Allcargo Gati Limited (532345) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gati Limited Q2 FY '23 Earnings Conference Call hosted by PhillipCapital India Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital India Private Limited. Thank you, and over to you, sir.

Thank you, Renju. Good afternoon, everyone. On behalf of PhillipCapital, I welcome you all to Q2 FY '23 Earnings Conference Call of Gati Limited. We are pleased to have with us management team represented by Mr. Pirojshaw Sarkari, Chief Executive Officer; and Mr. Anish Mathew, Chief Financial Officer for Gati Limited. We'll have opening comments from the management, followed by the question-and-answer session. Thank you, and over to you, Phil, sir.

Thank you, Vikram. Good afternoon, and a very warm welcome to everyone on our quarter 2 FY '23 earnings conference call. We have uploaded the results, press release and presentation on the stock exchanges and company's website. I hope everyone has had an opportunity to go through the same. Along with me, I have Mr. Anish Mathew, our Chief Financial Officer for Gati Limited, and our Investor Relations team. I will start by sharing the industry and business overview, and then we'll hand over the call to Mr. Anish Mathew to discuss the financial performance for the quarter. Strong demand supported the second quarter of fiscal year 2023, driven by growth in the key industrial sectors and led by an uptick in consumption in both urban and rural India. The E-Way bill's generation recorded an all-time high of over 84 million in September 2022, signaling a strong boost to economic activity on the back of a festive season. With government initiatives such as National Logistics Policy and PM Gati Shakti, we believe that the formalization of the logistics industry is underway, and there is a huge opportunity for organized players as the industry will see an accelerated shift from the unorganized sector to the organized sector. The National Logistics Policy is expected to revolutionize the sector, enabling supply chain management. The introduction of the National Logistics Policy is aimed at promoting seamless movement of goods, overcoming transport-related challenges, encouraging digitization, along with the significant reduction in time and cost. NLP, the National Logistics Policy, targets to reduce the logistics costs from a current 13% to 14% of GDP to single digits. This augurs well for the road logistics sector as it shall reduce the overdependence on road, through better integration of different modes of transport and in turn improved demand identification, thereby enabling better availability of trucks. Gati a company firmly believes and supports the government's vision of $5 trillion economy and is poised well to play its part in helping achieve the goal. I would like to highlight here that Gati is exclusively partnered with the SME Chamber of India as their preferred logistics knowledge partner. Amidst the odds faced by the economy due to higher crude prices, rise in commodity prices and overall inflation, Gati Limited from its Express business has delivered a solid improvement in EBITDA for H1 FY '23, showcasing a significant growth of 215% on a year-on-year basis. The performance is in line with our expectations and stated strategy. We would also like to highlight that our rebranding strategy of Gati Air is bearing fruits with the segment growing at the fastest pace and achieving its highest-ever quarterly revenue of INR 21 crores after several years. Our pillars for delivering performance remain consistent with a strong focus on customer demand. With our established principles of digitization, sales acceleration, infrastructure development and operations, we have been able to deliver gross margin expansion and are confident of increasing the sales going ahead. On the digitization front, the seamless movement of cargo has been made possible by our proprietary software GEMS, which also has route optimization and faster turnaround capability. With that said, we are concentrating on improving our front and back-end digital processes to deliver increased efficiencies with our advanced modules. With sales acceleration, we continue to prioritize our MSME and retail business, while aiming to increase the wallet share of our key and strategic accounts to help our profitability. We are committed to strengthening our presence by expanding our services deeper into the key growing markets and to cater to the growing demands of retail and SME. Regarding infrastructure amplification and our mega hubs, we have witnessed steady increase in the ability to handle high volumes post the commissioning of our mega hub in Farukh Nagar. Our mega hub in Mumbai has just about started today, and Bangalore should be operational in this coming year. Over and above the planned expansion across the country with our mega hubs, we also added 2 new distribution hubs at Nagpur and Guwahati in the last month itself. We anticipate that these hubs will add up to volumes for the coming quarters. Lastly, we remain aligned with our vision to maximize value creation for every pattern of society. We have also been focusing on a few other ongoing initiatives like pilot run for pickup and last mile delivery using electric vehicles, ease of doing business with Gati for customers from booking till delivery, and embarked upon CSR activities for our contribution towards the society. With this, I would like to hand over the call to Mr. Anish Mathew, our CFO, for financial and operational highlights for quarter 2 FY '23. Over to you, Anish.

Thank you, Phil. Good afternoon, everyone, and a very warm welcome to our Q2 FY 2023 earnings call. I will now take you through the highlights of financial results for the second quarter of FY 2023. For Q2 FY '23, consolidated revenue from operations stood at INR 435 crores as compared to INR 399 crores for Q2 FY 2022, indicating a growth of 9% on year-on-year basis. EBITDA for the same period stood at INR 28 crores as compared to INR 18 crores, registering a growth of 53.4 percentage. Preexceptional PBT stood at INR 7 crores for Q2 FY '23 as compared to INR 6 crores for Q2 FY '22, registering a growth of 11.2% on year-on-year basis. For the half year ended September 2022, consolidated revenue from operations stood at INR 866 crores, registering a growth of 25.5%. EBITDA stood at INR 52 crores, registering a growth of 175.3% as compared to H1 FY '22. Preexceptional PBT stood at INR 11 crores as compared to a loss of INR 6 crores in H1 FY '22. Our Express business has been delivering strong performance with revenue from operations increasing from INR 334 crores to INR 370 crores in Q2 FY 2023, up by 10.8% on a year-on-year basis. For Q2 FY '23, tonnage witnessed an increase of 8% year-on-year and stood at 283,160 metric ton. Also, during the quarter, we have achieved a milestone of handling 1 lakh tonnes in a single month. EBITDA for Q2 FY '23 stood at INR 27 crores as compared to INR 17 crores for Q2 FY '22, signifying a growth of 57.8% on a year-on-year basis. Preexceptional PBT stood at INR 6 crores for Q2 FY '23 as compared to INR 5 crores for Q2 FY '22, registering a growth of 11.9%. For the half year ending September 2022, revenue from operations for Express business stood at INR 735 crores, registering a growth of 28.5%. And EBITDA stood at INR 52 crores, delivering a staggering growth of 214.8% as compared to H1 FY '22. Tonnage handled during H1 FY '23 stood at 562,000 metric ton, thus registering a growth of 27.7% as compared to H1 FY '22, Preexceptional PBT stood at INR 11 crores as compared to a loss of INR 7 crores in H1 FY '22. We've been consistently providing other key comparative financial performance indicators in our investor presentation. One can refer that for more details. With this, I would like to open the floor for questions and answers.

[Operator Instructions] The first question comes from the line of Amit Dixit from ICICI Securities.

I have 3 quick questions. The first one, is it possible to quantify the EBITDA of Surface Express and Air Express businesses separately without taking other income into consideration?

Mr. Phil, please go ahead with the -- and answer the question. Mr. Amit, can you please repeat the question once again?

Yes, sure. I had 3 questions. The first one is, is it possible to quantify the EBITDA from Surface Express and Air Express businesses separately without taking other income into consideration? That is the first question I have.

Mr. Phil?

Can you hear me? Hello?

Yes, Mr. Phil, just give me a moment. Mr. Amit, please go ahead with the…

I had the question, I can answer it. So like I was saying that we don't measure our EBITDA margin separately for our Air and Surface products because we have a combined operations on the ground, and we only measure our gross margins on the products separately. And our gross margins on both these products are very similar.

Okay. Fair enough. The second question is in H1 FY '23, receivable has gone up by INR 734 million, while payables have also gone up by INR 221 million. Is it possible to give more color on these? More specifically, can we expect certain unlocking of receivable as the year goes by?

Anish, you want to take this question?

Yes. So receivable is, I think in Q4 and Q1 earnings, we mentioned that we would be kind of doing an unlocking of the working capital from out of the accounts receivable. So we kind of have already -- we already initiated as our action plans around unlocking. And it starts kind of bearing the results, and it might take maybe 1 more quarter, 1.5 quarters to kind of get full realization.

Okay. So what kind of receivable number can we expect by end of FY '23?

Well, we are looking at kind of close to 10 to 12 days of receivable reduction, DSO reduction. In quantum, that would be anywhere between INR 40 crores to INR 60 crores of reduction.

Cool. The third and the last question is other income contains certain write-back of liabilities and reversal of provisions. So first of all, can you throw some light on these, both these items? And are there -- is there some more scope of getting these write-back of liabilities and provision reversal in subsequent quarters?

So predominantly, the other income are driven only by 2 line items, one is the secular deposits which we have, which is more than 3 years, and as per the accounting policy, all the inactive vendors security deposit, which is lying there for more than 3 years, we would do a write-off as per the accounting policy. That's one factor actually which has contributed other income. The second one is related to the old accounts payable, again, inactive for more than 3 years, which we have taken a write back. So we have kind of done almost all the write-backs in the P&L account. Depending upon the age of these payables, there might be some more which would be coming in the subsequent quarters. But we can't at this point in time quantify that.

Next question comes from the line of Dhaval Shah from Girik Capital.

Mr. Sarkari, very encouraging to see the growth in the Air Express division. So…

Hello? Hello? Please get nearer to the speaker.

Okay, okay, fine, am I audible now? Fine?

Yes, much better.

So couple of questions from my side. So first being the E-Way bill generation in the second quarter compared to the first quarter was around, higher by 6.5%, while the tonnage handled by Gati quarter-on-quarter is higher by 1.5%. So is it the right way to compare some comments from your side? That's my first question.

So as you know, I have been saying this for now a few months that, at Gati we are developing our infrastructure so that we can increase our top line and not reduce the serviceability of that increased volume. In the meantime, what we have done and is very evident from the numbers is that we have been concentrating on increasing our profitability. And therefore, although the growth quarter-to-quarter has been only 10%, you can see that the EBITDA is up by 33%, right? While as our infrastructure grows, we will then make sure that corresponding volume also grows because in the current infrastructure it was very difficult for us to manage increased tonnage. Having said that, the operational efficiencies have kicked in and we have even grown the tonnage quarter-to-quarter, as you can see, but not in the same line as we would have liked to grow.

So you were constrained by capacity? Is it the right conclusion?

Yes, in a way.

In a way, okay. And this new hub which came up in this quarter, so has it added materially or it came towards the end of the quarter?

It just came in last month, both of them.

Both of them Okay. Okay. Okay. Got it.

Nagpur and Guwahati.

Okay. And has Mumbai got delayed? It was supposed to come on…

Yes, Mumbai has got delayed. But as I said on my call today, we have started moving into the Mumbai hub as of today itself. So we will see Mumbai full-fledged from December.

Got it. Got it. Sir, second question is I was looking at a couple of advertisements of Gati-KWE and where the company has advertised for the products like some spices and cashew nuts and agarbatti. Now my question is that Gati-KWE being an express logistics company, does the value of these products fit into the express logistics basket? Is it affordable for the customer to transport via express logistics? Yes.

So we have 3 segments of business. We have what I call large accounts with MSME and retail. And this what you just spoke about is specific to the retail market. These are clusters where we move the businesses from only on a B2B basis, right? So you are moving cashew nuts, you're moving coconuts, you're moving whatever you just said from a retail market. So these are pretty seasonal, and they are not being given the credit that we give the normal customers, but they don't give us a better yield. And they do use Express because they have to make sure that their products reach on time for a certain festival or for a certain reason. So yes, they do utilize the Express business, but in our retail segment.

Okay. Okay. So then this would -- because generally these products are for a LTL and or a -- generally an LTL kind of business model and not Express exclusively. So here, the rates what they are -- the service what they are taking is the Express service in terms of the turnaround time for the product to reach the destination.

Yes.

Okay. Okay. Got it. Got it. And sir, last question is, so now Allcargo convert the wallet and infuse money in Gati. So if you could lay down the use of the funds and the CapEx requirement for Gati for FY '23 and '24? And also more on the upgrading the IT infrastructure and how are we building up our capabilities compared to the peers? Yes.

So if you have been seeing over the last 2, 3 years, after Allcargo has bought out Gati, one of the important things that we have been doing is repaying the debt or the loans that was there in Gati earlier, which has come down substantially. One of the use for the funds that will come in moving forward also will be that we have a working capital debt right now. We'd rather close that and use our own funds as we start generating cash in the near future. With regard to our new hub, I have said that these are all asset-light, they are all on a rental basis. And the CapEx of a new hub, approximately on 100,000 square feet is ranging anywhere between INR 5 crores to INR 6 crores, which is not a very large CapEx spend. I hope I've answered your question.

The next question comes from the line of Alok Deora from Motilal Oswal.

And just had a couple of questions. So first, I wanted to understand on the demand trend. How has it been, say, for the festive season for us and also in October? And do we see the same revenue run rate continuing in the second half of this year? Because we have been getting some signals of some slowdown in selected pockets. So just your thoughts on the Express B2B side.

So in spite of the fuel prices being held and also the inflation, as you see, we saw a good demand for the festive season specifically in the automotive sector and the consumer durable sector. And we did the highest ever tonnage in the month of September, which was even more than 100,000 tonnes. And that is with the same capacity that we have. October, having so many festivals, had lesser working days. But if you see the revenue per working day, it has remained the same. I'm not seeing for the express industry a real slowdown. In fact, we see the trend continuing for the month of November too.

Sure. Sure. And also, sir, the margin guidance which you had given of around, reaching 10% by end of this year, so that we are on track with that or any changes there?

So I had said that we will end this year at 9%, and we will -- we continue to say that we will -- we are on track. We have seen a lot of operational efficiency being brought in and our gross margin increasing every month. And we are very sure that by last month of this year, we will touch 9%.

Just last question. So since you highlighted about the strong growth in the Air Express segment. So how are we seeing this segment like, say, if we see a couple of years down the line, how big this segment could be for us in the overall scheme of things? Would it be in the current range in terms of percentage contribution to total revenues or it could be higher than that?

So if you look at the Indian logistics industry, specifically to the express business, it is a 90-10, 90% surface and 10% air. And our air share is just about 5 -- a little above 5% just now. We definitely, our first benchmark is to get the Air business to 10% of our total business. And then, of course, if we have to be better than market then a good aspirational figure should be about 12% to 15%.

So then we will be making similar margins in Air as well?

On the gross margin, yes.

Next question comes from the line of Gautam Gosar from Perpetuity Ventures.

I have one clarification. So the guidance which you've given for the EBITDA margins of 9% and going forward, taking a 12% to 15%. So does that include other income or without other income of margin guidance?

So it depends on what you call other income. For me, when I generate cash in the business and get interest on that cash, it is other income. But if it is extraordinary income, no, the answer is no.

Okay. So basically the interest earned on fixed deposits will be included in the margin guidance which you have given, right?

Yes.

Next question comes from the line of Riya from Aequitas Investment.

So I have a couple of questions. So for our Surface Express business, for tonnage-wise we have just on a Q-o-Q we just did 1.5% growth. So what was the reason for that? And as asked by a earlier participant, since our capacity was constrained for the coming quarters, could you guide us the volume and how it will pan out?

So if you really look at my first quarter results, we -- our growth in the first quarter was higher than what the general expectation in our first quarter of our financial year is. And this was because there were certain competitive elements for which we had got more volume. And therefore, growing our second quarter business looked for small growth, 1.5%, but it is a large business. It is just because in the first quarter we got that additional growth due to competitive, what should I call, disruption. So I hope I've answered your question. Moving forward, we are very buoyant that we have now got our Bombay hub up and running. Like I said, we have just started the shifting from today, tomorrow, and we will have at least 2 full months of the new Bombay hub, and therefore, our west loads must increase just the way our north loads increased when we opened up Farukh Nagar. Similarly, our central and northeast have just been a month old, and we should see volumes increase in those zones too. So yes, growth will continue.

Okay. And as far as demand is concerned, are you seeing, because major -- the value return -- higher yield is driven by the smaller or the MSME players, are we seeing a shift or drift from there, like the -- as compared to the total percentage derived?

Well, the endeavor for us is always to grow the MSME and retail faster than our key and large business. It's a big challenge because as we grow the large business, each large business gives us much larger volume than what an MSME and retail gives us. So if you see our growth in each segment, whether you call it MSME and retail put together, or you call it large, has been very similar. So we have been growing both the businesses. That's why our percentage share has remained almost the same.

But going forward, what kind of percentage would you want to expect. Like of course you would want MSME to grow, but what kind of the like on ground what is happening? Like how is the demand from that side?

The demand from the MSME segment is definitely good and will only get better as we see more and more manufacturing happening in this country. I think the new logistics policy is going to enable more manufacturers to get the confidence to come in and manufacture since the logistics cost is going to go down. And therefore, the MSME sector will get more business. So MSME will be a growth engine for us.

Okay. And going forward, do we see any highs in realization?

Well, I have always said this that in the Indian logistics industry, there is enough scope to reduce cost, right? We have to continuously optimize and reduce cost. Yes, we will very soon be announcing our annual hike. But the name of the game in logistics, especially in India is cost optimization and bringing efficiency.

Okay. Any guidance you would want to give for the annual hike?

You will soon get to know. We'll be announcing it in the papers itself.

[Operator Instructions] Next question comes from the line of Pradyumna Choudhary from JM Financial.

So first question, I just wanted to understand like one of our direct competitors which is listed, few months back it opened its Gurgaon hub and seems to be doing well. So from a competition perspective, how does it really affect us, like even that's a very big hub. And so does it really directly affect us? I just wanted to understand from a business perspective.

INR 25,000 crores is the organized market size and an equal, if not more, unorganized market size. There is enough room for all the players to grow in this market. We have to convert the unorganized to organized, and that is the way all of us should be able to grow more than the market rate of growth.

Okay. Okay. And secondly, I was just looking at your Surface Express tonnage and revenue, Q1 and Q2. So there seems to be a slight decrease in realization is my understanding, Q-on-Q. What would be the reason for the same?

So the slight increase or decrease happened depending on the lanes that the customer gives us. There will always be fluctuation of a percentage here or there depending on the lanes that the customer gives you during that particular period of time. Nothing alarming has changed either in the profile of business or in the revenue per piece.

Okay. And just one bookkeeping question. What's the gross margin in this quarter for Gati-KWE.

28.3% -- 28.8%, sorry.

Next question comes from the line of Sagar Bhatia from Prabhudas Lilladher.

Congrats firstly on good set of numbers. My question is a little more tilted towards the client mix, which you already mentioned before. I want to know going forward in the next 2 quarters or even in the year, how that mix looks like for you? And second, which segment has contributed the most to your EBITDA expansion? Or was it just a function of increasing efficiency through the channel [indiscernible].

I keep repeating the same answer over and over again, and I will do it once more for you. We clearly have a focus on MSME and retail, okay? That does not mean we stop getting new business or better wallet share from the large customers. Basically, if you have to optimize cost, the one factor that you have to keep in mind is capacity utilization. And capacity utilization is a direct derivative of volume. So yes, the large volume does help us to reduce costs on our major cost, which is our network. So it's a balance between both yield and cost reduction, which has given us our gross margin.

Next question comes from the line of Saloni Hemnani, Molecule Ventures PMS.

Sir, the rest of my question have already been answered. I just have one remaining question. So you have been extending the timeline for hubs like Pune, Hyderabad, Cochin in our PPP in the last couple of quarters. So any reason for that?

So I have given timelines for Bombay and Bangalore. Yes, both of them have been extended Bombay specifically by more than a couple of months. Basically, Bhiwandi is a challenging area, and we can't really have control over the construction since these are all built-to-suit, done by the investors and landlords. But happy to say that we have started shifting in today over there. Bangalore specifically is because of the rain. There has been some torrential rains and therefore the ground which was supposed -- the plinth which was supposed to come up much earlier took more time because of the monsoon. Having said that, we are always on the lookout if we find something which is suitable and can be taken up, like I would say, off-the-shelf. And that's what we did in Nagpur and Guwahati. We found good properties, and we have just taken them and they basically meet the requirements of our expanded infrastructure. So a combination of these will continue, but we are very optimistic that by March of '23, our first phase of infrastructure expansion should get done.

Sir, a follow-up on the hubs. So our competitors have also come up with new mega hubs. And from the looks of it, they look a lot more automated than the Farukh Nagar hub that we visited a couple of quarters back. So anything you want to highlight about the automation part about are we going to automate the hubs going forward, and we are just focusing on building them right now?

Well, automation in a B2B business is very different than automation in a B2C business. In B2B business, when I talk about automation, it is basically dock levelers and in our Farukh Nagar hub I think we have more than 80 dock levelers, almost one on every doc. When we talk about automation, we talk about material handling equipment to ease the manual handling of the goods. And we also talk about loading, unloading through telescopic conveyers. So the first 2, which is the dock levelers and the material handling equipment, we have -- every time we open a new hub, we will have that already. The telescopic conveyors is something that we are looking at in Farukh Nagar just now as we say, on a trial period. And if it clearly works because our per docket load is 100 kgs in Gati on an average, so it has to work for such a big load, otherwise it doesn't make sense just for the sake of automation to do automation.

All right, sir. Sir, just one more question on the 100,000 tonnes part that we achieved in this month. Are you expecting to continue with this trend going forward, sir?

Absolutely. So we have done 564,000 tonnes in the last quarter, right? If you were to divide probably -- 564,000 in the last 6 months, 370,000 -- one second, I'm a little confused. 280,000.

Sir, it is 280,000.

Yes, 285,000 tonnes in the last quarter. So if you divide that by 3, it is already on an average more than 90,000 tonnes, right? So definitely we will be continuing this effort. And as we open new infrastructure, we will go and talk to our customers that we are ready for more business in that particular region.

Next question comes from the line of Bhavin Shah from Sameeksha Capital.

Yes. So you've given very precise targets for EBITDA margins for year-end and in long term. So what -- at what revenue level would you achieve that? That's my first question.

So there are 2 kinds of margins that we speak about, right? One is the contribution of gross margin and the second is the EBITDA. Expansion of the gross margin and revenue increase, combination of these 2 will expand the EBITDA because we have now reached a stage in below gross margin costs where they'll be directly proportioned to the revenue. They are not variable. So we can leverage that with the increased gross margin and revenues. When I talk about my INR 3,000 crore exit rate with a 12% to 15% EBITDA margin, that is basically the first target that we have set for Gati when I came into the organization. Our gross margins have increased far better than my personal expectation in a short period of time in Gati and that kudos to the operations team that has worked well for us. So as we move forward, a combination of expansion of gross margins and revenue increase will get us the EBITDA margin.

Okay. Now the 2 observations which I want to -- or 2 points I want to make, and then we will see how you relate that price of your business. One is what sort of premium are you getting for Express versus normal LTL, guys? And second is, how do you see your business getting impacted once the dedicated freight corridor is fully operational, which could shift some business to rail?

So in Gati, we don't do LTL business. We do only express logistics business. LTL business margin can differ dramatically within that business. But for us, as express logistics, I think our yields are comparable to the yields of competition in the same express logistics business. With regard to freight corridor, we, at Gati are very excited about both the freight corridors as well as the multimodal parks that are going to get opened because if a railway siding is going to be extending into the multimodal park, then the entire cost of transportation becomes far lesser for us as an organization and more effective for the industry as a whole. So a combination of the freight corridors with the multi-model park would be very, very a credit for reducing the logistics cost in India.

My question was like how much price premium you are able to get over the normal LTL, non-express LTL because that is important in terms of -- given the higher cost?

Well, like I said, when you go non-express, LTL is generated, LTL could be Bombay to Delhi in 15 days, Bombay to Delhi in 20 days, Bombay to Delhi in 8 days, right? It depends on what the customer wants, and therefore the price could vary anywhere between, let us say, INR 5 and INR 7 per kg whereas the yield for express logistics is on an average above INR 12.

[Operator Instructions] Next question comes from the line of Rahul Picha from Multi-Act PMS.

Sir, I wanted to understand, firstly, that you have given a medium-term guidance on where you want to take the EBITDA margins of the business. But when I look at the depreciation cost and in context of the hubs that we intend to add over the medium term, that has been going up. And the way the accounting is, depreciation also accounts for the lease rentals that we pay on our long-term leases. So in that context, how do you expect the depreciation cost to increase over the medium term? And in context of that, where do you expect the PBT margins to be in 2 years' time?

Anish, would you like to answer that question?

Well, I think your question is directly related to the PBT margin. So I will put it this way. The depreciation accounting or Ind AS accounting is getting reflected in the EBITDA and equal amount is getting offset at depreciation line. So net, it's not going to be having a major impact actually on the PBT line. You would be giving the credit to your EBITDA line or accounted Ind AS, but you'll be debiting depreciation as well as interest charge in the below EBITDA lines. So net-net, as you know, the PBT line would more or less kind of remain the same. Really marginal increase or decrease are seen in the margins.

Okay. So basically, on an aggregate basis, you are saying that it will only be reallocation from other expenses to depreciation but not an overall increase.

Yes. At the PBT line, it would have been a very, very insignificant impact.

Okay. So your guidance of 12% EBITDA translates to what kind of a PBT margin?

Yes. 12% will give the PBT margin of around 5%, 4% to 5% -- 5% to 6%.

Next question comes from the line of Nidhi Babaria from Envision Capital.

Sir, can we say that we are capacity-constrained. Is it like we have less number of trucks? Or is it more to do with the efficiencies in the hub centers?

It is more to do with the space and the way some of our old hubs have been constructed. Nothing to do with transportation. Transportation capacities can be increased or reduced because we are an asset-light company. So even if I double my tonnage, I can manage the transportation today. It is the hub centers. For example, and I'm repeating something here, in North we had 3 separate hub centers earlier, and a single truck had to unload and load from 3 hub centers before it moved out of Delhi. There was tremendous inefficiency there. And each of these hub centers had hardly 5 docks each. So you can imagine turnaround time of a hub, right? Similarly, in Bombay, we had 2 separate hub centers, 1 in Panvel, 1 in Bhiwandi. So the trucks had to actually move from one hub center to another for both loading, unloading over there. These are inefficiencies that were built over the years. And once you kind of collapse this and make it one single large hub center with requisite docks, say around [ 80 per ] 100,000 square feet that you made, that is where the capacity becomes good enough for volumes to increase. I hope I've answered your question.

Yes, sir. And sir, when we say that we have a revenue target of INR 3,000 crores by FY '26, which means that we need to grow by at least 18% to 19% CAGR. And in current quarter, we have grown roughly about 9% Y-o-Y. So what gives us the confidence that you e will be able to grow more than 20% in coming quarters? Or like what is the correct road map to the growth to achieve INR 3,000 crores?

First half over last first half has grown 30.6%. Right? I think if I keep growing this way, I will hit my numbers easily.

Okay. And sir, when me say that our EBITDA margins are going to improve in context, like in line with revenue growth and gross margin growth, what exactly is going to be there for us to expand our gross margins? Like how are you planning to increase our gross margin?

So our gross margin expansion is a combination of reduction costs and reduction cost comes out of capacity utilization of trucks as we move the trucks. Every 1% additional capacity beyond 85% gives you tremendous cost reduction in the trucking industry. The second is, of course you are [indiscernible]. So as you increase your [indiscernible], that increases your gross margin. The combination of these 2 will expand the gross margin.

Okay. And sir, one last question. Any outlook on Guwahati and Nagpur center, like is there any way to quantify how these centers are going to contribute in our efficiencies on revenue side or on the gross margin side, like any rough picture on these 2 centers?

So I can only tell you this much, that from an efficiency perspective, we see immediately an efficiency enhancement of 20% to 25% when we open up a new hub, right, which means that we can do the same job with lesser number of people, and we can turn around more trucks in the same amount of time. Once that happens, service enhances and customers get more confidence and therefore they start giving us those lanes also.

Okay. So is there any way, like is there any way that we can say that initially our turnaround time in those regions were 24 hours and with new centers it will come down to, let's say, 18 hours or 20 hours, or any of those kind of numbers?

So a truck in Farukh Nagar turns around in 90. So 90 minutes it gets offloaded and 90 minutes it gets loaded, which is basically, if you put them together 3 hours. Before that, it was taking 8 to 12 hours.

The next question comes from the line of Ash Shah from Elara Capital.

I have a couple of questions on the fuel station side. So could you just give me the timeline as to when will the fuel station be divested completely? And how many petrol pumps do we own currently right now?

So we have 3 fuel stations. If you can help me with timelines when we deal with the Oil Ministry, I would be very happy. Please don't take it seriously.

No, no. In the first quarter con call you had mentioned that there were certain assets that were held for sale and we were in various stages. And we were going to receive some money in Q2. So have you received any money from them? Or could you just update on that?

Sure, Anish, could you take that one, please?

So, yes, so AFS, we have sold many properties and the total amount of money realized on account of sale of asset held for sale for 6 months at 30th September is INR 67 crores. So that's a significant amount of money which we have realized. And our AFS have come down from INR 134 crores to kind of INR 94 crore. We have 12 to 13 properties, which is yet to be sold. And we do have almost like a 20% visibility for those remaining assets. And we expect to kind of get a good amount of realization in the next 6 months.

Okay. And we are going to get -- we are going to receive around INR 70 crores from oil cargo in the Q3, and we'll receive around supposedly, if we say, INR 70-odd crores from the asset, assuming. So do we see that we will be like gross-debt-free by FY '23?

No, we won't be able to kind of square-off our debt by '23 because there are other commitments, capital commitment as well. And that's what we have been kind of providing the guidance also. I think most likely by FY '24, '23, 4, you would be nil debt.

Next question comes from the line of Krupashankar NJ from Spark Capital Advisors.

I have just one question, small question. And while we have seen the growth of express industry post GST and what you're also seeing is a lot of supply chain getting realigned. And emphasis, please, on secondary distribution. Now to the extent of upbeat expectation on revenue growth over the next 3, 4 years being upwards of 20% for the industry, are you seeing any specific end-user sector which are adopting Express Logistics in a much faster way? Or are you seeing any specific indicators on the underlying sectors. That's something which I wanted to pick your brain on. Hello?

Mr. Anish Mathew, we cannot hear you.

Sorry, I was talking, not Anish. Can you hear me?

Yes, we can hear you now. Thank you.

Okay. So what I was saying is, traditionally, the industries that used to use express logistics was auto industry, specifically for the aftermarket business, which is the spare parts and components business. We used to also see pharmaceuticals using express logistics to reach their goods to their distributors and C&F agents. But there is a big change now happening with the advent of e-commerce. A lot of the consumer and brands are using e-commerce to reach -- sorry, using B2B express logistics to reach the warehouses of the e-commerce companies so that their goods can ultimately reach the retail customer. So there is a big growth. And as more and more of these so-called B2C brands come up, they have to use B2B players to move from their manufacturer to the warehouse before they can really send it out in the last mile. And that's a big segment that is coming up now for B2B express logistics.

Got it. And I know we have had this interaction in the past wherein you are seeing loss consolidation with respect to warehousing. And from what I can gather with respect to what you've just said on the retail industry. So it's more of -- is it fair to say that the inventory is getting far more dealer and -- or rather in the system the extent of inventory kept by the company is coming off, and it's far more centralized, which is also -- so what are the drivers? If that is the case, then is it fair to assume that it has played out to a certain degree in some of the sectors and there are other sectors wherein it is likely to happen. Some thoughts on that front.

You're absolutely right. Post-GST, inventory on wheels becomes extremely important. Pre-GST, there had to be stocking locations in every state which is no longer required and inventory on wheels become very important, and it has to be predictable inventory on wheels. And most of the customers do not want their distributors or their retailers to hold large inventory, right? So therefore, express logistics will play a very critical role for them.

Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

Okay. So thank you, everyone, for attending this call. If you have any more questions, you can either contact our -- SGA, who is our Investor Relations company, or Ankit, who heads our Investor Relations. Thank you very much.

Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.