Transport Corporation of India Ltd (TCI) Q4 FY23 Earnings Concall Transcript

Transport Corporation of India Ltd (NSE:TCI) Q4 FY23 Earnings Concall dated May. 19, 2023.

Corporate Participants:

Ashish Tiwari — Group Chief Financial Officer

Vineet Agarwal — Managing Director

Analysts:

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

Preet Nagarsheth — — Analyst

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Divyansh Gupta — — Analyst

Mohit Daga — — Analyst

Kripa Shankar — — Analyst

Anshul Agrawal — — Analyst

Vikas Katri — — Analyst

Presentation:

Operator

Good evening, ladies and gentlemen. I, Simran, the moderator for this conference call would like to extend my warm welcome to all of you for joining us today. Today, on behalf of the management, we have with us Mr. Vineet Agarwal, the Managing Director; and Mr. Ashish Tiwari, Group CFO. [Operator Instructions] Please note that this conference is being recorded.

I would now request Mr. Ashish Tiwari to embark on this meeting. Thank you, and over to you, sir.

Ashish Tiwari — Group Chief Financial Officer

Thank you, Simran, and good evening to all of you again. Thanks for joining us today. So we will begin with the investor presentation, and that will be followed by the question-and-answer session. Now without ado I would invite Mr. Agarwal for [Indecipherable] presentation. Thank you. Over to you, sir.

Vineet Agarwal — Managing Director

Thank you, and good evening. It’s always a pleasure to meet all of you here at this investor presentation — our annual presentation today. Let me start by giving you a broad update as to what has happened over the quarter in the last three months, I think we’ve seen a record e-way bill movement, which means and GST collection, which is essentially a push towards a lot of sales in the month of February and March. And of course, that push means that momentum typically, and this is quite not unusual, very common that we see that it impacts the first two quarters of the new financial year mostly. So in overall, things seem to be okay, we will discuss more about that as we go forward.

The next slide is this is giving you a consolidated view as to how the company is structured with its three main divisions and subsidiaries and the overall framework of the major metrics of the company. So predominantly, of course, the kind of assets that the company has from trucks to ships to containers has been on a steady rise. And also, it has — but it has been kept in line with our strategic plans also. We have been able to increase our warehousing space by about 1 million square feet approximately between last year and this year. And we are also about 140 million cubic feet of space that we’re utilizing right now.

Interestingly, we have moved more than 1,800 trains in the last year over — which has been a substantial increase. Next slide, please. I think many of you who have been repeated — you’ve shown repeated presence to these analyst calls know about the logistics growth drivers. In the country, these drivers have become very important, and logistics sector has been at the forefront of many, many changes or rather the changes that will happen to the logistics sector as well. So from a consumer perspective, from a customer perspective, industry as well as from a regulatory perspective, there have been numerous amount of changes as well as drivers that are there, which is definitely helping the sector as a whole.

Supply chains are clearly a very, very important aspect of today’s any kind of boardroom discussion whether it is the resilience of supply chain, whether it is the agility of supply chains or whether supply chains are greener or not. So when you look at from all those perspectives — the drivers that are coming in from the — from our customers are essentially leading — talking about how can we outsource more and more. How can we look at moving towards more and more green logistics? And simultaneously, we have the other positive drivers for our business like the PLI scheme, which is creating opportunities for our logistics or the fact that there is more organization that is happening is the formalization of the industry as a whole.

And clearly, the most important out of all of this is the infrastructure growth. The kind of infrastructure development that has been seen across the country today and I think all of you might have experienced the sea change in the last five, seven years in terms of the road network or the core of roads is directly impacting the logistics sector positively. With the PM Gati Shakti program, multi-modal is now getting the flip with a lot of investments coming in. And the connecting infrastructure is also coming through. So clearly, this is something that will fare very well for our industry. And this kind of growth drivers are quite unique today. They’ve never been before.

And these are the reasons why we anticipate for the next 10, 15 years the logistics sector will continuously grow with leaps and bounds. Next; company strategy in terms of our USPs are very clear cut. We have a wide range of services. Let’s go to each one specifically and talk about it. So here, we are possibly the only company in the country today in the logistics space is offering such a wide range of services. And clearly, it might seem that there is a limited focus. But what we have seen is that customers do require with one product, something else as well. So it has never been just uniquely FTL or uniquely warehousing, but customers require all kinds of solutions.

And I think we have been able to reach and capture a larger wallet share from almost all these verticals that we serve. Customers also see that benefit. They don’t need to interact with multiple people. They are interacting with one person from TCI and that helps them a lot also. An example of that is what we’re doing in terms of the finished logistics for EV manufacturer. And here, the idea has been that we’ve created a distribution network, which is essentially B2C. Literally, from the factory floor, we are taking the product directly to the owner of the mobility device, which means that we are bypassing in some cases, warehouses.

There are no dealers and directly to deliver — a B2C kind of a delivery. We do have central warehouses and 15-state DCs that manage the inventory and a network that is on a last mile basis is delivering — can deliver to 1,200 deliveries a day. It is a combination of both road network providing road services that is providing finished good management services at the warehouse, which could be pre-delivery inspection, charging of the vehicle, invoicing and battery management, etc. Then it is management of the warehouses, then the ultimate delivery, which is the last mile and in some cases, payment management also.

So this overall kind of a solution started with just us bidding for just the outbound movement of the particular item, but we’ve now expanded that to a lot more services for the client. The other USP is that we’ve been able to use some of the major growth drivers and convert them into a large segment for us. And the rail business is one example of it. Cold chain is the other example where we formed a joint venture. And similarly, we are seeing that the growth potential in some of the other areas is just phenomenal. We are seeing in chemicals with the China Plus One strategy a number of companies setting up their supply chains out of India in terms of agriculture, which is a large percentage of our GDP and subsequently adding to the Cold Chain business also with finished products.

It is a very, very important aspect for food security. Renewables, along with battery movement, etc, is also, again, linking with Cold Chain also in some ways because some of the batteries need to be in ambient temperature. So these — all these segments have cross-linking with each other with the services that we are able to provide to our clients. The third USP for us is clearly the fact that we are completely a technology-driven operations, run a very tight system where almost all levels of our engagement, whether it is with our stakeholders, with our customers and with our employees are tech-based. So even with our drivers at the field level, we use apps for our employees.

We have mobile apps as well. And for customers, we provide control towers. An example of that is in the next slide, we’ll give you — show you two examples of control towers. This is one for a multimodal logistics contract where — we had several issues with the client where they were — first issue was that there were a lot of errors when they used to place orders on us. And we moved that to a system-based planning system, system-based planning where the orders are read by our system and then it is placed as an intent.

The second was that when the inventory was available for dispatch, it was — it used to be always very difficult to track which inventory is supposed to go out or has to be moved out there itself, the identification of that as well as certain amount of positioning of that particular inventory had been started happening. So that it was very accurate in terms of the first — first item that was produced would be the first item that is dispatched rather than anything that’s available is getting dispatched. So identification of that was also useful. Managing the government-related tracking or rather the getting the rates from Concor, etc, that helped by connecting the entire system through the railway tracking system as well and that helped us in the customer also in getting tracked their [Indecipherable], etc.

And simultaneously, we were able to move between several of their plants to really integrate all the processes together so that there was no ambiguity in terms of what inventory needed to move out. This entire work used to earlier happen as a road contract. And the customer, in this case, now not only has greater visibility of their products through this control tower, but are also has saved cost. And the third benefit is clearly green logistics. So it is a case in point in terms of how we have been able to convert the solution also into a tech-based solution for the client. Go ahead, please. The second case study is of an engineering company that is looking for freight solutions.

And this engineering company has multiple locations, multiple factories across the country and the dispatches are also multiple locations, maybe in thousands. Simultaneously, the customer also wants not just full truckload services, but also part load services, that is LTL as well as some amount of warehousing. Just imagine the amount of orders that are coming in every day and each of these orders were earlier processed manually, which meant that there could be — there were errors as well as there were issues in terms of servicing the client. Now we use an e-mail bot that does the order processing. And straight away the message of placing the truck to the traffic control and that happens simultaneously.

The customer requirement for consignment note or the documents that move has now moved to e-consignment system. The visibility is now to that extent that we are now trying to get algorithms around estimated time of arrival. Just to take two minutes here to explain estimated time of arrival. Today, if you have orders that you place with Zomato or a Swiggy you can see the estimated time of arrival because the distances are much lesser. So that would be possibly the next — in an hour, you are able to see where the particular package that you’ve ordered is.

However, in the case of a long distance movement, especially trucks sector, which have — do not have a GPS on them, the way to track that and then subsequently predict an ETA means that there has to be a management of a lot of variables. Those variables include traffic situation on highways, weather situation. Maybe there are some bandhs or some riots somewhere or something that closes-off certain highways. And then, of course, the most optimized routes that are there from a toll perspective also. So when we start feeding all of this, we created a learning model so that it can predict the right ETA. So these are some of the things that have started to happen around these tech-based case studies.

The other USP for us is clearly the presence in across all industries. I think this is a very, very strong area for a company like ours because — we are not dependent on just one sector as a whole. If there is a sector that doesn’t do well in a particular year, there are other sectors that we are working with. And we are able to ensure that there is some amount of business growth. So overall, being diversified into almost all major sectors has really helped us to keep up our growth momentum. And I think I do not need to mention each of these sectors specifically. But clearly, they are all high-growth sectors and with some amount of government or direct implications towards growth of that particular segment.

In terms of the quarter, the quarter was quite strong from a revenue perspective. Our overall services have helped to grow the business quite rapidly. Our net borrowing continues to remain at zero. We have about more than INR200 crores of cash surplus available with us. Now I’ll go specifically into each division. I think you would know the nature of each of these industry segments. So I will not go into too much detail. However, just about each of these divisions, the Freight division has a large infrastructure of hub centers as well as offices, and they are able to provide solutions across the country, both on an FTL and LTL basis. We provide, again, detailed amount of customer integration from an ERP perspective, provide mobile apps, etc, as well as centralized control center to track our clients on a regular basis, track the cargo on a regular basis and ultimately share that information with our clients as well.

Operationally, the division grew at about 8% on the quarter-on-quarter basis with slightly better margins. On a full year basis, the business grew at about 16%, and we were able to maintain the ROCEs, which is now in the excess of 25%. What did not work for us in the last year is the FTL and LTL mix. The mix remained flat and stagnant at the same level. We lost some momentum in the beginning of the year in FY ’23 so that we could not catch up. We tried quite hard. But now we are seeing the momentum reverse — starting to reverse also so. And we have a good idea that this should perhaps not get to 40% — to get to 40% by ’25 is what we are targeting, and we should be able to get there.

We have taken a number of action plans around that also. We’ve increased the sales force with better analytics and tracking for the sales force as well as we have also strengthened our — looking to strengthen our branch network by opening more new branches wherever there’s new capacity or other new industrial zones that are coming up. The outlook for this division also remains the same in terms of growth. We would be able to maintain the margins as well as the ROCE. The supply chain business, again, the nature of the business is that it is growing quite rapidly with a 10% to 15% top line growth and the changes around the industry are quite robust as we speak, demand for warehousing services have been growing on a continuous basis.

Going forward with the business itself is mature as well as has a large infrastructure at play with 55 yards. We are now handling more than almost a three-fourth of 1 billion parts — production parts every year, which is, again, very unique and very large as well as more than 1,000 trains that are being operated for the finished good movement every year. The business is also managing some of the largest warehouses in the country for FMCG, FMCD companies today. Overall, Supply Chain division grew at about 27% in the last year, mostly by the growth of the automotive side of the business. And again, the margin structure, though, EBITDA has come down slightly. The EBIT margins have been maintained.

The ROCE of the business has also moved in the 20s range to 22.6%. The Seaways business, again, Seaways has a large growth opportunity as we are aware of. The business is only — the country moves only 6% or so of its cargo by Seaways by coastal shipping. So the growth potential is massive, especially because of the government’s push towards it as well as the need for green logistics in the country. Our business is stable. We have six ships and 8,000 of our own containers as well as serving some important ports across the country. Next slide; in terms of the business, it is flat. If you do recollect last year, we had a substantial growth because we were opportunistic and took — went to some of our neighboring countries and took the benefit of the high freight rates at that point in time.

As I had said then also that this is not — that we will not be able to maintain that but the drydocks in the last year, FY ’23, was just limited to one, which helped us to keep most of our ships operational. And hence, we are able to still maintain the revenue that that we had done last year. The margin came off a bit, if you notice what — on the EBIT level, about INR15-odd-crores. But again, that is clearly because of the lower or lack of any EXIM business as this year in FY ’23. The ROCs in the business remain in the high 40s. And going forward also, we expect this business to maintain this trend. In terms of our joint ventures, the Concor and the Cold Chain joint venture businesses were relatively flat over the year.

In terms of Concor, it had recorded a substantial growth two years ago. And still, there has been — there has been some consolidation that has happened in this in the segment because road has been more competitive than the rail in some sectors and hence, that business has not grown. Cold Chain, we actually removed some clients — some contracts that were not performing in terms of profitability. So in order to maintain that profitability, we sacrificed some revenue growth. And — but going forward, again, we’re looking at some very interesting contracts and development. The Transystem joint venture grew phenomenally at more than 42% over the year.

And again, this is on back of a very strong growth that we are seeing with Toyota in the production of its — all its vehicles. Toyota has also got the project to [Indecipherable] the manufacturing of Suzuki vehicles, as you would know. So that is also helping us in this business. In the — as per the financial highlights, the overall, I would concentrate on the consol level. At the overall level, the revenue growth has been about 16%. EBITDA growth is negative for the quarter is because in the last quarter last year, we had excess depreciation that we put in because of the life of ships that we changed as well as that impacted the profitability, the PAT numbers for Q4. But on a year-on-year basis, all these numbers are up in both or in the standalone as well as consol level.

Here, I would just like Ashish to explain about the dividend that we have received and how it has impacted the consol numbers.

Ashish Tiwari — Group Chief Financial Officer

Thank you. Yeah. So last year, we had a dividend of around INR31 crores. And FY ’22, we had a dividend of around INR10.5 crores. So this year, we had a higher dividend. In the consol level, you would find the numbers, which is in the other income. Now this dividend basically is from the Transystem logistics and the TCI CONCOR. Simultaneously, in the consolidated level also, you would find the joint venture share and that dividend set up [Phonetic]. So these two numbers, while we calculated the EBITDA numbers, we have included the joint venture share and excluded that dividend part. So this is how the one calculation, which I wanted to talk about.

Vineet Agarwal — Managing Director

Thank you. The next slide is some key numbers for the businesses for the company as a whole with the ROCE numbers are retained at the 25% plus numbers. Our PAT has grown at about 21% on a CAGR basis, and RONW numbers are also in the excess of 20%. The Board decided to overall give a dividend of about 350% for the full year, which is about close to 18% of our — of the payout of the PAT. So again, the — it has been almost at the same level as last year. The rating of the company is retained at AA positive as well as the ICRA is also A1+. From an ESG perspective, the company is very strongly working on a lot of goals and ideas.

One of the most important developments in the last quarter or rather actually this year itself is the — we’ve started a sustainable — supply chain sustainability lab in partnership with IIM Bangalore. This is to do studies on decarbonization in supply chains, how can logistics be greener. We’ve come out with a greenhouse gas emission calculated also in this lab. And slowly the company is moving towards logistics with almost 30% of our revenues now coming from multi-modal logistics. We have close to 200 plus vehicles that are CNG vehicles. So again, very strongly focused towards decarbonization and also helping our clients towards that goal as well.

The next slide is essentially on our capex for the full year. Unfortunately, we were not able to maintain the capex or rather come up to the capex that we had budgeted for the full year, and we ended up with close to about INR120-odd-crores. The plan for this year is INR375 crores. Again, it’s back to buying a new ship, which we have been waiting for. Hopefully, this year, we have a lot more better visibility around it. So we are hopeful that in Q3 of this year, we should be able to get a ship. Apart from that, the containers are a regular addition of about INR35 crores. We would be buying another [Indecipherable] of INR45 crore, INR50 crores as well as some trucks and the continuous investment into warehouses, some warehouses, hub centers sector will continue.

So the guidance for the full year will be a little tad lower from about 10% to 15% because we do see some headwinds when it comes to global recession as well as the export market has also, as you have seen, has become a little bit subdued — so there are some challenges that are there. It is also the start of an election year. So there could be some reduction in government spending. However, let’s — or rather increase in government spending, which should help us overall. But notwithstanding, I think for us as a company, we’ve always been slightly conservative because we believe that the long-term story for not just our sector for — as well as for us as an organization is very strong. So we would not like to take any short-term bets on anything. So clearly, from a perspective of growth, 10% to 15% is what we are looking at, both on the top line and bottom line.

Thank you, and we’re happy to listen to you. Look forward to your questions.

Questions and Answers:

Operator

Thank you, sir, for the valuable insights. [Operator Instructions] So the first question is from Mr. Alok Deora. Sir, please go ahead.

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Good evening, sir. This is Alok Deora from Motilal. So sir, just had a couple of questions. So first on the Seaway segment. So same period last year, we had this visibility of ship coming maybe three, six months down the line. But again, I mean, due to the higher prices, maybe the ship has not come on board. So by when do you really think because we have seen the freight rates almost coming back to the two years levels, what it was two years back, but still the ship is not coming. So because that’s a very high-margin segment for us. So just your thoughts there, sir.

Vineet Agarwal — Managing Director

Yeah. You’re right. So the shipping rates have come down. Unfortunately, the rates that the ships that we want to buy, the size of the ships that we want to buy, the smaller end slips there the prices have still not come down. And that has been quite unique because it comes back to the whole theory that if I’m not able to move a large ship of products, can I move a smaller ship.

So hence the market for these smaller ships have become quite robust and they continue to remain strong and hence, the prices are not there. But we had a team that was in China in the last week, 10 days, and they are exploring all kinds of options looking at not just old ships, but also at new ship possibilities as well. So this is a very, very strong and active discussion that has been happening and rest assured that this year, we will ensure that there’s some amount that is in acquisition.

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Sure. So if this is a new ship which comes on board, then this INR125 crore capex, which is for — particularly for the ship that would be much higher then?

Vineet Agarwal — Managing Director

Not necessarily because we do not know yet. But if it is a new ship, it is not going to come in one year. It takes its time. But the capex process will start as advances and so on and so forth. But again, this is still undecided. We are thinking about all kinds of possibilities.

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Yeah. And also, sir, so this year, what’s the drydocking status of the ships, which we currently have? And what kind of growth specifically in the Seaways we could be looking at?

Vineet Agarwal — Managing Director

So we — this year also, we have just one ship that is going to go for drydock. Actually, it’s under drydock as we speak in the first quarter itself. So that’s the good part that we will be able to close all this drydock and all these kind of — any kind of repair maintenance in this quarter itself, and we’ll get a full year of all the six ships operating. So again, our estimation is that the business, given the current state with the six ships, given the fact that this one drydock is underway, we expect the business volume to be at the same level as last year. We expect the margins also to be at the same level as last year.

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Okay. Actually, we were under impression that last year, we had more drydocks, so this could be a better area for shipping revenues.

Vineet Agarwal — Managing Director

FY ’23 was the same we had on drydock.

Alok Deora — Motilal Oswal Financial Services Ltd — Analyst

Okay. Okay, got it. I’ll come back in the queue, sir. I think there are lot of questions. Thank you so much.

Vineet Agarwal — Managing Director

Thanks.

Operator

Thank you, sir. The next question is from Mr. Vikram Vilas Suryavanshi. Sir, please go ahead.

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

Yeah, hi, sir. Good evening. Sir, just to continue in this shipping side, can we get what was the container volume we handled on the shipping side of the business or, say, last year and this year or what kind of growth we have seen?

Ashish Tiwari — Group Chief Financial Officer

Vikram, no, we don’t share that number, as you’re aware, about shipping volumes specifically. But clearly, the volumes had been higher because the value that we used to get from the EXIM cargo was definitely a lot more. So volume growth has definitely been much more this year.

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

Got it. And in terms of [Indecipherable] acquisition, what we have been talking about as we increase our shipping side of our business. Are we procuring them from within India or also import from China?

Vineet Agarwal — Managing Director

Container shipping, we are — containers we are buying from China from overseas right now. I’m sorry, I also — I stand corrected on the drydocks. There were actually three drydocks last year, Alok [Phonetic], and the same that happened in FY ’22. So yes, this year, we will get a little bit better traction in terms of availability of the ships. But again, the volumes will also depend upon what’s happening in the market. So that’s why we’re still maintaining the same level of revenue for FY ’23 as for FY ’24, same as FY ’23. Sorry, sorry, Vikram.

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

That’s okay. Sir, and when we talked about this JV with Concor and particularly the road is becoming very efficient in terms of network as a [Technical Issues].

Vineet Agarwal — Managing Director

Sorry, Vikram, we can’t hear you. Can you be a little louder?

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

I was talking about the way [Technical Issues]. Are you seeing the bigger opportunities now to grow our state business aggressively and how is the situation and outlook there?

Vineet Agarwal — Managing Director

Aggressively grow the freight business, you said?

Vikram Suryavanshi — PhillipCapital (India) Pvt Ltd — Analyst

Yes, sir.

Vineet Agarwal — Managing Director

No. I think the freight business has a growth trajectory of this around 10% to 15% typically because of the — just the fact that there is a certain momentum of that business and also — but we have — we are continuously careful to see the cycles when it comes to credit, etc, where sometimes the — there are customers that are bad paymasters and you don’t want to get stuff there. So I think the moderation in that business has helped us in the long run. As you’ve seen in the last five years, we’ve been delivering high teens in terms of ROCE and of course, now in the excess of 25%. So yeah, so we would like to maintain this 10%, 15% topline growth in the business. I think the margin growth can be better once the LTL business starts picking up. I think we lost him. Maybe we can take the next one, Simran.

Operator

So the next question is from Mr. Preet Nagarsheth [Phonetic]. Sir, please go ahead.

Preet Nagarsheth — — Analyst

Good afternoon. The question that I had in mind was on the road and rail side. So Vineet, we’ve been hearing a lot about how DFC will impact road. But here, you’re saying that even the road share has actually increased or is giving tough competition. So can you share some light on why that’s happening?

Vineet Agarwal — Managing Director

Well, it’s clearly that the road sector is far, far bigger today compared to the rail sector. So the rail sector, I mean, if the road is double the size, rail has to grow at 4x the size to — 4x the speed to really catch up, right? So it is a matter of trajectory is getting clearer and rail will start going up in the next few years and road will stagnate, it’s a much slower process. It’s not going to be immediate. It’s not going to be so abrupt. It will take it’s time.

Preet Nagarsheth — — Analyst

So for example, for TCI then it means that on both sides, because there is freight and there is Concor — on both road and rail, we would be able to capture whatever area that there is growth there.

Vineet Agarwal — Managing Director

And vice-versa in a sense that we can also do both together because when we go to clients, it is not necessarily only one or the other, but it’s a combination.

Preet Nagarsheth — — Analyst

Right. Okay. The other thing I wanted to understand was on own ONDC. So I mean, one of the things that I understand is that ONDC allows even people on the transport side or supply chain side to be part of the entire process. So is that something TCI is looking to be part of as well?

Vineet Agarwal — Managing Director

Yes, certainly. We’ve already integrated ourselves very closely with ULIP, Unified Logistics Interface Platform. We’re already in the process of integrating with ONDC. ONDC, our belief is that it is going to move towards a more and more towards B2B. B2B is going to get a maximum amount of benefit rather than the B2C element because the platforms around B2C are very well established. Platforms around B2B are not there so much. So in fact, I have personally spoken to many people in the ONDC team as well as with the government that we should definitely start positioning ONDC as a B2B platform rather than a B2C as much. And there itself, we will — companies like us will have a huge amount of benefit because we are present in all parts of the country, and we are able to provide those services.

Preet Nagarsheth — — Analyst

Okay, wonderful. Thank you so much.

Vineet Agarwal — Managing Director

Thanks.

Operator

Thank you, sir. The next question is from Mr. Aejas Lakhani. Sir, please go ahead.

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Yeah. Hi Vineet. Aejas here from Unifi. Congratulations on a good year. Vineet, I have one question around each of the segments. So I’ll start with Seaways. In Seaways, firstly, could you give a data point that the last ships you had bought, what was the size of the ship and what was the cost you have paid? And the equivalent ship today, you’ve mentioned on calls several times the between 2x to 1.5x, 2x, 2.5x. So what is it today at?

How does the dynamics between the new and the old ship really work because you mentioned at the start that you may consider a new ship as well. So if you could call out some of the difference of how unit economics works in that? And the Myanmar-Chennai, I mean, when did it taper off — I mean is it that we had low volumes in the year or low volumes, when does that taper-off really take place? And this quarter, specifically, is it just that freight rates were lower or is there anything else that — from a volume side you could fall out?

Vineet Agarwal — Managing Director

So the last shift was, I think 2019 is 26,000 tonnes. Yes. And the year is 2019. INR85 crores. So a similar kind of ship is available at double the price. And clearly, that did not make sense because you have to see the life cycle of the ship rather than just see the year when you’re buying it and the rate that you can get for that year. So clearly, it is still not viable from a secondhand perspective, even from a firsthand perspective the kind of shift that we’re looking for would be possibly much smaller rather than larger so that we are able to use it for very specialized applications. Again, this is, as I said, very — are still under discussion, are still being explored.

So the last — so I think both on the new ship as well as any secondhand ship, the price points are still quite high. The second question around Myanmar route I think the first quarter, there was some movement that happened. But then subsequently, we’ve been talking about in every quarter that it has tapered off, it has started to come down quite substantially. There is volume that is moving, but it is not of right pricing. So it is not justifying us to go there and then bring back cargo because the pricing is still quite low. So that’s why we’ve not been doing any EXIM trade in this financial year.

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Got it. And could you quantify how unit economics for an old ship and new ship work, like what is the life of a ship? What are the breakevens because you’re considering one? And what is the kind of a willingness to pay for a new ship?

Vineet Agarwal — Managing Director

So all our ships are containers. We don’t do any break bulk. Secondly, these ships have a typical life of anywhere from 25 to 30 to 35 years based on the build and the location of the build and the maintenance that the ship has gone through over the course of the year. Third is that typically these ships, if it is a secondhand ship, it takes us roughly about four years or so to breakeven. But the volume starts right away in the first year itself. And four to five years, we are able to pay off the ship.

If it’s a brand-new ship, we don’t have that experience. So — but we think that it will be at least double the period, if not a little longer. It will also, as I said, depend upon the application. There are specialized applications, it will have a perhaps a higher value in terms of the returns on the ship. So again, these are broad numbers that we look at. And I guess, when we get the specific ship, we can share specific details about breakeven.

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Got it. Thanks. That’s helpful. And just secondly, on supply chain and freight. In supply chain, you’ve had a very strong exit in 4Q from an EBIT perspective. So — and given that volumes for at least auto, which is a dominant sector for you, continue to be strong at least for ’24. How should we think about margins for that segment? And on the freight side, I just wanted to understand that you have about 4,500 trucks. But what is the share of your own trucks and revenues versus outsourced?

Vineet Agarwal — Managing Director

The last question is faster to answer. We don’t do any of the trucks. We have less than 100 trucks that are operational in freight. So almost all the trucks are either vendor trucks or spot hire in the freight business. In the supply chain side, the margins are a little compressed because there is — the depreciation is lesser in FY ’23 in terms of the trucks, etc. So there itself, we did not have the EBIT — sorry, the EBITDA margins came down a bit. However, EBIT margins have remained the same. So overall, there was some pressure in terms of pricing, and that has resulted that the overall gross margins are slightly lower. But going forward, we believe that the automotive market remains quite robust. So we should anticipate a 20-plus-percent topline growth also in this business.

Aejas Lakhani — Unifi Capital Pvt Ltd. — Analyst

Got it. Thanks. I’ll fall back in queue.

Operator

Thank you, sir. The next question is from Mr. Divyansh Gupta [Phonetic]. Sir, please go ahead.

Divyansh Gupta — — Analyst

Hi, sir. Am I audible?

Vineet Agarwal — Managing Director

Yes, please go ahead.

Divyansh Gupta — — Analyst

Yeah. I wanted to understand there was a disclosure that a Middle East subsidiary is being incorporated. So can you just tell about the business — is it India to Middle East or within the Middle East area itself and the capex and revenue capability of that business of that area?

Vineet Agarwal — Managing Director

Yeah. The idea around our hoping of any new subsidiary overseas is the fact that we want to follow our customers. And even when we started Bangladesh or Nepal, there were lots of clients of us who wanted the services there. They had the presence there and they wanted us to move cargo for them. We are seeing the similar kind of requirement and demand coming in from the Middle East. Essentially, for predominantly for the chemical-based chemical cargo that is coming originating from there and also going from India to the Middle East.

So this is something that looks very attractive at this point in time. The kind of investment that we’re looking at is very low, just to start off with perhaps to INR1 crores to INR2 crores only. And the revenue potential, perhaps about maybe in the first year of operations is about $1 million — so maybe INR7 crores, INR8 crores of revenue. These are just to build the sector. We don’t intend to do any domestic or local logistics in the Middle East. So this is a broad plan. And over time, as we see more maturity, we’ll keep updating.

Divyansh Gupta — — Analyst

Got it. So I’m assuming this is going to be a Seaway driven business movement of chemicals or?

Vineet Agarwal — Managing Director

Yeah, in a sense that we don’t need to move our ships around it. We can just take slots and bring them. But the important aspect is to provide an end-to-end solution, which could mean that pick up from somewhere in the — maybe pick it up from a factory, do some warehousing, do some value addition and then move the cargo or bring a similar thing is happening when you’re bringing in the cargo. Like there is — there are customers that we work with today that are bringing shiploads of contracted shift loads of chemicals onto the ports in India, and then we are moving them by rail to different parts of the country. So similar activities can happen with — if you are able to connect from the Middle East itself.

Divyansh Gupta — — Analyst

Got it. Got it. Coming to the shipping division, if you can move to the slide, what I recall from your earlier presentations, the depreciation, the revaluation of the life of the ship happened in FY ’22. And therefore, that saw an increase in depreciation. But what will be the reason for increase in depreciation in FY ’23? So it has gone from about 12% to about 14-ish percent in FY ’23.

Ashish Tiwari — Group Chief Financial Officer

That is because of the fact that we had three drydocks in FY ’22 as well as FY ’23. Therefore, the drydock amount is also to be depreciated in the next 26 months. So that’s how that amount is increased.

Divyansh Gupta — — Analyst

Got it. Understood. Understood. And on the — just a couple of more questions, if I may. The freight for the — or the Freights division, the ROCE has been at the all-time high. But you have also mentioned that you do not operate any truck of your own. And therefore, my understanding is that the operating leverage that you would have otherwise realized by owning the trucks would have been a reason — could have been a possible reason for increase in ROCE but now that you mentioned that there are no trucks of TCI. How sustainable is, let’s say, the higher ROCE that we realized in the freights division or is there a chance of it going down?

Vineet Agarwal — Managing Director

Well, we believe that it should be in the 25-plus-percent range going forward. If you see the working capital increase because the business of FTL grew a little bit more than the LTL business as is quite evident. If the numbers were the same in terms of the ratios clearly, the volume growth in FTL was more, which meant that working capital requirement was higher, which meant that capital employed went up.

As the capital employed comes down with the growth of LTL business, which, as you know, does not require any — it does not need any receivables we will see that the capital employed will come down and which will help the ROCE also. So I think we got some benefits last year because of the increase in volume. But to sustain this, we would have to move towards more LTL and hence, bring down the capital employed. So yes, we do believe it is sustainable in the excess of 25%.

Divyansh Gupta — — Analyst

Got it. Got it. And my last question. In a couple of present — investor results, you had mentioned that you’re also planning to increase the auto rigs [Indecipherable]. So is there any visibility on, let’s say, ordering that you have done or expected delivery on these rigs? And also, you mentioned that there is some specification that is going to come, that is going to allow SUVs to move — to be moved through the railway network. So if you can throw some light on these two points. This will be my last question.

Vineet Agarwal — Managing Director

So we are under the AFTO policy, Automobile Freight Transport Policy. And there we are right now having three rigs of our own. We’ve also placed the order for a fourth rig, which is expected to come in the end of this financial year. We are also working closely with some manufacturers to design a specialized rig as I mentioned in the past, which could carry SUVs, MUVs, etc, better. And clearly, that design will require approvals and testing and so on and so forth so once that happens, we would be able to then place orders for those rigs, and we would own the design trademark of that as well. So it is still early days on that, but the fourth rig, yes, is planned for the end of the financial year.

Divyansh Gupta — — Analyst

Got it. Got it. Thank you. That’s all from my side. All the best.

Vineet Agarwal — Managing Director

Thank you.

Operator

Thank you, sir. The next question is from Mohit Daga [Phonetic]. Sir, please go ahead.

Mohit Daga — — Analyst

Hello sir. Congratulations on the fantastic reserves. So my questions are pertained to the freight division only. So just wanted to know, since we touched upon the working capital part of the [Indecipherable], I just wanted to know what are the average trade receivables for the Freight rate division respectively for FTL, anything you can share? And second question was around, can you give some idea around yield per kg under tonnage [Indecipherable], considering the peers are commenting on increasing the rates because of the increase in the toll expenses and as well as the fuel expenses?

And my third question was can you also share split of our spot versus the contract customers because that also talks about our ability to pass on the cost escalations. And fourth questions, if I may, around our asset-owned model, like do we own any assets like branches or hubs or gateways because in the earlier question you just answered that we don’t own any trucks. That would be all for me, sir.

Vineet Agarwal — Managing Director

Okay. So we don’t specifically share yield numbers. I think what happens with the — with any kind of increase in either fuel or toll or any such we pass it on to our customers and there’s a mechanism of doing that. Also if it’s an FTL contract, and it is part of the contract. If it is a LTL business, it is a part of a rate system that we have where we are able to pass it on. The second question was spot-in contracts. Again, the numbers are very — contracts are usually for FTL, very limited contracts for LTL business. Sorry, I missed your first question was around the receivables. All the receivables are essentially for FTL business, and I think we are at, what, 80-odd days, Ashish?

Ashish Tiwari — Group Chief Financial Officer

Precisely 78, 77, 78.

Vineet Agarwal — Managing Director

And in terms of asset ownership, we have warehouses that we own hub centers that are there, which are the corporate books that are shared not just by that division but perhaps by other divisions as well as the offices also. But we own only about, as I mentioned, less than 100 trucks in this division, and we do not have any other assets. Yes, of course, the branch network also is all rented offices. There could be some offices that are owned, again, under the corporate books.

Operator

Thank you, sir. The next question is from Mr. Kripa Shankar [Phonetic]. Sir, please go ahead.

Kripa Shankar — — Analyst

Good evening and thank you for the opportunity. Am I audible? Yeah. So one question on the rail side. Just wanted to check while there have been a lot of talk about domestic rail being a good medium of transportation for most of commoditized products. Was just understanding, are you seeing by any chance any traction with respect to other commodities moving to rail? And do you see rail perhaps as one of the emerging modes coming in? Because eventually, India has — if you are going to become a logistics-efficient country, then you need that multi-modal aspect coming in. So what are your thoughts on how the transition would be vis-a-vis from current scenario wherein with just commoditized products to, let’s say, high-end goods moving on rail? Some — your thoughts on that.

Vineet Agarwal — Managing Director

Yeah. So I think the movement is clearly driven by several factors. There could be movement on the container side as well as on the bulk movement as well. On the high-value goods, I think it’s going to be still a little tougher for railways to catch up because the pricing mechanism that they have today is really more lopsided towards weight rather than volume of cargo. However, notwithstanding the higher-value cargo that has moved substantially in the last post pandemic is the automotive sector, where a large percentage of whether it is four-wheeler or tractors or other items have moved via rail. So it’s going to be sector specific. We’ll see sectors that will adopt railways a lot faster than others.

We will see as improvement in the services more and more sectors really then adopting railways also. Like the kind of benefits railways was providing during the pandemic or post that because there were not enough passenger trains running was the cargo is reaching very fast. Today, we are not seeing that. There is a lot of congestion that is on the tracks. There is still delays that have started. And that means that for railways to really make a difference, that should be a substantial cost differential and then at some point, the service differential. So both of these things are a catch-up game with railways. And I think it is — the DFC coming in, we should see some respite, but it is not going to happen overnight, it’s going to take some time.

Kripa Shankar — — Analyst

So then with regards to that, are you looking to add more and more containers given that domestic containerization is something which needs to catch up. And that being a preferred mode, do you see that the large portion of your capex going ahead would be towards these container additions?

Vineet Agarwal — Managing Director

No, not necessarily because the containers that we are buying today are basically for our shipping business because when we have a ship that has required 800 containers, 800 is on the ship, 800 is at the origin and 800 is at the destination. So every such movement, you require 2,400 containers for 800 container ship. So that is an addition that we’re doing. We have a lot of lease containers, we’ve slowly removed them. And as a new ship comes in, we keep adding more containers also. For domestic logistics, I think Concor and other companies also have a lot of containers available. We do take that as well. If there is any kind of slowdown in the Seaways business, we do use some of their containers.

But we are not looking to add any domestic containers as we speak right now in the — for domestic use essentially. We do take some specialized containers. Like, for example, we are getting the chemical containers or chemical tankers, etc. But domestic containers, we are not buying yet because, again, that is something for regular movement, we do not have our own trucks. If you see like in the freight business we don’t earn any trucks specifically because the regular trucks are easily available from the market.

Kripa Shankar — — Analyst

Got it. Then with respect to shipping, then — where do you see that the demand topping up? I would say that, for example, if more and more products are not moving on in the multi-modal way, and it’s going to be one-way traffic coming in from the West the South. Do you see that perhaps the growth will slow down eventually perhaps after a four- or five-year window? Is that something which is likely?

Vineet Agarwal — Managing Director

No, I don’t believe that the multi-modal business is going to slow down. I think we’ll see ups and downs, but it is generally going to keep moving up only. I think everyone has recognized starting from the government that multi-modal is the way to go. And it will keep increasing for sure. And also, it comes from a very low base, if you see. So that the ability for it to grow is also very, very high. So I don’t anticipate that the coastal shipping business is going to really lose out in five years. I the growth will continue easily for a decade.

Kripa Shankar — — Analyst

Thank you and all the best.

Vineet Agarwal — Managing Director

Thank you.

Operator

Thank you, sir. The next question is from Mr. Anshul Agrawal [Phonetic]. Sir, please go ahead.

Anshul Agrawal — — Analyst

Hi. Thank you for the opportunity. I wanted to understand, Vineet, how do we judge utilization levels and LTL network? I suspect there are multiple variables at play here like hub utilization, vehicle utilization, routes, etc. So I wanted to get a sense on how do we judge if they’re optimally utilizing our network?

Vineet Agarwal — Managing Director

So optimization in the network is an ongoing and a never-ending process because the moment you reach a 60%, 70% of capacity utilization, you add more capacity. You don’t want to be ever left without any capacity. So that means that at that number, you keep adding capacity. And clearly, if the business in the last year has also grown, overall volumes have grown. So that helps with the capacity. However, you have to keep optimized. So I don’t have — I cannot give you a number exactly on what is capacity utilization because typically, all trucks move in a — as completed — as complete, it is full. But not necessarily all hubs are full because hubs are more efficient. They are working 24 hours a day and they are able to create a certain amount of throughput. Now that throughput could increase more even if we had more volume yes, it is possible. So I would say capacity utilization at the hub level is lower, but capacity utilization at a truck level is quite optimal.

Anshul Agrawal — — Analyst

Fair enough. And what would be the EBITDA and PAT margin profile of an LTL network process and FTL network or business?

Vineet Agarwal — Managing Director

So the margin profile on a gross margin basis, not EBITDA margin, it’s 20% for LTL business versus 10% for an FTL business. Plus, there is hardly or no receivables for our LTL business. So yes, that’s why it’s a better mix. However, we also believe that just doing LTL is also not good enough. You need to have a combination services because there are many, many clients who want both FTL and LTL. In fact, almost all clients want both.

Ashish Tiwari — Group Chief Financial Officer

Anshul, are you there? I think we lost him. Simran, we can take the next question.

Anshul Agrawal — — Analyst

I got muted. Thank you. Thank you, Vineet for the detailed answer. Very clear. I also read in recent media article that government is planning to provide financial incentives for eco-friendly vessels as well as priority services under a green ship scheme. Any thoughts around this or if you can quantify the benefits that we can get for our Seaways division basis this?

Vineet Agarwal — Managing Director

It’s just a news item. I don’t think we’ve seen anything yet around it — so really cannot comment on it.

Anshul Agrawal — — Analyst

Got it. That’s it from my side. Thank you so much.

Vineet Agarwal — Managing Director

Thanks.

Operator

Thank you, sir. The next question is from Mr. Divyansh Gupta [Phonetic]. Sir, please go ahead.

Divyansh Gupta — — Analyst

Just couple of questions and more but in the cash flow statement that has been given in the disclosures to BSE, the capex is mentioned as INR150 crores whereas the capex mentioned in the presentation is around INR120 crores. Can you help me?

Ashish Tiwari — Group Chief Financial Officer

Yes, yes. So Divyansh, this actually disclosure in the SEBI, this is something which is a standard disclosure. This also includes the drydock amount. And that is the difference.

Divyansh Gupta — — Analyst

Got it. So then FY ’24 budget for capex also excludes the drydock expense of INR30 crores.

Ashish Tiwari — Group Chief Financial Officer

Drydock basically is something which is our opex. But because of the standard and financials we used to take it as a semi capex. So it has been amortized in three years or so.

Divyansh Gupta — — Analyst

Got it. Got it. Understood. And Vineet, just one question to you. So you had mentioned for the Middle East market, the revenue will be around INR7 crores to INR8 crores. So that will be the revenue booked in the Middle East entity or TCI whole? Because like in SAARC you had mentioned that some revenue gets booked in India and some in, let’s say, Bangladesh. So this INR7 crores to INR8 crores is TCI console or Middle East only?

Vineet Agarwal — Managing Director

This is jointly — it could be some amount originating from here, some more originating from there.

Divyansh Gupta — — Analyst

Got it. Understood, understood. That’s it. Thank you.

Operator

Thank you, sir. We have the next question from Mr. Vikas Katri [Phonetic]. Sir, please go ahead. Mr. Vikas, are you there?

Vikas Katri — — Analyst

Am I audible?

Vineet Agarwal — Managing Director

Yes, yes. Please go ahead, Vikas.

Vikas Katri — — Analyst

My question was related to part load. When the part load all companies are expecting their infrastructure. And TCI is also focusing on the expansion of the — or focus on the part truckload. Are there any plan of the investment on the infrastructure for the part load trucking especially on the hub infrastructure branches infrastructure? And second question is — second question was related to supply chain. Is TCI having any plan to move to the next level as a core tier player and [Indecipherable] completely integrated projects?

Vineet Agarwal — Managing Director

Sure. So yes, we are continuously investing into infrastructure for LTL. We have hub centers that are already there, about 25 hub centers. Some of them are being upgraded on a continuous basis. We’re looking for new ones also. If they are not able to be upgraded we are opening branches on a regular basis so all that is underway and to grow the LTL business. On the 4PL side, yes, we do occasionally work for customers on a 4PL basis also. We do understand the process and the logic around it. But I think it’s more important that the customers have to understand the value proposition around it. So as we build control towers for our clients, we are seeing acceptability towards 4PL more and more. And I’m confident that in future, we will be able to do a lot more 4PL as well.

Vikas Katri — — Analyst

Thank you.

Operator

Thank you, sir. We have the last question from Mr. Preet Nagarsheth [Phonetic]. Sir, please go ahead.

Preet Nagarsheth — — Analyst

Yes. Just one small thing, Vineet, would the LTL business gain by any kind of automation similar to what one of the group companies is doing, TCI Express that is on the sorting center side?

Vineet Agarwal — Managing Director

So, yes, we do automation, but not on the sorting center level because the kind of cargo that we get in LTL is very different from the one that Express businesses typically get. So that’s why it is not equitable in — from that perspective. But the technology that gets used is, for example, in hub automation in terms of moving things faster we use tablets, etc, for loading, unloading, we use different kinds of tracking mechanisms. We have apps for customers to book the cargo. We have — we track the drivers with GPS, etc, RFID. So that on an opportunistic perspective, yes, some technology is used, but not at the hub center for sorting, it’s not equitable.

Preet Nagarsheth — — Analyst

Because I think the KG wise minimum load for an LTL is what 50 KG and above. Is that the differentiator?

Vineet Agarwal — Managing Director

In a freight kind of business is much higher. It typically goes up definitely a lot more. So that’s why — and the kind of material is also very different. It could be pumps and motors and this and that, which are — which you cannot put on a sorting machine.

Preet Nagarsheth — — Analyst

Okay, thank you.

Operator

Thank you, sir. There are no further questions. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.

Ashish Tiwari — Group Chief Financial Officer

Thank you, Simran for monitoring this call and thank you everyone for joining this in your busy session. See you in the next quarter of this year. Thank you so much. Take care.

Vineet Agarwal — Managing Director

Thanks a lot. Thank you. Bye.