Allcargo Logistics Limited (ALLCARGO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Allcargo Logistics Q1 FY '21 Earnings Conference Call, hosted by Yes Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Alok Deora from Yes Securities. Thank you, and over to you, sir.

Thank you, Nirav. A very good afternoon to everyone. Today, we have the management of Allcargo Logistics Q1 FY '21 Earnings Conference Call. We have with us Mr. Prakash Tulsiani, CEO, CFS and ICD Division; Mr. Deepal Shah, CFO, Allcargo Logistics; Mr. Ravi Jakhar, Chief Strategy Officer. I will now hand over the call to the management for opening remarks. We'll then follow up with a Q&A session. Thank you, and over to you, sir.

Yes. Thanks, Alok. Hello, good afternoon, everyone, and welcome to today's earnings conference call to discuss the performance for the quarter ended June 30, 2020. Along with me, I have my colleagues Mr. Deepal Shah and Mr. Prakash Tulsiani. I hope you've had a chance to review our financial statements and the earnings presentation, which had been made available on the exchanges and on our website. Let me share a quick overview on all the businesses. It has been an exceptional period for business with unprecedented lockdowns and constraints in India and across the world, which have impacted the business. However, we have ensured the best efforts were made to continue business operations and service our customers to their satisfaction. There has been an impact on revenue, but across the group, we have taken significant proactive steps in reducing our cost, and there has been support from various international governments as well in form of subsidies and grants to support the business in times of pandemic. In the international business, there have also been gains from exchange rate benefits when compared with corresponding quarter of the previous year. All these have allowed us to maintain healthy bottom line, despite a fall in volume from approximately 184,000 TEUs to 162,000 TEUs. In India, we faced challenges in Express logistics because of lockdown with significantly reduced business in April. However, recovery started from May. As a result, Gati Financials for the quarter have been significantly impacted. Similar challenges led to an impact on performance of Projects and Engineering division as well, as infrastructure projects came to a halt in April and recovery only started from May onwards. The lockdown has also impacted our Logistics Park business, where we had signed an agreement for an equity transaction and are in the process of getting necessary approvals required to conclude the transaction. However, limited functioning of some government departments and restrictions otherwise has caused some delays. We remain confident that we will be able to consummate the transaction and overcome the delay and challenges as the situation is now expected to improve in coming months. Overall, economy was sharply hit in first quarter in India, but things have improved since then, and we are hopeful that they would continue to improve, and we would see a much better scenario going forward on the macroeconomic environment, and therefore, greater opportunities for us in business as well. I would now request my colleague, Prakash, to share brief details about our CFS business. Over to you, Prakash.

Ravi, thank you very much for the complete details on where we are in terms of India business and also what has COVID done to all of us. So coming to the CFS, we have a severe impact on our import volume. And also, there has been impact also on the export, but severe on the imports and -- which has caused a reduction in volumes handled by our CFS. The total volumes for the first quarter of financial year 2021 were at approximately 49,500 against 85,000 for the corresponding period last year. So you can see that the numbers are almost in the range of 50%, that is we are operating at. It has been a severe one because vessels came lighter. Not only the vessels came lighter, they also stripped calls. See, it was clearly the demand which was missing. And that's the reason that CFS has also suffered a volume impact. Have we improved thereafter? The answer is that yes, there is the challenging matter -- challenging period right now for us. And volumes are slowly increasing. So what we expected that July, August should be the month of recovery, we have not yet seen that. So it's been a very tough environment. And while we may have delivered our EBITDA, but that is only on one-time ground rent that we collected. So overall scenario for CFS is not looking that great as we go ahead. So that's it from our side. Thank you very much. Over to Deepal for taking us through for the quarterly numbers. Deepal, over to you.

Thank you, Prakash. First, let me highlight that it would be difficult to compare the quarterly financials with the previous periods due to the consolidation of Gati in the books from this quarter onwards. So this is the first quarter that we have actually consolidated Gati post acquisition. Secondly, as you know, the quarter has been impacted by lockdown and disruption in operations, not only for Allcargo, but across all companies. With all that said, let me now take you through the key consolidated quarterly financial highlights. The total revenue from operations stood at INR 2,078 crores for the quarter ended June 30, 2021, as compared to INR 1,815 crores for the corresponding period last year, which is an increase of approximately 14.4%, mainly on account of revenue growth in MTO business and the CFS business and, of course, the consolidation of the Express segment from Gati. Just for everybody's information, the Express segment, which is a new segment in our results, has been because of the consolidation of Gati. So that has been clearly earmarked as a separate segment. EBITDA for the quarter was reported at [ INR 130 crores ] as against INR 140 crores during the corresponding previous year. Profit after tax was reported at INR 30 crores for the quarter ended against INR 64 crores for the [ corresponding previous ] year, which is a decrease of 53.8% on a Y-o-Y basis, mainly due to COVID impact. For the MTO -- let me now get down to the individual segment results. For the MTO segment, that is the Multimodal Logistics segment, the total revenue in the quarter was INR 1,730 crores [ against ] INR 1,599 crores...

Sir, sorry, interrupt to you.

period last year, an increase of approximately 9%. EBIT was at INR 79 crores for the quarter ended as against INR 60 crores for the corresponding [ previous year ], an increase of 32%. The EBIT margin stood at 4.53%. Return on capital employed for the MTO business stood at 28.32% on an annualized basis. Project and Engineering...

Mr. Shah, sorry to interrupt you. Sir, your voice is breaking.

Voice is breaking? It's a land line actually.

Sir, there is [indiscernible].

Is it still breaking?

Yes, I could -- we could hear, but a few words are missing, but yes. So I think if you should be...

That's why I chose a land line actually. So let me see if I can go to the base. Just give me a second, please.

Sure.

Hello. Is it better now?

Yes, sir.

Yes. So coming to the Project and Engineering Solutions, the total revenue was at INR 64 crores for the quarter ended June 30, 2021, as against INR 117 crores for the corresponding previous quarter last year. EBIT reported at a loss of INR 14 crores for the quarter. P&E division's performance was primarily impacted due to lower utilizations due to the lockdown. And hence, the overall impact on the performance. Coming to our Logistics Park business. The total revenue was INR 9 crores for the quarter ended June 30, 2021, as against INR 2 crores for the corresponding period last year. In our CFS and ICD business segment, the total revenue for the quarter ended June 30, 2021, stood at INR 128 crores as against INR 119 crores for the corresponding period last year. EBIT was INR 51 crores as against INR 37 crores for the corresponding period last year, which is an increase of 38%. EBIT margins for the quarter has stood at 40%. The ROCE on the CFS business stood at 53.63% on an annualized basis. This is primarily due to container dwell time increasing due to lockdown, leading to additional onetime income, reflecting in segment revenues, even though volumes were down. That is it from our side. Thank you very much, and we open the floor to any questions.

[Operator Instructions] First question is from the line of [ H.R. Gala ] from Finvest Advisors.

Congratulations for the reasonably good results in these prime times. Just a couple of questions. First question is, can you just help me with how much is the onetime income, which is included in MTO and CFS on account of extra ground rent, et cetera?

So I can answer on the MTO. It is tough to qualify everything as onetime or recurring income. But for an example, government grant received for COVID-19 business support in our global subsidiaries would be ballpark approximately about USD 1.6 million. That would be the approximate ballpark grant received in the month of April, May and June, which is the first quarter.

So will it continue going ahead?

Nobody knows how the COVID pandemic [indiscernible] be. We would only be able to provide what has happened so far.

Yes, sure. Sure. Yes. And in CFS, how much it is?

In CFS -- Prakash, you want to answer the...

Go ahead, go ahead. Ravi, go ahead.

Yes, yes. So basically, in CFS business as well, it's -- in general, also, there are variations from a month-on-month basis, dwell time goes up and down. So to put a base benchmark number is difficult, but you could see -- if you were to compare, you could see the average volumes and the average revenue per TEU. And so one could do an estimation. But I would say we are hopeful that volumes should continue to rise gradually, as my colleague, Prakash, mentioned. As the lockdown eases, situation improves, the revenue per TEU may drop, it is tough to quantify that.

Okay. No, I just wanted to know how much was the ground rent. In the initial remarks, you said that the profit has improved because of onetime income of ground rent. So I just wanted to know that.

No, it's not like a onetime event. Whenever a container comes into the CFS, and Prakash will probably explain the process and how ground rent is just one component of it, and it is more of an indication. It's not a one-time -- it's not like a one-off item sitting separately. Yes, Prakash, if you could explain the process.

See, over here, what happens is that when the containers come in and if they stay back, the ground rent starts. So we clearly said that right now in this particular case also. So if you were to ask me how many containers stayed back and all, there was like...

No, no, not how many, just total amount of rent, which is sort of one time, which may not recur?

Our EBIT is very clearly demonstrating that number. If you see our overall revenue, it stood at INR 128 crores in the June quarter against INR 119 crores. So that is the additional that we have had because of the ground rent.

Okay. Okay. I understand. Sir, just one question. Why -- I mean we are taking this delisting season, any particular reason? When things are looking up so well, company has been doing so well, why do you want to delist?

So let me respond to that. Delisting is not a company decision. It is the prerogative of the promoters, and we see this as a shareholder matter. Company, as responsible, would participate in the process and do the needful as required by the agencies and exchanges. So company is only a facilitator in the whole process. It is a shareholder matter on which a company would not have a view. We're happy to answer any details required around the process and how it works, but just to highlight 2 key things: one, it is a voluntary process, whereby promoters make a voluntary offer for delisting, which is acquiring public shareholders' stake; and public shareholders voluntarily accept or reject the offer. And even the price quoted by all the shareholders is completely voluntary, and they decide at what price they want to sell, which is like any other trade in the exchange and the price which they would finally receive would be driven by the higher price, which has reached 90%. So effectively, it's an entirely [ voluntary ] process and it is in the shareholders -- in the matter of shareholders, would not be in the prerogative of the company management to comment on that.

Okay. Last question from my side. The other income in this quarter has significantly increased. So any particular reason for that?

Yes, Deepal, if you could answer on that?

See, the other income on the stand-alone has increased, which is the dividend received from EQ of close to around EUR 10 million, that is INR 76 crores.

I think even in consol also, it has increased to INR 16 crore as compared to INR 6 crore.

So that is -- the consolidation is because of Gati. They also have some other income in terms of the -- which is not part of the main Express business. So they have petrol pumps and many other businesses, which actually get transferred. So other income is a part of all that.

Okay. And maybe Forex gain would have been included there?

Yes, yes. Other income includes Forex gain and any other miscellaneous items that don't form part of any specific segment.

Okay. But nothing extraordinary.

Sorry?

Nothing extraordinary, I believe.

No, nothing extraordinary.

[Operator Instructions] Next question is from Vikram from PhillipCapital India Private Limited.

Am I audible?

Yes.

For this MTO business, one means that we have seen relatively higher number in stand-alone business. So are we seeing that because of this parcel size impact cargoes are a little bit better than full container? Or is it mainly because of longer dwell time or warehousing kind of income? That was one part. And the second question is related to delisting. Can you highlight more about the process about delisting and time frame? That is my second question.

Yes. Sure. So on the MTO business, it is primarily, like I mentioned, we have done well to hold the business. And on the performance side, because of cost reduction initiatives, the bottom line has been healthy. On the top line, there has been a combination of a mix of volume and the prevalent freight rates, which is how one could look at it. On the delisting, basically, the first part of the process was scrutiny and due diligence by a merchant banker on the top shareholder transactions, which has been completed. And Board has given an in-principle approval for going ahead to delisting. Currently, the process is being run for shareholder approval and postal ballot is being conducted for the same, which should get concluded around third or fourth week of October. Subsequent to the result of the postal ballot, if the shareholders approve the delisting proposal, it would then go to the next step, wherein promoters would have the option to make a formal proposal to the exchanges. And subsequent to that exchanges, would take about a week or 2 weeks to approve that. And then a process starts, whereby all the shareholders voluntarily express their desire to sell and the price at which they wish to sell the shares. The promoters if -- would have an option to either refuse or accept. In case of accepting, they would have to accept the bids from at least as many shareholders as required to reach a minimum threshold of 90% aggregate shareholding by the promoters. And in doing so, when they -- when they accept the bids posted by various shareholders, the highest bid accepted by the promoters naturally becomes the price to be paid to everyone. So even if somebody has quoted lower, and their offer has been accepted by the promoters, they would still be paid the highest price that the promoters have accepted to pay during the reverse book billing process. So that is how the process works. And like I said, another 4 weeks to 5 weeks for the shareholders' approval, another couple of weeks for the exchanges to approve and another 3, 4 weeks for the process. However, there always could be a gap between shareholder approval and promoters making the application to the exchanges, depending on their plan around it.

Okay. I think that was quite helpful, sir. And in CFS, we have seen the port volumes recovering close to almost 85%, or we have seen Y-o-Y decline of -- in range of 13% to 15%. So for CFS, our volumes are in line with the port recovery? Or how is the situation at catchment area, if you can explain a bit on that side?

See the port volumes that you referred to include everything that is empty container, export containers and full containers. So first of all, I hope you are referring to the container volumes because port volumes, sometimes, includes the bulk volume also. But if I were to take JNPT or Mundra or Chennai, any of these ports would have a component combining of empty, full and exports. So for us, we are more dependent on the import cargo. And clearly, that volume is rising, but very slowly. So definitely, the impact on the CFS addressable market is quite large because the imports have fallen considerably. While the exports are trying to go up, and they did rise better than that of the import volumes, but still they are not at the stage where we can call it as a pre-COVID level.

[Operator Instructions] Next participant is Abhijit Mitra from ICICI Securities.

So I have a few questions on Gati. Since we have started consolidating the numbers, can you please share some of the operating parameters of the business as in what kind of parcel or rather Express tonnage they have carried in this quarter? Any numbers that you can share on the e-commerce part of the business that they have done? That's question number two. Thirdly, if you can sort of share if there is an uptick in the e-commerce volumes that you have seen till date in the current quarter, [indiscernible] to some amount of margin recovery. So these are three questions, which I had on Gati.

Yes. So as you are aware, Gati is also a company and you have -- as you have highlighted, this is the first quarter we have started consolidating since our acquisition. And going forward, we would start an engagement with these investment communities on Gati. And very soon, we would have our presentation shared with investors in Gati, and we would be hosting a call as well when we can discuss about Gati in detail. But just to give a high-level information, like I mentioned earlier, April was an extremely challenging month with revenue on Express side dipping down to almost single digit numbers. However, it started recovering from May, and we were already at about 65% by end June, early July. And since then, it has broadly stayed at about 70%, 75% of the previous month levels until, let's say, July, [ mid ] August . So it has gradually been improving vis-à-vis last year. So we see a steady recovery. On the e-com side, for Gati, the substantial piece of business is B2B surface Express. And e-com is relatively a smaller piece of business. However, in the e-com side, as we move forward towards the festive season with all the big billion day sales, et cetera, we generally expect volumes to go up. And beyond this, we would address Gati-related queries in a separate call on Gati.

Okay, okay. Sure. And on the Blackstone deal, if you can just share through what is the amount of money that has flown through? Any incremental flow through that we have seen in this quarter? And what is the extent of investments that you have committed on those assets in this quarter, the assets which were supposed to be moved over to Blackstone, the warehouses and the locations that you have pointed out in your presentation as well? That would be helpful.

Yes. So primarily, you have two questions. One, any additional inflows from Blackstone during the quarter? And second, any additional outflows on the CapEx investments in the warehousing Logistics Parks division. Deepal, if you could throw some light on the numbers?

Yes, am I audible?

Yes, we can hear you.

Yes. So the two questions. One is, see, we received INR 237 crores. The total deal size for Blackstone was -- on the equity front was INR 380 crores. I will explain you the structure. INR 380 crores was the total deal size that we were supposed to receive, out of which INR 237 crores has already been received. Balance is to be received through the year as and when the projects are getting completed. Also, there is some upstreaming of money happening through LRDs. So the money that for the subsidiaries which have been -- the assets have been transferred to the subsidiaries as and when the warehousing is completed, there will be an LRD raise, and that money will be upstreamed to Allcargo against the amount payable to Allcargo against the business transfer agreements. So that is the whole structure. So what we have received as of June, up to June, YTD June is INR 237 crores against the Blackstone, and we've received some around close to INR 59 crores of LRDs. Hello?

Yes. Yes.

Yes. And what was your other question that you had?

The investments in those assets...

CapEx investments...

Sorry?

The investments in those assets...

The CapEx investment, Deepal. CapEx investments in the quarter on the warehousing Logistics Parks asset.