Allcargo Gati Limited (532345) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 earnings conference call of Gati Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra. Thank you. And over to you, sir.

Yes. Thanks, operator, and welcome to all the participants. Good evening. We have the Gati management with us to discuss Q4 FY '21 results. Representing the management, we have Mr. Bala Aghoramurthy, Deputy Managing Director, Gati-KWE; Mr. Ravi Jakhar, Chief Strategy Officer; and Mr. Rohan Mittal, CFO and CTO of Gati Limited. So without further ado, I hand it over to Mr. Ravi for his opening remarks. Over to you, Mr. Ravi.

Yes. Thank you, Abhijit. Good afternoon, everyone, and thank you for joining us on Gati Limited Q4 and FY '21 Earnings Conference Call. I'm Ravi Jakhar, and I have with me my colleagues, Bala and Rohan, as Abhijit mentioned, and along with our Investor Relations adviser team from SGA. I trust all of you and your dear ones and colleagues are well and keeping safe in these challenging times. I also hope you had a chance to look at our results and the results presentation, which has been uploaded on the stock exchange and the company website. To begin with, I would request my colleague, Bala, to brief everyone about the business. Over to you, Bala.

Sure. Thank you, Ravi, and good evening to all of the participants on the call. This is Bala Aghoramurthy here. I will spend a few minutes explaining the Q4 performance, et cetera, without getting into the last bit of detail on numbers. This time, we would prefer to actually give more time for questions and answers. Okay. So I'll spend a few minutes, nevertheless. Firstly, I realized that Q4 in some ways was a test quarter for all of us. We have been making many promises. We have been making many confident statement about the transformation journey that we have been undertaking in the last 6 to 8 months. Q4 in that sense was a test quarter, and I'm happy to say we are actually quite happy about the end results that we delivered in Q4. Just to give a glimpse, the GKE business, which is actually 99% of Gati's business and operational price, the GKE business actually logged about 27% growth Q4-over-Q4. I know it is easy to kind of refer to the base effect in this. Even the base effect removed, this 27% will be a very, very healthy 16%, 17% growth. With the base effect advantage, we did a 27%. And also even this growth was actually after shedding a part of the portfolio. We had a product called MVATS, which was the value-added transportation product. And we had discontinued that about 2 quarters back. So the last year Q4 actually contained this product of about INR 25 cr in our base. Even with all this included, we still grew by a 27% growth in the new Q4. So on the revenue front, we have done very well. We are quite happy about it. I'm sure this is kind of the direction that was expected of us as well. We also improved our gross profit. Q4-over-Q4, we improved by near 160 basis points to have a gross profit of 30% odd. Our fixed cost, there has been a tremendous amount of control in our fixed cost. It is important for all the investors to kind of delayer the many layers of data which are hiding the fixed cost performance here. There are many onetime provisions or onetime expenses, which have been booked into this quarter for good reasons and right reasons. If you actually normalize all of that and took that out, the fixed cost has actually shown a tremendous improvement quarter-on-quarter in the last 3 to 4 quarters. A good way to see it is just to average out the annual one and equally divided between the fourth quarters to get the real impact of what we had done, even this would be a conservative estimate. So the gross profit, the fixed cost, all of this has moved in the right direction. And while the reported EBITDA is what it is because of the onetime costs, et cetera, that we have booked, the real underlying EBITDA, I'm happy to say, we have now kind of been in the 8.5% kind of range. If you will recall 2 years back, 3 years back, it used to be always averaging around 6%. So there has been a significant positive trajectory on the EBITDA front. Thus, all grounds across the business, across the operations, I think there's been a significant improvement and as seen in the Q4 numbers. The Q4 investment was good. I must also point out Q4 at the market was the near-normal business environment market, this Q4 I'm talking about. I know that the COVID second wave had started showing its head in parts of the geography like Maharashtra and Delhi and maybe Uttarakhand, et cetera, in March itself. But the impact on the business environment, I would call it out at a sub-5%, maybe 1%, 2%. And that always happens in any quarter. Something or the other is always happening. Thus Q4, we see it as a business environment which was as normal, near normal as it could have been. And in such a situation, we have done really, really well. Of course, the COVID took a very, very dramatic turn thereafter in April, and we will speak about that in the next call, maybe. But in Q4, we have done really, really well in that front. The rest of the business, we only have a small business beyond the GKE business, which is an e-commerce. It continued at the same level -- model that we were kind of working on. We are looking to invest more time and energy in clarifying and re-participating in e-commerce in the right manner as time passes by. As it stands, the e-commerce between Q3 and Q4 is actually very, very similar in nature given that Q3 was actually the festival quarter for e-commerce and Q4 is a normal quarter, yes. So that's the broad business summary. I'm going to hand it over back to Ravi. And once you hear all the numbers and more commentary, happy to take any questions, and we'll give answers that satisfy you to the maximum extent possible. Thank you. Over to you, Ravi.

Yes, thanks, Bala. So it has been almost a year since Allcargo took the promoters management role in Gati Limited. It has been 4 quarters of transformation and growth. And I would say that as shareholders, as management, everybody feel satisfied with the growth that has been achieved, and there's an ambition to continue this growth path and continue on this transformation journey. And the promoters have also continued to express their commitment to stand behind Gati and facilitate the growth. And in this regard, there was an update recently issued by the company regarding issuance of preference equity as well as in terms of equity shares as well as equity warrants, aggregating to a total amount of approximately INR 10 crores in equity shares and approximately INR 70 crores in equity warrants. So these are the proceeds which will be used to fund the continued growth journey in Gati. Apart from this, one of the key things that we've been focusing on is to ensure that the company's growth is also built on strong foundations, and there's been a huge focus on driving risk governance, tax governance, bringing focus on systems and processes. And the entire governance initiative has been spearheaded by the Board of Directors at both Gati and the subsidiary Gati-KWE, wherein we have had many experts joining in the Board who can continue to provide their guidance to the company management in improving the governance and the business performance. The company has also taken significant initiatives towards digital transformation. There has been efforts to digitize call center, improve the customer portal, which has been revamped along with WhatsApp bot services. We also partnered with payment gateways to facilitate digital payment solutions. And there has been a huge focus on leveraging data analytics and AI tools to enhance customer experience, reduce turnaround times and bring about cost efficiencies in different areas of business. So Gati is transforming with a significant focus on digital journey as well. We have been speaking about the cross-sell opportunities in integrated logistics between Allcargo and Gati. And we have seen over the last quarter or so that baby steps have been taken in this direction. There have been leads, which have been generated from -- in various combinations of businesses. I would say maybe at least 100-odd leads have been generated, and this is only the beginning. We expect there's more potential in offering integrated services as well as for cross-selling opportunities to benefit both companies. However, what has truly been standout driver of growth has been the whole transformation initiatives which have been taken up. And there has been a significant amount of initiative as well as impact, which is visible through these transformation initiatives. And I would hand over to my colleague, Rohan, to talk more about the transformation initiatives and the impact. Over to you, Rohan.

Thanks, Ravi. Warm good afternoon, good evening to everybody who has joined. So basically, see what -- we spoke about this in the previous calls as well, and I'm trying to continue the thread that we've picked up in the previous calls. The focus always has been that Express and e-commerce logistics is what we really want to focus on. That's the core business of Gati. Whether it's done in Gati stand-alone or subsidiary, that's a separate point, but that's the core business really for Gati. Keeping that in mind, we've been trying to trim the number of subsidiaries or businesses that the company really operates in. And 2 days ago, we've announced the intent to sell Gati Kausar. We hold about 70% stake in Gati Kausar, which is our cold chain subsidiary. The balance 30% is held by one of the leading private equities, Mandala Capital. So Mandala has agreed to buy our 70% in Gati Kausar. And we will try and close this transaction in the next 20 to 25 days. These numbers -- the numbers change because this transaction is not reflected, obviously, in the FY '21 numbers that have been released. This will be visible in the Q1, Q2 numbers, yes. But with this, almost INR 100 crores of debt will go away from the consol balance sheet of Gati. Also, it will allow us to focus on the core business of e-commerce, while the Gati Kausar can be taken to its true potential with -- through Mandala. Beyond this, what we are also doing is amongst the balanced subsidiaries, we had sold one of the subsidiary in Q2. Out of the balanced subsidiaries, one company had operations which was running until about August last year. Since then, we've been winding down the contract, which is Gati Import Export. We are happy to report that all the 4 balanced subsidiaries, Gati Import Export, Gati Logistics Parks, Gati Projects and Zen Cargo, we are trying to figure out the right means to divest out of these companies or bring them directly under the Gati umbrella, instead of having a subsidiary structure. On the balanced asset side, fuel station is one of the business which remains noncore to us. It is a profitable business but it is a noncore business. Happy to report that we've got some term sheets. There is strong interest from the market to acquire this business as a going concern. And we are confident we'll be able to conclude this transaction within this financial year, yes. Further, our focus has been on debt reduction. I think we've been talking about this for quite some time. Again, I'm happy to report that as of FY '21, we had reduced the debt from about INR 411 crores previous years to almost INR 189 crores, excluding the Kausar debt, which was getting consolidated. With Kausar debt, it was INR 280 crores. These are as of 31 March 2021 numbers. With the Kausar sale, our actual debt -- gross debt has come down to almost INR 180 crores as of yesterday, which is more than a 55% reduction in approximately 12 months -- over the last 12 months. Not only will this help us realize more shareholder, stakeholder value, but also our finance cost has come down significantly because of all these initiatives. Part of the reason why we've been able to accomplish this sharp reduction in debt is beyond the Kausar sale is also because we've been successful in selling few properties, which are noncore assets housed under Gati stand-alone. We've realized almost INR 60 crores cash inflow during FY '22 -- FY '21, sorry, by way of property sale. And we've used that also to bring debt further. Overall, we've realized net cash flow from operations of about INR 49 crores as of 31 March 2021, which was a sharp jump from the previous year same period. We've closed the year with cash and cash equivalents of about INR 42 crores. We've also taken advantage of the tax amnesty scheme. And happy to report that our contingent liability has been sharply reduced by almost INR 122 crores. The total payout that we have planned is about INR 35 crores, out of which INR 13 crores has already been done. The balance INR 22 crores will be done in FY '22. It's been taken into account in FY '21. GKEPL performance remains extremely, extremely crucial for us because that's where our entire Express business resides. As Bala has already explained, quarter 4 was a remarkable milestone for the organization as a whole. We've grown market share. We've delivered a very, very high sales growth. We've trimmed costs at all level. We believe that these are sustainable -- this was a sustainable momentum, which, as the transformation program continues, should be able to sustain over the next few quarters as well and take us to the market leadership position that we are really aspiring for. Overall, our intent is very simple that we want to gain market share over the next few quarters. We want to reduce debt outside GKE to 0. Within GKE also, we want to only restrict ourselves to working capital because that is required for the business. That also to the extent of asset sale can be reduced, we will reduce within the next few quarters. That's the broad intent really for us over here. And I will we take a pause here. Ravi, over to you.

Yes. Thanks, Rohan, for all the updates. As Bala said, maybe we can have more time for the Q&A. So I'll open the floor for the questions and answers.

[Operator Instructions] We have a first question from the line of [ Sriram ] from Ratnatraya Capital.

I'm referring to Slide #19. Surface Express, is this the revenues for KWE as a whole or that includes something else?

I'm not able to clearly understand the question. So could you please repeat, if you don't mind?

Sir, I'm referring to Slide #19. That is Surface Express distribution.

Yes.

So this is the revenue for the KWE entity?

That's it. So this is -- 1 second. I'm just moving to Slide #19. This is not the entire revenue of GKE. This is only the Surface Express. There are 3 broad businesses in GKE -- 3 broad business lines in GKE, Surface Express, Air Express and contract logistics or supply chain. All in all put together will qualify as the total GKE revenue. The INR 300 crore number that you're seeing on Slide #19 is only the revenue from Surface Express. It does not include air and supply chain.

Okay. Sir, can you give the revenue and EBITDA for the full year and quarter for KWE?

The full year revenue -- the quarter 4 revenue for GKE is INR 323 crores. Against that, the reported EBITDA is about INR 13 crores.

That excludes the other income, right?

That excludes -- no, that is after other income. However, in that other income, onetime expenses, provisions, et cetera, if you were to remove that, then the quarter 4 EBITDA will be around INR 27 crores, which is about 8.4% EBITDA percentage. So that's...

Yes. So for the full year?

For the full year, the total revenue is about INR 1,016 crores for the full year without normalizing for the COVID impact in Q1, yes. These are the actual numbers. Against INR 1,016 crores, the reported EBITDA is close to about INR 42 crores, approximately. And again, if you were to add back the onetime provision, then the number would look very, very different. Normalized numbers, which is H2 numbers for GKEPL, yes, H2 numbers for GKEPL into 2, we are looking at significantly higher numbers because H1 performance, obviously, the industry as a whole was also lagging, and the transformation program, all the efforts of the team came together in terms of tangible results really in H2.

Okay. Sir, just one last question. The [ INR 160 crores ] asset held for sale on the books, what is the nature of the asset?

So this is almost entirely property, land and buildings, almost entirely.

Okay. And we are expecting that to conclude by this year?

No. COVID has had an impact on the number of transactions that are happening in land and building. Last year, we have sold a property worth about INR 60 crores. I'm rounding up numbers for sake of ease. This year, our intent is that, all in all put together, another INR 50 crores worth of asset sales should materialize approximately.

[Operator Instructions] We have the next question from the line of Sajan Goyal from CARE Ratings.

Sir, regarding the diminution of asset value, so the nature of the transaction, is it noncash only?

Yes. The entire diminution is noncash and nonrecurring. I'd like to clarify both the points.

Okay. So our cash accruals are including the total profit, that is the loss plus this noncash, if you can tell?

Yes. Yes. So cash accrual will be actually cash profit plus the sale proceeds that have realized.

Okay. Okay, sir.

Because we've sold assets worth almost INR 56 crores, as I said. So that also you might want to include in the cash accruals -- gross cash accruals.

[Operator Instructions] We have the next question from the line of Rahul Sony from SMIFS Limited.

Sir, I would like to know, what is the current market size on the Express logistics and surface logistics currently? And what is your current market share? And what is your -- what you are targeting in the next 2 years?

Bala, would you like to take that? Or do you want me to answer?

Either way -- yes, you pick it up, Rohan.

Yes. Okay. Okay. No. No, Bala. Please go ahead. Please go ahead. Please go ahead.

Okay. So the total market size in Express logistics, it is, of course, based on industry reports, yes. The number will be close to about 25,000. But you must understand this number correctly. This includes surface. It includes air. It includes e-commerce. It includes B2B. It includes domestic stuff. And it equally includes what is moving in from outside, yes. The organized industry will only be around 50% in B2B. The remaining B2B is unorganized. The B2C is almost entirely organized. We don't see as much in B2C, which is on unorganized, okay? What is our market share? Our market share, we are approximately around 7% to 8%. In fact, we have seen a gain of near 100 basis points in the course of Q3 and Q4. And our entire strategy is to actually build back market share very, very sharply. We do want to get into double-digit numbers very soon. Our plans for next year are built around getting almost 50% growth in market share in the course of next year. I'm speaking about market share and not so much about revenue. I'm just conscious that the COVID thing is kind of a little confusing about -- when it comes to absolute numbers, yes. So market share, 7% to 8%. And we are looking at literally increasing it by 50% in the course of next, let's say, 12 to 18 months.

The next question is from the line of [ Manish ], an individual investor.

Sir, my question was regarding Gati-KWE. Earlier, we used to operate with the asset-heavy model. Now we are looking towards probably asset-light model. So what are the changes totally we are going to do in Gati-KWE? And how do you see Gati-KWE maybe next 3 to 5 years down the line?

Let me take that again. So Gati-KWE was always an asset-light model. 95% of the business was being done through in-sourced business partner fleet, yes. We used to maintain a small fleet of around 400 plus, et cetera. Even that, we have given up during the course of this year or at least majority of that has been given up. About 270, 280 has been given up. What we have left with is only 100. It is our intent to give up this 100-odd as well, okay? So it has always been asset light. What do we expect in GKE in the next 5 years? We expect GKE to come back to a very, very dominant market position. At one time, we probably were 12%, 13% market share. We want to get to that point at the earliest, call it, let's say, 12, 18 months kind of time frame. And we do have every intent to compete very, very strongly in the market against all the existing players and so on. So that's our -- it's a lot of aggression that is built in. I'm not going to get into numbers on revenue, et cetera. Suffice to say, we want to be a very dominant player and regain our earlier primary slot that we used to occupy out.

Any idea what will be your strategy, if you want to discuss or if you want to probably share?

We expect -- sure. I'm saying, firstly, strategy is not a onetime event for 5 years, yes. Strategy is an evolving thing. As we have operated in the transformation project. A lot of focus has been starting from the customer side. And we have been very, very sharp in calling out different customer segments, the large enterprise accounts, the small and medium enterprise accounts, and of course, the cash and carry market. I must say we have made significant progress in the key enterprise accounts. The cash and carry market have actually been very supportive. This year gone by, the SME market was actually affected the worst by the pandemic. And I think it will take a little bit of time to recover even because there has been a wave 2 and a suspected wave 3, et cetera. Having said that, we will focus across the board. We are also sharpening the way we are looking at industry verticals, whether it is auto, whether it's apparel, pharma, et cetera. We are also sharpening the ways that we are operating on these fronts. We are also looking at tapping into -- Ravi in his earlier chat referred to significant cross-sell potential between our parent company, Allcargo's customer and our own customer base. So we are going to be doing a lot of these kinds of things to continuously build on the customer franchise that we have. So that is on the customer side. Of course, the whole thing has to be supported with investment. There is the need for network capacity. This actually calls for investment in hub. We are already -- in fact, even in the last call, we shared that we are in the midst of a significant investment to improve 5 of our hubs, yes. The last hub investment that Gati did was almost 3 years back. After a gap of 3 years, we are now once again back into a significant investment in hub capacity, hub automation. The first one that is likely to come up is actually in Delhi, in Farukh Nagar, which is already a significant work in process. And we will see 3, 4 more during the course of this calendar year as well. So with this capacity augmentation of the hub, of course, parallel increase in the vendor base, on vehicle fleet, et cetera, and the sharpness of customer-focused industry vertical. That is our broad strategy to tap into the potential that we see today.

The next question is from the line of [ Arun Kumar ] from Catalyst Corporate Service.

Hello?

Yes. Arun, we can hear you.

First of all, let me -- very happy to hear that the debt has come down by 50%. So my question is on those lines. When I read the results, the total liability was -- we are showing it somewhere around the INR 600-plus crores. So having understood that the total liability now -- the debt has come down to around INR 160 crores as per you in this call, so where is the remaining amount coming from in the liabilities?

Arun, Rohan on this side. So our total debt in the consol books as of 31 March will reflect that close to about INR 285 crores, INR 295 crores, yes. Let's say, close to about INR 300 crores. There are some current liabilities to the extent of the tax amnesty scheme payments and a few of the payments that we carry in our books. That will be close to another INR 50 crores to INR 60 crores. Further, as per Ind AS recording, the rent treatment as per Ind AS 115, it is no longer just a P&L item. There is a balance sheet asset and liability also which gets created, yes. Suffice to say that the total borrowings, any and every kind of borrowing that can be added at a consol gross level was capped at about INR 285 odd crores out of the total liability that you're seeing in the books, yes. I'm saying current and noncurrent, all put together, yes, all borrowings put together, bill discounting, et cetera, everything put together. So that's the number really that we are talking about that we have to kind of meet. And there will always be some trade payables, et cetera, also which are reflecting in the books.

[Operator Instructions] We have the next question from the line of Vikash Khatri from Aviral Consulting.

First, congratulations to team Gati for good performance. My question is that regarding Surface Express, what is the growth rate of industry vis-a-vis Gati growth rate if I take a 3-year period? And today, as the differential between #1 and #2 in Surface Express is significant, how much years Gati will take to regain its #1 position again in the market? Another question is related to KWE business. Is Gati having any plan to enter into the air sector business to take on Blue Dart?

So Vikash, yes, good to hear your voice on this call, Vikash. I hope you are doing fine. So let me explain. Firstly, of course, the #1 player in the market is still Express. It is almost double the size. And maybe I'm exaggerating a little bit. It is maybe 1.8x, yes. That's the kind of size difference between what we are seeing and what is still Express. I think a very, very good competitor by all accounts. Having said that, the way to look at this is not easy. That is -- actually, the way I would put it is a very passive, anemic way of looking at it. The nature of our business is that if you get many pieces right, it is possible for a company to add INR 300 crores, INR 500 crores in a year. If you play the game in a normal manner, you possibly will add INR 100 crores in a year, yes. So it is not like any other business where things are actually in a linear progression in that sense. So our ambition, our intent, our work in transformation, all of it is aimed at regaining that leadership. I don't want to call out date and -- this is not a race, yes. This is actually our intent of getting more customer focused. If the customers see us delivering the right value, they will...

Hello? Yes. Yes.

Okay. Sorry, I was getting another call from a similar number, I thought -- okay. Can you hear me?

Yes.

Yes. So that's the way to understand this, not in an anemic, passive, linear regression means. We are doing our very best. For example, I'm saying if we have 20-odd hubs in the country, 5 of them, we are investing to literally double and have automation come in, in a significant manner, et cetera. There is a deep thinking, and these are going to be coming up in all the metro places, yes. That is Delhi. That is Mumbai. That is Bangalore and so on. So that is the way to understand this. The second question that you asked was about air. Gati is, of course, there in air business, and I must call out air business is not doing as great today and not for reasons within Gati but because the passenger movement in the airline itself has dropped. And hence, the fleet that is in operation for passenger airlines is only about 35%, 40% as we speak today, right? And it seems to be picking up somewhere in October, November, December. And then again, I'm saying by the time it was March, we kind of started seeing a flattening back on that front, yes. So we are dependent on airline operation. We are in the game. There is no doubt. We will never be able to compete with a player who has actually invested in freighter aircraft. We believe in an asset-light model. We are never going to invest in aircraft in that manner. Having said that, we see Air Express as a significant chasm of the Surface Express, and we do intend to maximize the potential in the air. We have good ambition on that just like in the case of surface. But this question possibly will get better answered maybe in 1, 2 quarters as the pandemic subsides a little bit, and you see -- you get to see what are we doing in air.

Okay. Yes.

And Bala, just to add on to that, even on the industry growth rate as well, the pandemic has skewed quite a few numbers. And particularly in the context of Gati, it is important to recognize that the whole transformation journey with the change in management has only happened about a year ago. There's been a marked difference between the growth rates of industry vis-a-vis Gati in the prior period and how it has been shaping up since the transformation. So to that extent, the 3-year number may not also be that relevant. Yes. Thank you.

It's a disruptive transformation. It's a disruptive transformation.

Yes, absolutely.

We have the next question from the line of Avadhooot Joshi from Newberry Capital.

I have 2 questions. First, I would like to know about how e-commerce is doing because earlier, we wanted to enter into white goods because it is a profitable business, and we wanted to have a major exposure to the white goods movement. I would like to know in Q4 how it has performed. And any further initiatives we are going to take into e-commerce business? That's one. Second, I would like to have B2B and B2C split of Surface Express. And when we say about gaining market share, where we are looking into B2B, I think, majorly and whether we will be focused on SME or other businesses like pharma or other verticals.

Okay. So the first question that you asked about e-commerce, how did it do in Q4, Joshi, right? Did I get your name right?

Yes. Avadhooot. Avadhooot.

Okay. So e-commerce, like I said in the opening comments, it is not any great story to speak about, yes. Between Q3 and Q4, I'm saying the business has been more or less flat for us, okay? We are still in the same mode of being a significant player in the white goods category. As you are aware, with all this that is going on right now, the white goods portion itself on e-commerce has actually come down quite a bit, yes. It's not like people are kind of buying their refrigerators and televisions and washing machines by default right now, at least not in the last 5 to 6 months. When there was a peak, when there was a promotion, there is an incentive for the consumer demand to kind of peak. Thereafter, it has kind of flattened out. Our strategy right now, as we see, continues to be on the higher-base segment. However, we are actively in an effort to increase the customer base that we work with. So we are going to be looking beyond the business. Of course, the business will always be the big winners in the industry. Having said that, there is a significant market beyond. It's just also looking for services from companies like us. So that is where we are kind of focusing to expand our customer base. And as the market turns and as actually white goods pick up, it will be significant. This is not to suggest that we have given up our interest in further expansion. That calls for a very, very deep thinking and the right solutions being designed before we step into it. So we do have that in the radar, but current play is restricted to the white goods. The second part of the question that you asked was actually about within Surface Express, B2B, B2C and so on. Let me tell you, in GKE, you can take it that 99% of our business is B2B. It is a small B2C as it stands today. I'm just oversimplifying only for easier understanding. Maybe the 99% is 98% and so on, yes. So that's the way.

Okay. One other thing, these B2B contracts, how they have shaped up in line with the fuel costs? I would like to know with the customers.

Yes. The fuel cost is actually built into our contracts. There is a diesel price metric, which trend, of course, up and down with the diesel price. Of course, in the last 9 months, it's going to be going up and up, especially through the beginning of the calendar year, yes. So our diesel price, there is a base rate. And of course, there is a further fluctuation variability that as it happens in the diesel price, that is getting translated into our pricing as well to customers.

Okay. So if I get it correctly, it's the pass-through mechanism.

It is a pass-through, absolutely. It is a pass-through mechanism to customers. And equally, I'm saying there is an impact on the vendor side. Even there, it will be a pass-through.

The next question is from the line of [ Balaji ] from Tiger Capital.

This is [ Balaji ] here. The question that I had, 2 parts. If you could talk a little bit about the outcomes. I believe Gati had actually appointed a turnaround expert consulting firm Alvarez & Marsal earlier. If you could talk a little bit about the outcomes of that. And if you could also talk a little bit about the digitization drive that is actually happening, where we are expecting operational gains. If you could touch upon both those aspects, please.

I'm going to invite Rohan, who is spearheading the entire transformation program. Rohan, would you please take the call?

His line just got dropped. I'm calling him back. Just a moment.

Okay. So let me address it in the meantime. Let me address it in the meantime. So the transformation is actually a 360-degree transformation. It is focused on the sales pillar. There is a different sharp focus on the operations side. Then there is digitalization and IT. There is a people piece of work that is happening. There is a finance transformation. So it is actually not restricted to one function. It is an organizational transformation, so to speak. The outcomes, actually, of course, we have a list of near about 200 projects across all of these pillars. We have made very, very good progress. Almost, I would say, 60% of the projects have gotten completed from our original definition that we had almost about 10 months back, yes. The remaining 40% of the projects are still in progress. The period of this transformation is actually until October of this year. It started in July last year. It is until October of this year. Given that we have actually moved substantially, we are continuing to explore ways of how do you take that transformation. This is not a onetime event, yes. This was -- actually for us, it was meant to be a launch pad where we are able to do many, many things simultaneously to make big impact and big process. So having achieved the best purpose across all of these pillars, we are also looking at ways of institutionalizing the gains and the learnings and the investments and the SOP. On the digitalization front, I must say there is firstly a commitment which has already been made. We are investing in the Salesforce CRM. It is under implementation. This will significantly change the way Gati actually manages the customer base. We have a very, very vast customer base, yes, almost about 3,000-odd credit customers. And then we have a large tail of cash and carry customers, which is another near 15,000. We do have an existing system. But what Salesforce CRM offers is actually real-time basis and a single source of truth bases and the history that is very, very useful in engaging with the customers, right? So sales CRM is a very big intervention that is happening. There are other interventions which are also planned. For example, we are actually looking -- we have already done Genie app, yes, the track and trace app with the WhatsApp bot that was launched about 6 months back.

I'm sorry to interrupt, sir. We have Mr. Rohan Mittal who is connected back.

That's good. Let me just finish. Rohan, actually, the question was on the transformation progress, okay? Since you dropped off, I was giving the perspective on that. I'm going to finish. You please add on from your perspective.

Sure.

So on the digitalization -- yes, thank you. So Salesforce CRM, you have the WhatsApp bot. There are many other projects which are actually planned. I will give you an example. Data analytics, yes. In general, while we are very happy and proud about our ability to read the cost and the prices and what's happening in the market, I think data science brings a very, very different flavor to it. We are committed as part of this transformation project to also invest in this space so that we make our pricing decisions more data driven. We make our other engagements more data driven. So that is on process which has just gotten initiated. This is in the remaining 40%. About 60% is kind of already done and completed. And what we are currently working on in this space, we are also looking at other aspects on how to manage stakeholders, whether it is vendor, whether it is the ground operations partner. How do you make the interface between any 2 stakeholders, whether it is a customer to Gati or a vendor to Gati, et cetera, how do you make these interfaces so that we actually see ease of business playing at this interface? That's the way I would describe the digitalization. Since Rohan is there, Rohan, please add. The question is again about the transformation journey and the progress that we have made and what gains have occurred.

Bala, I think you've really summarized it well. On the digital side, I will only talk about one more initiative, which we've built up, which is the digital payment solution. There were some cash collections, et cetera, COD, et cetera, that used to happen. And with the progress that fintech overall has made across the country, we just wanted to ensure that we are also glued into the best of the best industry processes. We just tied up with Paytm to onboard a digital payment solution, which will improve our collection cycle on some of these payments. So just one of the other digital initiatives that we are working on. Obviously, there are a host of such initiatives. The 60-40 split is absolutely apt. Unless the participant has any further questions, I'm happy to answer.

Just one more aspect which I would add, Rohan. There is actually a significant cost saving that has happened on the fixed cost. All of that was very, very elaborately run through this transformation program, whether it is the people productivity, whether it is the cost efficiency in our overhead and so on. So all of these, whether it is -- I'm saying many other policies that happened within the company on overhead. So all of these also delivered significant fixed cost savings. If you compare our fixed cost numbers this year versus the previous year, you would see a sharp fall if you remove all the onetime expenses that we might have booked, yes. These are also gains from the transformation project.

We have the next question from the line of [ Dosha ] from [ Ambit Capital ].

I have a couple of questions. First is, are we done with the write-offs majorly? Or are we still left with any write-offs?

We are done with the write-offs, more or less. We don't expect any major cases coming in the future.

All right. That's heartening to know. And so one question for Bala. He -- so you mentioned that we want to increase our market share by 50%. So I just wanted to know, is this market share more majorly coming from unorganized sector? Are you trying to gain some market share from the organized sector? Just a perspective on that.

Of course, the answer is a very easy answer. It is a combination of both, yes. We are going to be reaching out to customers who kind of need our services. In general, the unorganized to organized conversion, it's a slower process. One player takes the lead. In the past, Gati has taken the lead. And now we are going to take the need once again to actually get more and more unorganized -- the customers of unorganized service providers to be brought to an organized player. So we will take that lead. Of course, as we do all this and as we place ourselves aggressively in the market, there will be market share movement. For example, when I said the 100 basis point movement has happened, it has, of course, come at the expense of one of the competitors or more of the competitors, a little bit from one and a little bit from someone else. So that's the way it will play out. It is a combination of both. We are going to be focused on the customers. The competition is a consequence, yes. That is a collateral existence. Our focus is going to be on customers, and that's the way we see it.

Right. Right. And also on the margins, what are your sustainable margins in our business? Competitor -- the listed competitor just delivered a hearty margins of close to around 20%. So we are still at 8%. So we have a long roadway. But what's your business plan? Where do we see the margins going to in, let's say, 2, 3 years' time frame?

Okay. Let me put it this way. We have actually had this many times on these investor calls in the past. We do believe 13%, 14% is a gold standard in this industry, yes. And it is a sustainable margin in this industry. I understand that question. I think it is best to -- for us to understand a little more of the levers that have played into it. Our current belief is that the gold standard is around 13%, 14%. Since we are still significantly away from that, like you rightly pointed out, our focus is to first improve it by another 4, 5, 6 percentage points over the next many, many quarters, yes. That's the way we will look at it.

[Operator Instructions] We have the next question from the line of Deep Master from One-up Financial.

Congrats on a very good turnaround. I just wanted to get a sense on the cost that would not be recurring in the coming quarters. I know you gave us an adjusted margin. But if you look at the fixed costs in the fourth quarter or in the second half, what could be the sort of one-off element be in absolute terms?

I'll take that, Deep. In GKE, I have given a number of close to about INR 13 crores, yes, INR 14 crores approximately, which was a one-off cost and is not expected to be recurring in nature. In the case of Gati stand-alone, that number will be close to about INR 4 million crores, INR 4.5 crores.

And this is for the quarter, right?

This -- I'm only talking for the quarter.

Okay. Okay. All right. That's very helpful. And also, you gave a very good sense on the whole digital journey. So it sounds very exciting. I just had one question on one of the slides in the presentation. You showed a normalized ROCE, which is now touching 30%. So what would the near-term sort of normalized ROCE for the business be? Is this now at a sustainable level? Or is there some one-off element? Where could the ROCE kind of settle, what you're looking at?

So let's break this down. From a capital employed point of view, I think we are more or less where we should be. We are not looking at any significant capital investments. We've said that before also. From an EBIT perspective, the margin expansion is expected to continue. So we expect some more gains to come through in the next few quarters. Because of that, the 31% normalized ROCE should see some improvement in the next few quarters. Competition, industry benchmarks have demonstrated 35%, 40% ROCE in the past. These are the documented numbers. And we'd like to be there with the best industry benchmarks.

That's very encouraging. And if I could just squeeze one more in. Could we get some sense on the on-ground impact for your different segments due to the second wave and how you kind of expect them to perform in the first half of the year?

Bala, will you take that?

Yes, I'll take that, Rohan. I'll take that. So in some ways, I did refer to it. I think the worst-hit segment is actually the SME segment. I'm talking in the lockdown 1 and the pandemic wave 1, yes. The worst-hit segment was SME. The larger corporate accounts, we call them as KEA, right, Key Enterprise Account. And the cash and carry market, both of them showed tremendous resilience in wave 1 and lockdown 1. So this is actually the experience from the last year. Now how will it play out this year? I think personally, the way I see it, lockdown 2 and the wave 2 present very different business and operations challenges versus the lockdown 1 and wave 1. A simple explanation for this, lockdown 1, everything shut down at one time, and then different geographies, locality started opening up one by one after a gap of 1 month. But in lockdown 2, in the wave 2, the shutdown was also phased out over geographies and time, and the reopening is also phased out over geographies and time. It is actually as much -- I think all of us used this word [indiscernible] yes, as much uncertain, as much volatile, ambiguous, et cetera, as it can ever be. How do you see the market in this context? I think the key is always find an answer to come back very sharply. The SME, this time, because of the extended run, I think the SME market will find the innovative, creative ways of coming back. The retail one, there is a little bit of worry in some segments, for example, apparel and so on, where -- plus I'm saying the consumer-facing segment, yes, where there is a likelihood of a demand drop in the cash and carry retail segment that we operate in. I think that is something that is to be waited and seen. As of today, I'm very confident KEA will bounce back in all its glory. The SME, this time, I think, should be better than what it was last year. The retail one, I will wait to give a call-out on that.

We have the next question from the line of Faisal Hawa from H. G. Hawa and Co.

[indiscernible]

It's not audible clearly.

Yes. Yes. I'm just coming to [ replace the headset ]. Can you hear me now?

Yes. Very clearly.

Yes. So my question is, how do we really take on the e-commerce play of delivery [ and things ]? Kind of are you looking at approaching business at an entirely new set of management or some people who can really have a very good technology...

Actually, I couldn't hear the question as clearly. If Ravi or Rohan has heard it, you want to take that as well?

Yes. So Bala, I think the question was about how do we plan to take on the e-commerce companies like delivery. I would like to highlight how we have spoken about in the earlier calls as well the focus on the transformation journey early on has been to rebuild and transform the B2B business, where you've also seen the results of the transformation. And B2C is something which is going to be more strategized and looked upon in the remaining part of the transformation program. So at this point in time, if you look at -- and Bala also mentioned sometime back, Gati's business is largely B2B, while what you're referring to e-commerce, B2C, is a small part of our business at this point in time.

We have the next question from the line of Mr. Abhijit Mitra from ICICI Securities.

My question is on CapEx. You have mentioned the investment in your infrastructure facilities to sort of increase automation and add volumes also going forward. So what kind of CapEx plan do you have for the next couple of years? And what kind of margin benefit do you believe you can derive out of those CapEx plans? And also a question on your Surface Express. Since we can see almost 90% of your top line ex the fuel stations, which anyway will be divested, is coming from the Surface Express, so everything else remaining equal, given the cost improvement measures that are underway, a full sort of play out of those measures would have taken your adjusted EBITDA to how much? Current quarter, you've reported INR 227 crores -- INR 27 crores. What would have been the adjusted EBITDA if you would have sort of realized the entire cost transformation journey? That would have been very helpful. These are 2 questions from my side.

On the CapEx side -- I'll take this. On the CapEx side, our intention, Abhijit, is to remain extremely frugal to the extent required, yes. The super hubs Bala spoke about earlier are not being funded. The construction, et cetera, has not been funded through Gati or GKE. We are getting into build-to-suit super hubs, yes, where the entire designing, every last brick has been designed, perhaps the master planning has been done by our team, our consultants, et cetera. We will only take the specialties on the rent. There is a marginal CapEx that one has to incur in terms of interiors, fit outs, et cetera. But that's probably INR 1 crore per facility at max. So overall, our intention is to stick to single digit, approximately INR 9 crores to perhaps INR 10 crores of CapEx in a year, as per requirement only. There is no compulsion for us to incur this CapEx unless there is a strong requirement. Whatever machines are required internally, if at all, they can be taken on a lease model, rental model. We would all this prefer that as long as the costs are comparable at an overall life basis, yes. On the INR 27 crore margin, Bala did mention that the gold standard is about 12% to 13%. Our intent, obviously, would also be as close as possible to the gold standard, yes. On a INR 323 crore quarter for top line, that number can be really worked out. Obviously, it will take a few quarters to be close to that number. Does that answer your question?

Yes, it does. It does.

As there are no further questions from the participants, I would now like to hand the conference over to Mr. Abhijit Mitra for closing comments. Over to you, sir.

Yes. Thanks to Gati management for allowing us to host the Q4 call. I'll hand it over to the management for any closing remarks.

Yes. Thanks, Abhijit. I hope you've been able to answer the questions with the respective responses. I would also request all the participants to take a look at the detailed presentation, which has been uploaded, which captures all the details around the performance and also provides a perspective on the opportunity in terms of the market, which many people have asked about. We are in the midst of pandemic, which has led to significant lockdowns, particularly in the month of May. But looking at the steady decline in the number of cases being reported daily, it appears that the lockdown should start getting relaxed from the coming months, and the business should start bouncing back to its normal levels. Overall, as we all know, Express industry has been a small, small percentage of the overall logistics business. There's a huge headroom for growth as people move towards more time-bound, efficient, organized logistics. So therefore, we continue to remain bullish on the long-term on the Express industry. Gati has a strong presence in terms of its network and capabilities. And through the transformation journey, it is only getting stronger. I would also like to highlight that we have strengthened the management team also across levels with many key leaders from the industry joining us. And we have also shared these deals with the management team in the presentation. All of these initiatives have allowed us to post the highest ever quarterly revenue and the highest ever quarterly volume in the Surface Express business, which has been focused upon in the early stages of transformation. And as we continue down this transformation journey in the months to follow, we believe that we will continue to move forward towards the gold standards, which my colleagues referred to. And we are all hopeful that we will continue to deliver strong performance on part of Gati as a stand-alone and the e-commerce business to follow as well as on the consolidated basis but largely the Surface Express and the supply chain management businesses operated under Gati-KWE. So thank you all for joining us on this call. Thank you.

Thank you very much. Participants, on behalf of ICICI Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.