we are guiding now?

Sunil Nalavadi — Chief Financial Officer

Yeah. Basically what happened this 18%, 19% or even up to 20% EBITDA margins we reached in the last year’s quarter two, three and four. But subsequently, what happened, the diesel cost has been tremendously increased. Yet in spite of that, actually we maintained our freight rate. And apart from that, there are increase in other expenses also. If you see the toll charges, it has increased by almost around 1% to 2% to the revenue. Only on account of number of toll plazas have been increased, the toll rates have been increased. And if you see the other costs, the lorry hire cost has suddenly increased on account of the festive season. But even the employee cost have been increased on account of the increment, which has been effected from April 2022.

See, that 19%, 20% which were there for the three quarters, but it is not a sustainable for a going forward or even for a longer period. And since our focus has been shifted more towards acquisition of the new customers and new geographies, new market, we want to grow on a top-line without maintenance of EBITDA level at around 16%. That’s what the strategy have been fixed internally.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Sir, just wanted to follow-up on the same. Should we take the — doing those six, seven quarters’ competitive intensity because of the COVID was benign and therefore you could charge higher margins. And now again the competitive intensity is higher and to grow volumes you need to give up those margins. Is that the way to think about it or is there any other way to think about it? Because you might not be taking a price hike, does that mean the customers would remain sticky and you would have the opportunity to increase price hike in future as and when you get an opportunity?

Sunil Nalavadi — Chief Financial Officer

No basically, see, since we are expanding in the new geography, we want to retain the price. And moreover, once the volumes grows at expected levels, say around 20%, 25%, definitely we will have a operational leverage. And again, around 1% or 2% margin expansion is possible at that level, but it is going to take its own time. Until we reach at least around one or two years, around 20% growth, that possibility we cannot see. And once continuously we grow at a range of around 20%, then going forward, then we will have a operational leverage. At that level, around 1% or 2% increase in EBITDA margin is possible.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Understood, sir. Sir, one last question. Are you under-cutting prices relative to your competition as and when you are expanding in the new geographies or you are at parity? I mean, is there a large difference between your prices and the competition prices, if you can help us understand that?

Sunil Nalavadi — Chief Financial Officer

Basically in the new geography, considering our service strength, we are offering the competitor’s rate to the customers.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Understood, sir. Thank you very much, and all the best.

Sunil Nalavadi — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Dhaval Shah from Girik Capital. Please go ahead.

Dhaval Shah — Girik Capital — Analyst

Yeah, hello. Am I audible?

Sunil Nalavadi — Chief Financial Officer

Yeah, hello.

Dhaval Shah — Girik Capital — Analyst

Yeah, hello, sir. Just continuing with the last participant. So you mentioned in the new geography you are offering competitive rate or the same rate to the competition, I didn’t hear it correctly?

Sunil Nalavadi — Chief Financial Officer

No, competitor’s rate. Same rate of the competitors what they are offering the same rate.

Dhaval Shah — Girik Capital — Analyst

Okay, fine. So now this — focusing on volume growth, so in which geographies have you not taken the price increase? And by doing that, how has your rate card versus the unorganized sector narrowed?

Sunil Nalavadi — Chief Financial Officer

No, our rates are not narrow than the unorganized players, especially in the compliant transactions. Across the board, we have not taken any freight rate increase, either it may be new geography or even in the existing geographies since our thought purpose is to increase the volumes. When it comes to unorganized players, as even earlier I used to say, for the complied transactions, yes, definitely they will offer lesser than our rate. But when it comes to non-compliant transaction, they earn much of a premium rate. There actually we cannot compete with them and we will not do that business.

Dhaval Shah — Girik Capital — Analyst

Understood, understood. Sir, now on the volume growth, so compared to the last June quarter, we would have gone into the other newer geography where the distance traveled by the truck would be higher. So your average realization per ton per kilometer also would be higher. Now would that mean your revenue growth should be higher than the volume growth? Is my understanding correct? Should that be the way to look at it?

Sunil Nalavadi — Chief Financial Officer

No, the realization per ton is a constant at around INR6,700 per ton. The reason is, again, there is a growth in the existing market also. If you see the contribution from the new branches or new geography, which is around 8% of the tonnage — additional tonnage we got from the last one year. But that itself will not change the overall realization rate. Since there is a tonnage increase in the existing market also, the overall realization per ton we are maintaining at around INR6,700.

Dhaval Shah — Girik Capital — Analyst

Okay, fine. And now, about this debt on the book. So by when can we see this transaction getting done and the debt on the books repaying — repaying the entire debt?

Sunil Nalavadi — Chief Financial Officer

As I’ve said, the bus transaction is going to fetch around INR190 crores net cash inflow to the company. And we are planning to consummate this transaction in the current quarter, the quarter three of this financial year. So definitely, once this amount came into the company, then again our financial position will be substantially improved. And apart from that, our focus will be on the main on the Goods Transport segment. And on the interest side, since we are going to repay this debt entirely, so we are going to become a debt-free company once this transaction has been completed. And apart from that, every quarter our savings will be in the range of around INR3 crores to INR4 crores. So that will directly add to our net profit.

Dhaval Shah — Girik Capital — Analyst

Yeah. So in this quarter also, you have this — in the interest component, you have this IndAS adjustment done, right?

Sunil Nalavadi — Chief Financial Officer

No, that IndAS is going to continue even post the bus transaction. But the debt is going to reduce and whatever interest related to this debt is to come down, it will be zero.

Rakesh Vyas — HDFC Mutual Fund — Analyst

Okay, okay. So IndAS component out of INR15 crores will be how much, INR6 crores, INR7 crores?

Sunil Nalavadi — Chief Financial Officer

Yeah. Out of INR15 crores in a quarter, the IndAS component is around INR10 crores, INR10 crores, INR11 crores.

Dhaval Shah — Girik Capital — Analyst

INR10 crores, INR11 crores. Okay, okay. So your actual interest payout is INR4 crores?

Sunil Nalavadi — Chief Financial Officer

Yeah.

Dhaval Shah — Girik Capital — Analyst

Okay. And this will — this what saving you will have?

Sunil Nalavadi — Chief Financial Officer

Yeah.

Dhaval Shah — Girik Capital — Analyst

Okay. Thank you. I’ll come back-in the queue.

Operator

Thank you. We have the next question from the line of Mukesh Saraf from Spark Capital. Please go ahead.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Yes, sir. Good morning, and thanks for the opportunity.

Sunil Nalavadi — Chief Financial Officer

Yeah, good morning.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

On the presentation, you have mentioned about 8% of your total tonnage in the second quarter has come from the new branch additions that you have done last year and first half this year. So that means — I mean, organically, it’s been a lower growth, I mean 4%, 5% growth. But just trying to understand how much more can branch network first of all expand. I think we’ve added less than 100 branches, somewhat 100 branches this year first half. So how are we looking at this branch expansion?

And secondly, because of this new branch addition in newer geographies, how is that the lead distances, etc. may be higher and so the realization per ton, etc. how can that move, because we have had a significantly higher exposure to the West and South, but now that you are expanding, how will that change our numbers?

Sunil Nalavadi — Chief Financial Officer

Yeah. About the new branches, we are having a plan to open around 30 to 40 branches every quarter and this will continue at least for next two to three years. So wherever potential areas are there, definitely we are planning to open new branches. And these are going to continue. And apart from that, when it comes to realization per ton, as you said, since the lead distance is increasing, but the overall contribution since it is in the range of around 8% to 10%, the impact of realization per ton will not be there. And going forward, once these new branches will be in the range of around say 250, 300 branches, then definitely there lead distance will be substantial and at that moment definitely we can see some improvement in the realization per ton.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Right, right. Okay. So you continue to expect only 8% to 10% kind of volume growth because of this branch expansion right now. It cannot become — so it cannot be significantly higher?

Sunil Nalavadi — Chief Financial Officer

Yeah. Once the numbers further increase — and moreover, what will happen, since these branches are opened very nearby — near-future, what is happening, we have to spend some more time. At least these branches have to required around one or two years to give substantial growth in the tonnage. Now what is happening, as a benchmark, we are having at least these branches have to contribute 100 tons per month and these branches to reach a breakeven. And branches are contributing 100 tons within a period of around two to three months and reaching the breakeven. To add to the overall profitability and the growth in the tonnage, at least those branches required at least around two to three years. At that moment there will be considerable jump in the tonnage contribution from these new branches.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Right, right. That’s helpful, sir. Thank you. And secondly…

Sunil Nalavadi — Chief Financial Officer

One thing I want to tell you, even earlier I used to say the new branches there was — contribution was hardly around 2% and 5% in the earlier quarter. Now we’ve reached the 8%. And in the subsequent quarters, again this percentage is going to be increased.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Right, right. Got that, sir. Secondly, in relation to these businesses going out, the bus business as well as the power business. Is there any possible reduction in the unallocable expenses? At the corporate level, would there be some employees that will move out or maybe some rent, etc. that could come off, because we do have INR8 crores to INR9 crores of quarterly unallocable expenses. So just trying to understand is there some slack that we could kind of win?

Sunil Nalavadi — Chief Financial Officer

Proportionately, that expenses is going to come down. Even for a bus segment that external expenditure component is in the range of around 12% to 15%. To that extent, those expenses are going to be reduced. And moreover, [Indecipherable] scrapping the vehicles, even on the new scrappage policy whatever it is going to effect from April ’23. Some of the realization of scrap we are going to support for margin expansion, especially, this will be treated as other income and that may suppose in margin expansion in next year.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Right, right. Got that. And is there — on the employee cost, is there and expected increase in minimum wages by the Karnataka State Government or say any other state that you’re present in, is there — because you are reading that there could be a possibility of a very high kind of jump-in the minimum wages there?

Sunil Nalavadi — Chief Financial Officer

Currently, when it comes to the minimum wages, anyway our employees are earning more than the minimum wages. So currently, the minimum wages is around INR11,000 to INR12,000 in different states. In Karnataka, it is around INR12,000 per month. But most of our drivers and other people are earning more than this amount. They’re earning — average earning by the drivers is in the range of around INR20,000 plus salary or earnings per month. So once the minimum wages is revised, accordingly, the salary structure of the drivers will be changed. But overall, there will not be impact on the company. Only the allocation of the [Speech Overlap] operational cost will increase.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Okay, okay. Got that. And just one — very last one, sir. We have seen your lease liability…

Operator

Mr. Saraf, I would request you to please rejoin the queue.

Mukesh Saraf — Spark Capital Advisors India Private Limited — Analyst

Okay. I’ll get back in the queue. Thanks.

Operator

Okay. Thank you so much. We have the next question from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.

Vikram Suryavanshi — PhillipCapital (India) Pvt. Ltd. — Analyst

Hello. Good morning, sir. Basically, I just want outlook on this use of bio-diesel detail which we used to have very actively earlier. How is the current situation or outlook going ahead for use of this bio-diesel opportunity?

And the second question is that you now share this lorry hire larger as a percentage of sales, but can you give the outside basis on the kilometer percentage like just to get an idea?

Sunil Nalavadi — Chief Financial Officer

Yeah, Vikram. See, one thing about biofuel, again, in near future, we are not having a visibility of usage of biodiesel. But in some of the locations, we started in the current quarter, but it is very, very small quantity as of now. And second thing about the fuel is now entire fuel is consummating through the retail pumps. Even the bulk purchase is ruled out because of the wholesale price is increased by the government. So once these prices are going to be matched and once these are going to get a benefit to us, definitely we are the first people to start usage of the biodiesel.

And the second thing about the highest kilometers what you said, yes, we’ll give that figure to you. See, there is a cost increase of around 2% in the lorry hire charges per kilometer quarter on quarter basis. If we see the cost per kilometer, year on year it has increased by around 17%. And on a overall basis, the kilometers — the lorry hire charges we have incurred in the current quarter are around INR57 crores as compared to the earlier around INR66 crores. And the number of kilometers in the current quarter is around 56,91,000 kilometers, which are contributed by the hired vehicle kilometers in the quarter one. And quarter two, that has been increased to around 65,28,000 kilometers. Whereas last year the same kilometers were around 40,39,000 kilometers.

Vikram Suryavanshi — PhillipCapital (India) Pvt. Ltd. — Analyst

Got it. Yeah. Thank you, sir.

Operator

Thank you. We have the next question from the line of Shrinidhi from HSBC. Please go ahead.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Yeah, hi. Thank you for the opportunity. Sir, first question was on revenue growth outlook, more importantly volume growth outlook as we go into H2, I know you guided for 20%. I just wanted to know how has been the lower threshold for e-invoicing that is starting to kick in from first October resulting into increased inquiries for you.

Sunil Nalavadi — Chief Financial Officer

Yeah, definitely there is — we monitor based on the product wise. Just I mentioned some of the products which were completely in the hands of [Indecipherable] people, those products are shifting to us. And in terms of number of customers, it will be the group of people. See, one coconut product in one particular market, if that entire market is going to shift to us, that way. Irrespective of the number of customers, based on the product wise if we see, there are a lot of inquiries, and we are being — and there is substantial increase in the tonnage from these products.

So that’s the reason whatever government is going to take steps, now e-invoicing INR20 crores it is reduced to INR10 crores, and we are expecting that all GST-registered people are going to regenerate a e-invoice, and that policy may come soon. So once it happens, even the people who are having the turnover of around INR40 lakhs, INR50 lakhs turnover, they are liable to generate a e-invoice. In that scenario, definitely it is going to support us a lot being a organized player.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Yeah. And wondering is this incremental revenue growth that you are seeing because of this formalization, is it a similar margin business or it is coming at a lower margin?

Sunil Nalavadi — Chief Financial Officer

Yeah, definitely it is a similar margin business because most of these retail rates were fixed by the company. We do not have contact with these customers. This always we use to highlight about this paid and to-pay customers. Most of these customers comes under this category paid or to-pay, which is almost 70% of our business as of today. For these customers, we do not have a contract. Those customers have to follow the rate charge issued by the company.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Great. And sir, coming back to a question…

Sunil Nalavadi — Chief Financial Officer

New customers in this category, obviously, they have to book as per the company’s rate card.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Right. Understood, sir. And coming back to margin guidance which you said that we are expecting about 16% margin. Sir, if you look at this quarter margin, you did almost 16% margin and this quarter had several one-off kind of things. So wondering if those one-offs normalize, shouldn’t your margin go back to 17%, 18% level as we go into second half?

Sunil Nalavadi — Chief Financial Officer

Yeah. There is a possibility of around — change of around 1% or so because these lorry hire charges is going to come down and even the transit tonnage what we are talking that may benefit in the next quarter. But the substantial, around 18% what we are talking, definitely it is going to take a time. So once the strategy of volume increase is continuously increased around 20% in next two to three years, post that definitely we can look margins in the range of around 18%.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Okay, sir. And last one, sir, a bookkeeping question. Would it be possible to tell us how much was the total tonnage you did in full financial year last year?

Sunil Nalavadi — Chief Financial Officer

Yeah, last year I said half yearly we did…

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

No, for full year, sir, I wanted.

Sunil Nalavadi — Chief Financial Officer

Full year I’ll share with you separately, okay? Half year information is available as of today.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Yeah, 18 lakhs something you said, right?

Sunil Nalavadi — Chief Financial Officer

Yes, 18,58,000 tons. And full year basis we did around 32 lakh tons.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

32.

Sunil Nalavadi — Chief Financial Officer

But anyway, I will share you separately on that, okay?

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Okay, sir. Okay. Thank you for answering my question and all the very best.

Operator

Thank you. We have the next question from the line of Vikash Khatri from Aviral Consulting. Please go ahead.

Vikash Khatri — Aviral Consulting Pvt. Ltd. — Analyst

Hello, good morning. So my question is the kilometer of running, you have given last year 40,00,000 kilometer to this year 66,00,000 kilometer, increase of almost 65%. Is it due to having any relation with the retirement of your own fleet that market engagement has increased that’s why your lorry cost is going up? And if so, then what’s the outlook in the coming days in terms of old vehicle retirement versus lorry hire?

And the second question is that you are adding new segments like you gave coconut, leather, supari. What’s the impact on the top four contributing categories of the volume like, VRL is known for the cloth. So how that is moving up and how it will be in coming days?

And third question is related to your wind business. So are there any plans to enter in related business like rail freight?

Sunil Nalavadi — Chief Financial Officer

Yes, just to answer about the lorries kilometers, the kilometers have been increased mainly on account of a sudden surge in the volumes, especially in Surat, Ahmedabad and some of the locations in Punjab, Ambala and other places. But this is one-off increase in the kilometers. And going forward, definitely it will not be this kind of a percentage. Overall, it will be in the range of around 7% to 8%, not in the range of around 10% to 11% in terms of kilometers. That’s one. And second thing…

Vikash Khatri — Aviral Consulting Pvt. Ltd. — Analyst

So no relation with the old vehicle versus outsourced vehicle ratio?

Sunil Nalavadi — Chief Financial Officer

Yeah.

Vikash Khatri — Aviral Consulting Pvt. Ltd. — Analyst

Okay.

Sunil Nalavadi — Chief Financial Officer

So your second question is related to the wind power project. The wind power project, yes, it is a one-time investment we did long back in the financial year 2006-’07 only for the tax planning purpose. And since we got to the complete benefit on the tax side and even on the return on this project, so we got a good offer and we sold that project. And in the near future we are not looking for any such investment and our focus will be only on the goods transport business going forward.

When it comes to product wise, yes, the cloth we are doing around 18% to 19% of the overall tonnage, and agriculture commodity is in the range of around 7% to 8%. And when it comes to the food and FMCG product, we are doing around 9%, and the electronic goods we are doing around 7%, and the metal hardware are in the range of 8%. So the major commodities are the cloth, and rest of all in the range of around 6% to 8% to the overall tonnage contribution. So we are not depending on any particular sector. And even if you see the customer base, we are having a 7,00,000 plus customer, and the top customer contribution even is not more than 1% to the revenue. That’s how they’re spread in terms of the customers or even in terms of the product.

Vikash Khatri — Aviral Consulting Pvt. Ltd. — Analyst

Okay. Thank you.

Sunil Nalavadi — Chief Financial Officer

Thanks.

Operator

Thank you. We have the next question from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead.

Sanjaya Satapathy — Ampersand Capital Ltd. — Analyst

Yeah. Thanks a lot for the opportunity. My question is that you are trying to gain market share through a bit of aggressive pricing strategy. So is that something which is going to be negative for you in the long term because you may like to get into parcel business or something?

Sunil Nalavadi — Chief Financial Officer

No, ours is a healthy growth. If we see many people are trying to, by heavy losses they are incurring and growing in the market. But our strategy is totally different. We want to earn a minimum operating margin and grow. So our growth what we are seeing it is completely healthy growth. It is not at all risk for us.

Sanjaya Satapathy — Ampersand Capital Ltd. — Analyst

Understood. And sir, my last question is that promoters are going to buy out this bus business. So, how are they going to fund that acquisition because there are some speculation that they will sell VRL shares in the open market to raise funds?

Sunil Nalavadi — Chief Financial Officer

They are planning internally among the promoters, and definitely it is their plan. We don’t want to comment on that.

Sanjaya Satapathy — Ampersand Capital Ltd. — Analyst

Okay But when are all these transactions likely to get over, that whole uncertainty will go away, is there any idea?

Sunil Nalavadi — Chief Financial Officer

Yeah. In quarter three, we want to complete this transaction, because we received a shareholder approval by 30th October and definitely we are going to complete this transaction by the end of this quarter.

Sanjaya Satapathy — Ampersand Capital Ltd. — Analyst

Understood. Thanks a lot, sir.

Sunil Nalavadi — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Ash Shah from Elara Capital. Please go ahead.

Ash Shah — Elara Securities (India) Pvt. Ltd. — Analyst

Thank you, sir, for the opportunity. So I just wanted to confirm one thing, earlier you mentioned that 75% of the customers are to-pay customers, right, if I am not mistaken?

Sunil Nalavadi — Chief Financial Officer

Yeah, paid and to pay.

Ash Shah — Elara Securities (India) Pvt. Ltd. — Analyst

Paid and to pay, okay. And 25% would be contract basis.

Sunil Nalavadi — Chief Financial Officer

Yes.

Ash Shah — Elara Securities (India) Pvt. Ltd. — Analyst

Okay. And also one more thing. So since the bus segment is going to be carved out into a new entity, so the management bandwidth will be divided between the two. So how are we planning to deal on with the situation if there is any?

Sunil Nalavadi — Chief Financial Officer

Yeah, even currently see that bus business is completely running by the independent professional management. There is a technical team who were running independently. And apart from that the operational person is from the inception of the birth segment. Actually, he is leading that business and that person is going to continue as head of this operation. And about the management role, yes, especially on the policy matters, definitely, even currently their involvement is there even with this company since that segment is running. And going forward also whatever policy level decisions or policy level participations are required, definitely, there will be involvement. But on a day-to-day operations level, there is an independent team who are going to handle it. And currently, that’s how the structure is and even going forward that’s how the structure is going to continue.

Ash Shah — Elara Securities (India) Pvt. Ltd. — Analyst

Okay. Thank you. That’s all from my side.

Operator

Thank you. We have the next question from the line of Suraj Nawandhar from Sampada Investments. Please go ahead.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Hi, sir. Good morning. So what is the timeline to receive our 1,600 trucks that we have placed order with Tata and Ashok Leyland?

Sunil Nalavadi — Chief Financial Officer

Sorry, will you repeat your question please?

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Sir, we have placed — two to three quarters ago, we had placed a big order with Ashok Leyland and Tata Motors of 1,400 or 1,600 trucks, please correct me again. So, what is the timeline to receive all those trucks and when they can come…

Sunil Nalavadi — Chief Financial Officer

Yeah, as we informed to the exchanges earlier.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Sorry? Come again, sir.

Sunil Nalavadi — Chief Financial Officer

Yeah. As we informed earlier, this order is going to complete by September 2023, and we are on a track.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Okay.

Sunil Nalavadi — Chief Financial Officer

So September ’23 all these vehicles will be purchased.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Okay. So is it going to be stepwise delivery like every month they are going to give us 50 or 100 trucks or anything like that, or they are going to give us everything at one go?

Sunil Nalavadi — Chief Financial Officer

No, no. Currently in the quarter one, Quarter two, we added substantially good number, almost around 600 vehicles in the first half year. This kind of acquisition is going to continue. Say, another 600 vehicles are going to be added in next half year. So, by that time around 1,200 vehicles will be added. And another 400 vehicles will remain that will be added by September ’23.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

So, sir, can we expect this lorry hire charges to go down substantially in next six to eight months once we receive the delivery of all the trucks?

Sunil Nalavadi — Chief Financial Officer

Since we are going on the volume side also, the substantial reduction will not be there, but at least there will be reduction of around the 2% to 3% on overall kilometers.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

Okay. And sir, if I heard you correctly, textile contributes the largest percentage share in volume till today, right?

Sunil Nalavadi — Chief Financial Officer

Yes. Around 18% to 19% of our volumes are coming from textile.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

So, how the slowdown in textile is affecting us, because we are seeing very bad results and low demand from many companies. So how is it affecting us?

Sunil Nalavadi — Chief Financial Officer

No earlier, if you see the textile was contributed around 14% to 15% to the volume. Now that contribution has increased to around 18% to 19%. The reason is earlier, as we mentioned, we were not having a proper infrastructure facility at Surat, and we were not having proper branch network in the untapped market. Now what is happening is from the last two years, except this COVID impact, we are having a proper infrastructure at Surat so that we can book the cloth material from Surat to across India. Earlier we used to do only from Surat to South predominantly. Now that has been expanded from Surat to South, Surat to East, even Surat to North. That’s how the contribution from the overall textile is increasing. So we are not depending on a few customers which is going to impact on our total volumes. We are depending on the total market. And a lot of new customers have been added in this segment.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

And sir, have you put any number, like an upper cap, like let’s say 25% of our volumes — let’s say, textile hits 25% of our volumes, we will stop taking any more volumes from textile because then our dependence on the one sector will increase. So have you put any cap on any particular sector?

Sunil Nalavadi — Chief Financial Officer

No, we do not have any cap or any minimum requirement of each segment. See when it goes to our branches, we handle all kind of commodities, except some hazardous and liquid products, we are handling all commodities. That’s why we are not depending on any [Phonetic] sector. And if you see the next sector wise contribution, the maximum it is in the range of around 6% to 8%. That’s how it is widely spread. We are not depending on any customer. We are not depending on any particular product. So our volumes are spread across the industry and spread across the customers. Even in slowdown on some of the products are not going to impact on our overall volumes.

Suraj Nawandhar — Sampada Investments Co Pvt. Ltd. — Analyst

All right, thank you, sir. Thank you very much and all the best.

Sunil Nalavadi — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Krupashankar NJ from Spark Capital Advisors. Please go ahead.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Sir, sood morning and thank you for the opportunity. I had a question relating to your branch addition. If I’m not mistaken, you said about 30 to 50 branches added per quarter. So are you seeing that these branches will get added more in geographies where your vehicle cost are typically like, for example, last year you added — around 45% of your new branches came in the northern and the eastern region. So is there focus on expanding more branch centers over there, or is it going to be again focused on south and west where we are relatively stronger?

Sunil Nalavadi — Chief Financial Officer

No, more focus is on eastern and north market and even the northeast market. So most of our new branches will be added in those areas. See, sometimes the western permit — wherever the requirement is there, only in those locations we are going to add a branch, but the expansion model what we are talking that is only in the eastern, north and northeastern geography.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Sir, the point you were stating earlier that around 100 tons per month is required for breakeven. Is it achieved even in these geographies of north ends [Phonetic]. Is my understanding correct?

Sunil Nalavadi — Chief Financial Officer

Yes. This 100 tons per month requirement is for each and every new branch, irrespective of the geography.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

No, what I meant was, it is taking around two to three months to breakeven. Is that the case with new branches opened in north and east as well right now or is it…?

Sunil Nalavadi — Chief Financial Officer

Yes. Where we are opening, these branches are taking over two to three months to reach 100 tons, and by that time it will reach breakeven. Whatever expenditure incurred over one or two months, definitely it is burden on the P&L.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Okay, sure.

Sunil Nalavadi — Chief Financial Officer

And so far as profitability contribution and growth in the turnover will be more visualized after 1, 1.5 year. That time actually the real contribution from these branches, the profitability contribution will be emerged.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Got it, sir. And a related question is, so what I can see in your balance sheet is that the lease liability proportion has gone up quite substantially. That’s primarily only because of branch addition or is there any hubs also which we have renewed lease at a relatively higher cost which is translating to this higher lease?

Sunil Nalavadi — Chief Financial Officer

No, along with the branch expansion, we said that even space expansion is required in some of the key transshipment hubs. So that’s how we actually we carried out in the last six months. And for all these actually we have entered into new lease agreements. So because of that the lease liability has increased.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

How many hubs have you changed this year?

Sunil Nalavadi — Chief Financial Officer

Yeah. In around 10 to 12 locations in a major area we have changed, but even at a small scale if we see, almost around — it is a continuous process, and the major changes happened in around 50 to 60 locations in the first half year.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Understood, sir. Thank you.

Sunil Nalavadi — Chief Financial Officer

That is really to name some of the places like Pune, Ahmedabad, Raipur, Salem, Chennai, Kanpur, Delhi, Kolkata, Pune, Patna, Guwahati, Siliguri, Cuttack, all these actually places we have enhanced our space and a lot of volumes are coming in those areas. And one more thing that I want to mention about space expansion. Always we will have a vision that even after three, four years there should not be change in the space. If there is a requirement of 50,000 square feet, we initially go for a 1,00,000 square feet. If requirement is 1,00,000 square feet, then we go for around 1,50,000 square feet. We always keep a vision that in the next four, five years also the space should not be changed. Because of that reason, initially the utilization rate will be around 50%, 60%. Gradually the utilization will increase around 70%, 80%. So because of this reason also there will be some burden of expenses in the P&L.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Understood, sir. So all this benefit of operating leverage will be reflected after a year or two when things scale up substantially…

Sunil Nalavadi — Chief Financial Officer

Yeah. Definitely 1-1.5 year, then definitely the clear visibility come and definitely the margin expansion is possible.

Krupashankar NJ — Spark Capital Advisors (India) Pvt. Ltd. — Analyst

Thank you, sir. Thanks for your explanation and best of luck.

Operator

Thank you. We have the next question from the line of Alok Deshpande from Edelweiss Securities. Please go ahead.

Alok Deshpande — Edelweiss Securities Limited — Analyst

Hi, good morning, Sunil sir. Alok here this side. Sir, you mentioned about the timeline of this new fleet addition that is going to come. You added about 500 so far in H1, another 500, 600 in the next second half of this year. Sir, as this addition happens, do you see a possibility till you settle down with all these new additions that there can be some case of underutilization of capacity until probably the second half of next year, or do you think that utilizations are up and running even for some of these new additions?

Sunil Nalavadi — Chief Financial Officer

See, the vehicle addition is always based on our requirements. From the date of registration itself, these vehicles are going to be utilized. So that’s actually — depending on the outside vehicle will come down and there will be utilization of the old vehicles. So always the utilization will be maintained even for the new vehicles.

Alok Deshpande — Edelweiss Securities Limited — Analyst

Second question on the sale of the bus operation business. Now, given or assuming this will be completed this quarter, so should one assume that starting Q4 of this year that segment will not reflect in your book of accounts or will that be next year?

Sunil Nalavadi — Chief Financial Officer

Yeah. Once this transaction is consummated [Indecipherable] from Q4 onwards those numbers will not be there. It will be a discontinued business.

Alok Deshpande — Edelweiss Securities Limited — Analyst

Understood. Thanks, Sunil sir.

Sunil Nalavadi — Chief Financial Officer

And similarly if you see the wind power project now, so this project has been — the effective date was around 1st August. The August and September revenue and profitability have not been accounted in the current quarter. The similar numbers will appear in the next quarter now, the Q4.

Alok Deshpande — Edelweiss Securities Limited — Analyst

Sure, sir. Understood. Thank you so much.

Sunil Nalavadi — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next follow-up question from the line of Dhaval Shah from Girik Capital. Please go ahead.

Dhaval Shah — Girik Capital — Analyst

Yeah. Suni sir, now given we are expanding so aggressively, will there be higher increase in the employee cost in terms of more incentives, you’ll need more manpower. We are also expanding — might be recruiting more senior people because the expansion is happening at the rate which we have not seen in the past. So will there be a substantial change in the employee count, the kind of employees we have, the employee mix?

Sunil Nalavadi — Chief Financial Officer

Yeah. See, as and when we increase the number of branches, definitely the number of employees are going to be increased, and we do a lot of these promotes — we are doing internal promotion to the people, giving promotion to the people who are going to handle these new geographies. See, we are sending some of the expert people who are already in the company, who are very loyal to the company to these new geographies with all these promotions. To that extent, definitely the absolute amount of the salary is going to increase. But since the volume growth are better than at a — growing at around 14%, 15% even 20%, the percentage of salaries or employee cost percentage to the revenue will come down, but in absolute terms yes, definitely there is some incremental cost will be there.

Dhaval Shah — Girik Capital — Analyst

Yeah. So our employee cost has been around, say, if you just — this run rate of the current quarter will be INR430 crores, INR440 crores, INR430 crores around, now this absolute number will grow at what rate over the next three-year period?

Sunil Nalavadi — Chief Financial Officer

Now if you see in the first quarter — one second.

Dhaval Shah — Girik Capital — Analyst

We were INR106 crores in first quarter, second quarter INR111 crores.

Sunil Nalavadi — Chief Financial Officer

Yeah. So, it was around INR106 crores, now in second quarter it is, similar — around INR4 crores, INR5 crores incremental cost will be there every quarter.

Dhaval Shah — Girik Capital — Analyst

Every quarter INR4 crores, INR5 crores. Okay, so for the next two years every quarter on quarter you will see INR4 crores, INR5 crores additional employee cost is what you mean?

Sunil Nalavadi — Chief Financial Officer

Yes, in the normal scenario, unless we do the incremental at a board level to all employees.

Dhaval Shah — Girik Capital — Analyst

But then increment will come, right? Incremental is a part of…?

Sunil Nalavadi — Chief Financial Officer

Increment, see, it is not an immediate thought process, because we have already did it in April ’22. That is not the immediate thought process, but till that time, definitely around the INR4 crores to 5 crores on every quarter it is going to increase, because one is the new branches will be there, we are appointing the new people, and we need a lot of new supportive staff also. And a lot of these internal increments to the people who are shifting to the new geographies. All these expenses are continuous exercises we are doing. And the more focus is only to establish these branches and stabilize these branches and increase the volume. That is what the strategy is.

Dhaval Shah — Girik Capital — Analyst

And this unallocable income and expense, how will that be after the sale of the bus transaction?

Sunil Nalavadi — Chief Financial Officer

There will not be any unallocable. That entire expenses will be treated as only goods transport segment expenses. And moreover, some of the expenses are going to shift to even bus operations. So on a net basis, these unallocable around INR4 crores to INR5 crores expenses are going to be treated as GT segment expenses.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. So out of the expenses reported in the second quarter, INR4 crores to INR5 crores will become part of the GT segment?

Sunil Nalavadi — Chief Financial Officer

Yes.

Dhaval Shah — Girik Capital — Analyst

Okay. And the rest will go off.

Sunil Nalavadi — Chief Financial Officer

Rest will go off. And even we have to adjust unallocable expenses, unallocable revenue also, right?

Dhaval Shah — Girik Capital — Analyst

Yes. So, revenue how will that be?

Sunil Nalavadi — Chief Financial Officer

Means after adjusting all revenue and expenses around INR4 crores to INR5 crores additional expenses will be there, unallocable expenses. That will be treated as the GT expenses.

Dhaval Shah — Girik Capital — Analyst

Net figure. Okay.

Sunil Nalavadi — Chief Financial Officer

Yeah.

Dhaval Shah — Girik Capital — Analyst

Okay, and how much is the gross debt right now on books and cash?

Sunil Nalavadi — Chief Financial Officer

Cash is around INR11 crores to INR12 crores.

Dhaval Shah — Girik Capital — Analyst

Okay. And gross debt?

Sunil Nalavadi — Chief Financial Officer

And that will continue as it is.

Dhaval Shah — Girik Capital — Analyst

Okay. So net is INR169 crores, okay. So by 31st March, given the transaction happens as expected, then you will be net cash — debt will be zero?

Sunil Nalavadi — Chief Financial Officer

Yeah, we are expecting that. And we have to see the capex also. But anyway, the internal accruals are going to support further. And this fund is completely utilized for the repayment of debt. Again, there will be savings on the interest. [Speech Overlap] and even on a leverage side the company will become debt free company.

Dhaval Shah — Girik Capital — Analyst

So, how much capex is due for Q3, Q4 of this year?

Sunil Nalavadi — Chief Financial Officer

Yeah. Average around INR80 to INR85 crores capex will be there, that’s how it is even there in the Q1 and Q2. That will continue. And substantially it is for the vehicle addition, the goods transport vehicle addition.

Dhaval Shah — Girik Capital — Analyst

Okay. And the same figure, same INR160 crores, INR170 crores you will be spending next year, FY ’24?

Sunil Nalavadi — Chief Financial Officer

Yeah, next half year.

Dhaval Shah — Girik Capital — Analyst

Sorry?

Sunil Nalavadi — Chief Financial Officer

Next half year because INR170 crores has been already invested in first half year now.

Dhaval Shah — Girik Capital — Analyst

Okay. And INR80 crores is for the…

Sunil Nalavadi — Chief Financial Officer

There will be similar investment in next six months till March ’23. And again, further, there will be similar investments till September ’23 on a half-yearly basis. Post that again, we analyze how the requirement of the vehicles and all — again, we will derive our capex plan.

Operator

Mr. Shah? As the line of current participant has been disconnected, we move on to the next participant. And the question is from the line of Shrinidhi from HSBC. This is a follow up question. Please go ahead.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Yeah. Hi. Thank you for the follow up. So just wondering is the growth from corporate client is higher than your overall growth for last two quarters? And is the profitability in corporate clients significantly lower than your overall profitability?

Sunil Nalavadi — Chief Financial Officer

Proportionate growth will be there. This contribution will be there in around 20%, 25% even going forward. See, wherever we are entering into new geography and even products, what I have mentioned these are all the paid and to-pay customers.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Okay. And sir, how is profitability in corporate customer lower than your overall profitability?

Sunil Nalavadi — Chief Financial Officer

See it is again similar profitability because the corporate client is assured business and we can plan it properly. And moreover, some of the diesel escalation clauses are there in the corporate clients’ agreement, so price are continuously revising in the corporate client, but that is not the case in paid and to-pay customers. So, on an overall basis, even margin side, it will be similar margin in accounts customer as well as paid and to pay.

Shrinidhi Karlekar — HSBC Bank Plc — Analyst

Understood, sir. Thank you for answering the questions.

Sunil Nalavadi — Chief Financial Officer

Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Alok Deora from Motilal Oswal Financial Services. Please go ahead, sir.

Alok Deora — Motilal Oswal Financial Services — Analyst

Yes, sir. Most questions have been answered. Just want to understand so as this capex progress, how much would be the lorry hire percentage now going forward as a percentage of the total requirement, because the capex we have done in 1H also and now it’s progressing at INR80 crores, INR85 crores per quarter, so this…

Sunil Nalavadi — Chief Financial Officer

Yeah, around 6% to 7% per kilometers we have to do with the outside vehicle. The reason is in some of the routes, there will be not be return load, and some of the local from hub to spoke actually we’re engaging the hired vehicles. Those scenarios will continue. So overall basis, it will be in the range of around 6% to 7% of the total kilometers from the outside vehicles. And there will be sudden demand on account of some of the festivals and all. To meet that one-sided demand actually, we have to engage outside vehicles only.

Alok Deora — Motilal Oswal Financial Services — Analyst

Sure. Okay. Yeah, I think that’s all from my side.

Operator

Thank you. Sir, we do not have anybody in the queue.

Sunil Nalavadi — Chief Financial Officer

Yeah. Just I wish to again give a closing comment. The management is highly focusing on the goods transport segment. And there will be lot of expansion in this segment going forward. Our focus is more on the volume growth. And once volume growth are happening at a expected level, definitely we can maintain EBITDA margins. And currently our expected EBITDA margin is around 16% or so, and this may improve around 50 basis point or up to 100 basis points in the next quarter on account of some of the key increase in the expenses in the quarter two, especially on lorry hire charges, or even on the front of the non-recognition of some of the revenues and incurring of expenses on unrecognized revenues.

So, going forward, our focus will be more on the volumes and branch expansion and only on the goods transport segment. Since we are having a proper infrastructure backup, we will not face any threat of scarcity of the vehicles or other parameters in the industry. And apart from that, since our customer base is widely spread, we are not depending on any product. Even the slowdown in the economy or recession, if we are expecting, definitely that is not going to impact directly on the company. So, definitely we are more focusing on the healthy growth, not just incur the losses and grow the business. We are growing healthy. That’s what actually I want to give the closing remarks.

Operator

[Operator Closing Remarks]