Allcargo Gati Limited (532345) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Gati Limited Q3 FY '22 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ankita Shah from Elara Securities Private Limited. Thank you, and over to you, ma'am.

Thank you, Lisa. Good morning, everyone. On behalf of Elara Securities, I welcome you all to this earnings conference call for 3Q FY '22 for Gati Limited. We're pleased to have with us the management team represented by Mr. Pirojshaw Sarkari, CEO of Gati Limited; and Mr. Ravi Jakhar, our Chief Strategy Officer, Allcargo Logistics. We'll have opening remarks from the management and followed by a question-and-answer session. Thank you, and over to you, Ravi.

Yes. Thanks. Good afternoon, everyone, and thank you for joining us on the Gati Limited Quarter 3 FY '22 Earnings Conference Call. This is Ravi Jakhar here. I trust all of you and your dear ones and colleagues are well and keeping safe. As the COVID wave is hopefully getting down, we hope for the safety and wellbeing of all your colleagues and family members. I also hope that you've had a chance to look at our results and the earnings presentation, which has been uploaded on the stock exchanges and also available on the company website. We have recently had our Union Budget presented by the Finance Minister, which lays a strong emphasis on logistics and logistics infrastructure to power the growth of the country. As we prepare for next decade of growth on the back of manufacturing-led growth, we believe that we have a great opportunity to play a role in facilitating that growth. And as Gati Limited, we are happy to be part of the consumption-led economic growth on the back of significant developments in logistics infrastructure. It is heartening to note the focus from the government, be it about expanding the national highways or setting up the multimodal logistics parks. And we, from our end, would continue to contribute with various logistics infrastructure to be set up to facilitate time-bound transport of cargo, which can help further accelerate the country's economic growth. I would now call upon my colleague, Mr. Pirojshaw Sarkari, Phil, to share his perspective on the industry and how, at Gati, we are getting ourselves to start the next phase of our growth journey. Over to you, Phil.

Good morning, everyone, and thank you, Ravi. Before I start speaking, I would like to introduce Mr. Anish Mathew. Anish has joined us as the Chief Financial Officer for Gati. Anish will be on this call, but he will be a spectator for today's call. All the questions may be directed to me, please. With that, let me first start by giving a few insights on the overall express industry. As per our internal estimates, express contributes approximately 2.5% to the Indian logistics sector. The logistics sector is poised to grow 10% to 12% CAGR by 2025. Mere 100 basis points market share could double market opportunity for express industry. The total available market spread across surface, air, e-commerce and contract logistics amounts to INR 52,500 crores approximately. However, we see this as much conservative estimate as there are multiple studies now available in the market which pegs the available market at a much larger number. Thus, Gati finds itself in the most exciting space in the logistics sector, and we at Gati are extremely excited about being an integral part of the future of logistics in our country. Since Allcargo acquisition, Gati is no longer the Gati that people have come to know over the past few years, but a revamped and consciously transformed organization following a strategic road map with a streamlined plan for the time to come. In addition to the unparalleled connectivity and reach covering over 99% of the PIN codes across the country, we take pride in having a unique integrated network that sets us apart from any other player in the industry: the centralized line hauling with 19 express distribution centers, 23 surface transshipment hubs and 84 Gati distribution warehouses spread across the widest network in association with a strong web of partners, vendors, extending to over 5,000 plus trucks, a franchisee-based approach and dedicated Gati associates, further enhancing capacities, enabling the first-mile and last-mile deliveries and helping the company provide end-to-end service, being the one-stop solution for all levels of the value chain. We are nearing completion of 5 pillars of transformation, which included balance sheet restructuring, debt reduction, profitability, digital and, last but not the least, governance. With Gati 2.0, we are laying down the revised 5 major pillars around which we would position Gati for the next level of sustainable growth. We have revised our focus: sharper eye on profitability through digitization, sales acceleration, industry-leading infrastructure capabilities, streamlining operations and inducting an experienced talent pool. Diving into each of these major elements one by one. Digitization is focused on enhancing the customers' experience on the front end and having seamless operations at the back end, all of this while providing differentiated value-added services to our customers. The recently implemented leading CRM, Salesforce, shift towards digital payments and deployment of data science would accelerate automation efforts. The aim remains adopting technology-based decision-making on the back of rich and relevant data. Sales acceleration is built around the realignment of the sales team structure and targeted approach towards key account management, MSME and retail, and thereby increasing market share and ensuring the highest levels of service. The refocused approach on alignment of sales team has generated new energy at the organizational level, benefit of which we could experience in the times to come. The focus pyramid is where we believe our priorities are set. We put ourselves high in key enterprise large accounts, which contributes 58% of our overall revenues. However, the segment which we believe has enormous potential and would play a pivotal role in India's growth journey to becoming a 5 trillion economy is the micro, small and medium-scale enterprises. There are the entrepreneurs with purpose, and we would like to partner with them and play a small integral role in their success journey fulfilling their vision. We have designed a special sales task force targeting MSME to position Gati as their preferred supply chain partner. We will help them divide their time-to-market as well as go-to-market strategy that will not only help them to expand their reach but also to optimize their inventory levels, leveraging our unique integrated network and supply chain management expertise. Being future-ready is what Gati has always been well known about. The asset-light approach remains, base decisions we take. However, we would like to now aim at further amplifying our infrastructure capabilities, augmenting the role of scale and automation in our operations. We believe that this is required and would yield tremendous benefits given -- on the pace and path of recovery and growth that we are targeting. The first express distribution megahub was inaugurated in Farukh Nagar, Haryana, which will serve the whole of North India with unmatched connectivity. The scale of such facilities is spread across more than 1 lakh square feet, having 89 docks, which could simultaneously load 100 trucks and would provide economies of scale and faster turnaround times. Automation, cross-stocking, OCR and other processing technology would be deployed aiming at creating this facility into a world-class material handling and automation infrastructure as well as safety and technology process and systems. Continuing a long tradition of employee welfare and benefits at Gati, we have also set up Gati Nivas, residential quarters and kitchen facilities for all our employees as well as drivers at the new hub, ensuring 24/7 availability of sleeping quarters, sanitation facilities and hot meals for them. With Farukh Nagar, we believe that we have set a template of future infrastructure upgradation and have decided to build 7 megahubs across the country over the next 2 years. The next 2 hubs with similar facilities and scale will be operational in Mumbai and Bangalore in H1 of FY '23, followed by Nagpur, Indore, Hyderabad in H2 of FY '23 and then Cochin and Pune in H1 of FY '24. Moving on to the fourth pillar that is operations. It rests on the simple fact that having streamlined operations with a strong balance between superior capabilities and appropriate cost optimization measures is essential to build a market-leading business with good margins, simultaneously capturing a greater market share and delivering a strong financial performance. From transshipment centers and hubs to line-haul centralization and digitization, pickup and delivery capacity expansion to improved quality management systems, there are several measures being actively worked upon with the asset-light model at its core. All these efforts are constantly targeting one goal, which is margin improvement. We continue to affirm our guidance of attaining EBITDA margins of 12%, explicitly stated in several investor calls earlier. Lastly, the fifth pillar and one that is often the key differentiator between organizations that are successful and those that are not is the talent pool. Gati has made significant reinforcements in this regard, adding high-quality next level to mid-level talent locally and globally to bring their rich experience and expertise and catalyze this journey. As I said, recently, Mr. Anish Mathew has joined as Chief Financial Officer. Anish has more than 19 years of experience in leadership and advisory role across financial and business initiatives, organization transformation and cost reduction. He was earlier associated with Andhra Paper, leading the entire operations and was key to the Chief Executive Officer on various business and financial matters. He has a rich and diversified industry experience from the consumer, pharmaceutical, pulp and paper and manufacturing sectors, having worked with a few listed companies like International Papers, Pepsi and Usha Martin in his past. Mr. Huafreed Nasarwanji has also joined us as Chief Commercial Officer. Huafreed has rich industry experience across integrated express, retail, aviation, international forwarding, logistics and supply chain, in the past has been associated with DHL Worldwide Express, UPS Store, Deccan Cargo as well as Mahindra Logistics. Mr. Mehernosh N. Mehta has joined as Chief HR Officer. Mehernosh has more than 19 years of experience across consumer, pharmaceuticals, logistics and engineering sectors and has worked with top brands like Asian Paints, Sanofi, Tata group, Mahindra Logistics and Welspun. There are a few other initiatives that will supplement and aid the core activities, along with building a sustainable business. These include launching an electric vehicle fleet for the first- and last-mile delivery, also encouraging the GAs to adopt the same and further optimize their operating costs in the long run. We have also embarked upon training GAs through a ticket program and giving them incentive-based rewards leading to higher incentives and better service quality. Our initiative towards better corporate governance is an ongoing one. So with 50% of our Board and 70% of the Gati-KWE Board being independent is just a stepping stone for future initiatives on this front. With this, I would now talk about consolidated financial performance. I would give an update of quarter 3 and share highlights of operational and financial performance for the 9-month period ended FY '22. First, I will cover the financials for quarter 3 and then for 9 months. Quarter 3 consolidated revenue increased from INR 394 crores to INR 416 crores, an increase of 6% and 4% increase from INR 401 crores of current year previous quarter. Gross profit for the quarter was down by 4% from INR 98 crores to INR 94 crores, and the reported consolidated EBITDA degrew by 34% from INR 25 crores to INR 16 crores for the quarter. Quarter 3 PBT before exceptional items was INR 4 crores. I will now talk about consolidated performance on a year-to-date basis. Revenue grew by 24% from INR 894 crores to INR 1,109 crores. Gross profit grew from INR 226 crores to INR 258 crores, an increase of 14%. And similarly, EBITDA grew from -- grew by 41%. PBT had a loss of negative INR 2 crores compared to a negative of INR 25 crores in the same period last year. GKEPL, which is our key subsidiary, has reported revenue growth of 21% year-on-year. The surface segment, which remains the largest contributor to our GKEPL performance, has posted highest ever tonnage of 265,000 tonnes with a growth of 11%. Adjusting for onetime transformation expense, the EBITDA stood at INR 20 crores with a margin of 5.7%. Our Air Express business post-rebranding and focused approach has been able to achieve new quarterly milestone in terms of tonnage handled and quarterly revenues. Air now contributes 5% to GKEPL top line, which grew by 42% year-on-year. Supply chain business registered a degrowth of 11%. Despite higher utilization, the revenue has declined as we are coming out of low-margin loss-making contracts in this business. I believe we have provided ample other data points, which we share on a regular basis in the presentation, which could be further referred for performance comparisons. With this, we can now open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Rajat ] from ithought.

Sir, my question pertains to GKEPL. What was the gross margin in this quarter and what was it last quarter? And what is the achievable gross margin for us? You have mentioned that it is 30% plus. If you can give a range, that will be helpful. And what are the constraints that we are not able to achieve that margin profile despite achieving the scale?

I could not hear him at all. It was very...

Sorry, is this better now?

Yes.

Okay. My bad. So sir, I was -- my question was it pertains to GKEPL. So what is the gross margin in this quarter? And what was it last quarter? And what is the achievable gross margin number for us? And what are the constraints that we are not able to achieve those gross margins as of now despite achieving a very good scale?

The gross margin for this quarter was 25.7%; previous quarter, 27.7%. And basically, like I had said in the earlier call also, we are in the process of making Gati a customer-centric organization and therefore, doing everything to make sure that the service to the customer is our first priority. In the bargain, yes, the gross margin has taken a hit. But then once we consolidate our operations, you will see from quarter 1 of next year, the gross margin is rising. Some of the reasons for this. Basically, as you know, we are a networked organization. We need to make sure that our trucks leave on time every time and reach on time every time. There is something called cooling that is practiced in some of the industry players, whereby if truck does not have that much capacity, you hold the truck, build up the capacity and then release it. But then your promise to your customer fails. So we are making sure that we are coming back to being absolutely customer-centric. And as these processes stabilize, the gross margin will come back. I hope I've answered your question.

And what is the range of gross margin that you think is achievable over, let's say, next 2 years?

So more than next 2 years, I'd say, by next year, our gross margin should be in the vicinity of 29% to 30%.

And is that the, I mean, sustainable level or do you think there will be scope to improve from there also?

Absolute scope to improve even from there.

Okay. Understood. And sir, on the second question...

Sorry to interrupt. [Operator Instructions] The next question is from the line of Prateek Kumar from Antique Stock Broking.

Yes. My first question is on your facilities and the large [ up switch ] you are taking, so Farukh Nagar being first. So what is the kind of CapEx which we put on such facilities going forward like per facility? And I guess it would be asset-light model. So these are like rented facilities or how do they work?

So you're right, Prateek. These are leased facilities. We take long leases. These are build-to-suit facilities, which means we work with the investor and landlord together to build out facilities as per our requirement. But it's a lease model. We would take long-term leases, anywhere between 6 to 10 years, so that the return on investment for the investor also comes in. So the model for the next 7 hubs will also be that of leased facility.

And what was the annual rental percentage these facilities will have? And do they have storage facilities also for warehousing or these are just the transshipment terminals for quick turnaround? And what is the average size of these terminals?

So the size of the first 3, which is Farukh Nagar, Bombay and Bangalore, are all 100,000-plus square feet. Yes, we are building them for the future. And therefore, maybe for 1 year or 2, we may have some excess space in them, which we can give out to some of our customers who require storage space. But the idea of these facilities are not for warehousing. These are transshipment hubs. And therefore, as you can see, even in Farukh Nagar, we have 89 docks. Generally in a warehouse, you wouldn't need so many docks, right? So although they are build-to-suit transshipment hubs, we are building out capacity over the next 5 years or so. And therefore, in the first 1 or 2 years, we would have excess space, which we can give out to some customers.

The next question is from the line of [ Shivaji Mehta ], an investor.

Sir, there was this news article which we had also put on our website, which stated that we would aspire to achieve a INR 3,000 crore top line in the next 3 years' time. Firstly, I just want to confirm whether this is a guidance that we stand by. And second, I wanted to understand what is the start date? I mean, the 3 years in -- is it by FY '25 or is it by FY '26?

So yes, this is not a guidance, but this is a statement that we stand by. This is basically starting from financial year -- FY '24 -- sorry, FY '23.

Okay. So FY '23 to FY '26?

Yes. Correct.

Okay. Okay. Right. And sir, just one last question on the EBITDA margins. Right now, we're guiding for about 13% -- sorry, 12% by FY '23. This was slightly more long term, say, by FY '25, FY '26, given these kind of new mega hubs that we are building and also with the operating leverage, et cetera. Can these go all the way up to, say, 13%, 14-odd percent?

Yes. Of course, they can. As we grow our business, the fixed cost leverage starts kicking into the organization because in our express logistics business, the fixed cost does not increase as per the revenue growth in a linear way. So definitely, they can increase beyond that.

Right. So just circling back to my first question. Like I was just looking at the numbers. So we were at a INR 1,000 crore top line from the express business in FY '21. And by FY '26, it's going to be a 3x jump more or less in your top line. So if you could just give some color since as you mentioned in your opening remarks, the industry is going to just grow at about 12-odd percent. So where is that huge additional growth that we are going to be experiencing? Where is that really going to come from?

So if we go back into the history of Gati, Gati used to be the market leader in this segment, okay? Then over the past maybe 7 to 10 years is when some other players emerged and took away a fair share of Gati's market. We are resurrecting the brand, as I have said, and there is tremendous opportunity out there. Number one is we must look at this industry size. The top 4 players who are the organized players in the industry don't even constitute 50% of the size of the express logistics industry. So there's a huge unorganized market, which is there for us to organize and get as our revenue. Secondly, the concentration of MSME customers, that is going to be our focal point. And third, as the Indian economy moves towards the 5 trillion mark and as manufacturing comes into the country in a larger way, express logistics will be used both for the raw material to come in for manufacturing and for the finished goods for distribution. So there is going to be an enhancement of the market also. One is enhancing the organized from the unorganized, and second is the enhancement of the market itself. So there is tremendous opportunity for a good player to grow.

Great. Sir, that was very helpful. And just one last question, if I may. Sir, since you have such a vast experience of spawning logistics companies in the past and, I mean, you've seen so many different facets of the logistics business, is there any plans going ahead wherein you would want to kind of diversify away into certain other sort of spaces within the logistics sector itself, something like a 3PL or some other sort of a space that you could be looking at?

Absolutely. I never say no to anything. The focus for the next 12 months is to really get Gati a substantial part of the business in express logistics. Post that, we definitely would consider looking at contract logistics because contract logistics does give a lot of business to express logistics, as you know. If you're going to be doing warehousing, the distribution from that warehouse becomes express logistics in itself. So definitely, we'll be looking at that. But right now, as we sit here for the next 12 months, at least, we're going to concentrate on growing our express logistics business.

The next question is from the line of Rikin Shah from Omkara Capital.

My question has already been asked by the previous person.

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

Sir, I would like to know like with Gati 2.0 and with the cost of optimization, with the change of management and with the reduction of debt and exiting of loss-making cold chain business, so what has led to the decline in profitability? And what is the outlook going forward, like in the next quarter and maybe in FY '23?

So I did respond to the same question, the first -- very first question, but I will reply again. Basically, as I have said, we are resurrecting Gati, okay? And I use this word resurrecting Gati because in the last 5 to 7 years, Gati, as you know, while the brand was very strong, had distracted itself into doing other activities beyond express logistics. So when Allcargo decided to buy out Gati, it was with the sole intent of growing the express logistics business and growing it under an asset-light model, right? Therefore, the first thing was to make sure that all the other subsidiaries that had been built out were either closed down or sold out, depending on the situation of the subsidiaries and also sell off the owned assets so that we can go through an asset-light model, which is the right model for any logistics company because it gives -- provides flexibility as well as it also allows the company to create models as further requirement of the business. We have been in the last 4, 5 months working on making sure that our operations first comes up to the level that it is required for us to give our commitment to the customer. And in that process, yes, we had to compromise a bit, and I use the word compromise a bit on the margins because we have to bring that faith back into the customer. Once our operations are in line with the expectation of the customer, customer volumes will start pouring back in. And you will automatically see the gross margins grow.

So sir, can we assume that things are going to improve from the next quarter and much more improvement can be seen in the next fiscal year?

Yes. You definitely will see much more improvement in the next fiscal year.

We'll move on to the next question. That is from the line of [ Radha ] from B&K Securities.

Am I audible?

Yes. You are.

So my question was in terms of the debt. So in June quarter, I believe that our net debt on Gati's book stood somewhere close to around INR 176 crores. And we had mentioned in the presentation that we have identified some similar amount of noncore assets that will be sold to and then -- that will be sold, and the proceeds will be used to repay the debt. But in this quarter, I can see that the debt has increased by about INR 13 crores in Gati-KWE. So would you say that the time line for the repayment of debt has been increased by a few quarters? And what would be the current net debt as on Gati's book?

So if you look at Gati's parent company, the net debt has actually reduced by INR 7 crores to INR 8 crores. We have reduced our term loan for this quarter. In GKE, yes, we have increased the working capital by a similar amount because, again, like I said, we want to make sure that the service that we provide to the customers is up to the mark. And that required us to make some quicker payments to our service providers, et cetera. We are in the process of selling our noncore assets, as I call them. And while the whole organization is behind this, it takes a little time to sell off these assets. But we will show you every quarter sale of assets.

And my next question would be in terms of CapEx. So just extending my question -- that the previous participant has also asked about -- on CapEx. So just extending that question, can you give us maybe a ballpark figure of what would be the CapEx required for Gati for the next 2 years?

So like I said, I've embarked upon a total asset-light model. All operating units, whether they are hubs, whether they are distribution centers, these will all be taken on lease. Our CapEx, if at all, will be on replacing material handling equipment as they grow old in the organization. So nothing substantial that I can really put down here towards CapEx for our growth.

Okay. Just one last question, if I may. What would be the current market share for the company in surface express and air express?

So market share is being [ calculated ] in many, many different ways. If you would take just the 5 top players in the industry, which is Safexpress, TCI, Spoton, us, Blue Dart, which are the B2B players, then we would be about 16% to 17% of that.

In surface express. And what would it be in air express?

Air express is very difficult to make out because air express [indiscernible] take too large [indiscernible] which carries greater volume on its aircraft, then it is very, very difficult. But I can only tell you that air express is 5% of our total revenue in GKEPL.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

One question. When you talk about aspirational 12% EBITDA margin, potentially 14% if operating leverage on fixed cost kicks in, the lease payments for all these 7 hubs that you're creating, are you considering them below the EBITDA line or these expenses would be part of the operating expenses?

No. So we go by the international accounting standards, right, Ind AS.

In Ind AS, the depreciation and interest would include the lease payments, will be below the line, below the EBITDA line.

Yes.

So in that context, what's the CapEx that the investors are making on each one of these units?

I told you there is no CapEx. We are going...

No. No. You're not the landlord, right?

Sorry.

The landlord is building the facilities for your specs.

Correct. So for us as Gati, it's a pure OpEx model.

Yes. Yes, I get that. But what is the investment that the landlord is making in the facility? What would be the cost of land and building, just out of curiosity?

I really would not be able to say what is the cost of land, for sure, because land, as you know, depends on whether the gentleman has owned the land through his ancestry or when did he purchase it, et cetera, we don't know. Generally, when you look at a hub asset, you don't take land into consideration. Otherwise, you'll never get return on investment. So land appreciation is what they look at, these landlords. They never look at land to be built into their ROI for the lease rental. You can imagine if in Gurgaon, you were to buy a land today and then I want to build a warehouse and get return on investment, you'll never get it right. The land part is always the appreciation of the land that you have to take into account.

Okay. Let me ask it differently. In Farukh Nagar, what's the lease payment that you're making on a per month basis?

So individual per month leases, we don't put out like that. That's not the level of information that we give out.

The next question is from the line of Nirav Vasa from Anand Rathi.

So sir, what I wanted to understand is that as on Q3 FY '22, 58% of revenues in the surface express business was coming from key account -- key enterprise accounts. So wanted to understand as we ramp up our business, how do you see the revenue share coming from the 3 major revenue heads, that is your key enterprise accounts, SMEs, retail? And if you can specify a bit on the e-comm policy, that would be great.

So the way I am directing my sales team is that by next year-end, we should have 50-30-20, which means 50% key accounts, 30% SME and 20% retail, yes. As far as the e-comm policy is concerned, at least for the next 12 months, we will not be doing any B2C e-com in Gati. I said that the last time also. But we will do B2B e-com. So when I say B2B e-com, it involves 2 kinds of businesses. One is pickup from vendors and deliver to the e-commerce warehouses, and the second is pickup from e-commerce warehouses and returns going back to the vendors. So that business of e-commerce, we will be doing. But we will not be doing the last-mile delivery, which is B2C.

Right, sir. Got it, sir. And sir, my second question is that in the start of the call...

The past is [indiscernible] already.

Sorry, please come again?

I'm just joking. Please carry.

Yes. So sir, in the start of the call, you mentioned that there is going to be an aggressive rollout of our warehouse in transshipment program, expansion program. So would it be possible for you to share as to what can be the total area under square feet which you intend to envisage or to roll out in next 2 to 3 years once your -- the proposed layout is fully executed?

So like I said, the first 3, which is Farukh Nagar, Bombay and Bangalore put together itself, should be about 350,000 square feet. As we go into the smaller cities, the size of these transshipment hubs may go down to, say, about 75,000, 80,000 square feet. If I were to take an average over the next 7, 8 hubs, we are talking about at least anywhere about 0.25 million square -- sorry, 0.75 million square feet.

The next question is from the line of Ankita Shah from Elara Securities Private Limited.

Yes. Sir, I wanted your thoughts on the realizations for the 9 months. So we've seen improvement in the surface express business, but there has been a decline in the air express business. So how are you seeing realizations moving forward? And why has there been a decline in the air express, although the top line growth is -- I mean, volume growth is good in both the segments, but not on the realization part?

So air express is a business that is so small just now. So an individual customer can really influence my air express business going up and down. I wouldn't really be bothered about that right now because we are growing the air express business. Our air express business, as you can see, is at an average of INR 5 crores a month, right? So that's not really to be viewed that way, that the realization is down or up. The surface express business, our realization has remained constant. This has not really moved in a big way. And as we grow our MSME and retail business, the realization will only increase.

Okay. And you had mentioned in our last conversation that you pay for a tariff hike every year in the last quarter. So have you taken a hike in the fourth quarter now?

As we sit here in the month of February, we are rolling out a tariff hike.

Okay. And if you can share the quantum?

It differs from vertical to vertical.

Okay. Okay. And also, any update on the divestment of fuel pumps? And what is the appropriate investment done in this line?

Sorry, I couldn't get your question. Update on?

Divestment of fuel pumps, fuel stations.

Yes. So we have the 3 fuel pumps. The buyer is ready with us. It is only that this has to be taken up with the public sector organization for permissions, which is taking a bit longer than what we thought. But we definitely have a buyer who is ready to take them over.

So any timeline on when can we...

When you're dealing with the public sector, to give you a time line would be very difficult for me. But we are trying our best to do it as soon as possible.

Okay. And just last one, what is the total investment that you have done in this?

Sorry, I'm not with you.

So the investment that you have done in this business segment?

So as you know, Allcargo has bought Gati lock, stock and barrel. So there is no investment specifically in this business that we have done.

We'll move on to the next question. That is from the line of Depesh from Equirus.

Sir, last quarter, Mr. Ravi highlighted the one-off to the tune of INR 5.2 crores on the consultancy charges, et cetera. So I just wanted to know what's that number this quarter.

That's approximately INR 3 crores this quarter. And by March, that will go [ out ].

Okay. So the consultancy charges will go away or so by March?

Yes.

Understood. And sir, lastly, on the stand-alone business, there's a B2C business that you do -- that you have in a standalone part. I think you used to share the volumes for the e-commerce logistics as well, but that slide is missing here. So can you help me with the volumes in e-commerce logistics that you did in this quarter? And also, why the EBIT level losses have increased while the total scale is reducing in this business?

So basically, like I said, after I came in and evaluated the strength of Gati, I have almost now stopped the B2C e-commerce logistics business. And therefore, you can see the numbers are also kind of going down. The only business left out over there is the B2B business in e-commerce, which we will look at now merging back into our normal surface or air express business because it doesn't make sense to keep it separate. Therefore, the allocation of costs will stop, and there will be a direct expenditure.

Okay. So you're saying merging this business into the GKEPL, right, where you have 70% stake?

Yes.

The next question is from the line of Neelam Punjabi from Perpetuity Ventures.

Sir, delving further into one of the previous participant's question, I just wanted to know what is our current annual lease payments. And with our future transshipment hubs becoming operational by FY '24, what would be the anticipated annual total lease payments? If you can just give us a ballpark number.

So our current annual lease payment would be to the tune of INR 60-odd crores. The ongoing ones with the new hubs coming in will be difficult for me to give right now. But as and when we keep on moving from our own to a build-to-suit lease, we will be putting those out in our quarterly numbers.

The next question is from the line of Sunil Kothari from Unique PMS.

Can you, sir, repeat this annual lease payment? Currently, that is INR 60 crore, you say?

Annual.

Annual. And that is part of other expenses, right?

That will be in our admin costs.

Okay. Okay. And sir, broadly, the way you presented and give a very detailed answer to our aspirational margin and our revenue target, can you provide me a little bit granularity in terms of, say, next 12 months' objective for maybe PBT margin over 3, 4 years, what type of PBT margin is possible in this business? Because sir, my concern is your key accounts, you can't increase easily the prices. And your supplier, your vendors, you have to pass on the cost immediately to them because they are a small and very transporter -- small fleet owners. So combining all this situation, I would like to understand, what type of PBT margin is possible in this business? And to achieve those, what are we supposed to do over the next 12 months or 18 months?

We have already, over the past 18 months, given you the guidance that we are looking at an EBITDA of 12% right? So that is what we are striving toward. The main component of our cost is the operational cost, which is our pickup, delivery and haul cost. And that is where we have to work to get efficiencies in all 3 of them such that we can increase our gross margins, of course, with the combination on the yields that we get from our customers. For the -- to respond to your question about key accounts not being able to increase the yields, I don't think that is true. It is about giving them the right service and going back to them and saying, "Hey, guys, if you want this level of service, this is the price that you have to pay for it." A lot of customers would be willing to do that because in surface express, it is not a huge increase that you are talking about with the customer, right? The raises are around INR 13, INR 14 a kilo. Then even if you're increasing 10%, it's just like increasing hardly INR 0.14. So that -- with the change in mix, which I spoke about earlier, where we increased our share in our revenue of MSME and retail, we'll make sure that our gross margins go up to the required. Like I said, as we grow the business and our gross margins grow up, we leverage our fixed cost, which is not going to keep growing according to the increase in revenues. And therefore, to achieve the 10% to 12% EBITDA margin should be the first target for us.

That is feasible in the next 12 months, sir?

We have given you that, yes, 12 to 18 months. So we will do that.

Right. And sir, one clarification. Somebody replied on one query's response that this lease rent will be debited after EBITDA. So just again, I wanted to clarify. This will be the part of administrative expense. And after EBITDA, there will be only interest and depreciation.

Correct. So under Ind AS, you need to calculate the leases over the useful life of -- and capitalize them and then put depreciation below EBITDA.

The next question is from the line of [ Rohit ] from [ Samadu Investments ].

I just had one question on the Allcargo Logistics part. Allcargo being a huge 3PL player and there can be significant express business for us coming from them, has there been any synergies that they have been able to pass on to us and anything in terms of numbers that you could share?

So as we sit here, there is a group-wide cross-sell and upsell program that goes on between the sales teams of Allcargo, ECU and Gati. It has already started green shoot results for us, and we believe that this program will generate a lot of business for us. As far as numbers are concerned, I cannot share any numbers right now with you. But as this program [ matures ], we will look at sharing some pointers.

Ladies and gentlemen, we'll be taking the last question. That is from the line of Ankita Shah from Elara Securities Private Limited.

Sir, just one clarification. If you can share the mix of B2B, B2C in the standalone business?

Very difficult for me to do that because we don't do B2C business. However, it would be wrong on my part to say B2C is 0 because some of the retail business which we pick up could end up being a delivery to an individual. So for example, we have a product called a motorcycle movement. So that could be a kind of a delivery at a C location, but very small. I haven't even myself calculated how much B2C. You can safely assume that our B2B would be above 95%, if not more, of our business.

Ladies and gentlemen, that is the last question. I now hand the conference over to Ms. Ankita Shah for her closing comments.

Thank you. Thank you to all participants and management for taking out time and to the management for giving us the opportunity to hold this call. Sir, do you want to add any closing remarks?

Nothing but just to say thank you to everyone, and I hope we have been able to answer all questions appropriately. Should you need any further clarification or would like to know more about the company, please feel free to contact either our team or SGA. Thank you once again.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Elara Securities Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.