TVS Supply Chain Solutions Ltd (NSE: TVSSCS) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Sivakumar J — Head of Investor Relations
Ravi Viswanathan — Managing Director
Ravi Prakash Bhagavathula — Global Chief Financial Officer
Analysts:
Vaibhav Shah — Analyst
Jainam Shah — Analyst
Ritesh Poladia — Analyst
Disha Giria — Analyst
Saumil Shah — Analyst
Saniya Desai — Analyst
Presentation:
Operator
Ladies and gentlemen, welcome to the Q2 and H1 FY’25 Earnings Conference Call of TVS Supply Chain Solutions Limited.
This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve certain risks and uncertainties that are difficult to predict.
As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask question after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.
Now I hand over the conference to Mr. J. Sivakumar of TVS Supply Chain Solutions Limited. Thank you, and over to you, sir.
Sivakumar J — Head of Investor Relations
Thank you, Riddhi. Good evening, and welcome all to the TVS Supply Chain Earnings Call for Q2 FY ’25 and H1 FY ’25. I hope everyone had a chance to look at the financial results and investor presentation, which were recently posted on the company website and also in the stock exchanges. We have with us today, Mr. Ravi Viswanathan, our Managing Director; and Mr. Ravi Prakash, our Global CFO.
We commence the call now with opening remarks from a management team followed by an open forum for question and answer. Before we begin the customary remarks, I would like to point out that some of the statements made during this call may be forward-looking in nature and must be reviewed in conjunction with the risks that the company faces. A disclaimer to this effect has been included in the earnings deck. And I request and hand it over to Mr. Ravi Viswanathan, Managing Director of the company, to make the opening remarks, sir.
Ravi Viswanathan — Managing Director
Thank you, JS, and good evening to all of you. Firstly, let me welcome all of you once again to our earnings call to discuss the performance in the Q2 fiscal year 2024-25 and for the first half of the fiscal year ’24-’25. I will share with you the highlights of our performance. And as always, my colleague, Ravi Prakash, our Global CFO will take you through the analysis of our numbers.
We look forward to interacting with you as part of the Q&A session. Before I begin, it is customary that I provide a brief background to our company to the benefit of those participants who might be joining the analyst call for the first time. TVS Supply Chain Solutions is a tech-led and asset-light supply chain solutions provider with capabilities across the value chain. The company has two main business segments, namely Integrated Supply Chain Solutions or the ISCS segment and Network Solutions or the NS segment. Our presence spans four continents, Asia, Europe, North America and Oceania, with a diversified customer base spread across multiple sectors.
We offer bespoke and tailor-made solutions to our customers. So our customer contracts are generally long term in nature, and our customer services are predominantly in the 3PL space and in evolved overseas market, we also offer 4PL service in the ISCS space. To summarize, TVS Supply Chain Solutions is a company with a strong Indian base, and the global presence offering best-in-class supply chain solution across the globe.
Let me give a brief business overview, followed by the operational highlights and financial performance in Q2 FY ’25 and H1 FY ’25 and our focus areas for the remainder of the year. The ISCS segment continues to drive the overall profitability of the company through robust customer contracts and pricing benefits. In the freight forwarding segment, the company grew its revenue impressively despite the macro, both in the ocean side of — mainly the ocean side of the freight traffic.
Firstly, the Red Sea situation is continuing, where quite a few carriers are being diverted via the Cape route, thereby limiting the effective carrier capacity, triggering longer voyages, increasing fuel consumption and, therefore, running costs. Secondly, this quarter also saw dockworkers 3-day strike in U.S. ports, which impacted 36 ports in the Eastern Coast of U.S.A. and this strike impacted routine clearance and caused unusual delays in freight clearances across the Eastern Seaboard.
As informed in the previous call, the Integrated Final Mile or the IFM segment within the Network Solutions segment is in the turnaround phase, where we are witnessing the benefits of process excellence through digitalization initiatives and smart cost reduction measures.
We expect by end of H2 FY ’25, the IFM segment will be back to run rate profitability. Now moving on to the performance highlights for quarter 2 of fiscal year 2024 and H1 of FY ’24-’25. Firstly, we continue the momentum of the quarter-on-quarter profit led growth for the fifth successive quarter as envisaged. Q2 FY ’25 consolidated revenue remained flat in comparison with previous quarter, while it grew by 11% on a year-on-year basis. In terms of segmental performance, both ISCS and NS segments grew on a year-on-year basis. Business development continues to be robust across the segments and contributed 12.4% of the Q2 FY’24 revenue in this quarter. The company reported a PBT of INR17.9 crores for the quarter, reflecting a strong resilience and orderly performance.
Now a quick look at the H1 FY ’25 performance. Consolidated revenue for H1 FY ’25 grew by 11% compared to the corresponding previous year. PBT for the same period H1 FY ’25 was INR31.6 crores, reflecting progressive turnaround compared to the loss in the corresponding year.
With this brief background, let me hand it over to Ravi Prakash, our Global CFO, who will then take you through a detailed analysis of the numbers.
Ravi Prakash Bhagavathula — Global Chief Financial Officer
Thank you, Ravi. Good evening, everybody. An opening comment, the Q2 results reflect the benefits of sustained revenue growth and our ability to manage our borrowings in a very tight band. That’s what’s driving the PBT performance. Let me walk you through line by line. Q2 FY’25 revenue was INR2,512.9 crores compared to INR2,269.9 crores for the same period last year. That represents a 11% growth year-on-year. And this growth was quite — driven primarily by the network segment, but also a pretty strong performance in the supply chain segment. The ISCS segment grew 6.2% on a year-on-year basis. The Network segment grew impressively. It delivered a quarter-on-quarter growth of 4.6% and 17.2% on a year-on-year basis.
This was driven by healthy volume growth in the forwarding business, which was also supported by higher ocean freight rates. Revenues from business development maintained their momentum with INR280 crores being clocked in this quarter. This reflects a pretty healthy order pipeline. We have shared the numbers in our earnings presentation. The pipeline today stands at about INR4,500 crores. So the combination of volume, ISCS momentum and business development helped sustain the revenue performance. Other income for the quarter was INR28.6 crores, and that was primarily due to the interest from bank deposits and ForEx gains.
With this, the total income for the quarter was INR2,541.5 crores, which is 11.9% growth on a year-on-year basis. When we look at H1 performance versus H1 of last year, the revenue performance is quite similar. We again grew 11%, pretty much in line with what we have been indicating in the past, So the number was about INR5,552.3 crores versus a corresponding number of INR4,551.8 last year.
Segmentally, ISCS grew 7.2% while network segment revenue grew 16%. Now I will quickly move to an explanation of how some of the major expense line items have evolved.
Material costs for the quarter were about INR434.3 crores. They reduced on a quarter-on-quarter basis, but increased on a year-on-year basis. The simple explanation is this is due to the change In the business mix in some of our overseas entities, which actually carry inventory as required on some contracts.
However, any fluctuation in inventory cost has been able to be offset within the gross margin through either operating leverage or efficiencies. Freight clearing, forwarding and handling expenses being variable in nature, increased due to the higher volume of trade handled in the GFS business and due to the additional surcharge levied by ocean carriers on account of the Red Sea situation. That’s the reason that this expense line was up by almost 30.7% on a year-on-year basis and 1.6% on a quarter-on-quarter basis.
Employee benefit expense for the quarter was INR576.2 crores. It’s kind of flat year-on-year as a quarter-on-quarter basis. This reflects the fact that we are deploying additional manpower only as required within the gross margin of incremental contracts, but otherwise having a pretty tight rein on our employee costs. On the EBIT, Q2 EBIT numbers probably are better read after normalizing for the impact of ForEx losses and business transactions to the extent of about INR7.51 crores. Normalizing for that, that would reflect a 6.9% growth year-on-year.
In conclusion, the ISCS segment continues to drive overall profitability, where you can see that EBITDA margins have hit almost 11%, and PBT margins have improved 100 basis points versus the same period last year leading to a INR17.9 crores PBT. We expect to build on this momentum in the ensuing quarters. I’ll be happy to provide further details during the question-and-answer session, and I’ll hand it now back to Mr. Ravi Viswanathan.
Ravi Viswanathan — Managing Director
Thank you, Ravi Prakash, for the analysis. Let me touch upon business development and the key engagements. The sustained quarter-on-quarter profit led by growth is backed by strong BD. Our BD contributed about INR280 crores for Q2 FY’25 and INR526 crores for H1 FY’25 reflecting robust performance. We have those details in the investor presentation, Pages 11 to 13.
We informed in the last earnings call how the company is able to win large deals in the mature markets, both in the U.K. and in the U.S. after winning transformational deals in the U.K. and U.S.A. During the quarter, we won a significant new contract with a large industrial customer in North America. This is a multiyear transformational engagement with a total contract value in excess of INR2,200 crores. This long-term transformational engagement is a testimony to TVS SCS’ specialized capabilities in complex assembly and automation and the value that we bring as a supply chain outsourcing partner.
Further in the ISCS segment, we had a global auto OEM based in the U.S.A., leading beverages company in the U.K., engine manufacturer based in India, a global agri-equipment company based in the U.S.A. and also from a kitchen equipment management company in the U.K., where we have won fresh business. Some of the new customer wins in the network systems — Network Solutions segment included a global engineering equipment manufacturing company, a system integrator and IT services company, a 2- and 3-wheeler manufacturing OEM in India, a global digital equipment manufacturer based in U.K.
As in the past, the pipeline of new opportunities continues to be strong, and we are building on that strength quarter-on-quarter. And it currently presents a revenue opportunity annualized in excess of INR4,500 crores. In the last quarter, we announced a 7-year strategic multi-supplier framework contract with the U.K. agency for providing critical systems spares and support, ensuring enhanced availability and operational readiness of the customers — for their customers worldwide. TVS SCS U.K. continues to be a key contributor by meeting the aspirational needs of the U.K. governmental agencies towards value creation. We also secured a new business contract from a leading manufacturer of earthmoving and construction equipment for managing their implant warehousing and logistics operations at their facilities for three years.
This contract further signifies the growing contribution from the company to customer needs over the last two decades. The company with a widespread geographical presence has been catering its bespoke solutions to multiple marquee customers. And through our global account management program, we have embarked on tapping the cross-selling opportunities within each of the identified marquee customers. Currently, we have more than 190 proposals across these global accounts valued at approximately INR1,800 crores, which are in multiple stages of contract structuring and negotiations.
This capital base augurs well for revenue maximization and growth in the ensuing quarters. We continue to focus on delivering state-of-the-art IT-enabled solutions with security features enabled for every business area. We delivered an end-to-end IT solution on order to cash and procurement to pay for a key auto OEM based in Singapore as part of our customer value enhancement during this quarter. As part of our security enhancement, we successfully moved to ISO 27001 standards in Singapore and U.S.A. with minimal/no open nonconformances.
Deploying AI at scale is something I spoke about earlier and is a key focus area. And in this regard, I’m glad to call out the following initiatives. We have an AI pilot project with large language model being used to support new business bids. We have a polarized light damage detection deployed for beverage clients in the U.K. and an auction price and target bidding module deployed for courier alliance in the U.K. In summary, the Q2 results demonstrate our ability to sustain growth momentum in both revenue and profit amid ongoing macroeconomic challenges. New business wins have added INR280 crores of revenue for the quarter.
Our global account management strategy helped us close large deals that gives us the confidence of sustaining the growth momentum. Overall, when I look at the ability for the company over the last four or five quarters to close large deals, coupled with the fact that our pipeline is steadily increasing. And given that there is a significant bias in this pipeline from our global accounts that we work with, it gives us tremendous confidence going forward that our revenue engine is chugging very, very efficiently.
Ravi Prakash spoke about the ISCS margins, and we are at about 11% margins in the ISCS business. And with the Network Solutions segment getting its improvement measures that we have implemented and with the confidence that the IFM will return to run rate profitability by the end of this fiscal, we are extremely bullish about what happens going forward. Overall, the results reflect our resilience in navigating a complex environment, and we remain confident about our profitable growth in the coming quarters. With that, let me open the floor for questions. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Vaibhav Shah from JM Financial Limited. Please go ahead.
Vaibhav Shah
Yeah. Thanks for the opportunity. Sir, firstly, on the margins for the quarter. So are these margins for especially ISCS business at 11% sustainable in the second half and even in next couple of years?
Ravi Viswanathan
Vaibhav, any more questions? Or can I just go ahead and take that and answer it?
Vaibhav Shah
Yeah. Second question is that for the new order that we won INR2,200 crores, so how would the — how bigger is the contract? And how would the revenues flow over ’26 and ’27?
Ravi Prakash Bhagavathula
Yes. So Vaibhav, first on the ISCS margins, look, we’ve always been guiding that the margin around 10%, 10% to 10.5% would be our target margin for this segment. So I would kind of say that is what would probably we would look forward to in the next few quarters. The 11% is kind of — we had a very strong quarter where two, three factors came together. A couple of contracts we were able to invoice some of the start-up, what we call consulting-related services and stuff like that initially. So I would say a more sustainable level is probably around 10.5%. That’s what you should look forward to in the remaining quarters. In terms of the large contract that we talked about, we have started the buildup of the contract. The initial invoicing has started, but it will ramp up slowly. And the full benefit of this contract will be seen from Q2 of FY ’26. That’s when we’ll hit the expected run rate revenue for this contract.
Vaibhav Shah
And if you could quantify your peak revenue annually and how long is the duration of the contract?
Ravi Viswanathan
So let me take that, Ravi Prakash. Let me just say it’s multiyear, more than 5 years. I’m restricted due to confidentiality on the term. But let me just say it’s multiyear and more than five years in terms of contract duration. And we expect the steady state revenue to be around about $30 million. So you can do the math there. Okay. And sir, lastly, on the NS segment, we saw the margins dip to 2.3%. So can we expect around 4.5% to 5% margin in the second half or it will take some time to recoup maybe in fourth quarter?
Ravi Prakash Bhagavathula
So look, 4.5%, I would say, probably an exit this year is probably where we will try and hit 4.5%. So look, we look at the NS margin in two steps, Vaibhav. Till last quarter, we were doing about 4.5%. So the first step is to get back there. And that I would expect probably Q4, we will probably — we have a chance of hitting that. But the ultimate goal remains at 7%. And that probably in the next three to four quarters, we’ll get there. I’ll also offer a comment in terms of what’s driving the margin this time, why we’ve got a hit on the margin. The Red Sea situation has added about INR80 crores of revenue with literally no margin to the top line. So that is one factor.
The second one is in the IFM business, we had messaged earlier that we expect the turnaround to be completed by Q3 and Q4 for the company to — that business to hit run rate profitability. We are still on the same track. The IFM situation is — all the cost measures and the pricing measures we have taken are helping. we expect that by the end of this calendar year, those should be completed, and we should start seeing the benefits in Q4. And that’s why I’m saying that Q4, we should probably get back to initially about 4%, 4.5% and later on then aim for a more sustainable 7% in the later part of next calendar year.
Vaibhav Shah
Okay. So 3Q could be somewhere in the range of, say, 3%, 3.5%, somewhere between 3Q and 4Q margins?
Ravi Viswanathan
We don’t — maybe we don’t want to put a number on that, but I think I’ve given you a trajectory that should help you.
Vaibhav Shah
Okay. Okay, sir. Those are my questions. I’ll get back in the queue.
Ravi Prakash Bhagavathula
Thank you.
Operator
Thank you. The next question is from the line of Jainam Shah from Equirus Securities Private Limited. Please go ahead.
Jainam Shah
Yeah. Hi, sir, am I audible.
Ravi Prakash Bhagavathula
Yeah.
Jainam Shah
So sir, this question firstly relates to the ISCS revenue in India. If you see probably the last seven, eight quarters, the revenue has been quite stagnant. I guess in the first quarter, the comment was that because of the election and all, the revenue has been hit during that particular quarter. But if you see second quarter also, it is down on a sequential basis. So what is happening in the ISCS India business? What kind of run rate we can expect going forward from this particular part?
Ravi Prakash Bhagavathula
Okay. Any other questions?
Jainam Shah
Yeah, we can go one by one, I guess.
Ravi Viswanathan
All right. So yes, you’re right. The first quarter was more to do with the macro. I would say the macro didn’t significantly change, but we also took some significant correction in our business mix. So we exited some of, I would say, not so profitable revenue items in this quarter. So hopefully, we’ll get back to hitting the trajectory from Q4 in our model, that’s the way we look at it. So this quarter, predominantly because we focused on profitability and exited significantly, I would say, a couple of significant customer contracts, which were impeding our profit growth.
Jainam Shah
Got it, sir. And sir, on the network segment as we are targeting 7% margin, if you can explain a bit how we would be going to that number? And what I understood from a normal industry perspective is that, of course, we can have additional margin in IFM business, but freight forwarding might be having a similar margin going forward as well and Red Sea is also going out, then our revenue might be impacted because of the lower ocean freight rates. So how we will be bridging the gap between 4.5% exit rate this year to the 7% in, let’s say, next one or two years’ time? What could be the things that we would be doing specifically for the freight forwarding segment that might add up to the margin? Or is it just IFM that will be adding up to the margins?
Ravi Viswanathan
So let me take that question. I would think of two levers. See, the Red Sea situation is — at some point, I mean, if you think of the P&L of the freight forwarding business without the Red Sea, you would already probably add 40, 50 basis points to that segment because you will strip away unnecessary revenue and unnecessary cost, which is just inflating both lines. So that’s the first step. The second step is, I think as we have seen over the last couple of quarters, freight rates in general have normalized, except for the Red Sea. So therefore, margins are returning to a more normal level, which if you went back in history, we were able to do about 7% EBITDA margins in the freight forwarding segment.
So we are actually not very far away from that on the freight forwarding segment, right? Now on the IFM, honestly, what is really pulling us back at this stage is the IFM margins, which also used to be in the range of 7% or upwards, if you went back a few years. Those are tracking significantly below where we expect them to be. We had talked about that in the past. This is because of a number of reasons, a few profitable contracts that were wound down, inflation in the U.K., because of — we are — then there is increase in minimum wage in the U.K., energy inflation.
So a number of factors which have come together. We have put in place measures to address all this, both pricing as well as cost measures. I always said that by end of Q3, we should be able to hit a more reasonable number there, and I believe we are on track for that. Q4 should be the first step. So the IFM business, which is almost INR1,800 crores to INR1,900 crores of revenue on a run rate basis, the moment it hits reasonable margins, already, you’ll see the impact on the network segment. And that I expect to happen in Q4. And afterwards, when it hits its more normal run rate, that is the second step towards getting back to the 7%. So that’s the two steps that I see in this segment.
Jainam Shah
Got it, sir. And sir, from a longer-term perspective, we see from next two, three years perspective, of course, we are having a really good order inflow as well as a really strong order pipeline as of now. What we are foreseeing in terms of the topline growth, like what kind of percentage revenue growth we can expect from a two, three years perspective, maybe let’s say medium-term perspective on a consistent basis.
Ravi Viswanathan
We are pushing to have a double-digit growth, and we are targeting somewhere in the mid-teens. That’s the range you can think of as the rate of growth over the next two to three years.
Jainam Shah
Got it, sir. And just one clarification question. What has been the forex gain this quarter. It was INR7.51 crore, if I’m not wrong. The other income that you have reported of around INR28 crores, what was the forex gain out of this INR28 crores?
Ravi Prakash Bhagavathula
About INR14 crores.
Jainam Shah
Okay. Interest would be around INR78 cr.
Ravi Prakash Bhagavathula
Yeah, that would be the number.
Jainam Shah
Okay. Got it, sir. This is from my side. Thank you so much, sir.
Operator
Thank you very much. [Operator Instructions] The next question is from the line of Ritesh Poladia from Girik Capital. Please go ahead.
Ritesh Poladia
Yeah. Hi, thanks for the opportunity. Sir, my question pertains to the supply chain side of our business. India, as you explained, there is a decline. So how is the future going forward, the growth will be led by the new customers or it would be volume growth from the existing customers? Also, which sectors we are targeting from India side?
Ravi Viswanathan
So India is a very interesting — we are in an interesting situation in India because there is definitely a lot of interest for a lot of companies look at the China Plus One strategy or the India strategy, right? And therefore, that is remaining a potential opportunity for us. We expected that to materialize sometime this year, but the velocity of that is not as much as we anticipated. So going forward, we clearly see that as an opportunity. We clearly see a lot of MNCs moving their — part of their production base or their procurement base to India. That will give us opportunities both in the ISCS segment and in the GFS segment. We are in dialogue with a couple of our large global accounts who are looking at that as a strategy. And clearly, that will represent an opportunity for us to — so I would call that as new revenue.
And then for us, the sectors that we look at, clearly, we look at distribution, FMCG. This is a sector where we are seeing a lot of opportunities. We are already participating in some of that. And therefore, we look at that growth continuing to deliver. So that will be more what I would call an encirclement opportunity. As the volumes go up in each of these businesses, we will tend to grow. And of course, we have a fair exposure to auto. And while the 2-wheeler — and it’s a good mix of 2-wheeler commercial vehicles and passenger vehicles. We see a clear uptake in the uplift in the 2-wheeler segment. The other two segments are still, I would say, flat to damp. We expect those two sectors also to kick in as we go forward over the next two to three years. Maybe even in the next four to five quarters, we expect these two sectors also to start showing significant departure from their stagnant position now.
Ritesh Poladia
So India business can have a flat revenue at least towards the end of the year or the decline will continue?
Ravi Viswanathan
What is the question again?
Ravi Prakash Bhagavathula
Turnaround by the end of the year.
Ritesh Poladia
On a full year basis, can we see the flat revenue on a year-on-year basis or there will be a decline even on a full year basis?
Ravi Viswanathan
So there will be a marginal improvement. But on a year-on-year basis, it may probably remain flat.
Ritesh Poladia
Also on Rest of the World business, you delivered about 15% growth. But how do we see in the Rest of World business, given your aspirational revenue target of $2.5 billion, what can be the growth going forward?
Ravi Viswanathan
So that’s why I was saying that for us, the growth number should be in the mid-teens as a company because as we return to normalcy in the Network segment, although as you can see, Network Solutions is already now at about 17% growth. So there is — the ISCS business, we think will be in the 12%, 13% growth as a company. And that will be aided both by overseas — I mean, the rest of the world and India business. Rest of the world is, if we look at the pipeline, it is split exactly in terms of how the revenue split is. It’s about 30% India and 70% non-India in the ISCS business. So I think the rest of the world will continue to keep its growth trajectory. And yes, so we continue to push ourselves to get to that number, which is an aspirational number of $2.5 billion.
Ritesh Poladia
Yeah and last question would be there is a new contract of INR2,200 crores with the industrial customer in North America. So what’s the duration of this contract?
Ravi Viswanathan
I just mentioned to a previous question that we are bound by contract not to disclose the duration. But I did also mention there’s multiyear and you can put a number greater than five years. And our annual billing would be about $30 million plus. So you can probably look at it that way, yeah.
Ritesh Poladia
Yeah. Sure. Yeah, that’s all from my side. Thank you, sir.
Ravi Viswanathan
Yeah.
Operator
Thank you very much [Operator Instructions] The next question is from the line of Disha Giria from Ashika Institutional Equity. Please go ahead.
Disha Giria
Good evening, team. So my first question is, I want to actually understand the interest cost and debt. So last year, we had a decline in our debt and a INR35 crores decline in interest cost. And this year, if I see our debt has increased in the first half. So what are we looking at as an exit for FY ’25 in terms of debt and interest cost?
Ravi Prakash Bhagavathula
So from an interest cost, Q2 should represent pretty much where we are going to be for the next couple of quarters. I think from — actual interest was about around INR18.1 crores, and that’s where we expect it to be for the next couple of quarters. In terms of gross debt for the company, I think, we will probably be pretty much where we are today. I would say the gross debt, just give me a second, in terms of the number, it has gone up by about INR100 crores in the last quarter. We expect that maybe in the next couple of quarters to fund a couple of working capital initiatives, maybe another INR50 crores. So we might end around INR900 crores to INR950 crores, that’s the range. But then rates are coming down, interest rates. So that’s why I would kind of keep the interest cost at the same level, around 18% to — around 18%.
Disha Giria
All right. My second question is, in the last few quarters, we have been obtaining several contracts. And I want to understand what is — I mean, in what stage are those contracts currently? Are we recognizing revenue from it? Or is it still pre-revenue stage, like last quarter also, we had certain new contracts. This quarter also, we have a new contract. So just wanted to understand the same.
Ravi Viswanathan
So see, this quarter, the Supply Chain segment actually benefited from some of what you would call the pre-revenue stage because even in the pre-revenue stage, we do get some fees from the customer for the initial planning and the setup cost. So that’s one of the reasons why I said in my answer on the supply chain margins, we’ve got very elevated margins because we did get some unforecasted revenue from this large contract that we were messaging about, okay? The actual — I mean, what I call proper project revenue, like we said, for this contract will probably be Q2 of FY ’26. Now this is an extraordinarily large contract. But in general, what you will find is that we have a standard life cycle for our contracts between three to six months from the time we actually win the contract to execution, and that’s when we start recognizing revenue.
Disha Giria
So for last quarter, we were discussing about an agricultural contract based out of, I think, U.S. or U.K. So are we recognizing revenue for that contract in this quarter?
Ravi Viswanathan
Yeah. I mean, look, whatever we had messaged at last quarters, I think we are recognizing that revenue for this quarter.
Disha Giria
Alright. Yeah. Thank you. That is it from my end.
Operator
[Operator Instructions] The next question is from the line of Saumil Shah from Paras Investments. Please go ahead.
Saumil Shah
Hi, thanks for the opportunity. I have a couple of questions. Sir, we have stated our vision for profits of $100 million, that is INR800 crores in next 3 years, whereas currently, we are still doing INR10 crores of profits quarterly. So what do you think we can close this year at? And by when we can reach our vision of INR800 crores of profit?
Ravi Prakash Bhagavathula
So look, the vision we had stated was that on a $2.5 billion revenue, we wanted to — we want to get to a 4% PBT margin, which is about $100 million. And that is profit before tax, not profit after tax. So I just want to clarify that. In terms of our profit, the way I would look about it is if you look at our trajectory for the last few quarters, we were — we hit breakeven in Q3 of last year. We hit about INR4.5 crores in Q4 of last year. Then we hit about INR13 crores in Q1 of this year, and now we are at about INR18 crores.
The endeavor of the company is to keep building this profit run rate sequentially quarter-on-quarter and obviously also build the profit margin also accordingly. So at the moment, we are just around about 0.5% margin, and we keep kind of — if you keep building about — we always messaged that about 50 to 100 basis points is what we’d like to see as an improvement in every four quarters. If we stay on that track, we should be able to get to that run rate that we are talking about.
Saumil Shah
Okay. So gradually, maybe next year, we can have 2% PBT and then the later year 3% and then 4%.
Ravi Viswanathan
Yeah. I mean that actually is the outlook. Without actually putting numbers to every year, every quarter, we would like to do better than what we did in the last quarter, and we’ve been able to do that for the last three quarters.
Saumil Shah
Okay, and sir, almost all of our profits are eaten away by interest and depreciation cost. So are we planning to reduce this gradually or year-on-year as per our business model, this cost will keep on increasing?
Ravi Prakash Bhagavathula
No. In fact, we always said that the asset turns that you take, if you look at our asset turns over the last three or four years, you will see that consistently, you take the total fixed assets in the balance sheet, including our right-of-use assets, you’ll find that the asset turn has been steadily improving. And in one of the calls, I still remember talking about the fact that there is further scope for improvement. So one thing is for sure, the rate at which our revenue and gross margin is growing, definitely, the assets are not growing at the same rate. So there is operating leverage available there. And therefore, that would be one of the levers to actually improve the EBIT and the PBT.
Saumil Shah
Okay. That’s it from my side. Thank you and all the best for future quarters.
Ravi Viswanathan
Thank you.
Operator
[Operator Instructions] The next question is from the line of Saniya Desai from Elevate Research Marketing. Please go ahead.
Saniya Desai
Yeah, good evening, sir. Thank you for the opportunity. I had a couple of questions lined up. My first question is, you have mentioned that we won a large contract in North America in excess of INR2,200 crores. Can you let us know the tenure of this contract? Also, is it equally spread across the years or we will gradually pick up?
Ravi Viswanathan
So Saniya, I think as we had already said, confidentiality prevents us from talking about the exact tenure. It is definitely more than five years. The revenue from the contract, a part of it — the pre-revenue, as we said, the start-up part of it, we’ve already started recognizing. That’s one of the reasons why the ISCS margin is elevated in this quarter. What we expect is between now and Q2 of 2026, FY ’26, we would be recognizing a little bit of revenue as we get ready for the contract. The first full run of the contract revenue you’ll see in Q2 of FY ’26. And probably by the end of calendar next year, the run rate would be achieved.
Saniya Desai
Okay, sir. Got it. Also, what are the strategic priorities for segment? Do we focus on revenue enhancement or we would want to stabilize the margins at the cost of our revenues?
Ravi Viswanathan
Let me just take it and then Ravi Prakash can add more. So clearly, for us, the focus has been in ensuring that we bring the MS segment into a target profitability. So there are two subsegments, the Global Freight Services, the GFS, and the IFM segment, the Integrated Final Mile and GFS. So in the GFS, the focus is really on saying how do we get better procurement and drive the margins. On the IFM, it has been work in progress. We messaged that. We are in a good shape currently, and we expect that we hit a target run rate profitability by Q4 of this fiscal year. So the focus is to first return to profitability. We don’t want to say at compromising revenue, but if it comes to that, that would be the focus, get the profitability right, which is where we are currently. So I just want to message that, that trajectory is as planned from our internal perspective. Something you want to add, Ravi?
Ravi Prakash Bhagavathula
So I’ll just add on to that. Look, we do believe that it is — we do believe that it is possible to add INR1,000 crores to INR1,200 crores of revenue in a profitable manner. I’m talking about overall as a company. And that is what we’ve been trying to do. And we are committed to this 50 to 100 basis points improvement in margin across the company at an EBIT level every four quarters. So it is profitable revenue growth. That is what we are after.
Saniya Desai
Okay, sir, got it. That answers my question. Thank you so much. I’ll get back in the queue.
Operator
Thank you very much. That was the last question. I would now like to hand the conference over to the management for the closing comments. Thank you, and over to you.
Ravi Viswanathan
Thank you, and thank you for your questions. In summary, I would just like to say, look, Q2 has been a good quarter. We continue our growth momentum. We have had significant large wins and also significant BD, which has enhanced our revenue capability and trajectory. Our ISCS margins are better than what we had planned. So we hope we can continue on that same trajectory.
On the Network Solutions, clearly, there are challenges in the macro as far as the GFS business is concerned, but I think we are riding that tide very well. There are headwinds coming from the Red Sea and other aspects, but it’s a question of how well the management has navigated that. On the IFM, the work in progress, we have reached a stage where we have — we are well on track for the business to return to profitability. That ascendancy we can see from Q4 this fiscal and going forward. And like Ravi Prakash said, our target profitability or EBITDA margin for the IFM business is about 7%, 7.5% and therefore, for the Network Solutions segment, too. So I think when I look forward from a growth perspective and from the ability for us to manage the margins, we are well positioned as we exit Q2 of this fiscal. Thank you.
Operator
[Operator Closing Remarks]