Snowman Logistics Limited (SNOWMAN) Q2 FY23 Earnings Concall Transcript

Snowman Logistics Limited (NSE:SNOWMAN) Q2 FY23 Earnings Concall dated Nov. 10, 2022

Corporate participants:

Ishaan Gupta — Non-Executive Director

Sunil Nair — Chief Executive Officer and Wholetime Director

Balakrishna N. — Financial Controller

Analysts:

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Kushagra Bhattar — Old Bridge Capital — Analyst

Rohit Ohri — Progressive Shares — Analyst

Ruchita Ghadge — I-Wealth Management — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Snowman Logistics Limited Q2 FY ’23 Earnings Conference Call. We have with us on this call Mr. Ishaan Gupta, Director; Mr. Samvid Gupta, Director; Mr. Sunil Nair, CEO, Whole-Time Director; Mr. Balakrishna N, Financial Controller; Mr. Kiran George, Company Secretary. [Operator Instructions]

I now hand the conference over to Mr. Ishaan Gupta, Director, Snowman Logistics Limited. Thank you, and over to you sir.

Ishaan Gupta — Non-Executive Director

Thank you. Good afternoon, ladies and gentlemen, and a warm welcome to our Q2 FY ’23 earnings conference call. I hope you all had the chance to peruse our financial statements and earnings presentation that I’ve already made available on the exchanges and our website.

Before we start the Q&A, I would like to give you an overview of the company and some of our recent activities. Snowman is India’s leading logistic service provider in the temperature control, warehousing and distribution space. We have a large network of 41 warehouses spread across 17 cities having a total capacity of 130,000 pallets and currently we are operating a fleet of over 500 refrigerated vehicles. Apart from our regular warehousing and transportation activities, we are happy to announce the launch of our Fifth-Party Logistics services, 5PL services.

We’ve become India’s first cold chain company to offer end-to-end solutions to our customers in this regard ranging from procurement, sourcing, warehousing, distribution, inventory management, quality control and a host of other value-added services. This is a natural shift for a company like ours in line with global practices in the industry and it helps our customers with creating a more efficient supply chain, so that they can focus on their core business. These services also helps increase customer stickiness and gives the rise in revenue and profits for our company. We started offering 5PL services only in the last quarter and currently our customers include IKEA, Baskin Robbins and Tim Hortons. We are very optimistic of increasing this line of business in the time to come.

Another significant inclusion to our infrastructure during the quarter is the addition of a warehouse in Hyderabad of 26,000 square feet with a pallet capacity of 1,200 having six docks. We’ve been growing our presence in dry warehousing for meeting the requirements of our existing customers as well as new clients and also we are continuing with our dedicated warehousing which we offer for you, e-commerce services, e-commerce customers.

Going ahead, we plan to continue exploring expansion opportunities in all these areas, which includes temperature control warehousing, dry warehousing and the new distribution model. On the transportation side, while we have our own fleet, we are expanding rapidly through SnowLink, which is our tech platform for aggregating refrigerated fleet across the country.

So, with that, we would like to open the Q&A session and feel free to ask us anything which you’d like about any of those activities. Operator, over to you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] First question is from the line of Sudhanshu from Arunova. Please go ahead.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Hi. So, the company has started reporting a new segment called trading and distribution and from the first quarter that this is being reported it’s contributing 25% of that. So, I’d like to [Technical Issues] of these revenues, what kind of business is it exactly derived…

Operator

Sorry to interrupt, Mr. Sudhanshu your audio is breaking up.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Sorry. So, I was saying that the company has started reporting a new segment called trading and distribution and from the first quarter of reporting it’s contributing 25% of the revenues. So, could the management provide some clarity around the nature of these revenues. So, what kind of business is it exactly and how has is it kind of scaled up so significantly from the first quarter itself.

Sunil Nair — Chief Executive Officer and Wholetime Director

Yeah. Hi, Sundhanshu, this is Sunil Nair. This is — this trading and distribution business comes under our 5PL service offering, wherein, as Ishaan mentioned, we do right from sourcing to distribution end-to-end solution, where we develop vendors, we do quality audits, we negotiate with them, we buy inventory from them and then we sell it to our potential customers that is when we are sourcing partner. In case of selling the things, we we also provide sales support to the product if the customer wants to distribute any product. So, in this the inventory is hedged to our books. So, it’s typically a trading business that’s where the trading and distribution revenue has come, which includes our service income as well as the cost of goods which are distributed.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay. And sir what proportion of this revenue is the service income and what proportion is the cost of goods that is being routed through the books?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, the 10% of this is service income and 90% is cost of goods.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

90% is cost of goods. And I mean trading is quite a risky and volatile business, so how do you take a call when you want to hold inventory or how you want to increase or decrease your inventory levels because that could also lead to trading profits or losses and that could introduce more volatility in the earnings. So, could you shed some light on that please.

Sunil Nair — Chief Executive Officer and Wholetime Director

So, the arrangement is complete end-to-end from supplier to the customer. We have tied it to the agreement, which clearly states that we will buy against the projections from the customer and they we will have to buy that much quantity against a projection. In case of overall study that we have today with these three customers about 50% of them are just in time. The day we buy it, the same day we sell as well. So, yes, there is a risk associated with this, but we have covered that through various terms and conditions and at the same time we are doing business only where there is very less of seasonality or up and downs in the sales and the requirement of our customers.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Right, okay. And what would be the kind of strategy to scale up and grow the trading and distribution business? Who do you see as your competitors in this space?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, for the type of service that we are offering which include typically the 5PL where sourcing and vendor development services, there is no other 3PL or sourcing company which is offering this service. So, we don’t find a direct competition, but there are many distribution companies. So, the distribution point of view, yes, there is competition. We take this as one of the — maybe in couple of years time this will be one of the biggest vertical for us, segment for us, because today the amount of goods that we are distributing under 3PL agreement is close to INR12,00 crore to INR15,000 crore worth of material is moved and our intent is to move these customers into a 5PL service offering.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay. So, but distribution seems like a completely new business vertical from cold chain warehousing, which has been historical strength. So, what is your competitive advantage in distribution?

Sunil Nair — Chief Executive Officer and Wholetime Director

No, so if you see, we are doing the same thing. This 5PL also comes as an attractive business proposition, because the warehousing and transportation is the base here, okay. So, the additional of — additional services are just an extension of the those 3PL activities that we have been doing and we — all these customers who are now onboarded are our — were our 3PL customers and they saw a better integration and we are taking more responsibility from their supply chain team and executing that is what the customer looks at it and we are also looking at that from their supply chain spend we get a larger price of share. So, it is a win-win. As we move forward, multiple customers are of PL segment would be able to get a better pricing because of we doing consolidated buying for them. If there are four or five customers on-boarded, we can do a consolidated buying from various manufacturing companies and the bulk quantity would always give us a better price, which is win-win for the manufacturer, for us as the distributor company and has led to the customers. So, that aspect is taken care of.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay. And you mentioned that the inventories purchased on projection and if those projections are not met, so do we still have to, because we have bought the inventory, so you still have to end up holding it, right.

Sunil Nair — Chief Executive Officer and Wholetime Director

Yes, we have to still hold it. The risk that in this business typically you face is the expiry, because source of it improved, but that risk is with the customers because it is not against the projection.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

But let’s say the projection has not met, then what happens to these goods? Do they — would they have to be written down on our books or what are the safety nets in place that we have if the projections are not met?

Sunil Nair — Chief Executive Officer and Wholetime Director

If the projections are not met, the product has to be disposed of all. The customer will sell it or promotion. All the side possibility disposed of, return to supplier or promotions, offerings and all — will all this in the customers’ account.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

And what would be the order pipeline for this segment trading and distribution? Are there any other contracts that are under negotiation?

Sunil Nair — Chief Executive Officer and Wholetime Director

Yes, there are.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay. And can we expect any announcements in the next few quarters or it’s more long-term?

Sunil Nair — Chief Executive Officer and Wholetime Director

It depends how far the customer wants to switch. Typically these are — these have triggers. Usually people — customers who’d like to change when they are here and in beginning, so if it a multinational company where the year begins on 1st Jan maybe we will be able to have something — some news in the coming quarter. If it is Indian company from 1st April there will be changeover. So, it all depends on which one date close and when.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay, right. And just one last question probably. So, you mentioned that you don’t have competitors on the 5PL side, which is both — which is all three warehousing, transportation, and distribution, but you have a lot of competition on the distribution side. So, probably how do, I mean, how do you kind of stand out from the companies on the food distribution side? What advantage do we have?

Ishaan Gupta — Non-Executive Director

Sudhanshu, Ishaan here. One major advantage which we have over the competition is that we are giving a bundle, right. So, our base warehousing and transportation. So compared to a pure distributor or a pure cold chain supplier, we are able to offer all the services in a single platform. So, apart from, like you were mentioning how soon do we plan to build this up further, apart from existing from 3PL to 5PL there is a huge opportunity of new brands and new QSRs specifically entering India. One example is that out of the three we have started with IKEA, Baskin and Tim Hortons, Tim Hortons is the recent brand from Canada, which has just enter India and from the beginning we have partnered with them and wherever they go we’ll growing along with them. We are just one company and we have very aggressive plans for opening all over India. So, like that if any new chain wants to enter India, for example, the advantage that we’ll have over a pure distributor is that they will be speaking to us for cold storage anyway. So, we can offer them the full package.

Sudhanshu Piyush Maheshwari — Arunova Private Limited — Analyst

Okay, okay. Okay. Thank you. I mean, I don’t have any further questions. Congratulations on these numbers and it would be interesting to kind of see how the new segment plays out. Thank you.

Ishaan Gupta — Non-Executive Director

Thank you, Sudhanshu.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kushagra from Old Bridge Capital. Please go ahead.

Kushagra Bhattar — Old Bridge Capital — Analyst

Yeah. Hi, team. Thanks for the opportunity and congrats on good set of numbers. Few questions. So, basically to understand this 5PL business more, can you help us picturize or probably take an example, for example, IKEA versus the traditional services of 3PL, what incrementally you would be doing for IKEA and what commodity probably you would be doing it for them, so just to picturize — help us picturize this.

Sunil Nair — Chief Executive Officer and Wholetime Director

Yeah, sure. So, Kushagra, what we do is typically a distribution company or a 3PL company would do this primary transportation, warehousing and the secondary transportation these are the typical service offerings. What we do under 5PL offering to them is, let’s take an example of they need an ice cream cone. Now, they would say that I want to sell the ice cream cones now, so can you help me with buying ice cream cone. And then we go and price out the ice cream cone manufacturers in the country. We do quality audits of their facilities to see that all food safety norms are followed. We take quotation specification of the product. We collect samples. We go and give it to the product development team of IKEA. They take the product. They identify two or three options.

They give it back to us. We go back. We do the commercial manufacturers and we do a recommendation to IKEA saying that, okay, these three are validated and come along various assessment, technical assessment of the supplier, their financials condition, their track record everything put together we recommend to buy it from this and this supplier. Once that is identified and they approve it, then we buy that product and supply to IDEA under two arrangements, one we have a service staff for doing the whole safety and vendor development activity, second is we have a distribution mark up and margin on this whole trading business. So, this is the typical arrangement.

Kushagra Bhattar — Old Bridge Capital — Analyst

Got it. That is quite helpful. So, just to understand the way you report, right now you said 10% is the services component and 90% and if I look at that 10% is actually your gross profit from that business. So, basically, had you not reported the inventory or not taken the inventory on your books? Probably the revenue which you would have reported otherwise would have been that gross profit which is the services component in it, which is the 10% of the goods which you are mentioning, right.

Sunil Nair — Chief Executive Officer and Wholetime Director

No, it won’t be even 10%, because this 10% includes our service charges for resourcing and all and also the trading margin. So, it would be lesser than that if it is not 5PL service.

Kushagra Bhattar — Old Bridge Capital — Analyst

Okay, got it. So, then, I mean, if you can give some more color as to generally what are the broad trading margins. And then second, if I look at only the gross profit of that and if I compare the EBIT portion of it that comes out to be a significantly high margin business for you guys this particular business. So, though it looks a little bit margin dilutive because of the higher inventory which you are looking, but overall it’s probably adding you or giving you some more cash flows because of the value-added services which you guys have provided.

Sunil Nair — Chief Executive Officer and Wholetime Director

Yeah, you are absolutely right. So, see if you take a generic distribution business where you do the 3PL services, primary transportation, secondary transportation in a matured phase, we would be 6% to 7% of our customers form. So, we are taking that to 10%. So, definitely this is going to be the higher margin, higher cash flow business as we move forward as compared to our earlier business model. Important is to understand that this is — we are looking at it as an incremental opportunity from the infrastructure which is already created. So, instead of doing a business with that remainder and that margin we have opportunity to have the same infrastructure used to create better revenue and better margin and that’s the whole intent behind this distribution business model.

Ishaan Gupta — Non-Executive Director

Kushagra, Ishaan here. Just to add to that a little bit more from — more from a strategic point of view rather than specifics. The reason — one of the reasons why we’ve entered this business is not only for the additional revenue increasing the throughput of the company, but more importantly on absolute terms like you said EBITDA also, our cash flows benefit from this. So, as the percentage it might look lower. It definitely will look lower, but as an absolute number it’s increasing. At the same time, the customers are getting sticky. So, once someone — again I’ll take the example of right now the three customers that we have any one of them, if they want to migrate to someone else offering the same services they have zero options available in India, because we’re giving them the whole package end-to-end.

Going ahead, apart from these specific customers requirements of sourcing, once we have a base of few more customers, we’ll have negotiation power from the buying side also. So, hypothetically speaking say tissue paper, for example. If a bunch of restaurants need tissue paper and we’re already doing storage and transportation for them, we can source tissue paper at a larger volume and then sell to each of our individual customers and increase our trading margins over-time. So those kind of possibilities will come in and over-time in the developed part of the world this is the model that cold chain and food companies are operating in. So, Snowman will transition from a warehousing and transportation company to a food services or a food distribution company in the time to come.

Kushagra Bhattar — Old Bridge Capital — Analyst

Got it, got it, Ishaan. That’s quite exhaustive answer. Thanks for that. Few more questions on your traditional, I mean, 3PL business which you’re doing. So, when you say you are expanding it asset, right, can you give some more color as to how you do it, I mean, is it largely on the leases, right? And going forward if you can give some sense on the quantity of expansions from dry pellets and cold storage. So, probably right now dry would be around 20,000, 25,000 out of those total 130,000. But going forward as you move towards 200,000, 230,000, 250,000 pallets, what proportion you are seeing coming from the dry ones overall?

Sunil Nair — Chief Executive Officer and Wholetime Director

Yeah. So, you’re right. Three years back we had some strategies on going little asset-light and we started with the transportation where we created this moving platform and we started giving trans. Today, on an average, these anywhere between 150 to 200 trucks on a daily basis. Coming to warehouse, we started using dry warehouses. Wherever we have cold storage and we have 10 customers leading dry space, we started leasing next to our existing corporate facilities and that’s where we started and now we are also going into leasing larger independent dry warehouses and offering dry logistics service to food and near food segment. So, as of now our dry capacity is around 18%, earlier back it was 15% and we believe that in a years time it should go up to almost 26% dry contribution in overall capacity that we have. Does that answer your question?

Kushagra Bhattar — Old Bridge Capital — Analyst

Yes. Generally, you sort of go out and scout for independent warehouses and get them on lease, right?

Sunil Nair — Chief Executive Officer and Wholetime Director

Yes. So, so far we’re doing it on a back-to-back basis where we already have demand and hence we have to go for a dry space. Now, we may also go for leasing the dry space and then at the same time looking for customers.

Kushagra Bhattar — Old Bridge Capital — Analyst

Sure, sure. So, okay, got it. So, there is a significant expansion in the dry pallets. Can you give some more color as to what sort of goods gets stored. I mean, how different would this business be versus the core storage both in terms of your margins as well as the realizations, broad color will be helpful.

Sunil Nair — Chief Executive Officer and Wholetime Director

So, see, each warehouse would be different, but on a plane vanilla basis if at least a dry warehouse and without much modification if I further lease it to customers and start offerings services, we get anywhere around 13% to 15% margin there. So, that — yeah so that’s the thumb rule that we have and the lease would typically be anywhere between six to nine years lease both ways. And there are other models where we have to put some infrastructure within the warehouse where the rating and all those things are done. In that case, it’s worked out to be around 20%, 22% EBITDA with a PBT of around 10%.

Kushagra Bhattar — Old Bridge Capital — Analyst

Sure. No, what I was trying to get from you is, I mean, given there would be some differences between the goods which you will deal in the dry and the cold storage, if you can give a broad color as to what sort of goods get stored in the dry segment. And also, I mean, cold storage we totally understand the way you guys have differentiated in terms of quality, in terms of delivery and all those sort of things, but dry there would already be a lot of inventory or lot of capacities in the market. So, I’m just trying to figure out how you guys sort of differentiate in that particular segment.

Sunil Nair — Chief Executive Officer and Wholetime Director

Okay. So, dry, one important thing that we should keep in mind is we are still focusing on food as a category. And our differentiation primarily come from ensuring the compliance on the ground, where there are lot of complications right from the people self set-up every six months to the a piece of the warehouse to the documentation, traceability records and all those things. So, that is our differentiation in the market. And typically the products are, you can say, SMPB products are one of — chemical products are also something which we store. So, the once which don’t need temperature control but need all other care from the compliance point of view is what we are looking at. So, we don’t want to do a generic warehousing which other 3PL services offer. We want to do where there is some complexity in terms of compliance documentation is take place and that’s our sense due to our experience in cold chain and food products.

Kushagra Bhattar — Old Bridge Capital — Analyst

Got it, sure. Just one last question from my side. If you can give broadly what would be the fixed cost in the business, let’s say, considering the power, I mean, the electricity, the man power, at this point of time and once you change and shift more towards asset-light, the rentals which you would be signing would also be a component of your fixed cost. So, just broadly if you can give some numbers around that.

Sunil Nair — Chief Executive Officer and Wholetime Director

It’s very difficult, because each vertical has a different ratio of fixed variable. I can roughly tell you that in case of cold preserve business which is warehousing business, our fixed cost is around INR600 per pallet that is an average of frozen, chilled and dry. So, it’s difficult to quantify this at a business level.

Kushagra Bhattar — Old Bridge Capital — Analyst

Okay, sure. This was quite helpful. Thanks a lot guys and all the best.

Sunil Nair — Chief Executive Officer and Wholetime Director

Thank you so much.

Ishaan Gupta — Non-Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rohit from Progressive Shares. Please go ahead.

Rohit Ohri — Progressive Shares — Analyst

Hi, Sunil and team. Couple of questions related to the 5PL business and the other aspects of the operations. Firstly, you did touch upon some of the areas which are associated and there are certain terms and conditions related to that. But what sort of special certifications or compliance requirements are tehre for 5PL business since you are looking at vendor sourcing as well as vendor development and in addition to that you are looking at quality inspection also. So, are there any special certifications required for the business?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, Rohit, for us as an entity, there is no special certification required. All what is required is in place in terms of warehousing and transportation whether you talk about license or BRC certification or ISO 22000. Those are in place anyway. But yes when we are awaiting the manufacturer, we have to ensure that all, whether it is a food processing or the special requirements related to each product, whether they’re complying to that or not. So, it’s part of our audit process, where we check I think at similar level. For us as Snowman we don’t have to go for any special licensing.

Rohit Ohri — Progressive Shares — Analyst

Okay, okay. So, in addition to the stickiness of the customers which some of them are already with us, what is the other factor that will differentiate you from the competition than if somebody has a client base and we can also start-up with the 5PL services, right.

Sunil Nair — Chief Executive Officer and Wholetime Director

Right, you are right. If someone is already working as 3PL with someone they can always start this thing. Thus, the differentiation that we have is the amount of client base that we have and some of the clients that — our clients are actually suppliers to our other clients. So, they are storing in our warehouse only. So, well I have the supplier and the customer meeting in my warehouse. So that is the one major benefit that we have found. So when we are doing the buying and selling of assets we are doing just in time without holding any inventory it is basically moving far from one chamber to another chamber. So, this is one spend. Second spend is all our target customers in each segment we have good amount of different customers which are stored and operated from a single affinity. So when I consolidate over a period of time their volume and go back and negotiate with the suppliers, we would have much much larger volume for negotiation and that would differentiate in the market journey.

Rohit Ohri — Progressive Shares — Analyst

Okay, okay. My next question is related to the capex plan that we had. Earlier you had indicated that somewhere around INR75 crore to INR100 crore was planned over the next two years. So, are you still continuing with the plan or are you trying to become more aggressive or is there some led down on these capex plans that you had?

Sunil Nair — Chief Executive Officer and Wholetime Director

We are still with that plan. As we said, INR75 crore to INR100 crore in 12 to 18 months, we are still on that. This quarter we will decide about Kolkata where there is a land we’ve already circuit. We are also leasing some dry warehouses where we may have to do some fit outs for our customers. So, this INR75 crore to INR100 crore in 12 to 18 months is still on.

Rohit Ohri — Progressive Shares — Analyst

Okay. And if you can take us through the progress on the expansion plans for one, Kolkata, two, Pune, and three, Hyderabad, which you have also mentioned in the PPT as well.

Sunil Nair — Chief Executive Officer and Wholetime Director

Yes. So, Pune and Hyderabad are existing facilities where we had some small portion of land where we are expanding. Kolkata is greenfield project which will be close to 10,000 pallet positions, built-in two phases of 5,000 each. And we will be having some dry warehouses at Kairu and which is Haryana and one in Bangalore where we will be doing some fit outs for specific customers.

Rohit Ohri — Progressive Shares — Analyst

And in terms of capacity utilization of Siliguri, have you been able to scale it up from 35%, 40% or is it still the same?

Sunil Nair — Chief Executive Officer and Wholetime Director

Yes, we are at 55% now.

Rohit Ohri — Progressive Shares — Analyst

Okay.

Sunil Nair — Chief Executive Officer and Wholetime Director

And with the business pipeline by December end we should around 75%.

Rohit Ohri — Progressive Shares — Analyst

Okay.

Sunil Nair — Chief Executive Officer and Wholetime Director

It is at 85%.

Rohit Ohri — Progressive Shares — Analyst

So, Sunil, in terms of 5PL and the requirement for probably the capacity or these shelves that 5PL business might require, can you take us through — how will you differentiate since we have one part of business which is having dedicated storage client the strategy and now we are having this business where we are looking at vendor sourcing and development, how will you manage the capacity requirement of 5PL then. If it has to scale very high which appears that it is growing at 25%, how will you kind of have the capacity for 5PL then?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, see, two things here one is — our first focus is to convert our 3PL customers into 5PL. So, that’s is what we are doing. That typically means that I may not add much of the — I may not need much of the storage and transport. It’s already happening under 3PL. I’m only moving it to 5PL account where I helped my customer in terms of sourcing, vendor negotiation, vendor identification and allied activities. So, if I today 5%, 6% on their cost, I’ll become 9%, 10% of their cost, but they are outsourcing all these activities to us that’s point number one.

Point number two, in case more 5PL accounts, 5PL services attracting you, yes, we will need space and that’s why these expansions that we are planning in terms of Kolkata and other places. In our customer segments 3PL there are three categories A, B, C. A is where we get the premium yield for pallet, premium yield per kilometer, three category where we get lead. So, these three categories will get replaced with the 5PL customers wherever we get it. So that our yield from per pallet improves.

Rohit Ohri — Progressive Shares — Analyst

Okay, okay. In terms of the addition of PPE of some INR7.34 crore during the first half, if you can take us through where is this expansion happening which city are you targeting?

Sunil Nair — Chief Executive Officer and Wholetime Director

Sorry, come again, which.

Rohit Ohri — Progressive Shares — Analyst

There some plant and equipment addition that has happened INR7.34 crores.

Sunil Nair — Chief Executive Officer and Wholetime Director

No, that is not for expansion, that is a regular capex that we incur in terms of replacing the plant.

Rohit Ohri — Progressive Shares — Analyst

Okay, okay, okay. So, Sunil, you had guided in the past that you will be looking at some 20%, 25% kind of top-line growth and with the 5PL growing at the same rate do you think that you want to revise your guidance for the top-line growth?

Sunil Nair — Chief Executive Officer and Wholetime Director

We’ll look at it. As of now we are still following-up out next three years plan. So, maybe we’ll be able to share some thoughts on that in the next quarter.

Rohit Ohri — Progressive Shares — Analyst

Okay, okay, fair. And lastly with the EBITDA margin, the blended ones I’m asking, we have come to a range of like 2023 kind of range in EBITDA margin, so you think that this will be sustainable and we should be working with this number going forward the blended margins, EBITDA margins is what I’m asking.

Sunil Nair — Chief Executive Officer and Wholetime Director

So, if we see individually the transportation it is growing. It is 1% up as compared to last year in percentage terms. And as we slow distribute business, the distribution and trading business, the overall weighted percentage will come down because of the proxy rate. But in terms of individual line items, it is — it will continue to grow.

Rohit Ohri — Progressive Shares — Analyst

Should we revise it to somewhere like 26% or 28% which was historic EBITDA margins in the past which we have seen three years or four years ago?

Sunil Nair — Chief Executive Officer and Wholetime Director

No, so see without trading business even now it will be somewhere around that 27%. So, I am saying with more of trading business the percentage will keep coming down because the contribution of trading top line is higher as compared to EBITDA. EBITDA there it was 10%, right. And so this percentage will go down once we are looking at it how the absolute EBITDA is going up. So, from last quarter’s INR21 crore of EBITDA we went to INR24 crore of EBITDA with similar 3PL business, but with the 5PL services. So, we are looking at that as an objective that our EBITDA in terms of absolute numbers is going up.

Rohit Ohri — Progressive Shares — Analyst

Okay. And anything, any thoughts on the comfortable debt equity or comfortable debt that you will be picking out at?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, when we do this expansion of Kolkata and other two, three expansions, we will be doing around 75/25 debt equity.

Ishaan Gupta — Non-Executive Director

But at the same time, hi, Rohit, Ishaan here, we’re also repaying debts as and when they’re due. So, in Snowman we will follow a similar strategy which we follow in gateway that net debt to equity — EBITDA — net debt to EBITDA we’ll keep it as not more than 1, maximum 1.2 going ahead as these new projects come in.

Rohit Ohri — Progressive Shares — Analyst

In terms of rupees crore, what is the debt which is there at the end of half year?

Ishaan Gupta — Non-Executive Director

100…

Balakrishna N. — Financial Controller

Hi, Bala here.

Rohit Ohri — Progressive Shares — Analyst

Sorry, sir, you’re not audible. Can you be a bit loud.

Balakrishna N. — Financial Controller

INR114 crore and net debt is INR94 crore.

Rohit Ohri — Progressive Shares — Analyst

INR114 crore, is it, did I hear that well?

Balakrishna N. — Financial Controller

Yeah, yeah, that’s the gross debt, net debt is INR94 crores.

Rohit Ohri — Progressive Shares — Analyst

Okay, sir. Ishaan thank you. Thanks a lot. All the very best for the new endeavors that you have. Thank you.

Ishaan Gupta — Non-Executive Director

Thank you, Rohit.

Operator

Thank you. The next question is from the line of Ruchita from I-Wealth Management. [Operator Instructions] Ruchita, you may please proceed.

Ruchita Ghadge — I-Wealth Management — Analyst

Hello. Good evening, sir. So, sir, most of my questions are answers. Just one or two questions that I had in mind. One was on the growth part. So, the prior participant mentioned that you’re expecting a growth of 30%, so is this guidance for this year or the coming two, three years the guidance that you had given?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, this was 25% suggestion as compared to last year versus this year’s budget, this financial year and on a YTD basis we are at 44% now. So you are suggesting whether we would like to revise those numbers for the rest of the year.

Ruchita Ghadge — I-Wealth Management — Analyst

Yes, sir, because right now the run rate has increased. So, considering that, would you like to change the guidance or anything as such?

Ishaan Gupta — Non-Executive Director

We will be changing the guidance but not at this point, because this was — this new business has been very recent only in the last quarter and we are seeing traction now. We will be building more customers. So, right now we won’t feel comfortable putting a number to it, but we share that with you once we have done our internal calculations.

Ruchita Ghadge — I-Wealth Management — Analyst

Okay. And will we would immediately in to maintain this top-line growth in the coming two to three years like a 20%, 25% growth?

Ishaan Gupta — Non-Executive Director

Yeah. In fact, we are quite confident that it will be higher than that at the top line level. Again because we’ll be adding on and building on to this 5PL business in a very big way and then with the other expansions the traditional 3PL model will also continuing growing.

Ruchita Ghadge — I-Wealth Management — Analyst

Okay, okay. And on the 5PL that you’ve started, I missed on the points, so what are the risks involved in this business?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, see, in general, when someone does the 5PL service and holds inventory on behalf of customers, the risk of over inventory is there, alright. The risk of — in case of food products, the risk of expiry is there. But so far with all the accounts that we are dealing we have back-to-back arrangement where the procurement is done against the projection given by the customer. And if they don’t list stock as per their projection, the responsibility of expiry is with them. So, see, so far we have protected ourselves from the risk, but as we move forward and when we start trading we will have to revisit the whole arrangement and see how we can deal with the others.

Ruchita Ghadge — I-Wealth Management — Analyst

Okay. So, sir, my for understanding it right, the inventory that you buy, so is the end consumer, the one who you’re selling it to, if they do not buy it, you’ll have to bear the expenses.

Sunil Nair — Chief Executive Officer and Wholetime Director

That is general thing. As of now, the three accounts that we have is they have provide compulsorily as per their proejction.

Ruchita Ghadge — I-Wealth Management — Analyst

Okay, okay, okay. And right now sir the EBITDA margins are at around 21%, which I understand is because of the new business that you started with. So, this 21% is this sustainable or it will fall further?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, if the distribution business, where the inventories in our books, the percentage may go down, but in absolute terms it will look much, much better.

Ruchita Ghadge — I-Wealth Management — Analyst

Sir, any range that you can basically help us with like between what where can we expect this EBITDA margin to be?

Sunil Nair — Chief Executive Officer and Wholetime Director

Sorry come again.

Ruchita Ghadge — I-Wealth Management — Analyst

Any range that you can suggest for these EBITDA margins, like below or certain point it won’t fall like anything like that if you could just throw some light on that.

Sunil Nair — Chief Executive Officer and Wholetime Director

No, see, basically it will depend on the mix of warehousing, transportation and the distribution business. Our warehousing business today is at around 35% to 37%. It will remain at that percent or do slightly better. Our transportation is around 6% to 7%. It will remain at that 6% to 7%. It will not go down. Distribution business is at 10%. We will have to see — at EBITDA level distribution business is at 5%. If that contribution in that overall revenue increases, then it will pull down the overall percentage damage. But from an individual line item, they will all do same or better. So, it will depend on completely the mix that comes in further quarters which will drive the blended percentage.

Operator

Thank you. The next question is from the line of Kushagra from Old Bridge Capital. Please go ahead.

Kushagra Bhattar — Old Bridge Capital — Analyst

Yeah, hi. Thanks for the follow-up. Just two questions. One, last time you sort of mentioned that for the overall industry the demand supply dynamics is in your favor and hence there are 5% to 6% price increases, right. I just wanted to pick your thoughts on as to how the — how is the situation now, are there more capacities coming in, more capital chasing the sector or broad color will be helpful over there.

Sunil Nair — Chief Executive Officer and Wholetime Director

The 6% is more or less same with an increase of 12% to 15% volume from our customer side. If we see a comparable capacity increases in the country, it has not been much. There is couple of facilities are being built as of now. So, the situation continues. We have commanded 5.5% price increase this year. And as we start negotiating from Jan onwards that similar price increases we will be able to get in the next year also.

Kushagra Bhattar — Old Bridge Capital — Analyst

Sure, got it. And last one, so basically in our lease versus fully-owned model, let’s say, you earned INR1,400, around INR1,400 revenue per pallet, right, on an average, including, I mean, on an aggregate basis. So, on that, what would be the component of lease which probably because you will not own the assets which will expand your ROC, but there will be cash outflow in the form of leases or rentals. So, just trying to get a sense on INR1,400 revenue per pallet what would be an equivalent per pallet lease outflow on that broadly?

Sunil Nair — Chief Executive Officer and Wholetime Director

So, see, the yield per pallet is same whether it is owned or meet, because the quality of service offering is same. So, from revenue point of view they are same. Mostly the lease ones are dry warehouses. So, if you categorize frozen, chilled and dry, if you make three categories, then frozen typically will be somewhere around INR1,500, INR1,600, INR1,700 per pallet, chilled would be somewhere around INR1,200 to INR1,300 per pallet and dry would be somewhere around INR750 to INR800. So, dry is what we are leasing most of the cases, frozen mostly our almost 97%, 98% are in our own warehouses.

Kushagra Bhattar — Old Bridge Capital — Analyst

Right. So, on that INR600, what would be the component of leases, I mean, around 10% of it 10%, 12%, 15%?

Sunil Nair — Chief Executive Officer and Wholetime Director

No, you’re saying that dry INR750 to INR800 is my rental revenue. You’re saying out of that how much is the rental paid to the landlord.

Kushagra Bhattar — Old Bridge Capital — Analyst

Yeah. So, I’m just trying to compare, because you would not be, I mean, doing the capex for owing the asset. There will be certain outflows in the form of rentals and the leases. So, just trying to figure out what it would be as a percentage of your revenue per pallet.

Sunil Nair — Chief Executive Officer and Wholetime Director

Average around 25% is the rental, lease rental.

Kushagra Bhattar — Old Bridge Capital — Analyst

20%, 29%.

Sunil Nair — Chief Executive Officer and Wholetime Director

25%.

Kushagra Bhattar — Old Bridge Capital — Analyst

Okay, got it. Thanks a lot Sunil and yeah thanks guys. All the best.

Operator

[Operator Closing Remarks]