Transport Corporation of India Ltd (NSE: TCI) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
Simran Sharma — Investor Relationship Analyst
Ashish Tiwari — Group Chief Financial Officer
Vineet Agarwal — Managing DirectorManaging DirectorManaging Director
Analysts:
Alok Deora — Analyst
Amit Dixit — Analyst
Sunil Kothari — Analyst
Jainam Shah — Analyst
Pinaki Banerjee — Analyst
Krupashankar NJ — Analyst
Manoj Jethwa — Analyst
Anshul Agrawal — Analyst
Vikram Suryavanshi — Analyst
Ronald Siyoni — Analyst
Presentation:
Simran Sharma — Investor Relationship Analyst
Good evening, ladies, and gentlemen, I am Simran, the moderator. And I’d like to extend a warm welcome to everyone joining us for the TCIL Q2 FY25 Earnings Conference call. On behalf of the management, we have with us Mr. Vineet Agarwal, Managing Director; and Mr. Ashish Tiwari, Group CFO. All participants are in listen-only mode. Please note that this call is being recorded.
With that, I now invite Mr. Ashish Tiwari to begin with his opening remarks. Thank you and over to you, sir.
Ashish Tiwari — Group Chief Financial Officer
Thank you, Simran, and good evening to all of you again joining this call. I hope that you have got to have financial results and the investor presentation which is available on the website and also on the stock exchange.
A few of our comments might be forward-looking and eventually may not be coincide with the actual performance. So please take all these conference notes with the disclaimer.
Usually, as usual, we begin with the Q2 earnings presentation and followed by the question-and-answer session.
Now I am handing over to Mr. Agarwal his opening comments and the presentation. Thank you, over to you, sir.
Vineet Agarwal — Managing DirectorManaging DirectorManaging Director
Thank you, Ashish, and good evening, everyone, and welcome to this investor conference and call. It’s always been a — it’s always a pleasure to meet everyone, and especially on the eve of the festival season.
The second quarter of the year was anticipated to be not as good as how it came out to be. Generally speaking, things were weak on the consumer side and the consumption side rather, but generally speaking, the industrials and some other areas have done reasonably well. This year we expected — we saw that stocking was slightly better, maybe 5%-10% better than last year in terms of the festival stocking. Let’s see how that translates into this sales in this quarter.
Two-wheeler sales are robust. Four-wheelers are weak. Tractors are weak. MSME is still a little weak. Interestingly, the impact of the — of these sectors is not too much on the entire on all sectors. But some sectors have had felt major impact.
For us we are also seeing that production cuts in auto sector has also started, It has started a little earlier than anticipated. I think — we know that there is a lot of stock available across the board, across the country, and that is — doesn’t augur very well for the second half of the year when it comes to the automotive sales. Usually automotive production cuts happen in the second half rather in December period but this time it started a little earlier.
The business that did reasonably well for us was Seaways, not, — well clearly domestic rates have gone up because some ships have shifted. And the correlation that we felt was limited to international freight rates to India seems to be a little stronger in this quarter because some of these international — some of these ships moved to international waters, and hence we were able to really raise prices on the domestic sector. With fuel rates being benign, It helped us from an overall perspective.
These were some of my opening remarks. We’ll move to the next to the presentations. I think some of these things are known. I would just go to Ashish to the next one, please.
I want to talk a little bit about technology, If you just go to that slide, what is interestingly starting to happen is that ULIP is starting to grow much more and recently there was a hackathon also that happened for ULIP where we have participated. Our company is one of the only companies that has really integrated almost seven or eight APIs from ULIP directly into our systems.
If you want to check driver credentials, we have API. If you want to check the vehicle credentials, we have the Vahan API. If you are checking railway-related tracking where the trains are, we have integrated with something called Fios, FIOS. If you are checking on the tolls, we are — we have the FASTag integration and otherwise, we are also working on a few other integrations with ULIP, which is essentially our integration is far ahead of many of our competitors and we are actively participating in seeing how we can actually make this platform very, very, useful and universal for the entire industry.
We can go back to the case study Ashish, please. Here, I wanted to talk — we wanted to talk to you a little bit about what we are doing specifically around a business in a cold chain company. For a particular Japanese food company, we are running the entire outbound logistics for them. So whether it is there or whether the trucks that are being run by us or the trucks that are being run by maybe some of our competitors also, they’re all managed by us under a single platform. And we are providing, minute-to-minute updates to this particular company.
The movement is pan-India, The movement is — we have set up warehouses for them across the country as well as cold chain — cold chain trucks and cold chain warehouses and giving them real-time price — real-time temperature as well. So there’s no compromise on the integrity of the product.
This single window structured way of working is — has been quite unique and very well appreciated by the company. It has also become a showcase for them, for their global counterparts to see the activity we are doing in a logistically complex country like India.
We do believe that these are certain examples that many other customers that we are selling to many customers and we are doing parts of that with others as well, and they will continue to add value to the overall business that we have and build moats around each of those businesses.
Yeah, In terms of the highlights, I think, every quarter for the last several quarters we’ve delivered a — the quarter that was previous year in the same period, we’ve delivered a higher growth year on year and this continues. We’ve had a 12%, 13% growth on the top line in this quarter as well. The trends are, as I already explained, they remain moderate but we have been able to beat that to some extent.
The — I reiterate the fact that the kind of business model that we built in the last decade is very unique because we are seeing that and — I mean, you have seen that for mostly times when things have not been great, one division — one business has done better and subsequently when one business has not done well, the other business has helped in terms of keeping up the momentum.
Company remains net debt free and the buyback was quite successful.
In terms of the freight business, this is a weak element right now, predominantly because of the lack of growth in the LTL side. MSME is still tight. And as I said, credit offtake is not very high there, It is flattish. The ecosystem around development of MSMEs is not happening to that extent. If you see the kind of equipment that we need as a country for manufacturing of solar panels, for semiconductors, the electric manufacturing, EMS businesses, we do not have enough high quality MSMEs or companies that are able to really supply to the larger companies. We are dependent a lot on overseas, on the Chinese market, and hence the ecosystem still remains small and I would say unorganized to some extent.
It is something that has had an impact. We are continuously increasing our branch network, We have opened 32 branches. The target to get to 40% next year — next financial year is strong and we are confident that we should be able to get to that. But yes, business has been muted and profitability has — is also lower.
In terms of guidance, I think, closer to — with the second half usually being better for freight, we think that we should get to around closer to 7$- 8% to 10% top line, and we should reach the last year’s bottom line numbers as well.
The ROC also slightly higher than last year is because of elevated credit. I think there is a definitively some credit slowdown. Interest rates are starting to play on corporates where they are not paying on time, I guess, because they are finding some areas of reducing cost. Since now they’ve been able to mostly maximize all possible areas. So credit is a little tighter here but again, we are seeing that things are coming back.
Supply chain business has done well on the top line side, 12% on the overall for the quarter as well as for the half yearly. We are seeing as I have been saying that we should get to — this business will be the largest business for us in FY26. The margin structure is the same, It’s the same as last year, slightly weaker actually, on the EBIT side.
This is some investment that we are doing in the new contracts we’ve got in — on the warehousing side. The attractive business opportunity that has emerged over here is quick commerce, I think I did mention that last time, but we can talk about it a little bit more later on when we get into question and answers.
The capital employed has also gone up because we’ve invested into new trucks and of course, receivables has also gone up. But the business remains very strong with a very strong pipeline that we are seeing on the warehousing side, and, hence a little stretch on the margins because of that bench strength that we have to create for manpower as well as for setting up the equipment, as well as setting up the warehouses before the revenue start coming in.
On — I mentioned Seaways has done very well with a 22% top line increase on the — in the quarter, as well as our 65% increase on the bottom line. Again, as I said, the revenues picked up because of shift of some ships and hence, capacity came down. The fuel prices are stable.
The — we had a little bit less number of voyages, almost the same, I would say even though it was a monsoon season. We lost a few voyages in the quarter one of the year because of dry docks. But now the next dry dock is only at the end of the financial year that to towards the — last 10 days of the financial year. Otherwise we are clear for the full year now till then for capacity utilization.
The business remains strong with the 40% odd EBITDA margins and a high 50% plus ROCE.
Joint ventures have also all done well with revenues of — CONCOR joint venture increasing by 22%. Profitability also improving. Similarly cold chain joint has gone up by 32%. Margins are a little tight but because of the investment we’ve made into new trucks, we bought 75 new trucks last year. We are also making a major capacity expansion on the storage side of the cold chain business, and we have very new — some very attractive new customers. I did share a case study earlier also on that.
Transystem is doing well, about 18% – 20% top line growth and a reasonable growth in margins.
Next slide. Net-net on the standalone basis, 10.9% on the console level for — sorry, on the standalone for H1 and similar numbers, about 11.5% on the console level and profitability is up by about 25% on the H1 numbers for standalone and about 16% odd. Some of this is because of the dividend that came in in the quarter one for — from Transystem.
We do think that the guidance that we’ve given for about 10% to 15% on the top line stands as is. The guidance on the bottom line for the 10% to 15% also stands. I think we will have a look at what happens in Q3, and if we need to revise that, we will certainly inform them.
Ratios are all looking good with, EV/EBITDAat 15, ROCEs net of cash at about 25.7. Cash is about INR280 crores. Buyback was about INR160 crores plus tax. Debt is about INR100 odd crores, which is essentially all truck related debts which are cheaper than using cash. RONW is about 20%.
We’ve — as I’ve said, we’ve delivered a consistent, performance year on year and we believe that we are able to create necessary moats. We are able to keep a watch on what’s happening with our competitors as well as react and respond to that. Certainly, there are some competitors that are still actively pursuing a lower cost strategy versus a — sorry, a lower pricing strategy versus a lower cost strategy and hence that puts pressure on us, but notwithstanding, we are able to withhold some of our margins.
Dividend payout ratio increased to — from 125% to 175%. This is in line with overall thought process of about — roughly about 20% odd payout for the year.
ESG goals are strong. We continue to invest into that whether it comes to the environmental side where earning green points as well as adding more capacity on the alternative fuels as well as on the other areas.
In terms of a capex plan, it stands at INR375 — INR350 crores – INR375 crores as we’ve committed. The ship payout has yet to happen in terms of the advances, that will be about INR70 crores – INR75 crores and some container orders also in place. So that will start coming in. Hub centers, though it has been a little small — less but the — it will start picking up now. And I think we are looking at INR325 odd — between INR300 crores and INR350 crores of capex for the full year this year. We do not have visibility yet on the secondhand ship.
Again, thank you for joining and I am happy to answer any questions.
Ashish Tiwari — Group Chief Financial Officer
Thank you, sir.
Questions and Answers:
Simran Sharma
Thank you, sir, for those valuable insights. Ladies and gentlemen, we will now begin the Q&A session. If you have any question, please use the raise hand feature. When called on, kindly start by stating your name and organization before asking your question. So the first question is from Mr. Alok Deora. Sir, please go ahead.
Alok Deora
Hello. Am I audible?
Ashish Tiwari
Yes, you are audible, but you are a little echoing. Alok.
Alok Deora
Yeah, yeah, can you hear me now?
Ashish Tiwari
Yes, we can hear you.
Alok Deora
Yeah, So good evening, and congratulations on a good set of numbers. So just a couple of questions, one is, what [Speech Overlap]
Ashish Tiwari
Alok, your voice is echoing. We are not able to clearly hear you.
Alok Deora
Oh, yeah, can you hear me?
Ashish Tiwari
We can hear you but the voice is not clear, It’s echoing.
Alok Deora
Okay, I’ll just ask the question in case you are able to hear, You can answer that.
Vineet Agarwal
I think you have one more device on open. Maybe So maybe you can stop that and then call — get on the queue again.
Alok Deora
No, No problem, No problem, Thank you.
Simran Sharma
We have Mr. Amit Dixit with us. Sir, please go ahead.
Amit Dixit
Yeah, Hi. Good evening, everyone. and thanks for the opportunity. Congratulations for a good set of numbers in very testing times, I have a couple of questions. The first one is if I look at receivables in H1, they seem to have gone up substantially compared to last year same period or even FY24 as a whole. So just wanted to get better insight that how and why did they go up and do we expect this working capital that has been built up to be kind of eased off going ahead in H2?
Vineet Agarwal
Ashish?
Ashish Tiwari
So, yeah Amit I think — so, the percentage increase in the revenue that is also coinciding with the outstanding that percentage increase. So they have not disproportionately increased. But yes, they have increased because of, as Mr. Agarwal talked about, the tighter credit things and the higher interest rates. Some of the large customers, they just trying to withhold the payments, not giving on the time.
So I think these are some temporary issues which I think would be resolved in the next finance — next half year.
Amit Dixit
Okay. The second one is on Seaways business. Now if I look at it, significant margin increases when we thought that okay, margins would temper off but again we saw this particular division emerging. So just wanted to get the overall sense what is happening over there while you highlighted in your prepared remarks on the international freight rates being kind of rubbing on the Indian freight rates as well, and all the ships, of course, being engaged. So how do we think about this division for the rest of the year?
Vineet Agarwal
Some of these things also, unfortunately, come as a surprise to us because the geopolitical situation really is very fluid and then what happens is that some of these ships are, instinctively or opportunistically shift to other routes, and then it creates a capacity constraint and demand on the Western coast has also been good. So, all of these factors have really helped.
I’ll be very, very — it’s very difficult to give you a prediction of what’s going to happen in the next half of the year. I can certainly say that we are seeing that the geopolitical tensions have not eased. However, international shipping freight rates have eased a little bit. I think that could be a little bit sensitivity to what is happening with, perhaps an indication of global recession or interest rate cuts globally and so on and so forth,
So that is starting to happen but I would not really say that we have a real fix on what’s going to happen but I do expect that we should be able to maintain this or it will go down but it — I don’t think it will go up too much also.
Amit Dixit
Okay, wonderful! Thank you so much and all the best.
Vineet Agarwal
Thank you.
Simran Sharma
Thank you, sir. We have Mr. Alok Deora back with us. Sir, please go ahead.
Alok Deora
Yeah, am I audible now?
Ashish Tiwari
Yes, yes, please go ahead.
Alok Deora
Yeah, yeah, Sorry for that. So just a couple of questions. One is in the freight division, if we see the margins have come off and still our mix on FTL, LTL continues to remain same, while we have been trying to increase the share of LTL or — so any color on that. What’s happening here? Because we have seen almost a 10% decline in our EBITDA in the freight division. So how do we see the next six months panning out for us in this segment? That’s the first question.
Vineet Agarwal
Yeah, certainly it has been challenging, as I’ve been indicating also for the last three quarters — three, four quarters actually. There is definitely some competitive pressure as well from some companies. There is also the growth is limited and slow. There is — the cost structure is also a little bit on the inflated side, overall, with inflation creeping in in various areas, including wages, driver wages or toll and so on,
So there is definitely a little bit of stress that we are feeling and I’m sure that is also evident in the trucking market per se. So I think that what we think that in the next two quarters, three quarters, these will start to stabilize more and more. The branch network should start helping us. Some sanity might come with some of our competitors, Let’s see but it still remains a area of concern for us, but we are tackling it by putting more people on the streets.
We are — we have developed some customized software to track sales performance and also delivering some very specialized methods of response to customers using apps, etcetera, where we are able to respond to the customer in minutes versus hours when it comes to quotations and customer complaints, etcetera.
So there is a lot of effort going on there we are strategizing to ensure that the business comes back to its normal phase in the next two to three quarters.
Alok Deora
Sure. And if you look at the capex, we have done nearly INR90 crore capex in the first half. It’s much lower than what we have budgeted. So — and plus, you mentioned that the new ship is not on the horizon in terms of the secondhand ship coming into capex, right, that is around INR80 crores, where you have kind of budgeted for that.
Vineet Agarwal
So that’s for the first — for the new ship. The advance for the new ship is about INR75 odd crores.
Alok Deora
Okay.
Vineet Agarwal
Yeah, New — the secondhand ship is not yet on the horizon at all. That was also not part of the budget anyways.
Alok Deora
Right. Okay got it. So, these INR90 crore, we have — if you look at the each segment like how we have done only INR17 crores and in some of the key areas, we have done very minuscule capex of what we had budgeted for. So, what could be the realistic capex for this year considering we are almost just like six months away?
Vineet Agarwal
Well, if we — that INR75 odd crores that has to go for the ship business, if that would have happened in a few weeks ago, then this number would have looked okay but that will happen shortly and other capex is underway. So I think we are — as I mentioned, that my comments may be INR300 crore to INR350 crore is what we are looking at this year.
Alok Deora
So just the last question. The revenue and profit growth or — guidance remains same at 10% to 15% but we have done — we are doing — we have done pretty well in the first half. And the second half tends to be a little better, right? So could we see some upward revision here?
Vineet Agarwal
On the top line, I don’t expect it to move much. On the bottom line, I think it will be on the firmer side of the teens but let’s see what happens by Q3.
Alok Deora
Sure, sure, that’s, that’s all from my side, Thank you and all the best, sir.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Sunil Kothari. Sir, please go ahead.
Sunil Kothari
Thanks for the opportunity. Vineet Ji, since long I am tracking TCI and your management. Sir, what I observe is, you are creating slowly but solidly entry barriers to the competitor. Yet they are charging lower end customers must be looking at the price and going there. So, which are the other areas where you feel you require to yet improve? You require to invest and maybe create more modes.
Vineet Agarwal
Oh well, we are already doing that, as you know we — all the joint ventures that we create are essentially created to — we move up the learning curve pretty fast and create — and barriers to entry for competitors also create a much, much more stronger value proposition for our clients so that they are able to stay with us for a longer period on a continuous basis, and then we can start offering them multiple solutions also because the idea is not to just sell them one product, one service, but as many things as possible.
The new area we have last time we talked about subsidization of our chemical business that is underway and the potential to grow that is extremely large with both domestic and MNC companies as well and that business has potential of not just multimodal logistics, but also warehousing, ExIm business and maybe look at a potential JV partner also at some point in time so that we are moving up the learning curve because it has complexities.
It — it’s hazardous sometimes, Is are flammable type of material. They require specialized handling. Compliance needs to be higher, So that’s all — that’s the whole objective. Move up the value chain as much as possible, and protect the margins
Sunil Kothari
So sir, for that internally, where you feel you require improvement or investment?
Vineet Agarwal
Investments are ongoing. It’s not that it is stopped anywhere. If you’re investing into some warehouses, we’re investing it with that purpose to ensure that we are building high compliance warehouses for any purpose. Similarly, if you’re buying containers, we are buying chemical containers, chemical tankers, tank containers from China and other places as well. So it is ongoing, It is not — it is — we are not stopping any kind of investment or rather waiting for any kind of investment to happen.
Sunil Kothari
Sir, last question is this — the study, your case you mentioned now is this Japanese food company. I am sure they must have look at your capability and service and outcome also. What type of benefits they must be getting because of they are with you. It cannot be just price, it must be something more, If you can little bit talk more, it will be really helpful.
Vineet Agarwal
For the company, product quality is very important because if that — if the food product gets to the client in a bad shape or it is not of the right quality, then the client is going to complain, their client is going to complain, and then it’s not going to — they will lose out the business. So, they are seeing that element that are we able to maintain that high quality of the product — the final — the product delivery that happens or not and that’s what has prompted the customer to work with us.
And yes, you’re right, absolutely right, It is not cost.
Sunil Kothari
Great, sir. Thank you and wish you all the best.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Jainam Shah. Sir, please go ahead.
Jainam Shah
Yeah, Hi, good evening, Sir. This is Jainam Shah from Equirus Securities. Sir, my question firstly is on the secondhand issue that we are talking about. So is it more like the seller’s market has dried up or is it something like that the price point that we are searching for is not available in the market?
Vineet Agarwal
It’s both.
Jainam Shah
Okay So no visibility as of now in the near term to have any kind of the ship. Got it, sir. And on the Seaway segment, as you said that few of the ships has been transferred on the international waters. Any specific route that you have transferred, like in FY22, FY23, what I remember is that it has been transferred to the Myanmar route or something and is it back to the normal level in the Q3 or still something….
Vineet Agarwal
We have not transferred. Capacity from that sector moved out to different sectors. We don’t know where they have gone. But we are — we remain on our sectors only. We’ve not moved because we’ve been able — our customers are there and they want the services that we are providing to them. So we’ve not moved out.
Jainam Shah
Got it, got it. And sir, on the freight segment, as all — discussed that our margin has been slowing down or even we can say going down, is it some unorganized sector as well which can be taking up this market share, or is it some large, someone who is just like, you can say, application kind of a provider and matching up the seller and buyer in that case which is eventually hurting our margins or even…
Vineet Agarwal
No. Not, not the — not both — well, regional players and local players, unorganized players have always been there. But what has added on are some companies who have — I guess have been listed also, who’ve just got into some kind of express business and they are not exactly express, but they are in between express and LTL and they are trying to push down the pricing because of capacity utilization etcetera.
They — when they — when the market is slow, then they also have fixed capacity that they have to utilize, So they will drive down pricing then. That’s what we are seeing perhaps with some of them.
Jainam Shah
Okay, sir. And just the last one on the e-commerce side that you also talked on the [Indecipherable] during the on the CNBC TV18. So just wanted to have your sense like is it something that we are looking for next three to five years perspective to become a big, and of course it is smaller in size as compared to our total operation but overall how we are looking at it? Is it something that we are taking up market share in that particular thing in terms of warehousing from the dark stores?
Vineet Agarwal
Well, it’s a — as you rightly said, it’s not a very large business, but it’s a business to learn from because there is a lot of consumer insights that come into something like this and we are anyways working for e-commerce companies on the fulfillment side, not on the last mile side. So there is a lot of learning because supply chains also end up changing, whether it is the — whether it is FMCG or whether it is the food supply chain. All of these supply chains go through a bit of change when new business models come in,
So for us, it’s a very important learning and it’s not that if those companies don’t make money, it doesn’t make we don’t make money. We of course make money because it is a fulfillment model and it works on payment basis. It does not work on — yes, we are going to work with you, or we are going to take equity or something like that, no.
So it is — it’s a service that we are giving and it is certainly an opportunity because what is starting to happen is that and you must have read about it also, is that it’s moving from just instant gratification to more solid your weekly or your monthly shopping that you need to do, your grocery shopping, that substantiated amount of purchase is also starting to increase which means a certain number of SKUs will also increase in the future,
So that gives us an opportunity that there the fulfillment will keep increasing rather than just working on the short, instant gratification, few product market.
Jainam Shah
Got it, sir. Thank you so much, sir. That’s it from my side and all the best.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Pinaki Banerjee. Sir, please go ahead.
Pinaki Banerjee
Sir. Good evening. Thanks for the opportunity. Sir, just a couple of questions, Sir. your freight division actually has remained a bit tepid this financial year ike 5.5% to 6% growth and primary reasons which have attributed is the slowdown in the automobile sector because of the stocking up of inventory. So sir, is it the only reason or do you have — is there any other reason attributable to that? Hello,
Vineet Agarwal
Well, you’re talking about…
Ashish Tiwari
Freight or — yeah,
Vineet Agarwal
[Speech Overlap] freight, in which which division does it? Yes, sir? Is it the…
Pinaki Banerjee
I am speaking about the slowdown in the automobile industry [Speech Overlap]
Vineet Agarwal
Yeah. No, inventory buildup has happened generally, but top line growth is still there. Bottom line growth is not there because as I said, we have made investments into new areas, new — sorry, new capacity that is coming up for new contracts. Some of that revenue driver have — and profitability has not come in yet, So give it a one or two quarters and we’ll be able to see that this should moderate.
Pinaki Banerjee
Okay. So, sir, actually are you maintaining the guidance of 10% to 12% overall growth? Like in half yearly, you have done about 12% now?
Ashish Tiwari
Guidance for top line is about 10% to 15%.
Pinaki Banerjee
Okay, okay, sir.
Ashish Tiwari
For the company.
Pinaki Banerjee
And just one last question. So, in your balance sheet this your current investments is about about INR273 crores. So, sir, actually do you have any prudent policy of how much of assets you are keeping in liquid investments or such like that and how you are utilizing it?
Ashish Tiwari
No Pinaki ji, these are all current investments which are temporary in nature, out of the cash flow.
Pinaki Banerjee
Okay, Okay,
Ashish Tiwari
Yeah.
Pinaki Banerjee
Okay. Okay. Okay, sir. That’s all from my end and thanks and all the best and Happy Diwali to you all.
Ashish Tiwari
Thank you, Same to you.
Simran Sharma
Thank you, sir. The next question is from Mr. Krupashankar. Sir, please go ahead.
Krupashankar NJ
Good evening, and thank you for the opportunity. Sir, my first question would be on the supply chain business. Just wanted to get your sense that given the automotive slowdown is evident and we have been talking about contract wins over the last three, four quarters, do you see probably that the mix finally would change much more in favor of other sectors and reduce the exposure to automotive sector, by FY25, ’26, if things remain tepid with respect to automotive growth.
Vineet Agarwal
Yeah, but it will not change too much, Krupashankar, because it’s a still a very large segment and the growth, yes it is accelerating but we also see some growth in the auto sector, It’s not flat for us at all. Spare parts growth is also happening there. New companies are coming up.
So those are — EV companies are coming up. New capacity is coming up, So it keeps going on also. So the mix is slowly, very, very slowly changing but you would not see any significant change in the next, two, three years.
Krupashankar NJ
Sir, is it fair to assume that tractors is a good portion of our supply chain business?
Vineet Agarwal
No, no, no, it’s not very large, No.
Krupashankar NJ
Okay, okay. And the second part to this question was on Quick Commerce. Just also wanted to get a sense on the rapid growth trajectory, would you be handling the last mile piece as well, or is it just, dark warehouse — dark store management and something on those lines.
Vineet Agarwal
Not even dark store management, from the fulfillment warehouse to the dark stores, the management of the fulfillment warehouse and then the delivery to the dark stores is, that’s all we do. We don’t do dark store management. We don’t do last mile delivery.
Krupashankar NJ
Understood. No, No intention to get out there as well because it’s rapidly growing. Okay, Got it. Second question was more on the Seaways business. While we do see that the performance has been strong, quite strong in the first half. Any guidance with respect to your margins on the Seaways business? Anything that you would like to highlight this time around?
Vineet Agarwal
Well, as I said, it is a bit unpredictable. I think this 40% EBITDA, it will probably come down, but it hasn’t, So — but I think 25% to — 30% to 35% type of EBITDA is still reasonable, but I would warrant any kind of guess right now on this because it has remained a little bit perplexing. But yes, it will not come down. So I think that best — you can be rest assured that the margin structure is quite stable. There’s no dramatic collapse on the — that is being foreseen or is possible, barring a COVID type of situation.
But yeah, otherwise it looks still quite robust.
Krupashankar NJ
Why? Why I was asking this question Vineet is that, if — in the past we have seen that certain capacity additions has impacted the overall pricing power in the spot market specifically. Are you — have you seen that volumes are growing at much faster pace which can accommodate higher supply, if any other competitor also tries to enter, then that way can shape our margins drastically, something which I wanted to get a sense of.
Vineet Agarwal
No, I don’t think so. Because you’re right that, it is — if the global prices start softening then — and these prices remain high on the domestic, there will be people coming back to the domestic sector. But yes, our demand remains robust. It hasn’t gone up too much also, but it hasn’t gone down, It is on the upward trajectory only.
So it should — we should be able to absorb any new capacity comes in. Some freight rates will come down, that’s competitive pressure, that’s normal but then, we have enough cushioning available to absorb that.
Krupashankar NJ
Well, thank you very much for answering my questions. All the very best.
Vineet Agarwal
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Manoj Jethwa. Sir, please go ahead.
Manoj Jethwa
Good evening, sir, and thanks for the opportunity. Hello?
Vineet Agarwal
Yes.
Ashish Tiwari
Yes, sir. Please go ahead.
Manoj Jethwa
Good evening, and thanks for the opportunity. Sir, my first question is relating to your supply chain business. As you said, by FY26, it’s going to be the largest, so appreciate to add some colors on that, sir.
Vineet Agarwal
Well, the growth rate — I mean supply chain is at INR800 crores in the first half and 12% growth rate. And if you see some freight business is about INR800 core and, how much Ashish, 820-ish or something. 800 and…
Ashish Tiwari
840.
Vineet Agarwal
INR840 crore at a 6% growth rate. So just doing the math with this kind of growth rate for the next two years, a year and a half, supply chain by FY26 should be the high — higher – larger companies.
Manoj Jethwa
Thank you. Sir, my second question is pertaining to the coastal shipping and inland waterways, way of transportation as government also more worried about the climate change which is happening. So how we are seeing this business to cope up, say, be in the next couple of years for a TCIL, as a company, sir.
Vineet Agarwal
Very clearly that it is a growth area for us. We are investing in it from capacity that is new capacity that’s coming in as well as we will honor — we are continuously on the lookout to buy old, secondhand ships as well, We have the linkages available. We have the branch network. So we are able to provide end-to-end solutions, first mile, last mile. We provide multi-modal, be it road, rail, sea, combined, seamlessly. We operate at all the major ports.
And, so — we have the customer linkages, So all of these things are very unique to us and that helps us to ensure that we are going to keep growing. A country like China has 20% plus of its movement happening through coastal trade, We had 6%. So — and we have a very, very large 7,000 kilometer coastline. Certainly, there is a lot of opportunity. I don’t think anyone is going to say that this is not going to be an opportunity. So yes, we’ll continue to invest into it.
Manoj Jethwa
Thank you. Thank you very much and all the best for your future endeavors.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Anshul Agarwal. Sir, please go ahead.
Anshul Agrawal
Hi, good evening. Thank you for the opportunity. My first question is on the freight division. So Vineet ji, are lines blurring between express companies, FTL, LTL players? Are we — we are hearing comments from players across these categories pointing towards the end as the service industry slowing down. But our capacities in these categories that fungible, that express companies can enter the cargo profile or the routes on which LTL or FTL players operate.
Vineet Agarwal
So on the FTL side, I do not think it’s the express companies can come in easily simply because FTL market is very unique, It does not move from a hub to hub, It moves from customer to customer directly, and it’s usually a full truckload. So you don’t get any benefit when it comes to consolidation or deconsolidation as well as capacity utilization there, It’s a full capacity that gets used,
It also requires deliveries to very remote places. Sometimes it has a different elements of movement. It requires a pan-India presence as well, but also requires an understanding of the local sourcing market as well as procurement market.
On the LTL side, yes, there are express companies because they have capacity, they can go to smaller customers or customers, they can tell their salespeople to go to customers of ours and tell them they will crash the prices just to fill their — fill the belly. And maybe at some point even drop those customers if they are finding higher value customers.
So sometimes this has happened in the past and customers have not liked that and hence they too stick to companies like us. But everyone wants to control some cost initially and — so some of that movement will happen, It does happen, It has happened, It is happening. However, I do not think this is — it is — let’s see how long it will be sustainable,
Customers, there are lots of customers that we have who want to give both FTL and LTL to one service provider like ours, So, we are hopeful. We are — we have strategized that, yes, this is one strategy to play out with, but otherwise, keep ensuring that we are on the street and trying to get the business.
Anshul Agrawal
Sure, thanks. Just a follow up on that. But then what is ailing the FTL market in your view, sir? Or is like a six or mid-single-digit growth number for the FTL market a new normal?
Vineet Agarwal
The mid-6s is not — just a FTL for us, It’s a combination of both those numbers. We don’t give you specific numbers of growth for FTL separately and LTL separately, but it is a combination.
If — so — it is also what we decide to grow, how much we want to grow in the FTL market. If we see that the market is very tight and there is — margins are going to remain tight, then we will not grow that much also, because we see that when we — some things like that happen, our receivables go up, as you have seen, and margins come down,
So we will avoid growth there also in the freight business in the event that we are seeing that there is tightness, and that’s conscious, So — but yes, we have to hit the cycle and then we have to control a little bit more and then improve it. Unfortunately, that’s how this business is.
Anshul Agrawal
Got it. Very helpful. Thanks. Just one last question from my side. What will be our strategy to win in the quick commerce business? Will we need to be aggressive, sacrifice margins a bit, versus the usual margins that we probably get in our supply chain division in the auto segment? Or do you foresee, we’ll — we want to win more business here or grow quicker here at the cost of margins?
Vineet Agarwal
Again, we — same thing simple, we don’t want to grow quicker just because we can grow quicker with cost of margins. We — this is not our strategy at all. Our strategy is to deliver the right value so that we are able to continue to get the margins. Initially, it might be a little challenging to get that, but we know how to extract margins because we worked in the e-commerce space.
The fulfillment models are exactly the same how it is for any of the large e-commerce retailers, in — the methodology, process flow, etcetera is almost — is exactly the same. So really speaking, the margins do not get compressed at all too much. We are not on purposly adding too many customers and too fast in terms of sites because we want to see how they evolve as well. They will change their business model also.
So we don’t want to be sitting on the wrong side of the fence when they change models. So we are taking a wait-and-watch approach, but we are also growing simultaneously.
Anshul Agrawal
Perfect. Perfect. Many thanks. That is it from my side. Thank you.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. The next question is from Mr. Manoj Jethwa. Sir, please go ahead.
Manoj Jethwa
So, thank you for the follow-up questions. Sir, as far as the present challenging situations are there in the economic level in certain sectors like auto, FMCG and all that, that’s what we have discussed during the call. But we do have some green shoots also or the growth drivers also like you have given the case studies on the Japanese company. Do you see some synergies for — foreseeable synergies for such companies where we have got revenue visibility and we have got a very good margin also, sir.
Vineet Agarwal
No, these are not necessarily green shoots. I think there are lots of green shoots. Again, business growth is there. At — 10%, 12% top-line growth that you have seen is not because of some green shoots only, but because constructively we have got a lot of business as well, whether it is increasing market share from some customers or increasing market share in some areas or getting new kinds of businesses. But more than that, it is solution building that is important because this is not just one type of solution that we’ve done for one customer, but these are multiple types of…
We just showcase you one type of solution that there is, but we have many, many solutions on a daily basis because otherwise we will not be able to maintain the margin structure that you see in our net-net business and, ultimately the driver for us is solutions is not going to be only pure play, commoditized transportation, We don’t want to do that, We have done — doing that less and less as we speak and hence, you see the margin profile remain so.
So yes, there are lots of segments that have growth and growth opportunities which we will continue to tap, We talked about chemicals. We’ve talked about cold chain. We’ve talked about defense in the past. So like this there will be continuously we are looking at new areas.
Manoj Jethwa
Thank you. Thank you very much. That’s all from my side, sir.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. We have someone joining us from PhillipCapital, I request to please go ahead with your question.
Vikram Suryavanshi
Yeah, hi, sir. Just as a bookkeeping question. Hope I’m audible.
Ashish Tiwari
Yes, yes, yeah. Vikram, please go ahead.
Vikram Suryavanshi
Okay, sir. Sir, this 32 branch addition, is it for this quarter or first half because I think we had 15 additions in first quarter.
Ashish Tiwari
This is for the first half. So 13 plus 17.
Vikram Suryavanshi
Okay. Understood. Okay. 32 in total. 15-16 I don’t remember the exact. the first half and the…
Ashish Tiwari
15 was the first half when now 17 in the second half — second quarter.
Vikram Suryavanshi
Right. Understood. And basically there has been some increase in inter-segment revenue. Is it, now we are using Seaways for our supply chain business also or what is that? Like, are — we like a cross, uses of our services?
Ashish Tiwari
So these are all like services industry between supply chain and the freight division as well and a bit of spot is there because of increase in some of the volumes.
Vikram Suryavanshi
Okay. And what was the rake movement and container for the first half?
Ashish Tiwari
Rake moment?
Vineet Agarwal
It’s there. If you go to this, Ashish, Just go to that slide of multi-modal. No, no. Further down. Down, down. Yeah. So rakes is all — almost the same numbers as last year in the first half, and the TEUs moved is slightly higher, or 5%.
Vikram Suryavanshi
Got it, sir. And was it — will it be able to because I think earlier you used to say the profit number for our joint ventures also, but that is I think the number we could not see.
Vineet Agarwal
Yeah, we are — we can’t share that numbers. I think maybe Ashish can speak to you one-on-one.
Vikram Suryavanshi
Understood. Thank you very much.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. We have Mr. Alok Deora back with us. Sir, please go ahead.
Alok Deora
Yes, sir. Thanks for the follow-up — for taking the follow-up question, So sir, just wanted to know this Seaways. There would be two things kind of happening. One would be the freight rates would come down as you mentioned and also your dry dock could be at the end of the year, so this INR160 crore run rate of revenue, could that continue in 3Q and 4Q?
Vineet Agarwal
Yes, it should continue. If — I will — it’s clearly dependent also that the freight rates will remain stable at that level.
Alok Deora
Right, but you would have increased capacity also, I mean, just want to know.
Vineet Agarwal
No, no, no. Capacity was only in Q1. You mean from last year, Q4?
Alok Deora
Right.
Vineet Agarwal
Yeah, Okay. Well, I don’t remember, Ashish, what ships were under dry dock in Q4 last year?
Ashish Tiwari
There was I think one ship was in middle of the dry dock.
Vineet Agarwal
Okay.
Alok Deora
Right. And just from a two-year perspective of what we gather is that the freight division is not going anywhere big time in terms of growth or margins, right? So could this business become like a pretty small portion for us going ahead, like as you mentioned, or supply chain could be the biggest segment in two years’ time and even see us as a ship comes in, becomes big, So how are we looking at this freight division in totality?
Vineet Agarwal
No, we do expect the freight business also to pick up. Again, we are building customized solutions around that and more and more it’s becoming — it will become an LTL business which is higher margin. I mean, the ROCEs is in the business is still quite decent here. We’re looking at — right now we’re at about 17% odd, I think, if I don’t remember correctly but we’ve done 20%-25% also ROCEs in this.
So it is — yes. I think if you just put full slide, Ashish, 27% in ’22, ’23, 21% last year. So, yeah. So it is in excess of 20% type of ROCE business and we will continue to — we don’t have to put in much in terms of assets. It’s only working capital and find the right LTL mix. I think the business should grow.
Ashish Tiwari
[Speech Overlap] The concept of capital employed is just a working capital, So that also dependent on the interest cycles and so on and so forth. And so let’s say if we see the easing of monetary rates, probably that would — ROCEs would further improve apart from the profit aspect of it.
Alok Deora
Sure. Just the last question. So, competitors like VRL Logistics have taken a price increase at the end of first quarter in the freight business. They are majorly on the LTL side. So, I just wanted to understand, are we also looking at any price increase or the demand is just not there for any price hike?
Vineet Agarwal
Ashish, any thoughts on this? I mean…
Ashish Tiwari
No, I think — so basically, VRL might have chosen to have an announcement around the price hike and so on and so forth but in our contracts and most of the time we do have a cost escalations, whether in terms of wages or — for supply chain side or maybe the fuel price. So that is always there, cost escalations.
And then they can be increased on a one-to-one basis. So, it cannot be an announcement that we would, like, increase throughout all the contracts. Probably we may not have that kind of outlook.
Alok Deora
Got it. That’s all from my side. Thank you, sir.
Simran Sharma
Thank you, sir. The next question is from Mr. Ronald Siyoni, Sir, please go ahead. Mr. Ronald, are you there?
Ronald Siyoni
Hello. Am I audible?
Ashish Tiwari
Yes, yes. Please go ahead.
Ronald Siyoni
Yeah, yeah. Good afternoon, sir, and congratulations, sir, and very good numbers.
Ashish Tiwari
Thank you very much.
Ronald Siyoni
Sir, on — I wanted to understand your JVs have been outperforming overall industry growth rates. If we see CONCOR like, ExIm growth has not been doing well, still high double-digit growth in CONCOR then and cold chain also doing very well. Transystem doing phenomenally well. So, this business is how they are able to a very strong growth compared to the industry growth rates in which they are.
Ashish Tiwari
They are all respectively in their growth area phases like CONCOR business competes with the — CONCOR — rail business. Again, there are some competitors in that space also. We grow. We try to grow with the right profitability, more importantly.
Cold chain business, we are amongst the top ten companies now and hopefully the next two years we should be in the top three customer companies in the cold chain.
And automotive logistics, it is the number one company in India. the Transystem logistics. So yes, in our — in each of those spaces they are competing to be in the best.
Ronald Siyoni
Okay. And lastly, sir, is there any chance that we could increase our stake or is — you would have to limit the stake in this JVs?
Vineet Agarwal
No, these are all strategic stakes that we have and how we worked on them. So, there’s no question of increasing.
Ronald Siyoni
Okay. Thank you very much, sir, and best of luck.
Vineet Agarwal
Thank you.
Ashish Tiwari
Thank you.
Simran Sharma
Thank you, sir. There are no further questions. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.
Ashish Tiwari
Thank you, Simran, for moderating the call and sincere thanks to all of you who joined the call out of the busy season, I think we have answered all your questions and if you have any further questions, you can write me back. We will see you in quarter three call again and on behalf of TCIL Parivar, we wish you a very happy Diwali and take care, and thank you.
Vineet Agarwal
Yes, I would also like to wish everyone a best wishes for the festival season. Thank you.
Ashish Tiwari
Thank you.