VRL Logistics Limited (NSE:VRLLOG) Q3 FY23 Earnings Concall dated Jan. 31, 2023.
Corporate Participants:
Sunil Nalavadi — Chief Financial Officer
Analysts:
Alok Deora — Motilal Oswal Financial Services Ltd — Analyst
Mukesh Saraf — Avendus Spark — Analyst
Harsh Shah — Dimensional Securities — Analyst
Ritesh Poladia — Girik Capital — Analyst
Ash Shah — Elara Capital — Analyst
Amit Dixit — ICICI Securities — Analyst
Unidentified Participant — — Analyst
Vikram Suryavanshi — PhillipCapital — Analyst
Sanjaya Satapathy — Ampersand Capital — Analyst
Keshav Bagri — VT Capital — Analyst
Nemish Shah — Emkay Investment Managers — Analyst
Shrinidhi Karlekar — HSBC — Analyst
Alok Deshpande — Nuvama Institutional Equities — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the Q3 FY ’23 Earnings Conference Call of VRL Logistics Limited. [Operator Instructions]
I now hand the conference over to Mr. Alok S. [Phonetic] Deora from Motilal Oswal Financial Services. Thank you. And over to you, sir.
Alok Deora — Motilal Oswal Financial Services Ltd — Analyst
Thanks. Good morning, everyone, and welcome to the 3Q FY ’23 earnings conference call for VRL Logistics. We have with us today, Mr. Sunil Nalavadi, the CFO of the Company.
I would now hand over the call to Mr. Nalavadi to give opening remarks and discuss on the performance of the Company. Thank you. And over to you, sir.
Sunil Nalavadi — Chief Financial Officer
Yeah, thank you, Mr. Alok. Good morning to all participants. I’m Sunil Nalavadi, CFO of VRL Logistics Limited here. I welcome all of you once again for the earning conference call of the Company for the period ended December 2022. We are glad to inform you that as we strategized to focus on high-growth Goods Transport business, the exit from the remaining segment process has been completed as on date. We wish to inform you that the other key segments such as Wind Power business and Bus Operations business are discontinued and received the applicable relevant regulatory approvals.
Since the Fed approvals have been received in the month of January 2023, the profit on sale of these businesses have been — will be accounted in quarter four of this year. As mentioned in the press release, the profit before tax on sale of these businesses is to the tune of INR187 crores, that is from Wind Power business, it will be around INR10 crores and for Bus Operations business, it will be around INR177 crores, this is profit before tax.
The Company has received the consideration on these sales transactions as on date and predominantly used for the repayment of debt, capital expenditures and also, we invested around INR50 crores in mutual funds to take care of related tax expenses on these transactions and which will be paid prior to the due dates. We wish to say that the net debt of the Company stands at INR46 crores as of 30th — 31st December. And it was around INR130 crores during the beginning of this financial year, and as of second quarter end, it was around INR164 crores.
If we consider investment in a mutual funds, we are debt-free as of today. With respect to the performance of the business is concerned, the performance of the Goods Transport business was better than the expected level in the current quarter. The revenue from Goods and Transport segment is increased to INR675 crores from INR596 crores on a year-on-year basis. The increase in revenue is mainly on account of increase in tonnage, which has been reached to 10,10,000 tons in the current quarter as against 8,77,000 tons in the previous year, which is increased by almost around 15%. We wish to state that our average daily tonnage handling has been reached to 10,900 tons in the current quarter.
The increase in tonnage is on account of increase in the branch network by the Company. We added around 218 branches post-pandemic, and these branches have contributed around 12% to the total tonnage in quarter three. Our strategy of expansion of branch network is going to be continued and planning to add around 25 branches to 30 branches every quarter, especially in the untapped market. Apart from the expansion in branch network, we are acknowledging that many of the customers are shifting from unorganized operators to us on account of increase in compliances under GST law.
Some of the sectors have grown tremendously in the current quarter. To name a few, the agriculture products and equipments, these commodities have been increased by around 47% on a year-on-year basis, the automobiles has been increased by around 25%, the educational goods-related items, which is increased by around 31%, FMCG products are increased by around 23%, footwear is around 36%, metals and hardware around 28%. Further, we wish to inform you that the turnover limit for e-invoicing requirement is further reduced to INR10 crores to the business entity from 1st October 2022. This will force the many business entities to fall in compliance network, which is going to support us in the process of shifting of clients from unorganized sector.
Considering the stagnant or little dip in realization, we have increased the freight rates by 5% on non-contractual freight business, which is contributing almost around 60% to 65% of the tonnage. And this rate increase we did from mid of December 2022. This will support us to increase the realization and pass on the increase in cost to the customer to maintain the better margins in coming days. When it comes to EBITDA margin for the Goods Transport segment, we’re again back to the normal EBITDA in the current quarter. We have reached to 16.5% [Phonetic] EBITDA.
The year-on-year EBITDA is impacted on account of increase in fuel cost. As we informed earlier, the bulk purchase of diesel from the refineries had stopped from February 2022 due to abnormal increase in the cost as compared to the retail price. And it impacted an additional cost of INR2 per liter we used to save earlier. We wish to state that currently on account of reduction in crude oil prices, the bulk purchase diesel prices are in line with the retail prices. And again, we started to buy the bulk fuel from the refineries from mid of December 2022. As of today, we are procuring 30% of our requirement, say approximately 80,000 liters per day from the refineries as compared to the total fuel requirement of around 2,50,000 liters per day. The lorry hire charges also increased as a percentage to the revenue as compared to last year.
It was around 8.63% in the last year, which has been increased to 10.2%. This is mainly on account of engagement of more outside vehicles and increase in the kilometers of hired vehicles. And also, the lorry hire charges per kilometer have been increased. The toll charges also has been increased as compared to last year. The percentage to revenue has increased to 7.42% from 5.98%. The increase in toll rate is, one is increase in toll rate from FY 2022 around 5.6%. Not only that, if we compare the toll plazas across India, last year, this number was around 867 numbers, now the toll plazas in the country increased to 1,204 numbers.
So on account of this, the toll charges are continuously increasing. The loading and unloading charges also increased from 5.9% to 6.56% is only on account of increase in the rate to the loading and unloading labors. The employee cost also increased from 13.76% to 14.45%. This is on account of annual increment effected from the month of January 2022. Against these expenses increase, the vehicle repairs and maintenance cost has been reduced. This is on account of increase in the kilometers covered by the new vehicles.
So on account of that, the vehicle repairs and maintenance as a percentage to the revenue has been declined. Similarly in the current quarter, the revenue from Goods Transport segment is increased by around 4%. And EBITDA margins, we reached again from 15.5% to 16.5%, almost 1%, there is a improvement in the EBITDA margin in the current quarter. This is mainly on account of one is the decrease in the diesel cost, around 0.33% the diesel cost has been decreased. And similarly the vehicle running and repair expenses have been decreased.The tire cost is also decreased. The employee cost, which is mainly in fixed in nature, this is also has been reduced.
So with this — and considering the expansion plan in terms of our expansion of branch network, shift of customers from unorganized to organized players and increase in the fleet size, we are very much confident that our growth plans or the growth rate what we’re maintaining today will be continued going forward. On margin side also, since the bulk purchase of fuel is already started and also we increased the freight rates on non-contractual freight, which is almost around 60% to 65% of the total tonnage from mid of December, these two factors are going to help us to increase the margin side also and pass on the increase in expenses to the customers. So we are hoping that there will be further improvement in EBITDA margins in the coming quarters.
So with this, I conclude initial remarks. Now I request to the participants to have any questions to — or give more clarifications, if any doubt. Thank you.
Questions and Answers:
Operator
Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Mukesh Saraf from Avendus Spark. Please go ahead.
Mukesh Saraf — Avendus Spark — Analyst
Yes, sir, good morning, and thank you for the opportunity. My first question is on the volume growth. You have mentioned that 12% of the volumes this quarter have come from the branches that you’ve added last year and this year, which is about 218 odd branches. So I was just wondering, given that we have reported a 15% volume growth and bulk of it is coming from the branches that we’ve added, these 218 branches. So — and we have like 1,000 plus branches, so it seems like the growth is not so much in the remaining 800 odd branches.
So could you give some sense about why the growth is not — I mean, it’s just maybe a couple of percent, 1% or 2% growth we’re seeing in those other branches? Is there still some kind of competition there or what exactly is happening there?
Sunil Nalavadi — Chief Financial Officer
So basically, this 12% was how we are computing is it is from both the sides, booking as well as delivery happening from these branches and connected with the existing branches. The reason why we are putting a 12% is if we assume that if these branches were not there, even the existing booking branches were unable to contribute to this business. That’s point number one. And point number two is, even many of the existing customers are using our network to increasing the tonnage. That is also another reason. And if you see on a one-side basis if we consider, the net increase will be around 6%, the remaining all again, it is from the existing branches also. See, in our operations how it will happen, it is connected, both booking and delivery offices.
Mukesh Saraf — Avendus Spark — Analyst
Right, right. So this tonnage that you report for the quarter like this 1 million tons that you have reported, that is one side only, that is not like both sides?
Sunil Nalavadi — Chief Financial Officer
Yes.
Mukesh Saraf — Avendus Spark — Analyst
Okay, okay. So actually, the 12% is not a comparable number. Got it.
Sunil Nalavadi — Chief Financial Officer
Yeah, yeah.
Mukesh Saraf — Avendus Spark — Analyst
Right. And my second question is relating to pricing. I think the previous quarter also, you — generally, your commentary suggested that your focus is going to be more on growth and you might not actually look at price hikes, but now in December, we have taken price hikes of 5% for the non-contractual customers. So what — I mean is there some change or I mean, do you see competition increase prices and hence you got this opportunity to increase? So what has led to these price hikes which was earlier not envisaged?
Sunil Nalavadi — Chief Financial Officer
No, basically, see, what happens, this expansion plan we are doing now after the pandemic, which is almost more than a year now. So — and the necessary, the volume growth is also happening that what we anticipated actually, the growth is much better than that. So at this scenario, considering the growth for our plants, the tonnages growing at our plants, so at this moment, we thought that why can’t we pass whatever additional expenses are — we are incurring. These are all mainly the variable costs like toll charges and other expense, say like lorry hire charges, why can’t we pass it on to the customers, that is the thought process and accordingly, we increase — we take a decision of increasing the 5% rates.
Mukesh Saraf — Avendus Spark — Analyst
Okay. So this 5% will entirely accrue to us, it’s not like there will be some additional discounts, etc., this 5% will flow through in terms of realizations for us?
Sunil Nalavadi — Chief Financial Officer
Yeah, yeah, yeah, definitely.
Mukesh Saraf — Avendus Spark — Analyst
Okay, okay. Yeah.
Sunil Nalavadi — Chief Financial Officer
And wherever — you see in third [Phonetic] quarter again, we opened around 25 branches, 30 branches. In the December quarter also, we opened around 30 branches. So these routes wherever we are entering there, actually, there will be some competitive price but not across all the routes.
Mukesh Saraf — Avendus Spark — Analyst
Okay, okay, okay, understood, understood. And just one last one, very quickly, last quarter, the margins were impacted because of — there were some goods in transit where the costs had been accounted for but revenue is not. And so this quarter that has got normalized, sir, that costs and revenue, that mismatch?
Sunil Nalavadi — Chief Financial Officer
Yeah, it has normalized. See, as I indicated, the margins on account of that, say around, 40 basis points to 50 basis points, so that has been normalized in the current quarter.
Mukesh Saraf — Avendus Spark — Analyst
In the current quarter. Got it. Got it. Right, sir, thank you so much. I’ll get back in the queue.
Sunil Nalavadi — Chief Financial Officer
Yeah, thank you.
Mukesh Saraf — Avendus Spark — Analyst
Thank you, sir.
Operator
Thank you. The next question is from the line of Harsh Shah from Dimensional Securities. Please go ahead.
Harsh Shah — Dimensional Securities — Analyst
Hi, good morning, sir. Sir, if I look at your lorry hire charges, it has been consistently increasing. So you have also mentioned in your presentation that cost per kilometer is also increasing. So on one hand, we are not able to — up until now, I mean you took a price hike in December, but up until now, we were not able to take a price hike. But the lorry hire — but the lorries which we used to hire, they were able to take the price hike with us. So how would you explain this sort of dichotomy?
Sunil Nalavadi — Chief Financial Officer
No, about increase in freight rate is before our internal strategy. Since we were into more of a expansion mode and to acquire a lot of this, many of the new market, new customers, that was our strategy not to increase the freight rate. It was nothing to do with the market. Whereas on the other side, since the fuel rates increased, since the cost of toll charges are increased, so these lorry owners continuously, they have increased the rate.
Harsh Shah — Dimensional Securities — Analyst
Okay, okay. And…
Sunil Nalavadi — Chief Financial Officer
So, despite these lorry hire charges, rates are increasing. Now to take care of these increases, again, we also take our rate hikes in the mid of December, we increased around 5% rates on non-contractual customers.
Harsh Shah — Dimensional Securities — Analyst
Okay. And while you have guided that we’ll continue to increase the number of branches, what could be the guidance on vehicles? Will we be adding more vehicles — or these lorry hire charges will continue to stay where it is right now?
Sunil Nalavadi — Chief Financial Officer
Now if we see on a quarter-on-quarter basis, the lorry hire charges is stagnant. So at this stage actually, it will not increase beyond this level, maybe around, say, 10% to the revenue.
Harsh Shah — Dimensional Securities — Analyst
If I have to compare your own vehicle versus lorry vehicle, what would be the different — margin differential, where would we be making higher margins?
Sunil Nalavadi — Chief Financial Officer
Higher margin, obviously, it’ll be in the Company-owned vehicles because our vehicles are built as per our requirement. We are having a lot of advantages in our own vehicles. One is on account of size of the vehicles. We carry more load in our vehicles. Not only that, we’re having effective cost controls, be it fuel price, be it driver payments and even the maintenance costs. These are all costs are very, very controlled expenses in our own operations, but these things we do not have control on the outside vehicle. See, outside vehicle, diesel is going to increase at wherever he want.
The drivers’, actually, cost fee is going to increase. And apart from that, the vehicles they will not maintain properly. That will be additional cost for them. And even the size of the vehicles, the structures of the vehicles are not as per our requirements. But that’s the reason actually we focus more on our addition of our own vehicles rather than depending on the outside vehicles. But under these circumstances, since the tonnage is expanding beyond our capacity expansion, so we need to depend on the hired vehicle until we increase our own capacity.
Harsh Shah — Dimensional Securities — Analyst
So that is what I was coming to. Since we are very confident about 18% to 20% volume growth for next say two years, three years, why aren’t we being aggressive on adding our own vehicles as well?
Sunil Nalavadi — Chief Financial Officer
No, we are very much aggressive now. See, in the current year itself, we plan to add around 1,600 vehicles. Out of that, around 800 plus vehicles have been already procured, the remaining 800 vehicles are going to come before September. See, moreover, see 100% we cannot own and operate. Sometimes what will happen, there will be change in the demand supply, some seasonality will be there, beginning of the month, there will be less load, at every quarter, end of the month or quarter end, there’ll be substantial demand. So considering all these factors, we are very cautious on increasing our capacity also.
So with these all metrics, we will analyze it properly. We have to study route-wise analysis, route-wise demand also. See, sometimes what will happen, there will be sudden demand from the — during festivals and all, there’ll be huge demand from Surat and remaining routes, but there will not be return load to the Surat. All these vehicles have to come empty to Surat, we cannot run empty, again, it will impact on the margins. So considering all these parameters, we will add our capacity, to see that, our vehicles should we use at a optimum level and wherever excess demand will come, excess tonnage we are going to handle, that has to be handled through outside vehicle only.
Harsh Shah — Dimensional Securities — Analyst
Okay. So if I look at it other way…
Operator
I’m sorry to interrupt Mr. Shah. May we request you to kindly rejoin?
Harsh Shah — Dimensional Securities — Analyst
Just one — just — okay. Just one last question pertaining to buybacks, will the promoters would be participating in the buybacks?
Sunil Nalavadi — Chief Financial Officer
Yes, promoters are participating and size of the buyback is around INR61 crores. See, this buyback is again just to have a clarity. This is only to the — alternative to the dividend because of the effective tax structure. Every year, we are paying the dividend. Now this buyback is for an alternative to the dividend payout.
Harsh Shah — Dimensional Securities — Analyst
Thank you.
Operator
Thank you. The next question is from the line of Ritesh Poladia from Girik Capital. Please go ahead.
Ritesh Poladia — Girik Capital — Analyst
Yeah, thanks for the opportunity. Sir, just want to understand this realization per ton of INR6,649. Sir, what would be the average distance covered?
Sunil Nalavadi — Chief Financial Officer
See, average distance, we are not monitoring, and this is across all the routes, because we are handling the multiple routes, in a state alone, every city is covered, every town is covered. And like this, if we cover entire state, there will be huge number of routes. So we do not have that average kilometer…
Ritesh Poladia — Girik Capital — Analyst
But sir, pricing is always on per kilometer per ton basis, right?
Sunil Nalavadi — Chief Financial Officer
No, it is not so, it’s always on a route basis.
Ritesh Poladia — Girik Capital — Analyst
Okay. Sir, other question is, when we say that Company does about 11,000 tons per day and your carrying capacity is 80,000 tons per day. So is it that your goods from point A to point B average days covered [Technical Issues]?
Sunil Nalavadi — Chief Financial Officer
Yeah, average that is the case. And again, we have to consider some of the maintenance, some capacity will be held for maintenance, the loading, unloading factors, all these parameters we have to consider.
Ritesh Poladia — Girik Capital — Analyst
Okay. Yeah, that’s it from my side. Thank you.
Operator
Thank you. The next question is from the line of Ash Shah from Elara Capital. Please go ahead.
Ash Shah — Elara Capital — Analyst
Good morning. So congratulations for good set of numbers. So first question was, do the contracts that we have, the 35% [Phonetic], do they have a price hike clause? And if yes, then when do we see that — when do we see freight rate increase on those also?
Sunil Nalavadi — Chief Financial Officer
Yeah. Most of these contracts are having the price escalation clause, but it is related to only the fuel rates. If the increase in other costs are not a part of these contracts, only when the fuel escalation will be there or fuel increase or decrease accordingly, those prices will change. But if you see in the last one year, the fluctuation is there, but again, it is very temporary.
Again, there are reduction in excise duty, and if you see the quarter two versus quarter three, that is stagnant in diesel price. But in spite of that, there are increase in other expense, which we were unable to pass even on a contractual, this one [Phonetic], but these contracts are renewable once in a year. At that moment, other than the fuel escalation, we will consider increasing the freight rates as and when these contracts are due for renewal.
Ash Shah — Elara Capital — Analyst
So will that also be 5%, I mean or will it be dependent on the client to client or…
Sunil Nalavadi — Chief Financial Officer
Yeah, it depends on the client, it depends on the tonnage what they are contributing. It depends on the routes also where they are contributing.
Ash Shah — Elara Capital — Analyst
And second question was that — so earlier last quarter, we were focusing more on the volume growth, and we had a — we didn’t — we weren’t focusing much on the freight rate increase and with a EBITDA margin cap of — floor of 15%. So has that stance changed right now? So will we focus more on margins or how will it go ahead?
Sunil Nalavadi — Chief Financial Officer
No, no, absolutely that stand is not changed. If you see the volume growth is continuously going to increase and the volume growth is basically the expansion of our network and expansion of the — our branch network, capacities and all this, that actually, anyway we are doing. And apart from that, I mentioned very clearly that wherever we are entering into the new market, new customers, obviously, we have to offer a competitive rates, at that time, again, there’ll be the lesser realization in those routes.
But in rest of the routes wherever established, wherever we are not facing much of competitions, and in those routes and those customers, the rates have been increased. It has nothing to do with the increase in the tonnage versus increase in this rate. That increase in tonnage, the enhancement in the capacity, those plans are going to continue even going forward.
Ash Shah — Elara Capital — Analyst
Okay, thank you. That’s all from my side.
Sunil Nalavadi — Chief Financial Officer
Thanks.
Operator
Thank you. The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Amit Dixit — ICICI Securities — Analyst
Yeah, good morning, sir. Congratulations for a good set of numbers, and thanks for taking my questions. Just two questions from my side. The first one is on the fleet size. Is there any specific target you have for addition in fleet? And what category are you focusing on in terms of fleet size addition? Also, is it possible to let us know the relative profitability of your fleet, I mean, tonnage-wise if you have that which category is more profitable than the others? That is the first question.
Sunil Nalavadi — Chief Financial Officer
No, one is about the vehicle additions as we explained our capex plan earlier, we ordered 1,600 vehicles in the beginning of this current financial year, out of this, already 800 plus vehicles have been procured and remaining vehicles are going to be added in next six months. And category of the vehicles largely, it will be in the range of 15 tons to 25 tons in that category.
And there are some smaller vehicles also. But predominantly, it will be around 15 tons to 25 tons in that category because these vehicles we are mainly using for hub-to-hub operations. And there, actually, we want to add more capacity, and there actually, we are engaging more of outside vehicles also. And when it comes to your second question was?
Amit Dixit — ICICI Securities — Analyst
Sir, on the relative profitability, if it is possible to share with us which category is the…
Sunil Nalavadi — Chief Financial Officer
See, product-wise profitability, we do not have those working. Always we do route-wise how that particular route, what is the rate and how the realizations are there, and what is the net actually, we are seeing out of it. But we do not have a product-wise calculation of the profit. See, in a single vehicle, we carry multiple goods. For example, when it comes to Bombay, in a particular branch, if you take, say, any [Indecipherable] or the machines under our — any particular branch, there actually, the branch person will accept the goods as per our rates based on the weight as well as the square feet.
So depending on the size of the material, depending on the weight of the material, the rates have been fixed irrespective of the commodity whatever nature it is, he has to agree — he will book accordingly. So it will not be on a product-wise.
Amit Dixit — ICICI Securities — Analyst
Sir, just to follow up on this, you’ve said 1,600 vehicles this year. Is it a similar target every year you are planning to add some 1,000 vehicles to 1,500 vehicles or something like that? Is it possible to give a longer-term target per year addition of vehicles that you will do?
Sunil Nalavadi — Chief Financial Officer
Yeah, definitely. See, now this is our plan till September. So in again quarter two of the next financial year, again, we will revisit on our capex plan. And based on that situation, how the market is turning, where actually we have already established, how the tonnage is contributing, accordingly again, we will define our capex plan. And even in the past, if you see, always, see, around 85% to 90% always our own capacity we are using in our business, that trend is going to continue even going forward.
Amit Dixit — ICICI Securities — Analyst
Okay. The second question is on procurement cost of diesel. It’s a bookkeeping question. If you can let us know the procurement cost of the diesel in this quarter versus the last one?
Sunil Nalavadi — Chief Financial Officer
See, Q2 versus Q4, it’s almost around INR89 to INR90. And even in the last year also, it was similar in the range of around INR88, INR89. But here what happened in Q2 and Q3 of this year, we were not having the bulk purchase. See, around 30% — 40% to 45% of procurement we used to buy from the refinery in the last year December, that opportunity was not there in the current year from Q1, Q2, and Q3, because the government has withdrawn subsidy on the bulk purchase and the rates have been sometimes around INR25, INR26, the bulk purchase — bulk fuel was costlier than the retail fuel rates.
Now what happened because of the reduction in the crude oil prices and now again, these prices are matching now. So the crude — the bulk purchase price is similar to the retail price. If we buy from the refineries, then we will save around INR2 per liter that we started now.
Amit Dixit — ICICI Securities — Analyst
Okay, understood. Thank you, and all the best.
Sunil Nalavadi — Chief Financial Officer
Yeah, thanks.
Operator
Thank you. We have the next question from the line of Rakesh [Phonetic] from HDFC Mutual Fund. Please go ahead.
Unidentified Participant — — Analyst
Yeah, hi, thank you for the opportunity, sir. Just one question on your capacity. So based on the capacity plan what you have now, how much volume growth is possible next year and the year after that?
Sunil Nalavadi — Chief Financial Officer
No, again, I want to clarify to you, the capacity ownership and the increase in the tonnage are — both are independent. The tonnage increase always depends on our increase in the clients, increase in the branches, increase in the network like that. As and when the increase in tonnage happens, accordingly, we increase our capacity. So in the current scenario, see, since the increase in the tonnage is more than the capacity increase what we are doing, that’s why these outside — engagement of our outside vehicles are increasing. But going forward, we are very much confident that the current trends are going to continue. And even in the next financial year, we are expecting that around 20% growth in the tonnage, that is possible based on the current plan what we are doing.
Unidentified Participant — — Analyst
So for this 20% tonnage growth based on the capacity addition what you have, will the composition of your outside vehicle requirement will go down or will that remain the same? The reason I’m asking is, this will have a bearing on your EBITDA margin, right? Because the — when you own the truck, the cost actually goes through your depreciation and interest line, but whereas when you hire the truck from outside, it goes from your EBITDA. So just wanted to get the equation right that what is the right way to sort of look at for the next two years’ margins considering you are in a high growth tonnage phase and you have a certain plan to hire vehicles from outside also?
Sunil Nalavadi — Chief Financial Officer
See, our plan is very clear. We want to grow the tonnage at around 20%, and accordingly, the capacity is also going to be increased. See, because of some temporary period, there will be increase or decrease in the lorry hire, but it will not increase more than 10% to 12% to the revenue. So we’ll maintain EBITDA also.
Unidentified Participant — — Analyst
So is it fair to say that if the tonnage continues to grow at, let’s say, 20%, then the contribution of the cost from outside vehicle will remain in the range of 10% to 12%. Would that be a right understanding of the economics how your P&L is working currently?
Sunil Nalavadi — Chief Financial Officer
Yes, yes.
Unidentified Participant — — Analyst
And if the tonnage growth were to lower, so, let’s say, if tonnage growth comes down from 20% to, let’s say, 10% or 15%, I mean, depending on the economic situation how it pans out next year, would that mean that our costs would go down in a similar proportion?
Sunil Nalavadi — Chief Financial Officer
Yes.
Unidentified Participant — — Analyst
Okay. And secondly, how much price hike we have taken during the last quarter? And I mean, how — what is the benefit we will have in the P&L in the sense that how much of the costs we are taking in our P&L, which is currently hitting and which we would recover going forward?
Sunil Nalavadi — Chief Financial Officer
So basically, this price increase is on the 60% of the tonnage what we are handling today or 60% of the business, on that, we’ll increase 5%.
Unidentified Participant — — Analyst
So does that mean that all things equal, your margins should increase by 300 basis points?
Sunil Nalavadi — Chief Financial Officer
Yeah. See, if costs are stagnant, definitely, that will be the additional EBITDA, but again, costs are increasing, so we can see at least around 1% improvement in the EBITDA margin considering the increase in cost also.
Unidentified Participant — — Analyst
Understood. Sir, one bit more on the margins. So next year, again, we are talking about 20% tonnage growth. How should we think about operating leverage in the business in the sense that, let’s say, you are — you probably would be, let’s say, 17.5% [Phonetic] margin if I go by your price hike commentary. So from that 17% margin and you have a 20% tonnage growth, what is the operating leverage that can play out for the margins to either remain same or even go higher?
Sunil Nalavadi — Chief Financial Officer
No, the — whatever the operational leverage will be there, that actually we have to use for the expansion in the business. See, wherever we go, we enter into the new market, obviously, we cannot earn or if we cannot earn the equivalent margin what we’re earning in the established market. So on a net-on-net basis, actually, we are seeing that around 17% EBITDA level is maintainable.
Unidentified Participant — — Analyst
Understood, sir. Thank you very much. And sir, last on the capex front. So after this capacity expansion plan, how much capex should we sort of think about as a sustainable capex in your business or would you keep looking for adding more trucks probably in next year also?
Sunil Nalavadi — Chief Financial Officer
See, next year, there are two, three developments here. One is about the scrappage policy, still, we are getting some clarifications from the government. See, it is a voluntary scrappage policy, but every operator has to get a fitness certificate for the vehicles. So how it is going to work going forward, we have to see. That is one.
And more than 15 years, we have already having around 1,200 vehicles with a capacity of around 8% to 9% of the total capacity what we are having today. So how those — that capacity is going to be used after the scrappage policy. That is point number one. Point number two, considering this expansion plan, whatever the capacity we require that also we need to work out, but these are all more clarity we can give only in quarter two of the next year.
Unidentified Participant — — Analyst
Understood, sir. Thank you very much, and all the best.
Sunil Nalavadi — Chief Financial Officer
Thanks.
Operator
Thank you. The next question is from the line of Vikram Suryavanshi from PhillipCapital. Please go ahead.
Vikram Suryavanshi — PhillipCapital — Analyst
Yeah, good morning, sir. I think most of the questions were answered. But just to look at the fuel side, one more opportunity we used to have was biodiesel. So how is the outlook on that front to save further cost or our biodiesel prices are still not attractive?
Sunil Nalavadi — Chief Financial Officer
Biodiesel, again, see, some interactions are happening, and currently, we are using very, very low quantity. And again, see, still, there is a gap between this retail price and biofuel, it is not economical. But definitely, considering the current fuel trend, what is happening in the market, if it go down further, then obviously there is an additional opportunity for us to buy or to use the biodiesel. But as of now, it is not something which is materialized as of today.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it. And this bulk purchase what we used to do, that government has changed the tax structure or OMCs have changed the pricing to match the — with the retail price? How is that basically turned out?
Sunil Nalavadi — Chief Financial Officer
No, the government has not changed its policy. But the crude oil, it’s bulk fuel prices always linked to the crude oil price. Now what happens, retail, again, the government intervention is there. Actually, they can still control the retail price, but on a bulk [Technical Issues].
Operator
Ladies and gentlemen, the management line has been disconnected. Kindly stay connected while we try to reconnect them. Ladies and gentlemen, thank you for your patience. The management line has been connected. Over to you, sir.
Sunil Nalavadi — Chief Financial Officer
Yeah. I’m extremely sorry on this issue. See, about biofuel just to have a clarity, it is not government-regulated or something, it is directly linked with the crude oil price. Since the crude oil price is continuously declining, this bulk purchase order, refineries are in a position to supply the fuel even to the bulk buyers, which is equivalent — more or less equivalent to the retail price. So considering this opportunity, now we started from — buying from the refinery. Since we are buying on a bulk basis, actually, we can save around INR2 per liter.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it. So, basically, yeah, goods will come — remains lower, then probably at least some 30%, 35% of bulk purchase will continue to see that advantage at least for us?
Sunil Nalavadi — Chief Financial Officer
Yes, yes, yes.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it. I think that’s good. And last on this, we also used to add some electric vehicle in our fleet, particularly for last-mile and short. So how is that addition we are looking going at?
Sunil Nalavadi — Chief Financial Officer
See, as of now, we are operating around 60 vehicles to 70 vehicles in a very, very small capacity. And there also, there is a lot of these technology changes are happening. So accordingly, we are continuously focusing on those assets as well. So once these are definitely useful for us as a investment side or even on the operating side, that is the case, definitely, we are going to add good number of electric vehicles. But our continuous research, analysis, everything is happening on all the aspects. It may be CNG, it may be electric vehicles. And even we are working with some of the OEMs to convert the existing fuel — diesel vehicles fleet to be electric vehicles, even we are working under those projects as well.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it. And last question for me, because if you look at our business is more on B2B side, there might be very insignificant or low walk-in customers. So when we say non-contractual, what does exactly it mean? Because in the B2B…
Sunil Nalavadi — Chief Financial Officer
No, even in B2B — yeah, even in B2B, we do not have a contract with the customer. See, around, say, 40% what — of what I mentioned, with those customers we are having a annualized — annual contract.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it, okay.
Sunil Nalavadi — Chief Financial Officer
In that, 25% is monthly billing and even some of the contracts are there in paid and to-pay customers also. So on a net basis, around 60% of the customers we do not have any contract with them, and those customers are B2B again.
Vikram Suryavanshi — PhillipCapital — Analyst
Got it, okay.
Sunil Nalavadi — Chief Financial Officer
Yeah.
Vikram Suryavanshi — PhillipCapital — Analyst
Yeah, thank you very much.
Sunil Nalavadi — Chief Financial Officer
Thank you.
Operator
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead.
Sanjaya Satapathy — Ampersand Capital — Analyst
Yes, sir, thanks for the opportunity. Sir, my question is that you have been — mentioned that since you were going into newer locations, newer network, you were keeping your prices unchanged despite cost. So now that you have taken a price hike, are you going to lose out on market share?
Sunil Nalavadi — Chief Financial Officer
No, no. See, after analyzing all those metrics only, we decided to increase the 5% rate. Now to give more clarity on this, see, basically after the pandemic, it is almost more than a year now, from that date to till date, we have not increased the rate. And some of the routes have been already established, wherever — even we opened new branches in the network, those markets have been already established. So considering these metrics or considering these new parameters, we took a increase in the rate hike. Now, wherever again, we are expanding, wherever we are going for the new locations, new branches, new market, henceforth again, in those market again, we offer a competitive rate, there again, the relation will be lower. But that strategy again, it’ll be for a one-year period or so. So once the market is established in those areas, again, we can take a increase in the rate hike in those areas as well.
Sanjaya Satapathy — Ampersand Capital — Analyst
Understood. Sir, if that is what is the case, then you will be constantly adding your network in [Indecipherable] as you have been this year, and so the new routes will continue to be less profitable. So considering that the mix will always remain somewhat like this, then how will your margin improve?
Sunil Nalavadi — Chief Financial Officer
So the margin improvement, see, now just to — before opening of these new branches, just to give one more example, if you see the — just a year before, okay, our tonnage was almost around 25%, 30% lower than the current tonnage. On that tonnage actually, now whatever increase is there on the tonnage, whatever the existing tonnage was also there, on the entire tonnage, we increase the rates. So whatever the additional tonnage is going to come, say 20% — 15%, 20% additional tonnage is going to come, only on that tonnage, the realization will be lower.
Sanjaya Satapathy — Ampersand Capital — Analyst
And sir, what kind of price difference is there between you and your competitor in new routes and old routes?
Sunil Nalavadi — Chief Financial Officer
See, old routes, again, when it comes to comply transaction, see, definitely, we are charging a little bit premium to them. When it comes to non-comply transactions, the other people are charging hefty number — hefty rates. It is just not at all comparable, two times to three times more than our rates. So that’s why still they’re in the market, the most of the unorganized operator, that — but that ratio is drastically going to come and it is coming down. So that’s how it is going to help us.
Sanjaya Satapathy — Ampersand Capital — Analyst
Understood. And sir, last thing, just wanted to understand is that this quarter, your volume growth was about 13% odd. And so considering that there is a kind of a slowdown, which we are seeing almost everywhere, how is it that you are looking at sustaining 20% volume growth, is that what I heard correctly, sir?
Sunil Nalavadi — Chief Financial Officer
Yeah. So, see, the thing here is again, see, we are highly diversified, that is the plus point in our case. So dependency, even the top customer contribution is not 1%. Even top 10 customers if you see, it is not even 3%. And even — just I want to give one more information, even if you consider the top route contribution, it is hardly around 1% or 2%.
See, that is the kind of diversity we’re having. It is highly fragmented. We’re having 700 [Phonetic] plus customers with all the sectors. If one side down floor, another side will improve, like this. So the Indian, whatever the daily requirement to the Indian population, we are carrying, it will slow down and all, the basic needs of the people, the basic commodities that demand is not going to reduce.
Sanjaya Satapathy — Ampersand Capital — Analyst
That is true. But, sir, your growth rate came off this quarter?
Sunil Nalavadi — Chief Financial Officer
Sorry.
Sanjaya Satapathy — Ampersand Capital — Analyst
Your growth rate was lower than this 20%, which you’re targeting in quarter three. Quarter three growth was some 13% odd, right, sir?
Sunil Nalavadi — Chief Financial Officer
Correct. See, quarter three is always a good quarter. Now what will happen, this base will continue in Q4 and hence onwards. So in Q4, Q1, if you see the last year, those bases are small. So with this base, Q3 base, definitely the percentage will be more in the coming quarters.
Sanjaya Satapathy — Ampersand Capital — Analyst
And say, very last question, if you can just explain, sir, a lot of your — these one-off transactions will get completed in quarter four, including buses and power. So can you give us a sense like what would be your actual gross debt and net debt at the end of all these transactions getting over?
Sunil Nalavadi — Chief Financial Officer
No, after these transactions are over, see, as of now I said, including that investment in the mutual funds, if you see, we are debt-free as of today. And going forward, whatever new capex we are going to increase, there actually, we use our further internal accruals to meet our capital expenditure and a little bit debt we maintain, but at — debt level will not cross around INR50 crores to INR60 crores at any point in time, this is our view.
Sanjaya Satapathy — Ampersand Capital — Analyst
Which is gross debt or net debt, sir?
Sunil Nalavadi — Chief Financial Officer
It is a net debt what I’m saying.
Sanjaya Satapathy — Ampersand Capital — Analyst
Okay, okay.
Sunil Nalavadi — Chief Financial Officer
And after this buyback also, again, there will be change. See, you can assume that debt levels will be always less than, say, around INR100 crores net debt.
Sanjaya Satapathy — Ampersand Capital — Analyst
Understood. Thanks a lot, sir.
Sunil Nalavadi — Chief Financial Officer
Yeah. Thank you.
Operator
Thank you. The next question is from the line of Keshav Bagri from VT Capital. Please go ahead.
Keshav Bagri — VT Capital — Analyst
Hello. Thank you for taking my question. The first question which I have for the management is that the industry is moving on an asset-light model and we being the only player who have a fleet size of around 5,000 plus vehicles. So depreciation is a major chunk of our expenses leading to difficulty in attaining double-digit PAT margins. So how do you see this playing out?
Sunil Nalavadi — Chief Financial Officer
No, your question was not clear. Will you repeat please?
Keshav Bagri — VT Capital — Analyst
Sir, the entire industry is moving on an asset-light model and VRL Logistics being the…
Operator
Mr. Bagri, I’m sorry to interrupt. Please, slowly, I mean…
Sunil Nalavadi — Chief Financial Officer
Yeah, yeah, I’m unable to hear it properly.
Operator
Yes, sir, please.
Keshav Bagri — VT Capital — Analyst
Okay. Sir, my question is that the entire industry is moving on an asset-light model, and VRL Logistics is the only player, which has a fleet size of around 5,000 plus vehicles. So this leads to depreciation being a major chunk in our expenses along with the interest cost, which leads to difficulty in attaining double-digit PAT margins. So how do you see this playing out in the future, like will we be able to achieve double-digit PAT margins?
Sunil Nalavadi — Chief Financial Officer
No, as I said, our strategy is very clear. We have — we will continue our operations with having our own infrastructure facilities assisted the vehicles, that is going to continue. The depreciation, yes, that will be an additional charge in the depreciation, but always we more concentrate on the cash flows, the cash profit, which is much, much better than as compared to other players in the industry. So that’s the reason, this trend is going to continue. See, around 90% of our operations, we want to invest in infrastructure and operate, that is very clear in our mind.
Keshav Bagri — VT Capital — Analyst
Okay, thanks, sir. Sir, my next question will be that we are in a time-sensitive business. So how do we plan to invest in automation of our hubs or we are planning to build some sorting centers because it will help in reducing our turnaround time?
Sunil Nalavadi — Chief Financial Officer
No, definitely, we are continuously working on it, and wherever on need basis, definitely, we are doing a lot of automation. And even if you see the hub operations, even the material handling compared to earlier, the technology updations and every things are much, much changed now. So that’s the reason the turnaround times have been improved, even that’s why we are in a position to add more of our corporate customers also and more — the customers who need the commodity on time.
Operator
Thank you. The next question is from the line of Nemish Shah from Emkay Investment Managers. Please go ahead.
Nemish Shah — Emkay Investment Managers — Analyst
Yeah, thanks for the opportunity. So I had a question on the branch expansion that we are doing. So like you mentioned, we have added about 218 branches post pandemic and about 127 branches in the first nine months. So can you help us understand how much of these branches would have breakeven by now and what would be the utilization levels for those branches?
Sunil Nalavadi — Chief Financial Officer
See, except around the branches which are opened in the last quarter, say, hardly around 15 branches, 20 branches are not reached breakeven, but all rest of the branches are — have been — reached the breakeven. So now to reach a breakeven, it is hardly around two months to three months, the branches are reaching breakeven.
Nemish Shah — Emkay Investment Managers — Analyst
Understood. Okay, okay. And sir, if you could help us understand what would have been the organic growth this quarter and in the first nine months, like you mentioned the new branches contributed 12% to the tonnage, but if you could just help us understand what would have been the organic growth excluding the branch addition?
Sunil Nalavadi — Chief Financial Officer
No, the overall growth is around — if you see the nine months to nine months, we’ve grown — the tonnage has increased by around 24%. Out of this, see, in the current quarter, this 12% growth is coming, but this is — since I clarified in the first question itself, the overall — this is contributing both booking and delivery of the consignments. If you see the growth metrics or something, it will be contributing around 6% and remaining is contributing from the existing branches.
Nemish Shah — Emkay Investment Managers — Analyst
So 6% would be for the first nine months or this quarter?
Sunil Nalavadi — Chief Financial Officer
For the year-on-year growth I’m saying.
Nemish Shah — Emkay Investment Managers — Analyst
Yeah. But for the first…
Sunil Nalavadi — Chief Financial Officer
Year-on-year growth is around 15%, on that around 6% from the new branches and remaining 9% from the existing branches.
Nemish Shah — Emkay Investment Managers — Analyst
Understood. Yeah, that’s it from my side. Thank you.
Sunil Nalavadi — Chief Financial Officer
Yeah.
Operator
Thank you. The next question is from the line of Shrinidhi Karlekar from HSBC. Please go ahead.
Shrinidhi Karlekar — HSBC — Analyst
Yeah, hi, thank you for the opportunity. Sunil, given in terms of there are too many moving parts in terms of buyback received from the divestment of the business and the ongoing capex program, wondering, would it be possible to guide us on likely level of net debt as we end this financial year?
Sunil Nalavadi — Chief Financial Officer
By end of this financial year, the net debt will be around, say, INR50 crores to INR60 crores.
Shrinidhi Karlekar — HSBC — Analyst
Okay.
Sunil Nalavadi — Chief Financial Officer
Because — see, as of now, whatever consideration has been received, out of that, the INR50 crores is invested into mutual funds, which will be used for the payment of taxes related to these transactions. And excluding that, we are having a debt of around INR50 crores to INR60 crores, and we have to do capex also. With buyback, it’ll be around INR100 crores instead of INR50 crores, INR60 crores, it’ll be around INR100 crores.
Shrinidhi Karlekar — HSBC — Analyst
Sorry, so including buyback, you are guiding for about INR100 crore of net debt, right?
Sunil Nalavadi — Chief Financial Officer
Yeah, yeah, yeah.
Shrinidhi Karlekar — HSBC — Analyst
Okay, yeah, understood. And Sunil, correct me if I’m wrong, in the last call, you guided that our margins in the contractual customer as well as non-contractual business is broadly similar. Is that correct?
Sunil Nalavadi — Chief Financial Officer
In what terms?
Shrinidhi Karlekar — HSBC — Analyst
In terms of EBITDA margins.
Sunil Nalavadi — Chief Financial Officer
Yeah, it will be similar. Now after increasing the rates, the non-contractual EBITDA will be better. But again, it is a time gap, because in contractual what will happen, as and when we renew those agreements, see, we will do some rate hikes, that is not possible in non-contractual. Over a period of time, again, it will be similar. But as of now, the non-contractual customer margins are better.
Shrinidhi Karlekar — HSBC — Analyst
Right. And Sunil, in which month or in which quarter typically, we revise contracts for the larger customers?
Sunil Nalavadi — Chief Financial Officer
So it’ll be on a continuous process, but most of the contracts will be renewed in the month of April.
Shrinidhi Karlekar — HSBC — Analyst
Okay, yeah, at the start of new financial year basically?
Sunil Nalavadi — Chief Financial Officer
Yeah.
Shrinidhi Karlekar — HSBC — Analyst
Yeah. And last one, Sunil, we typically give…
Operator
I’m sorry to interrupt, Mr. Karlekar, we have to take the next participant.
Shrinidhi Karlekar — HSBC — Analyst
Sure.
Operator
There are many others who are waiting for their turn. Thank you. The next question is from the line of Alok Deshpande from Nuvama Institutional Equities. Please go ahead.
Alok Deshpande — Nuvama Institutional Equities — Analyst
Yeah. Hi, Sunil, sir. Congratulations on a good set of numbers. My first question is, in this quarter gone by and looking forward, which are the top two, three sectors from which you are expecting this 15%, 20% kind of volume growth to come in? So just two, three big ones which can contribute to that volume growth number.
Sunil Nalavadi — Chief Financial Officer
See, basically contribution is happening across all the sectors, because we are depending on many sectors as I said. But typically, wherever the unorganized contribution is on a higher side, from there, actually, the contribution — our growth rate will be much higher.
As I said, even in the current — some of the sectors I mentioned about these agri commodities, the footwear. And see, agri commodities basically, again the coconut product, the grassroots market and even some of the areca nuts what I mentioned earlier also, that is continuously shifting to us. In these products, we are expecting higher growth. And similarly, the leather market, especially from UP and surrounding areas, those markets are improving. And apart from that, even on the textile front also, the Surat and other areas, most of these, earlier they used to engage in a lot of these small players and other things, even that market is shifting to us.
So broadly, if you see even some of the FMCG commodities in the organized market also, that growth is coming to us. That is — see, one is, because of the change in the regulation because of the GST control, because of the e-invoicing, these markets are contributing to us. Apart from that, because of expansion in our network, because there is a good connectivity as of today, even a lot of these additional customers also contributing to the [Indecipherable] growth. So in my sense, see, the more growth will come from the unorganized to organized market and the remaining will be in the range of, again, normal growth in the range of around 12% to 15%. And since we are getting the newer market and new customers on all put together definitely, we are confident to grow at around 20%.
Alok Deshpande — Nuvama Institutional Equities — Analyst
Sure, Sunil sir. Understood. And one other bookkeeping question was, see, this transaction of the Bus business that you have concluded. So this is completed in January. Now in quarter four, will we see any profit from discontinued operations at all or will it be like only — I mean how would Q4 look like when we — when you report it? Is it only the trucking business and then we’ll see the cash on the balance sheet, right?
Sunil Nalavadi — Chief Financial Officer
Yes.
Alok Deshpande — Nuvama Institutional Equities — Analyst
Okay, understood.
Sunil Nalavadi — Chief Financial Officer
There will not be P&L item from these discontinued operations in the Q4.
Alok Deshpande — Nuvama Institutional Equities — Analyst
From quarter four itself?
Sunil Nalavadi — Chief Financial Officer
Yes.
Alok Deshpande — Nuvama Institutional Equities — Analyst
Okay, thank you. Thank you, Sunil sir.
Sunil Nalavadi — Chief Financial Officer
For comparison purpose, we have to show the previous numbers, but for the current Q4 standalone assets, there will not be any revenue or expenses related to these businesses.
Alok Deshpande — Nuvama Institutional Equities — Analyst
Sure, understood. Thank you so much, and all the best.
Sunil Nalavadi — Chief Financial Officer
Yeah, thanks.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sunil Nalavadi for closing remarks. Over to you, sir.
Sunil Nalavadi — Chief Financial Officer
Yeah. Thank you all participants for your patient hearing. If you have any further questions or if you need any clarifications, you can reach out to me. And as I said, again, I want to put the closing remarks in such a way that our expansion plans are going to continue, our branch network is going to continue, the enhancement in the branch network. And definitely, this will help us to grow further your — further in our volumes.
And there is a lot of shift from unorganized to organized players, that is also the additional benefit for us being the organized player. And the rate increases is only to focus or only to pass on some additional expenses, the variable costs like toll payments and other costs, these are directly we can pass it on to the customers. Considering these expenses, actually, we have increased 5% rate only on the non-contractual customers, but our growth plan, our expansion plan, our increase in tonnage plan is going to continue. So with this actually, definitely, we are confident to maintain our growth rate in the range of around 20% and with the EBITDA margins of around 17% going forward. With this, I wish to conclude this call.
Operator
[Operator Closing Remarks]