TVS Supply Chain Solutions Ltd (NSE: TVSSCS) Q3 2025 Earnings Call dated Feb. 11, 2025
Corporate Participants:
J. Sivakumar — Head Investor Relations
Ravi Viswanathan — Managing Director
Ravi Prakash — Global Chief Financial Officer
Analysts:
Disha Giria — Analyst
Presentation:
Operator
Ladies and gentlemen, please stay connected. The call will begin shortly. Ladies and gentlemen, if connected to the TVS Supply Chain Earnings Conference Call, please stay connected. The call will begin shortly. Ladies and gentlemen, please stay connected the call will begin shortly. Thank you. Ladies and gentlemen, welcome to the Q3 and Nine Months 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 guarantees the future performance of the company and it may involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing a star then zero on a touchsone phone. Please note that this conference is being recorded. I now hand the conference over to Mr Jay Shiva Kumar of TVS Supply Chain Solutions Limited. Thank you, and over to you, sir.
J. Sivakumar — Head Investor Relations
Thank you, moderator. Good morning, and welcome all to TVS Supply Chain Earnings call for Q3 FY ’25 and nine months ended December 2024. I hope everyone had a chance to look at the financial results, which was posted in the company website and also in the stock exchange last night. We have with us today Mr Ravi Visnathan, our Managing Director; and Mr Ravi Prakash, our Global CFO. We commence the call now with opening remarks from our management, along with the business performance update. It will be followed by an open forum for question-and-answers.
Before we begin your 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 company faces. A disclaimer to this effect has been included in the investor presentation and I request and hand it over to Mr Ravi, Managing Director of the company to make the opening remarks. Over to you, sir.
Ravi Viswanathan — Managing Director
Thank you, Jays, and good morning to all of you. Firstly, let me welcome all of you once again to our earnings call to discuss the performance in-quarter three of the fiscal year ’24-’25 and for the first-nine months of the fiscal year ’24-’25. Thank you. I will share with you the highlights of our performance and as always, my colleague, our global CFO, Mr Ravi Prakash will take you through the analysis of our numbers. We look-forward to interacting with you as part of the Q&A session.
For the benefit of those participants who might be joining the analyst call for the first time, please note that TVS Supply Chain Solutions is a secular and asset-light supply-chain solutions provider with two main business segments, namely ISCS or Integrated Supply Chain Solutions and NS or the Network Solutions segment. We operate across four continents, Asia, Europe, North-America and Oceania, where we offer bespoke and tailor-made solutions in the 3PL space and also offer 4PL services in the select markets. For more details about the company, please refer to our webpage at Relations.
So let me get into a brief business overview, followed by the operational highlights, financial performance in Q3 FY ’25 and nine months ending December FY ’21 and our focus areas for the last quarter of the year. The IFCS segment continues as a main revenue contributor thanks to sticky long-term contracts. On the freight powering space, the Red Sea crisis continues, resulting in higher shipping costs, delayed delivery along with other factors which affect the GFS business. The reason Gaza ceasefire has given ray of hope, but shipping lines are not likely to restore the routes until long-term security is guaranteed. That said, the mantra for companies like us and for TBS SCS is to be nimble, flexible and be continuously innovative, which the company has been able to demonstrate over the years and we shall ensure the same in the future as well.
Now moving on to the performance highlights for Q3 of the fiscal year 2024-’25 and nine months of the fiscal year ’24-’25. Q3 FY ’25 consolidated revenue grew by 10% on a year-on-year basis. And in terms of segmental performance, the Network Solutions segment continued its upward trajectory and grew by 20.4% on a year-on-year basis, whereas the Integrated Supply Chain Solutions segment grew by 2.3% on a year-on-year basis. Business development continues to be robust across the segments and it contributed to 10.4% of the Q3 FY ’24 revenue in this quarter.
The company reported a PBT loss of INR15.2 crores for the quarter and this came because of three main factors. Firstly, the company encountered a delay in commissioning a major project for a key customer in the UK and thereby delaying the revenues. Our customers in the utility services business and the transformation project will now go-live post winter during the summer months, that is in Q1 FY ’26. Secondly, multiple customers in the UK region outsource lower-than-expected volumes in an unusually soft quarter, which impacted the revenue of the company.
And lastly, one of the key contracts with a governmental agency in the UK got delayed due to procedural issues and we expect the contract to start now in Q1 FY ’26. Amidst this, relevance costs were already built-in and thereby impacting the profitability of the company. The company is taking specific initiatives in this regard for the profit turnaround, which Ravi Prakash will cover in detail later in this call.
In the freight forwarding segment, the company grew its revenue impressively on a year-on-year basis. The ocean freight growth moment was driven by rising freight rates in the market, while air-freight rates remained resilient in the quarter. The incremental ocean freight rate did not translate to margins due to a Sea surcharge, which was a pass-through in nature and hence margins were subdued.
With regard to the integrated final mine for IFM as a sub-segment under the Network Solutions, we are in the last lap of the turnaround to profit-led growth. Now a quick look at the nine-month financial year ’25 performance. Consolidated revenue for nine months FY ’25 grew by 10.7% compared to the corresponding previous year and PBT for the same-period was INR16.4 crores. We note that the customer volume drop-in UK is seasonal in nature and will be possibly addressed in the coming quarters.
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 number.
Ravi Prakash — Global Chief Financial Officer
Thank you, Ravi. Good morning, everybody. Welcome to the TVS SES quarter three earnings call. I would like to start-off by talking about four items, four key factors which are actually going well for us in the business and then analyze the financial results in detail. In the segment, both India and North-America margins are trending well. And that is expected to continue and that is actually a solid foundation as we work-through the next couple of quarters.
As our Managing Director has already talked about, the IFM business turnaround is on-track. We had a message that by Q3 of this year, we would probably be getting to breakeven and start moving towards run-rate profitability in Q4 and Q1 of FY ’26 and that trend continues. And the last point is that the ISM — the GSS business has demonstrated robust volume growth on a year-on-year basis. Yes, there was pricing benefit as well, but volume growth was benefits.
So these are four positives that we as management and we would like everybody also to take note of as we go through the rest of the financials. Now let me walk you through the numbers line-by-line. Q3 FY ’25 revenue was INR24.6 crores compared to INR2 crores to INR1.8 crores for the same-period last year. That represents a 10% growth on year-on basis, where the network segment grew very well, almost 20% and the ISCL segment grew 2.3%.
The network segment revenue was driven by healthy volume growth in the forwarding business. The volume growth was supported by higher freight rates as well. Revenues from business development have maintained their momentum with INR231.3 crores being dropped in the quarter. And that reflects the healthy order pipeline. We have shared these numbers in our earnings presentation. Today, the pipeline stands at about INR5,500 crores. The combination of some good momentum on the freight volume, the ISI strong customer-base and the business development has sustained the revenue performance. Other income for the quarter was INR24.6 crores and that was primarily due to the interest from bank deposits and forex gains. With this, the total income for the quarter was INR469.2 crores, which is a 10.1% growth on a year-on-year basis. When we look at nine-month performance versus nine months of last year, revenue grew at 10.7%, in-line with what we’ve been indicating in the past.
Nine-Month revenue was INR496.9 crores versus the corresponding number of 773.7 last year. Segmentally, ISES grew 5.6% where the network segment grew now let’s take a look at the major expenditure items. Material costs for the quarter were about INR391.4 crores, which was lower by 9.9% on a quarter-on-quarter basis and 4.9% lower on a year-on-year basis. This cost-reduction is on account of a change in the business mix in some of our overseas entities, which will carry inventory as required in some contracts. The freight clearing, forwarding and handling expenses being variable in nature increased due to the higher-volume of trade handled in the GSS business and due to the additional surcharge levied by ocean carriers on account of the Red situation. And that’s why they have increased on a year-on-year basis at 27.6%.
Quarter-on-quarter, they were lower by — they were lower by 5.4%. Employee benefit expense for the quarter was INR50.3 crores, which is an increase of 2.4% on a quarter-on-quarter basis and 6.9% on a year-on-year basis, primarily due to the change in customer bridge mix. And this is mainly because of deployment of people in contracts, which is absorbed in the gross margin of the customer contracts.
On the EBIT front, while depreciation and amortization expenditures were lower by 3% both on quarter-on-quarter and year-on-year — year-on-year basis. The lower EBITDA generation in the segment has impacted the overall EBIT, which was down — which was a loss of INR3 crores. Now let me walk you through the three key factors which impacted Q3 profitability.
The first one, as Mr Ravi has already mentioned, is a delay in commissioning of a major project with the UK customer. The project was expected to go-live in Q3. It has now got pushed to-Q1 of FY ’26. The — and the infrastructure for the project is in-place, revenue recognition is push-back that has impacted the profitability. Second, and this is important to note, in general, the December quarter is a softer quarter outside of India because of volumes, because of the holiday season. We had anticipated that, but this Q3 was unusually soft for a few customers in UK. This is clearly a one-time impact because as we go through Q4 and Q1, we do not see any such trends. So — but that has had an impact in Q3. And in the GFS business, there has been lower margins.
The three fact — the three factors that I’ve talked about have more or less what you say, these are the three factors which have contributed to the drop-in profitability. The focus of management is to act on a few initiatives to ensure a quick turnaround from the numbers that are coming through this quarter. First, strategic price adjustments in many contracts in the IFM business. We have talked about in the past that the IFM business, we are taking price corrections to improve margins and that is currently on. And so we expect to see that benefit in about 20% of the revenue of the company. Second, headcount rationalization. We are streamlining the workforce.
We had already taken some steps in the first-nine months, but we are going to be focusing a lot in the next coming quarters. Third, overhead reduction, we are taking steps to reduce overheads across-the-board. And again, we should see the benefits in the coming quarters. Fourth, infrastructure consolidation, particularly in the UK. We have already acted on consolidating a number of warehouses into larger ones and that cost benefits also should be coming through in the coming quarters.
And lastly, outsourcing to India, we have a center of excellence in. We have been moving work here, but we are pushing this harder in the coming months. We believe these measures which are in different stages of implementation would push it back to the normal profitability that we expect to get from this business. At this stage, I also want to make it clear, our mid-term goals of a 4% PBT do not change. The three factors that I outlined are a one-time quarter impact in this quarter are not anything, what should I say structural with the business and therefore, we expect to turn them around. So I just want to kind of reins the — reaffirm our mid-term guidance.
Finally, there is a — there is a clear to cut plan to address the impact on overall profitability and I would be happy to give you greater details during the question-and-answer session. With this, I’ll hand it back to Mr Ravi.
Ravi Viswanathan — Managing Director
Thank you, Ravi Prakash, for the analysis. I would like to touch upon the business development and key engagements. The revenue momentum of the company is backed by strong. Our BD contributed about INR231 crores for Q3 FY ’25 and INR757 crores for the Nine-Month FY ’25, reflecting robust performance. And we have those details in the investor pages 14 to 16. We informed in the last earnings call how the company is able to win large deals in mature markets, both in the UK and in the US after winning transformational deals in the UK and USA.
We continue our focus on Fortune 500 customers and we will continue to add the Fortune 500 customers into our tag. During the quarter, we won a notable four-year contract with the UK Ministry of Defense for the provision of maritime consumables and furniture to support the Navy. This enabling contract will ensure the seamless procurement of a wide range of essential items supporting operational efficiency for the. Further in the ISCA segment, we onboard an Indian electric electrical company, Indian consumer durable company, a global agri equipment company in the USA, an international railway infrastructure company based in the UK and a global manufacturing company in-place here in India.
Some of the new customer wins in the Network Solutions segments include a global wind turbine manufacturer, a UK. Based consumer healthcare company, a global consulting and outsourcing company and engineering and electric company. So a very diverse set of customers across the areas of our focus. As in the past, the pipeline of new opportunities continues to be very strong and we are building on that strength quarter-on-quarter. It currently represents a revenue opportunity annualized in excess of INR4,500 crores.
Some of the key opportunities we are working in India include a warehousing solution for a large Indian retail chain, an integrated solutions to a global home appliances manufacturer, a 3PL solution including buy and sell for a global wind turbine manufacturer and an integrated 3PL solution for an automotive parts provider. And some of the key opportunities we are working outside India include a warehousing solution for a global auto component and engineering company, an integrated 3PL solution for a UK UK-based automobile OEM, a technical repair solution for an industrial joint and an integrated 3PL solution for an American auto OEM and a field service management solution for a large retail chain.
In the UK, in a Fortune 500 company, we have been now downselected and in the final stage of contracting for a large transformational three-year INR1,000 crore contract and we expect to give you details over the next few years. That reemphasizes our positioning and to our — the strength of our solutions and the ability for us to work with the Fortune 500 customers. To grow the scale, the company’s global customer account management program is well underway. This program leverages our cross-selling opportunities and we continue to see success and more importantly, a very strong pipeline with our global customer account management customers.
On-top of the global account management, we are also laying emphasis on operational excellence, more specifically around the total customer life lifecycle starting from operational development through launch and deployment and into post-launch continuous improvement. As such, we have created the operational excellence pillar, which is being used in all key customer implementations and will be replicated in all our geographies and large customers.
Further, as a tech-led company, we continue to offer best-in-class IT solutions and loadable security features to customers from time-to-time. In summary, our year-on-year revenue growth reflects the resilience of our business. We continue to secure large deals and capitalize on significant market opportunities, leveraging our global capabilities and technology expertise. With a robust order pipeline bolstered by strong customer engagements, we remain bullish about our long-term growth outlook. 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. Anyone who wishes to ask a question may press star and one on your touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star N2. Participants are requested to use handset while asking your question. Ladies and gentlemen we will wait for a moment while the question queue assembles the first question is from the line of Tisha from Ashika Institutional Equity. Please go-ahead.
Disha Giria
Good morning. Am I audible?
Ravi Viswanathan
Yes, Tisha. We are able to hear you. Thank you.
Disha Giria
Yeah. Hi. So my first question is regarding the UK contract. Can you specify the reason for the delay in contract? I’m assuming it is the seven-year strategy contract that we had signed with the government of I think last quarter. So if you could specify what is the deal — what is the reason for the delay in contract? And as well, you had mentioned in the presentation that the margin impact should continue in the next quarter as well as a slight margin impact in 1Q FY ’26. So if you could help us quantify certain like how much cost impact should we estimate?
Ravi Viswanathan
All right. Let me take the first part of the question, Risha. So if you — if you look at customers’ engagement, we are contract run two sets of operations for them. The first set of operations went live in September. The second set of operators, which was more transformational nature, which had a lot of new technology, new business process and a new set of teams, which was migrating from an existing distribution center to the modern distribution center. So the delays were on multiple counts. One was the facility itself got a little bit delayed. Further technology integration took a slightly longer time. And given that we were not able to complete what we call the business resilience testing, it is too risky to go-live in winter. So that’s the — that’s the synopsis of the day., you want to add the yeah.
Ravi Prakash
Disha, in terms of the numbers, see, normally we do not give out contract-wise impact. But if I take the kind of the PBT change that you’ve seen quarter-on-quarter, the three, four factors that I’ve talked about probably have an equal contribution right? I talked about three or four factors. They all have an equal contribution to the delta that you’ve seen in our EBIT performance, right? And we expect — and like we said because the contract is going to go-live, expected to go-live in Q1 FY ’26. While we are set, there is an impact in Q4 and there is — the contract will go-live in Q1 FY ’26. That is specific to the contract, but we as a company are doing other things to make-up for that. So that’s also something that I just like to do.
Ravi Viswanathan
Yeah. Just to emphasize on that, Ravi Prakash spoke about quite a few initiatives which are all underway, which will give us significant you know opportunities for us to make-up for that single contraction to the PBT. So I think from a — from a program or a project perspective that’s expected to go-live in Q1. That particular project will have an impact in Q4, but we are confident that we’ll be able to make do with the — with all of the initiatives that we have supported by new.
Disha Giria
Yeah. Okay. My second question is regarding the ISCS business. While you mentioned in your commentary that the ISCS India as well as North-America business has been supporting good margins. If I see the growth rate of ISCS India business, it is just 0.5% on a year-on-year basis for the quarter and it has declined by 3.9% for the nine-month period. So could you just specify what is the reason behind it? I remember earlier in the quarter you had specified sometime that the elections led to a lower manufacturing activities, but this quarter was — I mean, if you could just quantify some reasons?
Ravi Viswanathan
Okay. So, Disha, two things. One is, yes, we had said that Q2 manufacturing was definitely on a lower trend. It has had a slight pickup in Q3. But I think it’s important for us to look at India from both short-term and the long-term, we continue to win significantly large deals, which is giving us a good set of, I would say, visibility towards what it is in the future. But specifically on Q3, I would say the performance given the — given the fact that we have — there were a couple of projects which exited, it is still something which we are very comfortable with from a momentum perspective. Maybe can share more details.
Ravi Prakash
So, I think in the last couple of quarters, we’ve been talking about the fact that in India, there have been a couple of contracts that we have chosen to move — move-out of. And we have always said that the revenue growth in India will normalize. So it is a matter of one or two quarters before you start seeing the revenue growth again. But maybe I want to spend a bit of time on the comment I made on margins. The India business has managed margins well. They have adapted — they have quickly worked on at both at a gross margin as well as at an EBIT level to kind of — and cash-flow management to kind of improve their margins. And that’s why we specifically called out that despite the revenue shortfall, the margin performance has been good. And in the same has been the case in North-America. And the reason we kind of called this out is, we’ve always been messaging that the supply-chain segment is something that we can depend upon. All three businesses have performed well [Ends Abruptly]