A brief interview on logistics sector with Mahesh Fogla, Patel Integrated logistics

In this interview session with Mr Mahesh Fogla, executive director of Patel Integrated logistics, we try to unveil the workings of logistics industry and various policies like National Logistics Policy. Alongside, we also try to understand about the company in detail.

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Chirag: Greetings of the day everyone, and welcome to AlphaStreet. As we all know the logistics sector form the backbone of any economy. With the sector contributing a vital role in the supply chain management, thus facilitating the movement of goods and services, it becomes really substantial to understand what lies ahead of the investors.

So before we move forward ahead with this interview, I would like you to and actually request you to share this video and subscribe to our channel.

So today at AlphaStreet, we are really privileged to have with us a senior leadership person from one of the leading logistics company of India, Patel Integrated Logistics, Mr. Mahesh Fogla, sir.

Mahesh Ji, welcome to AlphaStreet and we are really privileged to have you here.

Mahesh Fogla: Yes. Thank you, Madan. Thank you, Chirag for inviting me. Really, good to share my view with you. Yes, thank you.

Chirag: So a little introduction for our audience. Mr. Mahesh is a qualified chartered accountant and cost accountant with a rich experience in finance and accounts. He also holds a vast experience in the facets of corporate working for almost 3 decades in a very well-known public-listed company. He is also a keen observer of the rapidly changing logistic landscape in the country and is very active in expressing his views for the overall development of the sector.

Sir, before we move ahead with the interview, I have a question from you that I’m very much intrigued about and would like to know more about it. So sir, what inspired you to pursue a career in finance and in particular, the logistics industry, and you know, the point from where you started, how has the logistic industry evolved from that point till now?

Mahesh Fogla: Yes. Correct. I’m basically trained in the chartered accountant, cost accountant. Definitely, the finance come naturally, one of the thing, it naturally come to me. And the logistic definitely excite me and I feel more about the logistic because logistic is the backbone of the Indian economy. If logistic grow then Indian economy also grow and there I can add lot of value in the operation, in the growth of the logistic thing, which will overall definitely, professionally give me enjoyment as well as the overall as a country also, it will give the value addition to the country also. So definitely, that’s the reason I feel very good about the logistic sector.

Chirag: Got it, sir. Sir, since you have so much expertise in the logistics sector, so I think, you are the right person to ask this question. So, we have developed economies like China and Germany that are working on 6PL or 7PL whereas India is still stuck on 3PL. So, what steps do you think should India take to be amongst the nations working on 7PL?

Mahesh Fogla: First of all, we have not reached till now to 5PL, so there is a very long road ahead. I think we have to go a long way to reach the 7PL. At the same time, the country is going in a very good way and right now, National Logistics Policy has been introduced last year by our honorable Prime Minister, Narendra Modi.

Our first of the foremost objective is to move the goods immediately and with a reduced cost, because the cost of the logistic in India is right now is 14%, and our aim to be to as a developed country have a logistic cost around 8%. So, our first and foremost priority is to reduce the cost of logistic and as well as move the goods faster, so it can help in the Indian economy growth. 7PL, yes, 7PL will be achieved, but right now, I think as our policy makers are not also thinking about the 7PL. But we want the — our objective is to move the goods faster and with reduced cost.

Chirag: Great, sir. Talking about the costs, sir, what could be the reason for higher cost in India?

Mahesh Fogla: Yes. Higher cost in India is there, there are multiple reason, as follows. One is the, till now the basic reason is petrol, diesel or aviation turbine fuel is not under GST like our other goods all are under GST. What is happening if the — these are the basic components of the logistic cost. In any logistic, whether in the road, air or in the sea, this constitute the major portion of the logistics cost. Like in the road or in the air, it constitutes about from 30% to 40% of — what I mean by that petrol, diesel or aviation turbine fuel. Fuel constitute from 30% to 40% of the logistic cost. And what is happening, if these are not under the GST, if these are not under the GST, then cascading effect come. Because when I charge the service to the client, I charge the service to the client with the GST including. But when I use the fuel, I don’t get any input credit. So, definitely the charges for the client become higher and as a result, overall as a country it become multiplier impact and cascading impact and the cost become higher.

Second reason is that still now the logistic sector was not properly using the technology, it is more under the unorganized sector. From the last few years, logistic sector began to be organized and the technology — more and more technology has been getting used in the logistic sector. Once the technology getting used, so there are lot of inefficiency in the system, which will get wiped out gradually over a period of time, it is getting already wiped out like our Patel Integrated Logistics Limited, we are now a technology-enabled company or any other organized players are technology focused company. So, that will also reduce the logistic cost. And there are other things are there, definitely the focus which has been given by the — our honorable Prime Minister, Narendra Modi, this time National Logistics Policy, which will also reduce the logistic cost of the country overall. So, there are till now the focus which was there was not so much on the logistic which is now there and economy growing, we all are growing and logistic cost had to come down. That is the overall substance, yes.

Chirag: Got it, sir. Sir, talking about National Logistics Policy, can you briefly tell us about what is National Logistics Policy and how will it aid in the development of the logistics sector in India?

Mahesh Fogla: Yes. Logistics policy has been unveiled by the — our honorable Prime Minister in the last September only. Objective is — the policy developed over an eight-year time, it’s not an overnight policy I think made by the government. And objective of the policy is to improve the ranking of Indian in Logistics Index, which is right now is around — if I remember correctly, around 35 around, which we want to bring into 25. And definitely, like we have all of us are now using the UPI for banking transaction, there is a logistic policy also talk about a unified logistics interface platform. So, what will happen, there will be a seamless coordination between the — all area of logistic. What I mean by that. Air, sea, road, mostly the logistic will be the forefront of the thing. So, there will be better coordination between all the areas of logistic and the goods will move faster. There will be better visibility of the — where the things are lying.

One of the important — when your first question was of logistics cost. I can tell about the road sector where the reverse logistic. What I meant by reverse logistic is, when the goods move from — suppose I can give you live example, like goods move from Mumbai to Calcutta, if there is a — from Mumbai to Calcutta, okay, load is there, means truck is full. When the goods move back from — and when the truck move back from Calcutta to Mumbai, there will be not enough load in our language or the goods were not available. As a result, the overall logistic cost get — logistic cost get increased.

So, one of the objective of the NLP we call it, National Logistics Policy, NLP, is to provide greater visibility, so there is minimal truck — empty truck movement of the goods. Further, the — and the National Logistics Policy will give better visibility to all the people who are — there will be more truck on the logistic sector and people will have a greater visibility. Like now the — in the — we have number of airports are also getting increased from — from the — already from 70 to 140, increased in the last eight years. Now, the target is from 140 to 220 airports.

And when the means of logistic get increased also, then also the logistic cost will come down and this is the aim of the NLP to — and increase the benefit of logistic sector to the Indian economy and our goods become competitive in the market also. As I was talking about that our logistic cost is right now 14%. Aim of the NLP is to bring it down to 8%, so we can compete in the export market and our inefficiency — due to inefficiency in the logistic sector, our exports not get suffered. So, we have multiple benefit and it will be game changer. Just to clarify you, NLP there will be a game changer. NLP will be definitely a game changer for the Indian economy.

Chirag: All right, sir. Got it. Sir, as we have discussed that logistic sector is the backbone of any economy. Yet, we do not see any stock delivering exemplary returns in the past. So, what could be the reasons for this?

Mahesh Fogla: There can be multiple reasons for this as stock market not directly linked with the performance of the sector. But at the same time, there are many logistic also is now that there are lot of the investor, lot of foreign money coming into there. And improvement happening in the sector. So definitely, the return will also be sooner or later will come into picture. But there are a couple of company, I don’t want to name — but they have – their founder has taken investment in the 10paisa, their cost was there and then they came out with the IPO, they have coming on INR 500. So, there they have made the return. It’s not that they have not made the return.

But at the same time, at the — now the last few years only, after the GST and all these organized players were getting much, much important in the logistic sector, otherwise the — one of the issue of the logistic sector was unorganized players were dominating the sector. Like I can tell you right now also around the 70% is the unorganized sector in the truck and 30% is the organized, which will gradually — because there are many people are there in India, who are holding very few truck and they are doing the business. So, more and more organized things will get improve then the stock will also will able to get the return, which they are due. And as we are talking about the Indian economy will become a $5 trillion economy, $10 trillion economy and more and logistic sector, cost will come down from 14% to 8%. Then the definitely, the market will also recognize them and they will give the return which were accepted from the market.

Chirag: Sure, sir. Talking about Patel Integrated Logistics, can you tell us how the company competes with other logistics companies in its niche?

Mahesh Fogla: Yes. So, give me one minute, let me explain you what the Patel Integrated Logistics Limited do. It is a 1959-old company. It is earlier known as Patel Roadways. And we have our iconic brand of the kangaroo carrying in the lap baby. By that what we mean by that, we like the kangaroo carry baby in its lap, we deal with our customer goods in a similar way. And we were one of the pioneer in bringing that technology or respect to the logistic sector by making our office in the Bandra in Mumbai, which is like very good place in the Mumbai because what was happening in the very few years back or 1 or 2 decades back, people don’t want to join in the logistic sector, because it was not considered as a — not a very, look or a glamorous sector or you can call it not a respectable sector because it was considered truck-walla.

So, we were one of the few companies where we bring respect to the logistic sector by doing the — by making the office in the good place, by bringing technology and our founder were very few that time who can speak English. So, that’s the company tradition is there, company legacy is there. And now we were I think, yes, we were one of the first company which bring out with the public listed also, IPO, that time. So, company has a very rich legacy.

Now coming to what the company do right now. Company is a public limited company definitely in the BSE-NSE. We have more than 25,000 [Phonetic] public shareholders and we do — we deal with airline, all the airline, whatever the name you can think about in India. From Indigo, Air India, Spice Jet, Go Air, Vitara, Air Asia or any other domestic airline name if I miss out, Jet Airways earlier was there and Akasa is there. And we deal with all the e-commerce company, perishable goods, pharma good and obviously, document also. Who want to move the good through the air, we help them.

Our area of work is that we use the passenger aircraft. We don’t use the freighter aircraft, just to clarify to all of you. So whatever the extra capacity in the passenger aircraft is there, from there we use that one. And how it help the customer also. Like you and me fly in the aircraft, if we are carrying more than 15 kg, we have to pay INR 450 per extra kg. I think are you guys are with me?

Chirag: Yes, sir.

Mahesh Fogla: We have to pay more than INR 450, around — for 1 kg extra. We don’t charge the client the extra capacity of a passenger aircraft and from INR 20 to INR 80 depending on the time, range and everything, multiple factors are there. So, that’s the way we help the customer. And how the airline get benefitted, there we add the value to them. In fact, we are maybe the — we move the good through the air and the airline get benefitted because they get the extra revenue. Only the tangible market, not the — around them, it’s a tangible market. I have to tell you that the market is very big. And we are definitely the Number 1 in major markets there. I don’t want to get into number game– I don’t want to fall into the game. But I just tell you we have a major market share in that area of operation. We have more than 100 location all over India. And like airports are increasing from 140 to 220 airports, we will be definitely there wherever the airports are there and the goods movement are there.

And we also gain our revenue from the airlines — although airlines is our vendor. If actually give good volume to them, we get commission from them. And we are a consolidator of cargo. So, it is a win-win for both of them, for customer also and for the airlines also. And I believe there are localized players are there for the Patel Integrated Logistics Limited who compete locally to us, but there is no player in the pan-India who competes to us and we were the pioneer in this concept. That’s why we call ourself as a Patel On-Board Courier. Why we call as Patel On-Board Courier because some few decades back, when the goods had to move through the airline by third-party, then person has to be on the board of the flight. That’s why Patel On-Board of the courier — Patel On-Board of the flight. But now this is not there. There is no requirement of person on the flight. But whoever want to move the good through the aircraft and the airline, we provide service to them. And we are as I repeatedly telling you again this thing that we are helping both the customer and airline to — in their operation.

Chirag: All right, sir. Got it. Sir, debt still remains one of the major concern and even hindrances in the growth of the company. So currently, the company holds a debt of over INR 53 crores. So, does the company intend to be debt-free in the nearby future?

Mahesh Fogla: Chirag, how much amount you told?

Chirag: INR 53 crores.

Mahesh Fogla: Correct. You must be talking about the figure of September only. Correct?

Chirag: Yes, sir.

Mahesh Fogla: Post that, also there is a major development happen. INR 30 crore already has been paid via rights issue. We got collected the money from the rights issue, as company has more than 25,000 public shareholder. Debt has been substantially reduced. And as in the public domain yesterday itself, not very far away, we got the INR 8 crore income tax refund also. That also major portion will be used for reducing the debt. So, correct, our debt equity ratio will be very minimal and our objective is now already we are net debt free. Net debt free already we achieved our status of net debt free, because as I was talking about INR 53 crore has been reduced substantially by the rights issue in the month of December.

Chirag: Okay, sir.

Mahesh Fogla: Just to add on that. The benefit of the interest saving will be reflected definitely in the coming quarters also. And our objective is to make the company sustainable and in the resilience for any other situations like if earlier COVID or anything like that. Objective of the company is to focus on three main thing. One is the brand, another is technology and third is the leverage. We want to be minimal leverage company.

Chirag: Sure, sir. Got it. Sir, recently Patel Integrated ventured into a new arena of fitness center. So, what was the motivation behind entering into such niche where profit margins are very low?

Mahesh Fogla” Yes, Chirag, allow me also to explain the company, I think I’m not explain to properly to you. I left out one portion of the company. Patel Integrated Logistics Limited also hold apart from logistic business, a sizable realty. There is almost a very big portion of the realty around the — must be in crore and crore only, figure of realty is the real estate what I mean by that, okay. So, when the real estate are there, we have a — in one of our building, one floor is completely remain idle, completely remain vacant. And it is in the main area of the Bombay, heart of the Mumbai.

So, what we thought instead of keeping it vacant, why not monetization, why not earn money through that. So, that’s the reason we put a gym there. And that facility is giving us the money of the around INR 6.5 lakhs per month, around INR 1 crore in a year. But that is the objective of the company, not to enter into any fitness center. We want to focus on our core area of the logistic and our focus apart from the logistic, we thought we reduce our debt. So, our property got mortgage free. Our property got mortgage free. When the property got mortgage free we can monetize that asset. That is the way GYM also came into picture, but it is only a one standalone activity, not a full-fledged activity.

Chirag: Okay, sir. Got it. Sir, aviation too contributes a lot towards the faster movement of logistics and aid in the development of overall sector. How does the growth plan of the aviation sector benefit the logistic industry and most particularly Patel Integrated Logistics?

Mahesh Fogla: Yes. Both the logistic sector and aviation sector definitely will benefit the Patel Integrated Logistics Limited. As the government increase the number of aircraft — passenger aircraft from 700 to 1,200. As you can see in the newspaper also, there are — airlines are placing the order. Just now we’ve seen the Air India place the order. Now the — I am reading in paper also Indigo also placing the order.

So, as the number of passenger aircraft are increasing and we have the major market share in the — movement of good through the passenger aircraft, we will by default will be benefited and we have our ecosystem which is here to take care of that one. And for the company — for the country also, because aviation can go to the places where the — apart from the faster movement of good, aviation can go to the places where the many times road or the sea cannot go. But that’s a unique advantage of the aviation sector. And number of airports are increasing from the 140 to 220 and more Tier 2 and Tier 3 aircraft will be developed by the government.

We also see our growth will be very much happen as the aviation sector is growing and once the aviation sector is growing it will benefit the Indian economy definitely. Only thing — our only concern is coming up, which I was telling in my opening remarks also about the aviation turbine fuel. Here our dynamic aviation minister has reduced the VAT on the — able to get the VAT reduction in the aviation turbine fuel from the states, but now also it is not under GST. And now there is a talk going on in the GST Council Meeting also, to bring the fuel under the GST. Once the fuel under GST comes, then definitely VAT will come down and the growth will be more significant.

Chirag: All right, sir. Sir, till now we have talked a lot about the growth of logistics sector. Can you also shed some light on the future growth plan of the company?

Mahesh Fogla: Correct. As I was talking about apart from the logistic, we have a lot of real estate lying in the company. That’s the reason company book values are you were showing higher than the what the price it is showing in the market also. And these are real estate which are in the historical cost reported of the company. So definitely, the value, which are showing in the books of account and actual value is much higher. So, we are actively pursuing now even now the — I was explaining you the — our debt has been reduced and minimalize.

So, gradual, the property mortgage got free now. They’re not a no longer a mortgage with the bank. So, and the Bombay you know, Bombay is a very high cost realty sector. So, we are actively now exploring how to monetize it. Monetization can be in the many form like redevelopment, like redevelopment of the concerned property or selling of the property, whatever maybe there. There will be lot of cash flow will be generated by the monetizing the realty.

And further, growth plan of the company, definitely we are more now focusing on the technology, we are definitely some movement more in the technology will come in the near — after two month. And as the number of airports are increasing, number of passenger aircrafts are increasing, our growth also will be very high. We are very optimistic about it. And we have — whatever the issues were there, there were some issues were there in the earlier in the company like death of our MD in the two-year, three-year, July 2019, three years back. That all has been now behind us. We are — all are geared up for the growth of the company and the growth plan of the company. We will have a very, what we can see now that at the — being a major markets player we’re in the in our area of operation, as the Indian economic growth, by default will grow and we will definitely grow more than the Indian economy.

Chirag: Sure, sir, While analyzing the logistics sector, we have found that the cost of air freight is typically 4 to 5 times higher than that of road freight and 12 to 6 times higher than that of the sea freight. Is there any way to curb the price of air freight?

Mahesh Fogla: Yeah, definitely the air freight will be costlier. But at the same time the area which in the air freight operate is a area which, where the road freight or the sea cannot operate. Further, the cost will definitely come down. But cost will come down at the capacity of the aviation sector is increasing. Further aviation fuel ATF, aviation turbine fuel have to come under the GST. If this come under the GST then definitely the cost will come down for the aviation sector.

Further, the aviation sector earlier had some problem of the over-leverage and all this, once that now – now that problem also coming down. We are also very excited about Air India coming into the private sector, earlier it was in the government sector. So, that also will help in reducing the cost. Because Air India is also one of the major markets player there after the Indigo. So definitely, Air India cost come down then the overall aviation sector cost will also come down. And internal efficiency — we are already visualizing the internal efficiency in the Air India.

And aviation sector, India is going to make now maybe our honorable Prime Minister already has talked about in public domain also that we have to think about making our aircraft in India only in [Indecipherable]. That will also reduce the cost for the aviation sector. But yeah, but we cannot expect the road sector and the sea freight cost to be similar like aviation sector cost. Definitely, they will be cheaper than the aviation also in the near future also.

Chirag: All right, sir. Got it. Talking about Patel Integrated Logistics, sir, we have also seen that with every passing year, the promoter stake has also been declining. Any comment on the same?

Mahesh Fogla: Yes. Actually, just to give you, it’s not declining as such. Just to, as I was explaining our Managing Director, July 2019, he expired. He was holding stakes in his personal capacity, he was holding around 6%. That was actually in his personal capacity was placed with the bank. That has been because of his personal reason, he expired and because of his family reason that got invoked by the bank and they sold in the market. So, you are seeing it going down that time. But now after the rights issue and everything, the — other family members want to take it there and that will definitely will continue and as regarding the promoter’s commitment, company has raised in the last few years INR 50 crore and promoter has subscribed to their share, in fact more than the share, so definitely, promoters are showing their commitment to put the money in the company. And 1 or 2 times promoter had to sell their share only to subscribe to the right issue also for a very minor amount.

So there is no, as such there is no decline in the commitment from the promoter for the company. They are very much committed and we all are committed. In fact, being the senior leadership and we are very excited about the company and as the company growth is coming up and definitely promoter also want to protect their interest. If they decline in their share, their interest is coming down and they will lose the benefit of the growth of the company. So, there is no reason of their commitment declining.

Chirag: All right, sir. Got it. So, keeping aside the sector and logistics and finance behind, let’s come back to Mahesh Fogla, the person. So, sir, what are your hobbies and how do you chill when you are not working?

Mahesh Fogla: Mahesh Fogla, definitely as a person want to learn and learn more even at this age also. So, I want to — I keep abreast of myself about any other development happening in the space apart from logistic also in the — suppose in the any finance deal that is happening. That is the way of my spending the time apart from my work area. And the chill is definitely I see lot of movies also. And want to because I remain very busy so if I get some time, I want to spend the time with the family, which is my relaxing time. And we all to be feel that if company grows that give me the most happiness than anything else in life.

Chirag: So, the dopamine release is the company growth.

Mahesh Fogla: Yes.

Chirag: Okay. Sir, I’m an avid reader and I have gained a lot of knowledge from books only. So, are there any books in particular that you would like to suggest to our audience?

Mahesh Fogla: No, as such I’m not reading any book as such and I’m more update about myself about the development in the sector and the National Logistics Policy and all this. So, right now nothing in my mind about the books.

Chirag: Is there any person in particular that you follow to know about the trends in the logistics sector?

Mahesh Fogla: Yes. Definitely, I follow a lot of person and they are not about in the logistics sector also like Mr. Chandra is there of the Tata Sons Chairman. He has a very practical view when you go through, when you read his interview or when you go through — hear his interview or his view. So, I follow him. I follow Anil Agarwal of Vedanta. The way he can show the dearness in the things which he do. I observe many time, first time he get rejected, but, again he come out and get the thing done.

Like I can tell you, in my case also, every time, not that everything gets accepted in the company or in the country or whatever I suggest or whatever I do. We have to consistently follow with them and make them aware, make them convince. So, I follow the definitely the Anil Agarwal, honorable Chairman of the Vedanta.

Chirag

Exactly sir. I also follow him, a lot of insights we get from his social media handles.

So, excellent. That’s it from our side Mahesh. Sir, it’s been a pleasure to catching up with you and to know you in person. We also are thankful for the insights that you have shared with us about the logistics industry and we hope that it would help the retail investors to gain more about the logistics sector moving ahead. Sir, we’re looking forward to meet you for the future interviews. Thank you for your time, sir.

Mahesh Fogla

Yes. Yes. Thank you, Madan, thank you, Chirag. It is my pleasure to share my view and it’s always good to interact with each other. Definitely after the COVID, we all are meeting in the person only. I am attending also lot of conferences, also now in person because what is happening — whatever maybe said and done, we are ultimately a total man animal – total human being. We want to interact with the person. Sitting in the corner and then will not give you everything. Because many things we can learn from each other only by interacting with each other. Thank you once again Chirag and Madan.

Chirag: Thank you, sir.

Madan: Thank you, sir.