GATI Limited (GATI) Q3 FY23 Earnings Concall Transcript

GATI Limited (NSE:GATI) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

Pirojshaw Sarkari — Chief Executive Officer

Anish Mathew — Chief Financial Officer

Analysts:

Amit Dixit — ICICI Securities Ltd. — Analyst

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Viraj Mehta — Equirus PMS — Analyst

Ravi Mehta — Deep Financial Consultants Pvt. Ltd. — Analyst

Dhaval Shah — Girik Capital — Analyst

Ash Shah — Elara Capital — Analyst

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Dhwanil Desai — Turtle Capital & Investments — Analyst

Neelam Punjabi — Perpetuity Ventures LLP — Analyst

Surbhi — Balaji Warehousing Company — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q3 FY ’23 Earnings Conference Call of Gati Limited hosted by ICICI Securities Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions, and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Amit Dixit from ICICI Securities. Thank you, and over to you, sir.

Amit Dixit — ICICI Securities Ltd. — Analyst

Yeah. Thank you, Seema. Good afternoon, everyone. On behalf of ICICI Securities, I welcome you all to Q3 FY ’23 earnings conference call of Gati Limited. We are pleased to have with us management team represented by Mr. Pirojshaw Sarkari, CEO; and Mr. Anish Mathew, CFO for Gati Limited.

Without much ado, I will pass on the call to Mr. Sarkari. We will have brief opening remarks from the management followed by a Q&A session. Thank you, and over to you, sir.

Pirojshaw Sarkari — Chief Executive Officer

Thank you, Amit. Good afternoon and a very warm welcome to everyone on our quarter three FY ’23 earnings conference call. We have uploaded our results and earnings presentation on the stock exchanges and company’s website, and I hope everyone had an opportunity to go through the same. As mentioned, along with me, I have Mr. Anish Mathew, the Chief Financial Officer for Gati Limited and our Investor Relations team. I will [Technical Issues] industry and business overview, and then will hand over the call to Anish to discuss the financial performance of the company for the quarter ended December 2022.

Before I start with the business overview, I would like to share few organizational updates. We have appointed Mr. Shrikant Nikam as the Vice President, Operations. Shrikant comes with a rich and diversified experience of over 25 years across supply chain and logistics, information technology and industrial engineering domain. In past headed diversified businesses in Mahindra Logistics, UPS and Gati. Mr. Charles D’Costa is now heading the transformation office as the Chief Transformation Officer to bring in focus on transformation initiatives throughout the organization.

Starting with business performance, Gati has recorded its highest ever quarterly operating revenue of INR441 crores. The company has achieved this speed by bringing in operational efficiency and enhancing customer delights by improving service levels. The team at Gati is committed to improving customer experience which leads to more wallet share along with increasing the market share thus translating into better performance. The logistics industry is poised for exciting times ahead due to its pivotal role in the Indian economy. The demand for logistics services is expected to grow as it will be instrumental in accelerating and sustaining GDP growth. The government recognizes the importance of logistics as a sector. The initiatives announced in the recent Union Budget for FY ’24 will enhance the logistics competitiveness.

Growth capital expenditure on infrastructure development such as rail, energy, roads are likely to aid in cost-cutting, supporting the national logistics policy. The push to the multi-modal connectivity and supply-chain development with increased focus on technology and digital enhancement will have multifaceted impacts on the industry.

The Urban Investment Development Fund will enhance connectivity and provide faster transportation in Tier-2 and Tier-3 city. Government incentives along with improved sentiments will lead the nation on the path of sustainable growth. Our foundation to growth is dependent on infrastructure amplification, digitization, sales acceleration, and consistent efforts to improve our operations. Our two-fold focus on customer centricity and cost rationalization has helped us improve our performance.

I would now highlight the initiatives during the quarter under which — under each of our pillar. Sales acceleration, during the quarter, the company has elevated 30 plus strategic accounts, two key enterprise accounts due to increased wallet share from them. The company has also identified alliance partners for strengthening our pickup and delivery operations. We have started to digitized network planning through use of data science and we’ll continue to focus on this. The company has also initiated a nationwide RFQ for price discovery and negotiations with both old and new network partners.

Infrastructure, I am pleased to announce the launch of our much-awaited Super Hub at Mumbai. This hub is a consolidation of three hubs in one location, which will bring in a lot of operation overseas. The Mumbai Super Hub is spread over an area of more than 100,000 square feet equipped with 62 base for effective loading and unloading which can handle 130 vehicles at an average weight per day of more than 1,000 ton.

With this, four of our hubs are now operational at Farukh Nagar in North, Guwahati in North, Nagpur in Central and Mumbai. These hubs are well-equipped for effective cross-docking facilities and mechanization for loading, unloading, leading to improved turnaround time. Technology.

Operator

Sir, sorry to interrupt.

Pirojshaw Sarkari — Chief Executive Officer

This 100%.

Operator

Management — sir, I’m sorry to interrupt, sir. Sir, you are breaking up, sir.

Pirojshaw Sarkari — Chief Executive Officer

Sorry?

Operator

Your line is breaking up. Sir, just allow me a moment. [Technical Issues] Ladies and gentlemen, we have the management line reconnected. Sir, please go ahead.

Pirojshaw Sarkari — Chief Executive Officer

Thank you. So on the technology front, we have completed 100% deployment of digital dockets with retail customer which brings about better visibility, transparency, compliances of processes.

I would also like to highlight that during the quarter, Gati started electric vehicles for first-mile and last-mile delivery at Delhi, Noida, Kolkata, Bangalore and Hyderabad. This has been done with a focus on ESG and also to supplement the cost-reduction program. The industry is witnessing a shift from unorganized to organized sector, and we at Gati Limited are constantly working towards increasing our market share. We are devoted to seize the opportunities paved by improved demand, incentive policy and government push to the MSME and retail sector. These factors will lead us to achieve the right target customer [Technical Issues]

Lastly, we remain aligned with our vision to maximize value-creation for every stratum of society.

With this, I would like to hand over the call to Mr. Anish Mathew our CFO for financial highlights for quarter three FY ’23. Over to you, Anish.

Anish Mathew — Chief Financial Officer

Thank you, Phil. Good afternoon, everyone, and very warm welcome to our Q3 FY ’23 earnings call. I’ll take you through the highlights of financial results for the third quarter of FY ’23. I will take you through the highlights of our Express business. For Q3 FY ’23, total tonnage handle stood at 2,87,000 tons — metric ton as against 269,000 metric ton in Q2 FY ’23. Revenue from operations for the same period stood at INR379 crores depicting a growth of 8% as compared to same period last year.

Gross profit for the same period stood at INR105 crores as against INR90 crores for Q3 FY ’22, registering a year-on-year growth of 18%. EBITDA for Q3 FY ’23 stood at INR21 crores as compared to INR16 crores for Q3 FY ’22, depicting a growth of 30%. For nine months ending December ’22, GKPL has recorded a revenue of INR1,113 crores, up 21% year-on-year. Gross profit and EBITDA for the same period stood at INR315 crores and INR60 crores respectively as against INR247 crores and INR32 crores.

GKPL has reported a pre-exceptional PBT of INR12 crores for nine months FY ’23 as against a loss during nine months FY ’22. We have business improvement in EBITDA margin on a YTD basis. EBITDA margin for nine months FY ’23 stood at 5.4% as against 3.4% for the last year. The margin improvement is on account of all sustained sales acceleration and cost-control efforts.

For Q3 FY ’23, tonnage handled by the surplus extra business stood at 2,84,220 metric ton thus reporting a growth of 8% over Q3 FY ’22. Tonnage handled by Air Express business too reported a growth of 6% during the same period and stood at 2,443 metric ton for Q3 FY ’23.

On a consol basis, Gati reported nine months FY ’23 revenue of INR1,308 crores as against INR1,100 crores for nine months FY ’22. Reported EBITDA stood at INR59 crores as against INR30 crores for the previous year. Pre-exceptional PBT stood at INR11 crores for nine months ending December ’22 as against the loss for the nine months ended December ’21. I’m pleased to state that net debt on a consolidated basis has reduced, it has come down from INR152 crore rupees as of March ’22 to INR72 crores as of December 2022.

We remain confident on our ability to step the growing with Gati’s wide network and digital advancement. We have been consistently provide other key comparative financial performance indicators in our investor presentation. One can refer that for more details.

With this, I would like to open the floor for [Technical Issues] and answers.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] We’ll take our first question from the line of Alok from Motilal Oswal. Please go ahead, sir.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Hi. Good afternoon. So just had a couple of questions. So first is on the demand trends, if you win indicate, although this quarter we have done pretty good volume, how has the demand trends been especially in December and January because we are getting some mixed signals about some pockets witnessing some sort of a soft demand and those are doing pretty okay. Just some color on that.

Pirojshaw Sarkari — Chief Executive Officer

So January as you know for the Express business has generally been a soft month, I would say the softest. Basically, a lot of the organizations kind of those which closed, they are books in December restarting January, festive season getting over, etc. So January has been a very slow month but February for the first few days has come back to the pre-December days also. So we are seeing a very good first week of February and hopefully that should continue Certain sectors of course are looking very positive like the automotive sector, for example looks positive. There is a little sluggishness in the FMCG and the Consumables segment. But having said that, about Gati in particular, we are still a small market share player and therefore we should be able to capture that with share in this last quarter.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Sure. And also — so we are done with almost three quarters out of this year and we were targeting to clock around 9% to 10% sort of EBITDA margin by end of this year. So, right now, if you just take the Express business, we are at nearly 5.4% for the third quarter and nine months. So, any view on the outlook or we still maintain the 9% number?

Pirojshaw Sarkari — Chief Executive Officer

So, basically, the way we are looking at that 9% number was more to do with normal operation. As you know Gati has a lot of historic baggage that we are holding as we kind of continue our journey, my journey now has been now 16 months, 17 months and that clean-up is simultaneously required. On a normal basis, our gross margins in the business has gone up, they’re now hovering around 28%, 29%, so we will end March with what we have said which is 30%, but there is the clean-up also simultaneously to be done.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Yeah. I mean — so that’s — my question was that only, that — so adjusted for the clean-up which is required, so 9% could be kind of more — could be more possible in the mid-FY ’24 or something, or I mean just some — because I think in last quarter…

Pirojshaw Sarkari — Chief Executive Officer

Yeah.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

We were pretty aligned to the 9% sort of a margin by end of this year.

Pirojshaw Sarkari — Chief Executive Officer

Yeah. I was — I would tend to say more in the second quarter of next year.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Got it. Got it. Just last question. Sir, any price hikes we have taken during — because last time you mentioned you would be considering some price hikes. Anything we have taken, because we have seen players like Blue Dart and all taking annual price increases. Anything we have done on that side?

Pirojshaw Sarkari — Chief Executive Officer

Yes. So, we have put out a pricing of 8%.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Okay.

Pirojshaw Sarkari — Chief Executive Officer

The letters have been sent out to the customers and our sales force is out there. We tend to kind of initiate the new pricing from 1st of April.

Alok Deora — Motilal Oswal Financial Services Limited — Analyst

Okay. Got it, sir. I’ll — if have more questions, I’ll come back in the queue. Thank you, and all the best, sir.

Operator

Thank you. We’ll take the next question from the line of Viraj Mehta from Equirus PMS. Please go ahead, sir.

Viraj Mehta — Equirus PMS — Analyst

Sir, thanks a lot. Sir, as you discussed in the last call itself, you were looking for a margin closer to 9% by Q4 but now there is new evidence that you’re seeing in terms of clean-up. Our worry as an investor is that if in the fifth quarter or sixth quarter of your assignment you’re still dealing with clean-up, how long can this clean-up last?

Pirojshaw Sarkari — Chief Executive Officer

So, the point is that when I say clean-up, we are dealing with some very large customers where there is some baggage that has been carried forward, and it takes time for us as new management to be able to agree with that baggage that the customer has carried forward with Gati. We are dealing with it, and that is why the movement of the 9% from March of this year to say second quarter of next year but there’s a lot that has already been achieved. So I wouldn’t say that this should take more than say we are shifting it by one quarter.

Viraj Mehta — Equirus PMS — Analyst

Okay. Sir, my second question is regarding the sales target that you had given in terms of when you joined and even probably till three months or six months back in terms of the INR3,000 crore target, but the volume growth and the value growth that we’re seeing significantly lower than the growth targets that we have put for ourselves. Would you like to comment on that, please?

Pirojshaw Sarkari — Chief Executive Officer

No, I would disagree on that. I think our growth targets are well in place. I will still continue to say that we will do INR3,000 crores by FY ’26 which is the target I have set for myself. There is infrastructure that is coming up and that will accelerate our growth.

Viraj Mehta — Equirus PMS — Analyst

Sure. And sir, as far as expenses of the new two hubs that we have put in in terms of both cash and non-cash regarding depreciation and new employees that you would have hired, all of that has come in this P&L, so, is that a fair assessment to have?

Pirojshaw Sarkari — Chief Executive Officer

Yes.

Viraj Mehta — Equirus PMS — Analyst

So, going forward, whatever is the gross margin that we’ll see will come down to the PBT level for us. That is fair?

Pirojshaw Sarkari — Chief Executive Officer

Yes.

Viraj Mehta — Equirus PMS — Analyst

Thank you so much, and best of luck.

Pirojshaw Sarkari — Chief Executive Officer

Yes.

Operator

Thank you. The next question is from the line of Mr. Ravi Mehta from Deep Financials. Please go ahead, sir.

Ravi Mehta — Deep Financial Consultants Pvt. Ltd. — Analyst

Yeah. Hi. Thanks for the opportunity. Just one question on the margins front that when we see sequential growth in volumes and even realizations per ton, was there some one-off expense in this quarter which led to lower sequential margins? Because even we have done good at the gross margin level, you commented.

Pirojshaw Sarkari — Chief Executive Officer

So…

Anish Mathew — Chief Financial Officer

Sir, if it is a not ordinary profit of business expenditure, we will always show it separately. It has more to do with deduction happen because of historic baggage affected, and therefore grows down.

Ravi Mehta — Deep Financial Consultants Pvt. Ltd. — Analyst

At least customer mix was also same if I see on a H1 and nine-month basis and still there was a higher realization. So, is it the yield benefit that you were talking in the last quarter?

Anish Mathew — Chief Financial Officer

So over the last nine months, our yield has definitely increased but it has not increased to the extent that we would have liked it to increase. In fact, any new initiative that is taken always initially kind of yield with the customers, of those which we took month was the E-Docket. So I think we are the first ones in India to come out with the E-Docket for the scale business. And when you do that you generally tend to see nervousness amongst the customers because it’s something new and therefore, you lose a bit of yield and business, but then once everybody understand that it is for the benefit and brings about a lot of transparency in the business, business starts picking up again.

Ravi Mehta — Deep Financial Consultants Pvt. Ltd. — Analyst

Okay. Thank you.

Operator

Thank you, sir. We’ll take the next question from the line of Dhaval Shah from Girik Capital. Please go ahead.

Dhaval Shah — Girik Capital — Analyst

Yeah. Hello. Hi, sir. Sir, I would like to understand regarding the demand-supply dynamics of fleet in the industry. Given all the large — the holistic companies are, I think docks at least on digital space, we understand yet, either ownn asset or outsource. Plus, we see overall volumes of — MHCVs in the country also growing very well, that would also be adding on the unlisted side. So how do you see this entire freight trades and demand-supply of versus the corresponding demand which will come over next quarter or two or one year? How do you see that?

Pirojshaw Sarkari — Chief Executive Officer

So one of the major reasons for large logistics companies looking at bringing in newer [Technical Issues] to the business is because of the infrastructure getting far better, and when infrastructure gets better you rather have a new, more powerful asset that is put on the roads and go with the old eight-year-old or 10-year-old asset. I think one primary reason of that change not so much because demand is increasing in the market in a big way. I think it is more about getting yourself ready for the future demand as well as being able to cut costs because of the number of turns that you can give the asset if it is a newer asset and has better power.

Dhaval Shah — Girik Capital — Analyst

Understood, sir. Understood. And sir, in terms of your own competitive intensity, how do you see that shaping up currently and your outlook on that?

Pirojshaw Sarkari — Chief Executive Officer

So I think as our infrastructure is coming up, clearly see that our service is getting better and that is one thing that brings confidence back to our customers and bring the brand back to where it was. We are still by far second player in the market and the gap between us and the first player is tremendously high. And therefore for us we concentrate on being closer to the customer and giving them better service. And as per market share, as you know over the last month itself has increased by 200 basis points to 250 basis points.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. And in the presentation, are we noticing about where we give the timeline for starting a new hub. There is always a delay of one or two quarters since last two, three presentation I am noticing. So this is happening because of what reasons?

Pirojshaw Sarkari — Chief Executive Officer

Ease of doing business with India. No, no.

Dhaval Shah — Girik Capital — Analyst

Okay.

Pirojshaw Sarkari — Chief Executive Officer

Well, our Bangalore hub has got delayed now because of the monsoons in Bangalore this year. There was unprecedented rain that came in and therefore our construction work had to be halted. In Bombay, it was more to do with more on the ground local situation that arose because of us moving from three very old properties to a brand-new property. So, each one has its nuances but then we also don’t seize opportunities. So if you see my earlier presentations, for example, Guwahati was never there but we got opportunity and we…

Dhaval Shah — Girik Capital — Analyst

Yeah. Yeah.

Pirojshaw Sarkari — Chief Executive Officer

Took that on.

Dhaval Shah — Girik Capital — Analyst

Correct. Yeah.

Pirojshaw Sarkari — Chief Executive Officer

So it’s a bit of both. But yeah, the ones where we have to build out in a big way and not get a readymade place, these things do happen in India.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. And sir, connected to this, now in the second quarter our — sir, the Mumbai hub went live in the third quarter and then we had a full quarter Nagur and Guwahati hubs operational for the third quarter, right? Now, so with this three capacities, our volume growth quarter-on-quarter, like is it as per your expectation or you think it’s not and it could have been much more? How do you think?

Pirojshaw Sarkari — Chief Executive Officer

See, actually if you look at it, Bombay hasn’t even completed a full month. And…

Dhaval Shah — Girik Capital — Analyst

Okay.

Pirojshaw Sarkari — Chief Executive Officer

We actually started operations in the beginning of January if you look at it that way.

Dhaval Shah — Girik Capital — Analyst

[Foreign Speech]

Pirojshaw Sarkari — Chief Executive Officer

And for the other two, it’s been kind of two months. Now, the point is we have to bring back that customer confidence that because of these new hubs now service has improved tremendous. The end customers wait and watch. So it does take at least one full- quarter for a customer to get convinced and then give us lots to that area.

Dhaval Shah — Girik Capital — Analyst

Okay, okay, okay. Got it, got it. And sir, lastly if you can share your strategy and share of revenue with regards to e-commerce? How it has been for the last nine months? How do you see going forward? Any tie-ups you’re doing because that is — that industry is currently not growing that well but it’s a great tailwind in the future and a big volume contributed to the Express industry. So if you can share your thoughts on that.

Pirojshaw Sarkari — Chief Executive Officer

So as I’ve said before also and I reiterate that Gati does not do any B2C business. But e-commerce first-mile is B2B and we participate in a big way with all the three large players in e-commerce including Reliance. So that’s where we play but we do not play in the B2C very much.

Dhaval Shah — Girik Capital — Analyst

So when you say first-mile, what will be the originating and the endpoint of the cargo for you?

Pirojshaw Sarkari — Chief Executive Officer

So this is from the supplier stroke vendors of Amazon, Flipkart and Reliance to their warehouses.

Dhaval Shah — Girik Capital — Analyst

To the warehouses.

Pirojshaw Sarkari — Chief Executive Officer

That’s the B2B business.

Dhaval Shah — Girik Capital — Analyst

Okay, okay, okay. So for example — okay, sir, sorting center/warehouse for Amazon.

Pirojshaw Sarkari — Chief Executive Officer

Yes, correct.

Dhaval Shah — Girik Capital — Analyst

Okay, okay, okay. And how is — in terms of profitability, how is that compared to aregular B2B business, like regular Express business what you do?

Pirojshaw Sarkari — Chief Executive Officer

So again, it again depends on the size of the vendor stroke manufacturer that we pick up from. If he is an SME customer, the profitability is better, if it’s the [Technical Issues] customer, the yield will be lower but our cost can reduce, so that’s how it works in our industry.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. And sir, at the INR3,000 crore topline what sort of ROC would you be targeting?

Pirojshaw Sarkari — Chief Executive Officer

I will let Anish answer that question.

Dhaval Shah — Girik Capital — Analyst

Sure.

Anish Mathew — Chief Financial Officer

ROC would be in the range of around 20, 25.

Dhaval Shah — Girik Capital — Analyst

20 to 25. Okay. And how would the debt on the books and all would look as of currently and going forward, how is that going to be?

Anish Mathew — Chief Financial Officer

So the net debt as of December is INR72 crore.

Dhaval Shah — Girik Capital — Analyst

Net-debt.

Anish Mathew — Chief Financial Officer

Net-debt. So this is basically offsetting the Gati’s cash and cash equivalent…

Dhaval Shah — Girik Capital — Analyst

Got it. Got it.

Anish Mathew — Chief Financial Officer

Which was at INR154 crore as of 31st of March 2022.

Dhaval Shah — Girik Capital — Analyst

Okay. Okay. Understood. Okay. Great. Thank you.

Operator

[Operator Instructions] We’ll take the next question from the line of Ash Shah from Elara Capital. Please go ahead.

Ash Shah — Elara Capital — Analyst

Good evening, sir. So one question was that in your results in the segment assets and liabilities, there has been a drastic increase in the unallocable assets and unallocable liabilities. So could you provide the reason for the same? I mean, it was not there in the previous quarter but it just appeared in this one.

Pirojshaw Sarkari — Chief Executive Officer

Anish, would you like to take that?

Anish Mathew — Chief Financial Officer

Can I get back to you maybe after this call because I just need some [Technical Issues] Yeah, I’ll get back to you actually on this one. Yeah.

Ash Shah — Elara Capital — Analyst

And sir, the second question is can you provide any, I mean, update on the fuel business? Is there any materials in that well that is worthwhile sharing or something?

Anish Mathew — Chief Financial Officer

Fuel business there is no action as of now, it’s continuing as it is, we’re just kind of awaiting the approval from the Ministry. We are yet to kind of get the approval from the Ministry.

Ash Shah — Elara Capital — Analyst

Okay. And is the KWE transaction over completely or there is a need on when will it get over?

Anish Mathew — Chief Financial Officer

So…

Pirojshaw Sarkari — Chief Executive Officer

So, please carry on.

Anish Mathew — Chief Financial Officer

Yeah. The KWE transaction is not yet over but the oil cargo, the shareholders kind of decided to kind of buyout KWE. The transaction has really met it light in the coming quarters.

Ash Shah — Elara Capital — Analyst

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

Pirojshaw Sarkari — Chief Executive Officer

I’ll add to that. The agreement of price is done, it’s only the paperwork which is now pending and we believe that in the next quarter or so, we should be able to consummate the deal.

Ash Shah — Elara Capital — Analyst

Okay. Got it. That’s all.

Operator

Thank you. The next question is from the line of Saloni Hemnani from Molecule Ventures. Please go ahead.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Hi, everyone. I just had a couple of questions. First one starting with Farukh Nagar hub. It’s been a year since Farukh Nagar has been basically launched, so the growth in terms of volumes and margins has almost stayed flat. So volume growth year-on-year is 7% to 8% and margins have stayed 5.6% and 5.5% size. So how much impact has really come from the new hub?

Pirojshaw Sarkari — Chief Executive Officer

So, if you divide our business into four zone, that is North, South, East, and West, our fastest growing zone in the last nine month has been Farukh Nagar,

Which is North zone. We have seen a little slower growth in South and West because of the infrastructure. Now with Mumbai coming in West will also grow at a faster pace. So, what you see as the growth number is the total growth of Gati, but zone-wise, North has grown much higher than the rest.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Okay. And sir, one of our competitors recently reduced their sales growth outlook and — so, it has been reduced downward and — so what kind of sales growth are we estimating for the next year? Just to get a clarity on that.

Pirojshaw Sarkari — Chief Executive Officer

So I would put it this way that we kind of assume that the market grow at 10% to 11% and for us at Gati to be able to grab market share, we need to grow at least 1.5 times to 2 times the market.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

So are we assuming 15% to 20% throughput…

Pirojshaw Sarkari — Chief Executive Officer

Yes.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

In the company? Okay. Okay. Sir, last quarter, the assets held for sale was around INR94 crores, so what is the updated number for that?

Pirojshaw Sarkari — Chief Executive Officer

Sorry, I did not get the question, can you repeat it, please?

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Yeah. The asset held for sale last quarter was INR94 crores on the books, so what is the updated number for this quarter as on-date?

Pirojshaw Sarkari — Chief Executive Officer

Anish, would you like to answer that, assets held for sale? Anish?

Anish Mathew — Chief Financial Officer

Yeah. I’m sorry, I was on mute. So, we have sold close to INR29 crores from out of the non-core asset during this third quarter.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

How much, sir?

Anish Mathew — Chief Financial Officer

INR29 crores.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

INR29 crores. Okay.

Anish Mathew — Chief Financial Officer

Yeah. Right.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Okay. Okay. Okay. Thank you so much. I’ll get back in the queue.

Anish Mathew — Chief Financial Officer

We are left within a five or seven properties.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Okay.

Anish Mathew — Chief Financial Officer

And out of that one one big property is there, we all kind of already identified a buyer for that property.

Saloni Hemnani Arya — Molecule Ventures LLP — Analyst

Okay. Okay. Thank you so much, sir. I’ll get back in the queue.

Operator

Thank you. [Operator Instructions] We’ll take the next question from the line of Mr. Aman Vij from Astute Investment Manager. Please go ahead, sir.

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

Yeah. Good afternoon. Sir, my question is on the volume side. So, if you look at last two quarters on the Express side, we have grown volumes at around 9% given a bigger base. For the nine months, we have grown strong but I’m talking specifically of last two quarters. So going ahead do you think this is the number we should take as volume growth and plus 5%, 6% price growth which will lead to 15%, 20% growth, or do you think volume growth — what do you think can be the volume growth per se next year?

Pirojshaw Sarkari — Chief Executive Officer

So this quarter-over-quarter growth is not the correct number to be taken, because there was the Diwali quarter which was the previous quarter. September, we had Diwali this year, and therefore, the growth over the quarter is lesser because that quarter had high growth. The growth has to be much higher — the volume growth has to be much higher than 9% for us to be able to achieve our revenue growth.

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

So do you think it will be closer to 12%, 13% or it will be even higher than that 15% plus volume growth over next one, two years which we are targeting?

Pirojshaw Sarkari — Chief Executive Officer

It should be in the mid-teens.

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

Mid-teens. Okay. Sir, my second question is on the Express side, Air Express side. We have seen a lot of competition coming in, even some of the customers starting their own air services and wanting to scale their logistics business like they’ve done globally. So have we started seeing any impact in terms of pricing or volumes? And the second hub question is do you think this will lead to more competition in — toward the Express way? Because some of the players who have been dominant in Air Express will face competition in that and now they won’t have any other option but to maybe focus on Surface Express. If you can share your thoughts on these two things.

Pirojshaw Sarkari — Chief Executive Officer

So first of all, for Gati Air Express is incidental. Our main line of business is Surface Express. We like Air Express only because we get 6 times yield but we do not control that product because we don’t have any dedicated aircraft running for us. The advantage that we would have is our existing Surface customers when they have one-off air business, they don’t want to go to another service provider, so if we give them the right service, they will come to us.

Coming back to the second part of the question of some of our competitor having their own airline. I don’t know which competitor you’re talking about. If you’re talking about Amazon, Amazon is not a competitor to Gati in any way. Amazon is a platform. They have done whatever they have done to move their own business over there. Having said that, it in fact creates opportunity because space get released from other aircraft — airlines and therefore, we will get space at a better price than what we used to get because of Amazon’s load moving to their own aircraft.

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

But sir, I was talking about, for example, Blue Dart who has been focused on air as of now, with more competition coming in air, will they now need to focus on surface mode which will lead to more competition in Surface Express way?

Pirojshaw Sarkari — Chief Executive Officer

Well, I do not want to really even conjecture on this one. If you read the newspapers, they are bringing in two more aircraft very soon.

Aman Vij — Astute Investment Management Pvt. Ltd. — Analyst

Sure. Sure, sir. These are the questions from my side. Thank you.

Operator

Thank you, sir. We’ll take the next question from the line of Abhijit Mitra from ARGA [Phonetic] Investment Managers. Please go ahead, sir.

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Yeah. Thanks for taking my question. I have three questions actually. Firstly, regarding the top line guidance of INR3,000 crores, have you included the contract logistics business of all cargo in that now? Secondly, there are four sorting centers which we have come up, there is five more sorting centers yet to come up. So if you can tell me the volumes that are being handled in those four sorting centers currently or in this quarter? And with those five more sorting centers coming up, where will the depreciation and the interest reach finally? I think you gave a number that looks flat, but it looks unlikely given that five more sorting centers are coming out, so I think proportionately at least the depreciation interest also should go up. And lastly, depending on the answer to the first question, I’ll have a follow-up for that. Thanks.

Pirojshaw Sarkari — Chief Executive Officer

So, let me correct your understanding first of all. These are not new centers, we already have centers in all these places. What we are doing is we are consolidating centers or making very good cross docks which were not available in Gati. It was more like you had a center — sort centers and you ran out of space, so you added one more, and then you added one more and therefore the truck has to dock at three different places to unload and then get loaded from three different places. So, now what we are doing is we are consolidating those and creating a new state of the art cross docks.

So it is not new. So the loads are already there, they are already being handled at these old cross docks when they are old, they are not efficient. So what we are doing is we are replacing them with efficient cross docks. And therefore, there will be, of course, incremental load that we get because we better service and therefore, customers will give us more loads for those areas as destinations, as well as from those areas as origins. So that is an important point for you to understand.

As far as loads are concerned, the loads at Farukh Nagar have gone up by 25% in one year. I do not want to give you the loads because of the other three, because like I said, we had not even completed one quarter with them, so the loads have not really shot up still, but I would expect anything between 20% to 25%, the load going up as we open up and as we mature those hubs.

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Okay. And just to follow up on that. See, in that case, the depreciation shouldn’t have gone up because four starting hub is also coming up, right, but it did go up and it is — it continues to move up. So there has been some incremental capital employed also, as one of the previous participant also mentioned in other –unallocated asset and liabilities both. So you can of course verify on that and come back to me later.

First question was [Technical Issues] of top line whether you are including the contract logistics business also in that or you are purely focusing on the ground express pipe?

Pirojshaw Sarkari — Chief Executive Officer

So whatever I gave as a Gati revenue will be [Technical Issues] is Gati performed today and tomorrow in Gati.

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Yeah. Yeah. So in that case the implied volume CAGR if I include or if I keep the yields constant is almost 30%. So given that we are growing at 7%, 8%, first of all you’re getting that confidence of 30% CAGR to grow sort of each quarter on a Y-o-Y basis by 30%. And when do you feel that you can see the kind of inflection because Q4 doesn’t seem to be that quarter? So by when do you feel that you can…

Pirojshaw Sarkari — Chief Executive Officer

So let me — let me again correct you. Nine months, we have grown by 22%.

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Yeah. That’s because Q1 was a weak base or had a weak base. But if I can exclude Q1.

Pirojshaw Sarkari — Chief Executive Officer

That’s not how we look at it. We have grown 22%, we are in [Technical Issues] infrastructure and we are confident that we will grow.

Abhijit Mitra — Aionios Alpha Investment Management LLP — Analyst

Got it. Thanks. That’s all from me.

Pirojshaw Sarkari — Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take the next question from the line of Mr. Bhaskar from Arthya Investments. Please go ahead, sir.

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Sir, thanks for taking my question. One clarification on the margin front. You mentioned that a lot of work is in progress and therefore what you stated to achieve in Q4 is probably shifting it by quarter or two quarters. So given that probably if you achieve around 10% margins in Q2 next year, would it be safe to assume that even for the full year you will largely be able to do 10% because once you hit that, then that run-rate sort of continues?

Pirojshaw Sarkari — Chief Executive Officer

Yes. Absolutely. Once we hit that run-rate does continue, it only has to get better with the growth in top -line.

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Right. Right. Sir, you mentioned about your target of doing INR3,000 crores by FY ’26. Assuming you hit that and I’m sure that you are taking a lot of efforts to do that, what sort of margin do you think that you will be able to achieve at that scale, because I’m assuming a lot of operating leverage and lot of other benefits will start flowing in at that sort of a scale.

Pirojshaw Sarkari — Chief Executive Officer

Yeah. As of…

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

So, will the 14%, 15% margin be possible at that scale?

Pirojshaw Sarkari — Chief Executive Officer

I would look at anything between 12% to 15%.

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

12% to 15%. Okay, okay, okay. Got it. And just to understand that this — would this margin trajectory moving from 5%, 6% to 10% in the near-term which is like Q2, if you can help understand a bit in terms of what exactly will drive this whole margin uplift?

Pirojshaw Sarkari — Chief Executive Officer

So it’s a combination of two things. One is definitely the gross margin has to grow to 32% which is where the good players in the market are. And secondly, the top line has to grow to leverage the fixed cost.

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Okay. Okay. And the gross margin improvement largely comes from product mix in terms of more SME or pricing what exactly, if you can?

Pirojshaw Sarkari — Chief Executive Officer

So mainly from operational efficiency and partly from e-user. Why I say operational efficiency because like I said in my speech, they have just undertaken a full-fledged RFQ on our network. We already see shoots of good pricing coming in.

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Okay. Okay. Would — I mean, would your SME mix also go up over a period given that you are focusing a lot on that segment?

Pirojshaw Sarkari — Chief Executive Officer

The problem that I see in the last 15 months is every time I grow my SME, my key account also grows and therefore this mix is becoming a little kind of difficult but yes, our focus definitely is to grow and raise it

Bhaskar Bukrediwala — Arthya Wealth and Investments Pvt. Ltd. — Analyst

Got it. Got it. Sure, sir. Thanks a lot. That’s all from my side.

Operator

Thank you. The next question is from the line of Dhwanil Desai from Turtle Capital. Please go ahead, sir.

Dhwanil Desai — Turtle Capital & Investments — Analyst

Hi, Phil and team. Good afternoon. So the first question is on volumes — we — smart barring, Q1 we are growing at what 7%, 8% kind of a tonnage growth, we are around 270,000 to 280,000. Now, from here to go to that mid-teens kind of a volume growth, do we need all our hubs operational and seems already four of them are operational, can this 7%, 8% move to 11% 12% by the time where hubs become operational?

Pirojshaw Sarkari — Chief Executive Officer

Yes. Absolutely. So we don’t have to get all the hubs operational to grow. We will grow from the 8%, 9%, 10% 12%.

Dhwanil Desai — Turtle Capital & Investments — Analyst

Okay. Got it. And sir the second question is on the margin that I think we had — you discussed a lot on this, the only question that I have is now that this 5.4 to 9 trajectory, will it be step-by-step improvement or we’ll continue around this number because of the legacy issues, and then in Q2, those things will get resolved and margin as you grow.

Pirojshaw Sarkari — Chief Executive Officer

No. It will be a step-by-step increment and you will see it.

Dhwanil Desai — Turtle Capital & Investments — Analyst

Okay. And this legacy issue, can you give slightly more color, is it because we have to give more discount to the customer, because of the legacy issue and that is what is dampening the margins?

Pirojshaw Sarkari — Chief Executive Officer

No. So the problem we face in Gati is that the customer says, there were certain commitments given by their past management which have not been kind of honored and there is nothing in the contract. So that’s where the problems arise. But at the end of the day, the customer is always right, right? So we need to kind of come to a conclusion so that we can carry on and do more business with the customer.

Dhwanil Desai — Turtle Capital & Investments — Analyst

Okay. So this testing will last for a couple of quarters is your estimate?

Pirojshaw Sarkari — Chief Executive Officer

Yeah. I think at least for one more quarter.

Dhwanil Desai — Turtle Capital & Investments — Analyst

Okay. Okay. Got it, sir. Thanks.

Operator

Thank you. We’ll take the next question from the line of Neelam Punjabi from Perpetuity Ventures LLP. Please go ahead.

Neelam Punjabi — Perpetuity Ventures LLP — Analyst

Yeah. Thanks a lot for the opportunity, and question is on the gross margin. So if I look at the Express business, sir, gross margin on a sequential basis has declined by about 100 basis points from 28.8% in Q2 FY ’23 to 27.8% in this quarter, so could you highlight what is the reason behind this?

Pirojshaw Sarkari — Chief Executive Officer

Don’t call me a pattor but you are making me repeat the same thing again and again. I have answered this three times now. This is because of certain deductions that we need to give to the customers for past commitments made. It is not the operational gross margin which has [Technical Issues]

Neelam Punjabi — Perpetuity Ventures LLP — Analyst

Okay. Thank you. And secondly, could you give us a timeline for the fuel station divestment?

Pirojshaw Sarkari — Chief Executive Officer

If I were to be able to predict the government approval process, I could have given you have the timeline, but I am sorry, I cannot give you a timeline now. We are dealing with the government for permission.

Neelam Punjabi — Perpetuity Ventures LLP — Analyst

Okay. Great. Thank you.

Operator

Thank you. The next question is from the line of Surbhi from BWC. Please go ahead.

Surbhi — Balaji Warehousing Company — Analyst

Yeah. Am I audible?

Pirojshaw Sarkari — Chief Executive Officer

Yes.

Surbhi — Balaji Warehousing Company — Analyst

Yeah. Sir, my question to you is most of the questions got answered, last question that I had was how big is this customer for us where we are facing this issue?

Pirojshaw Sarkari — Chief Executive Officer

We mainly face these issues with the large customers only. So it’s not one customer, there are a few customer.

Surbhi — Balaji Warehousing Company — Analyst

So I mean, what percentage of our revenue would be coming from them, a broad ballpark number?

Anish Mathew — Chief Financial Officer

Well, very difficult to answer that but should be at least 20% of our revenue.

Surbhi — Balaji Warehousing Company — Analyst

Okay, okay, sir. And you expect this issue to get resolved by next quarter?

Anish Mathew — Chief Financial Officer

Yes.

Surbhi — Balaji Warehousing Company — Analyst

All right. Thank you, sir.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

Pirojshaw Sarkari — Chief Executive Officer

So thank you, everyone, for attending this call. If you have any more questions, you can either contact Sanjay, who heads our Investor Relations or our external IR partner, SGA. Thank you very much.

Operator

Thank you.

Anish Mathew — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]