Allcargo Logistics Limited (ALLCARGO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Allcargo Logistics Q4 FY '21 Earnings Conference Call, hosted by Antique Stockbroking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prateek Kumar from Antique Stockbroking. Thank you, and over to you, sir.

Good morning, everyone. Hope everyone is staying safe and healthy. On behalf of Antique Stockbroking today, we welcome everyone and the management of Allcargo Logistics, Mr. Deepal Shah, who is the Chief Financial Officer; and Mr. Ravi Jakhar, who is the Chief Strategy Officer. Without wasting much time, I hand over the call to the management of Allcargo to discuss and give the opening remarks for the results, and then we will move to the Q&A session. Over to you, sir.

Sir, the line for Mr. Ravi Jakhar is disconnected.

Yes, I think, Ravi is -- so I take it forward on behalf of Ravi. Meanwhile, let him join. Hello. Good morning, everyone, and welcome to today's earnings call to discuss the performance for the quarter -- for the fourth quarter and full year for the financial year ended 2021. So Ravi will join. This is Deepal Shah, CFO for Allcargo. Let me first take you through the key consolidated financial highlights for the fourth quarter of FY '21. The total revenue from operations stood at INR 3,349 crores as compared to INR 1,871 crores for the corresponding period last year, which is an increase of 79%. EBITDA for the quarter was at INR 193 crores as against INR 106 crores during the corresponding period last year, which is an increase of 82%. The profit before tax, considering the profit of the associates and joint ventures, was INR 86.3 crores as against INR 34.5 crores, which is an increase of 150%. The profit after tax was reported at INR 5.9 crores for the quarter, which declined primarily due to the exceptional item of INR 81.2 crores on account of Gati Limited, a subsidiary of the group that has identified certain noncore assets for monetization. Accordingly, the group has recorded such assets as assets held for sale and loss on fair value of such assets held for sale has resulted in this exceptional item. Now let me highlight the performance for the financial year ended 2021. The total revenue from operations stood at INR 10,498 crores for the full year as compared to INR 7,346 crores for the corresponding period last year, which is an increase of approximately 43%. EBITDA stood at INR 634 crores as against INR 503 crores during the corresponding period last year, which is an increase of approximately 26%. Profit after tax for the year ended was reported at INR 95 crores as against INR 234 crores during the corresponding period last year, which was down again primarily due to the exceptional item highlighted earlier. Now I would like to hand over the call back to Ravi to take through -- take you through the key business segment highlights for the quarter. I hope Ravi is able to join back. Is Ravi on the call? Hello?

Sir, we are trying to connect him. Just a minute.

I think -- if Ravi is not able to connect, I can continue.

Yes, sir, you may continue.

Okay. So continuing from the financial highlights, the key business highlights for the quarter ended for each of the segments. For MTO segment, the multi-modal logistics, the total revenue for the fourth quarter ended was INR 2,724 crores as against INR 1,693 crores for the corresponding period, an increase of approximately 61%. EBIT was at INR 123 crores for the fourth quarter ended as against INR 63 crores for the corresponding period last year, an increase of 95%. The EBIT margin stood at 4.53% for this period. Despite uncertainty and tough operating environment, as you all are aware, the FY '21 return on capital slightly improved to more than 24% level. Our Multimodal Transport Operations clocked volumes of 224,000 TEUs for the fourth quarter ended FY '21 as against 182,000 TEUs for the corresponding period last year. Shortage of containers, as you all are aware, continued across the globe for the ocean shipments, both FCL and LCL. Ocean exports freight rates also continued to remain near all-time high for Latin America, South America, North America, Australia and Africa. Different waves of pandemic led to disruptions impacted volumes to an extent, but the same was compensated by higher freight environment. During Q4, the volumes returned to normalcy. Our digital platform ECU 360 has gained good traction and is increasing share in overall booking and facilitating customers through the digital enterprise. Coming to our CFS and ICD segment. The total revenue for the fourth quarter ended FY '21 stood at INR 131 crores as against INR 100 crores for the corresponding period last year, which is a growth of 31%. Hello, am I audible? I'm getting some strange sound. Okay. EBIT for the fourth quarter was INR 41 crores as against INR 23 crores for the corresponding period last year, an increase of approximately 81%. The EBIT margin stood at 31.5%. The total volumes witnessed stronger growth for the fourth quarter of the financial year 2021. These were around 92,317 TEUs as against 73,377 TEUs in the corresponding period last year. Port volumes registered strong growth in Q4. However, volumes have taken a hit since then on account of second wave-led lockdown happened. CFS infrastructure played a big role in decongesting ports in crucial time during the pandemic and helped India's exports and imports grow without constraints. The ROCE stands at 43%, driven by higher capacity utilization and value-added services aiding realization. Coming to our Express and Contract Logistics businesses. The total revenue for the fourth quarter ended was at INR 407 crores as against INR 401 crores for the third quarter of FY '21. Express business under Gati continued to witness strong growth in Q4, recording its highest ever volume and revenue for core B2B surface express business. The transformation program continues to drive improved sales, operations and digital enablement of the business. Contract Logistics business under ACCI also witnessed strong growth despite pandemic, registering an increase of 54% [ YoY ] on revenues. The revenue was largely driven by e-com and by chemicals vertical. Coming to our Logistics Park business. The total revenue for the fourth quarter ended was at INR 21 crores as against INR 11 crores for the corresponding period last year, which is a growth of around 90%. EBIT was reported around INR 10 crores for the quarter. Development and construction of Logistics Park is on schedule and nearly completed in key locations, excluding recent acquisitions. Lease income from warehouse continues to rise, and the trend will continue as more space gets ready and leased. The company's transaction with Blackstone will reduce its shareholding to a strategic minority of 10%. The transaction has seen certain delays due to COVID impact on getting certain approvals. However, work is progressing well now. Coming to our Project and Engineering Solutions, the total revenue for the fourth quarter ended June stood at INR 93 crores as against INR 88 crores for the corresponding period last year, a growth of around 6%. EBIT reported was a loss of INR 12 crores for the quarter. Project Logistics has seen good growth in the order book, increasing it from 1.4 billion at the start of the year to 1.9 billion at the end of the year. Focus on infrastructure growth and development of new metro, renewable power projects is likely to provide good opportunities in the near future. Crane utilization has steadily improved after a challenging Q1 and now it's better than previous years. The company is focused on rationalizing its fleet to make the overall fleet younger. ROCEs remained low due to significant depreciation on the equipment. That is all from our side. Thank you so very much for being on the call. Now we open the floor to any questions that may come up. Thank you.

Sir, the line -- sir, Mr. Ravi Jakhar is connected to the call now.

Thank you, Deepal, and apologies. I got disconnected with some strange [ glitch ] in the network, but I'm back. Yes. And let's...

Yes. So Ravi, I carried over the presentation on your behalf.

Yes. Thank you, Deepal.

[Operator Instructions] The first question is from the line of [ Keshav Garg ] from [ PGIPL ].

Sir, I wanted to understand that we had a couple of major loss-making subsidiaries in FY '20. So I'm trying to get the names of the same. So I think 2 or 3 of them were making major losses. So what is -- is there any update on those subsidiaries? Have those broken even now?

I'm not sure which businesses you are referring to because...

Yes. So Ravi, you're right, actually. We didn't have any subsidiary which was at a major loss. So the only subsidiary which we acquired last year, the large one, Gati, which was not making profit. Rest all the -- only one segment, Projects and Logistics (sic) [ Project Logistics ], which is not a subsidiary but part of the core company, was registering a negative EBITDA because -- negative PBT because of higher depreciation. Other than that, I don't think specifically any other business was at a loss. Can you please elaborate the question a little bit more?

Sir, I'll get back on the queue with the names of the same. Sir, I also wanted to understand that our turnover in our main MTO segment has been great this year, especially in Q4. So is this due to the, basically, increase in the container rate, so that is why our top line has gone up but maybe the bottom line has not gone up by the same proportion? And going forward, if the container freight rates would again reduce somewhat. Sir, will that be positive or negative for us?

Yes. So let me answer that question. There are 2 parts to it. One is, what has caused the revenue growth and how sustainable is this? Now as you would have heard from Deepal, revenue growth is led by a combination of increase in volumes in a higher freight operating environment. As you would have heard, the volumes for the corresponding quarter moved from nearly 180,000 to almost over 220,000. There has been a significant increase in the volume in the MTO operations as well. So there has been the primary sector driving growth. Yes, there has been a higher freight operating environment, which has further boosted the revenue. In the short term, in the next 3 to 6 months, it appears that the high freight rate environment would continue, but the freight rates are likely to subside in the coming year, which is year 2022 that would lead -- that may lead to certain correction in revenue. But as far as our business is concerned, it's more around value addition on LCL consolidation. And the gross margin usually remains protected. So while the high operating environment -- high freight operating environment could lead to a spike in revenues at the gross margin and at the bottom line level, those are largely driven by volume impact. And that is what you would have seen in this quarter as well with a significant increase in volumes in the MTO operation.

Sure, sir. Great. And sir, I also wanted to get an idea that, sir, our deal with Blackstone of shedding basically 19% in the Logistics Park business. So basically in the segment results that we -- the profits that we see, I mean, will they go once we shed the stake in those subsidiaries to Blackstone?

Yes. Let me clarify. It is -- I heard you 19%. It is 9-0, 90% stake which is being sold to Blackstone, which naturally means that once the transaction gets consummated, all the revenues and profits and, at the same time, all the liabilities, which is outstanding debt against those assets and against those warehousing, Logistics Park business would also go off our books. So it will lead to a reduction -- naturally reduction in revenue and profit, which is coming from this segment but also reduction in debt, which is coming from the segment.

So once that deal is consummated, we will altogether exit, this Logistics Park will no longer remain a segment in our results, is that true?

So at this point in time, we have various logistics parks, out of which the agreement with Blackstone covers most of them but not all of them. There would be a strategic view taken on which assets do we add further to the Blackstone transaction and which assets could be of strategic value. But to answer you in terms of principally in the long term, at Allcargo Logistics, we are focused on asset-light digitally-enabled businesses and, therefore, logistics parks over a period of time would see lesser and lesser participation from our side.

And sir, lastly, when will this -- is this deal expected to get closed?

This dealer was expected to close already in the past period. It has got delayed on account of certain pending approvals, which have been delayed on account of COVID. So these are not things which are under our control or action plan. But to give a fair estimate based on information available with us today, it appears that we should be in a position to consummate the transaction in the next 3 months or so.

[Operator Instructions] The next question is from the line of [ Keshav Garg ] from [ PGIPL ].

So I'm just mentioning the subsidiary that was loss-making in FY '20. Sir, there is one at Prism Global, LLC. It made a loss of INR 23 crores last year. So has this now broken even?

Yes. Deepal, would you like to respond on that?

Yes. So Prism Global is actually a service providing -- as a support service providing company to the distribution network. So Ideally, there wouldn't be much of a profit or loss going forward in that. Yes. So it could be a timing difference where it registered a little bit of a loss, but generally, most of the costs over there would be charged back to the network.

Sir, there was one more subsidiary, Ecuhold NV, which made a loss of around INR 38.6 crores. So I think these 2 were the major ones. So what about this one?

So Ecuhold is basically a Belgium company, which is holding the rest of the Ecu business globally. So it's like a corporate and a corporate generally doesn't have a revenue. It only has the operating cost in terms of the management cost. So that will continue to be a loss, but when you look at that business, you have to look at a consolidated level. So like if you see our results, we have unallocated costs, which are in the -- the corporate costs, which are common costs. So Ecuhold is similarly -- it has common costs for the rest of the group, for the MTO business group.

Okay, sir. Great. Understood. And also, sir, if we see our segment profit, there has been a quantum jump in -- of approximately almost double in the MTO segment Q-on-Q in Q4 as compared to Q3. So basically, is this number sustainable going forward, the Q4 number in MTO segment? Can we consider it as the new base?

Ravi, would you like to take that or should I...

Yes, Deepal. I'll answer it. So like I said in response to the earlier question, revenue is a combination of volumes and operating freight environment. The operating freight environment is not seemingly sustainable while the volume growth is sustainable. Therefore, it has to be seen as a mixed impact. From a business performance perspective, the new base is what would sustain and that's what would lead to sustained gross margins and EBITDA and profit on the bottom line. The revenue itself as a figure could change depending upon the operating freight environment. But it does not have an impact on the gross margin, as I explained in my earlier response.

Sure, sir. I'm not talking about the revenue. I'm talking about the PBIT basically, which we did INR 123 crores in MTO segment in Q4 versus INR 58 crores in Q3. So I'm trying to understand that is there any extraordinary component over here or maybe some extraordinary profitability, which look hard to sustain going forward or every quarter we can maintain this INR 123 crore number, basically, by and large?

Yes. So I would say, usually, Q4 would have a slightly -- slight skew in terms of -- so if you look at the sustainable number, I would say that you could look at anywhere close to about INR 400 crores. So INR 100 crores kind of a quarterly run rate is what should be sustainable. Beyond that, there could some fluctuations. But largely, in terms of the volume and the resulting gross margin, this is a sustainable number.

Yes. Ravi, you're right. So there are some seasonal parameters sometimes and more particularly because of the COVID lockdowns. So there could be a surge in volumes partially in a particular quarter. But yes, you're right, around INR 100 crores is something which we should be able to sustain. I hope that...

Yes, yes, yes. And sir, also, the Container Freight Station division, so that also quarter-on-quarter has grown by 33%. I'm talking about PBIT. And year-on-year, it's almost doubled. So do you think now this performance is sustainable, keeping in mind the DPD and the new supply that has come up in this segment?

Yes. So let me respond to your points on the -- first on the DPD and the new supply and the CFS. The DPD impact was new maybe 3 years ago, but over the last couple of years, that is already stabilized and that is already normalized to a large extent. We have also seen how container freight stations came to the rescue when pandemic choked our ports, and it was reiterated how important CFSs are or the EXIM supply chain of the country. And in terms of DPD, even the DPD containers do come to CFS because that is what is most efficient for the end customers' effective supply chain. Talking about the volume growth in Q4, yes, Q4, in general, you would have seen in the economic growth parameters, GST collections everywhere, Q4 was an exceptional quarter in terms of great performance all around, and that led to a significant increase in the trade for the country and resulting port volumes as well. Within that environment, our CFSs also incrementally improved the share in the market, and therefore, you see a strong performance. If you were to look at continuity in the same, we believe that except for the impact of pandemic, this sustainability -- these volumes are sustainable. However, if you look at the current quarter, which is going on, naturally, the month of May in particular saw significant lockdowns, which led to reduction in overall trade for the country and the overall port volumes are also lower. So the decline from March in the -- onwards till April, May and, to some extent, in June would impact the volumes. But once we see the recovery back, which we expect in the month of July and August, we believe that the volumes should continue to improve. And leaving aside the exception of the pandemic impact, which would be temporary in specific 1, 2 or 3 months, these volumes and, therefore, the revenue and profits are indeed sustainable.

Sir, that's again great news. And sir, lastly, wanted to...

[Operator Instructions] The next question is from the line of [ Jai Shroff ] from [ Cask Capital ].

I just wanted to know, we passed an enabling resolution about raising INR 1,000 crores. I understand that post our Blackstone deal, a significant part of our debt is going to get transferred to the Blackstone-owned entity. So why is the need to raise such a large amount of money?

Yes. So basically -- Deepal, go ahead. You can respond to that.

Yes. So I think we do this every year. So it's an enabling resolution. There is no immediate intent to raise INR 1,000 crores of NCDs. So this is an enabling provision so that we don't have to -- in case there is a large opportunity available to kind of acquire or something, though no immediate intention, it can be used for that. Also, as you're aware that all the additional debt that we currently -- we have, any additional debt as per companies act new rules, we have to raise from an NCD perspective. And you're right that post the Blackstone deal, our current focus is to kind of reduce our debt levels to a much lower amount than what we're carrying currently. So it's just an enabling provision. And if you look back to the previous year, it's taken every year, but it's not been executed. It's just an enabling provision.

Okay. Just one more thing on the Blackstone deal, I mean, it's getting delayed. I understand that because of lockdowns maybe certain things are getting delayed. But I think in the last call, you guys were quite confident that this deal will get consummated in June quarter. So is there any chance of this deal getting canceled at all?

Yes. So let me respond to that in the last call as well, we provided visibility basis information available at hand. These are largely -- just to give further details, these are some approvals related to small pieces of land within these logistics parks, which run through a government process. And there was an apparent visibility that the government process is likely to initiate and get concluded in the next couple of months. And that is where we are expecting this to happen within June quarter. And that was an internal assessment basis, which we were planning on this transaction. However, we understood subsequently as the lockdowns in the month of -- as you would recall, it started with Mumbai and Maharashtra, where we did not have these issues. These issues were largely in one of the Southern states, where we have the logistics parks, where some approvals were pending. And as the pandemic hit them, particularly the city of Bengaluru, the government went into a mode wherein some of these activities became lesser priority and the initiatives which were expected were pushed back. And that is why, unfortunately, for a couple of months, nothing progressed on part of the government coming up with the enabling process to -- which would have taken care of our requirements as well. It is not something which is a matter of if, but it is largely a matter of when, is how I would put it. So we believe that now that the country is coming out of the pandemic, it appears that the government function should resume to normalcy and we should be able to -- it's a matter of a couple of months of process. It's just about when government initiates it. That's how I'll put it.

Okay. Just one last thing. Last quarter, I think we had taken some VRS and, to that extent, our margins were hit. And -- I mean, what I understood from whatever I heard from the call was that this was a onetime expense and going ahead we would have much better metrics on the employees front. But in fact, this quarter, you're not seeing any benefit of that. So...

Yes. So I think Q4 also happens to be a quarter which would see many variable payouts made to the employees. It would also have certain salary cut reversals and some of those things as well. And beyond that, I'm not sure when you're comparing -- you're talking about Q4 versus the Q3 or Q4 versus last Q4?

I mean you -- I mean any metrics that you consider, we're not seeing any benefit of VRS on the employee cost numbers. I mean do you consider -- compare it with Q3 of '21 or Q4 of '20, both ways.

Ravi, can I answer that?

Yes. Sure, Deepal. Go ahead.

So you're right. So like Ravi said that there were certain variable pay, which we had held back through the quarters because of the uncertainty around the business and the COVID environment, which was released in the subsequent quarters. That's the reason you don't see. But you will see the whole restructuring exercise getting value unlocked over a period of time. So maybe next year, you will see some realization of cost reduction at so many places. Also, at the same time, in some of the places -- some of the businesses, which are becoming more -- growing fast, like MTO and all, we are seeing a possibility of adding some people to make this grow better and faster. So it would be unfair to look at an overall number. I think we'll have to go into a lot of depth to understand why it is, and we feel that in the long run, the actions taken both on the VRS front and the addition would generate a fairly higher business growth for the company.

Yes. And just as a concluding comment on that, I think the most fair way to look at the employee cost would be to look at as a percentage of business because, naturally, as you're expanding into new products and new services and new areas, you have to hire people, right? And I would -- and you would notice there's a significant improvement in the employee cost as a percentage of revenue or as a percentage of profit, whichever way you look at it.

So Ravi, even segment-wise, we've done EBIT per employee and all, and it's improved significantly. So I think that -- those are the metrics that one needs to apply.

Yes.

Just one last question on this. So was this VRS restricted to the domestic Indian market? Or was it taken at the ECU level also?

It was largely in one of the business segments in India.

So that would be across the globe or was is restricted to India?

Largely restricted to India.

The next question is from the line of Abhijit Mitra from ICICI Securities.

Can you share your year-end debt number...

[Operator Instructions]

Yes, we can't hear him.

Yes. Can you hear me now?

Yes, very clear.

Yes. I'll try to be loud. So essentially, the year-end net debt number, it seems it has gone up, both on a half-on-half as well as on a year-on-year basis. And I think receivables -- rather working capital seems to be contributing to the same. So what happened there? And how do you sort of plan to contain it?

Yes. So I think if you look at the working capital increase, it is largely led by the higher freight operating environment, which has led to a significant increase in working capital in the MTO segment. And that has had an impact, and I would request my colleague, Deepal, to further add on the debt number.

Sure. So like Ravi said that, yes, there is an increase in the working capital debt that is largely driven by the increase in the freight rates. The freight rates, which were -- for some segments were around $400, $500 went up to $300,000. So the outlay on this freight increased. But at the same time, that was a huge opportunity for us to gain some more businesses because the players, the smaller players couldn't fund that kind of money. And we had the means to use that to increase our market share, and that's what we've done. And that's where you're seeing the surge in the volumes in Q4 in the MTO segment. So yes, there is an outlay. And we believe that once the freight rates kind of come to normal levels, this also -- the working capital cycle will kind of shrink and the debt around the working capital, which is the short-term debt, will reduce.

Right. I have 2 more questions. First, on P&E segment. There seems to be a write-down again of receivables or bad debts or advances. So this seems to be a pretty recurrent phenomena in that segment. How do you sort of plan to address it? And the second question is on Gati. There are questions which are coming from the investors that how much independence can we give that entity to sort of run its own operations. And because they're doing a fantastic work in terms of deleveraging, restructuring of the balance sheet and eventually to sort of turn around the Express segment also. So will there be a level of independence that they will sort of be able to run their operations or the eventual idea is to merge the 2 entities, i.e., Allcargo and Gati? I think these are the 2 questions which I have.

Yes. Let me respond to your first question on P&E and then take up the Gati. So as far as the P&E segment is concerned, one needs to understand the nature of business. And there are 2 key things there. One, the Project Logistics business, which involves transportation of over-dimensional cargo for infrastructure projects. The industry usually has higher [indiscernible] and, at the same time, we [ have seen ] provisions for write-offs to the Project Logistics business as we apply to other businesses, which many of them are even cash and carry to a large extent such as CSF. Therefore, what happens is you find higher provisions for Project Logistics business, but if you were to look at historically, it has been several years. And if you look at was there any significant write-off, which actually the money was never recovered, those things have not happened. So usually, this business sees write-offs and write-backs. Both happens hand-in-hand because there are sometimes delayed payments. So that's important to understand that there's a difference between provisioning and then writing it back versus actually writing it off and it being a material loss for the company. Second thing, on the equipment business, if we look at the metrics, it is very different from the other asset-light businesses of the company. And you would find it's a strong cash flow generating business with a very strong EBITDA. However, we have adopted a straight-line depreciation method for crane, which means that the depreciation amounts are significant and that leads to a negative EBIT number after taking depreciation into account. The market environment around the asset value could be [ any different ]. So these are 2 things which are to note in recognizing the project and equipment business. Having said that, like we have consistently spoken, the focus for the group is to be an asset-light digitally enabled business and, therefore, businesses which are asset intensive, whether it is Logistics Parks or project and equipment, we would continue to deprioritize and find opportunities to look at rationalizing the structure within the group. Within the equipment business also, there's already a rationalization of fleet happening wherein you would find the assets as well as the capital employed would see a downward trend in that business, and we'll try to see how we can make it a stronger business. So there are approaches -- there's an approach to improve the business. It is also important to understand the dynamics of the business. And within the overall group, there would also be a focus to prioritize businesses such as MTO, Express, Contract and CFS over the Logistics Parks and P&E. So that's clearly the direction and intent. Responding to your second question on Gati, you would recognize that Gati has seen a significant turnaround since Allcargo's takeover of the management. And therefore, it has clearly been emerging from the same guiding principles of the group, focusing on making the businesses asset-light, moving out of noncore businesses, focusing on digitization, focusing on customer service, focusing on operational efficiencies and the same fundamental principles, which are governing the Allcargo as a group, which are being extended to Gati as well, having the right people to manage the company, and that has shown tremendous positive results. And now if you look at these 4 businesses, which are the core of Allcargo, the MTO business; the global ocean freight business, which is MTO; the container freight stations, CFS business; the Contract Logistics business or Express business, you would find that all 4 of them have consistently demonstrated strong business performance, and that is all driven by the same principles of being focused on growth and value creation. And that is what you would find in Gati as well. Is there an intent to merge Gati with Allcargo? There is no such specific intent. We believe that Gati as an Express entity may have some synergies being part of the Allcargo group, drawing into group resources, managing -- finding some opportunities to work on integrated logistics play. So there could be some opportunities for interdependence, but independence of the entity is well respected and well recognized. It is important. So there are no immediate plans as such of merging Gati with Allcargo.

[Operator Instructions] The next question is from the line of [ Praveen Kumar ], an individual Investor.

I have got 2 questions. First is very cut short. What is the current debt on the books? And the second question is -- my second question is, last year, there was a buzz on delisting Allcargo. So I just want to have an update on that one as well.

Yes. So let me share an update on the delisting, and then I would request my colleague Deepal to respond on the debt number. So on the delisting, it's promoters' prerogative. They have run the process, and they were in the stage wherein the application was to be filed formally for in-principle approval with the stock exchanges. However, we are given to understand that there has been a regulatory change in the delisting regulations in the recent past, which has meant that they need to understand the regulations, consult their legal advisers and come back and inform the company on the next steps. There is a process which is in progress. As a company, we have done whatever obligations were there to facilitate the process and move it forward. In the current environment, with the change in delisting regulations as we understand, we would -- we are waiting to hear back from the promoters on what the next steps would be. And we expect to get a clarity in the short term, is what I could comment on that. I would request my colleague Deepal to respond to your question on net debt.

One more -- just an [ explanation ] on this. And what was the intention of delisting? Because I don't think this company -- this company seems to be having a lot of potential. And then it did not generate any value to the shareholders, especially to the retail shareholders. Now delisting at these throwaway valuation is a concern. So...

Yes. So let me add to that -- let me add 2 points to that. One, delisting is not a unilateral process. As per the norms laid out for delisting process in India, it only happens when a shareholder quotes the price which the shareholder wants and the promoters accept. So it cannot succeed. It could fail if there...

I know that, I know that...

Yes. So therefore, it may not happen at a price which is not...

Yes. Because, I think, probably I would pose this question when Mr. Shetty is there in the call because -- I have specific questions to him. So probably I'll pose these questions when I get an opportunity next time. And maybe you could reply on the debt level.

Sure, sure. Deepal, would you like to respond on the debt?

Yes. So I'll just respond 2 things. One is, yes, the rationale for the delisting has already been circulated in the letter issued by the promoter, and it's promoters' prerogative. So you may refer that. And of course, you have the -- you will have an opportunity to speak to him whenever -- you can ask him the question. Second, on the debt, our gross debt is at INR 1,750 crores, approximately, and our net debt is around INR 1,500 crores -- INR 1,525 crores. That is our debt level. This is including the group debt, including Gati and all the subsidiaries of Allcargo.

Okay. So net debt would be around INR 1,200 crores?

No, INR 200 crores. So we have -- around INR 1,525 crores would be the net debt.

The next question is from the line of [ Mukul Varma ] from [ Varma Associates ].

I just wanted to know whether there are going to be any further impairments like we had one in the Q4 of INR 81 crores, INR 82 crores?

So in summary, we do not expect any significant impairment. Whatever restructuring/cleanup was required has largely been done. So similar impairments are not expected.

The next question is from the line of [ Dipika Mehta ] from Axis Bank.

So talking about the CFS segment, can you briefly talk about the realizations per TEU and the impact on margins that you're seeing? Any -- if what you saw in 4Q and in 1Q last 2 months, in terms of dwell time and any ground rent benefit?

Yes. So if you talk about the recent trends in the Container Freight Stations, which you referred to over the last couple of months impacted by the lockdown, there was, let's say, an approximately 10% to 15% impact on the port volume, and you could find a similar impact on the volumes as well. However, the lockdowns also meant that supply chain in the country had challenges and, therefore, the dwell time would be marginally higher. And if you were to look at the marginally higher dwell time and marginally lower volumes, it leads to an automatic resilience to some extent. And therefore, bottom line largely remains protected in tough situations for CFS business. So that could be one way of assessing the impact of lockdowns on the CFS business.

Okay. And in terms of the MTO segment, truck rentals -- I mean in April end, the truck rentals had gone down. So what is the status right now?

So just to clarify, MTO business refers to the international ocean freight business, which is LCL, FCL and some amount of air freight business that we do under ECU Worldwide. And if you're talking about Gati, then for Gati, it almost reflects the economic activity in the country because you're working with sectors like apparel, retail, pharma, auto, engineering goods, textile, et cetera. So as the lockdown leads to reduced activity, you would find a proportionate reduction in Gati's volumes as well. So the month of April was a marginal hit because only certain parts of the country were impacted, and it was a slight delay as well. So maybe there was again more like a 10%, 12% impact from an overall market perspective. May witnessed significant impact and to the extent of almost 40% to 50%, varying across geographies, depending upon the lockdown and also on the industry. And the month of June has since seen a sharp recovery, as the unlockdowns began, particularly around 7th to 10th June. And we witnessed that there has been a steady improvement over the last couple of weeks. And as we end June, maybe the impact, which could be 40%, 50% in May, might be only to the extent of 20%, 25% or so in the month of June. And we expect July to be more in sync with April and then the normalization to return, assuming that there is no third wave or incremental lockdowns, which could impact the business. So that's the broad picture I can give you on the impact on -- of the lockdown. In terms of the realizations, et cetera, on a per-unit volume, et cetera in Gati, that did not change much significantly.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

I have one question on like your profitability in MTO segment, EBIT per TEU or EBIT or margins have, like, now clocked, like, sort of a record high in the near term. I mean particularly in Q1, we had some benefit of some funding by government, which helped the profit then. But the numbers in this quarter looked particularly very strong. So what led to, like, improvement in profit margin, as it is anyway a pass-through you said in the beginning? So the inflationary freight environment is also helping our margins as well?

Yes. So like I said, there's an impact of both volume as well as, like you rightly pointed out, the realizations on a per-TEU basis. Now there again, one needs to look at [ lead ], which is gross margin per TEU; and the second part is EBIT per TEU, which you highlighted. Now as we scale up the business and grow the volumes, we are doing that by keeping the organization lean and efficient and which is what -- again I was reflecting in one of the earlier questions that the employee cost as a percentage of revenue has been going down. And when there's an improvement in SG&A cost and the general administrative costs have also gone down significantly, so naturally, all those things on the same cost base as you improve your gross margin, the EBIT per TEU would go up. The gross margin per TEU, however, is dependent upon the operating freight environment. So as the freight environment changes and we see significant correction back in freight, which may happen post, let's say, another 3 to 4 months, you might see some downward correction. We do not foresee freight rates going back to 2019 levels again. But we see that there could be some correction. So there could be -- but like I said, it is largely a pass-through cost. So the impact of a significant decline in freight rates also would only have a marginal impact on gross margin. And to that extent, it would have a marginal impact on the EBIT per TEU as well. So you may see a situation wherein the freight rates correct a little bit, gross margin per TEU corrects marginally. So let's say, there could be 30% correction in freight, but that could only lead to a 2% or a 3% impact on the gross margin per TEU, and that could then still, with an increased volume on the same cost base, may lead to a similar protected EBITDA per TEU.

The prior quarter results were impacted by some severance packages or VRS, as you said earlier. The Q3 -- because Q3 particularly, margin in the segment went down. So [indiscernible].

Yes. So what happens is a large part of our MTO business, just to explain you the corporate structure, the India part of the MTO business is a division within the listed Allcargo Logistics. But besides India, the entire global business sits under the Belgian entity. And the Belgian entity operates on a January to December year when it comes to budgeting and all other matters. So therefore, a lot of these one-off expenses come in Q4 for Jan to December, which becomes Q3 for the financial reporting for Allcargo.

And like going into next year, I mean, with a very strong exit to this year, we can talk like 8, 8.5 lakh volumes in MTO segment now?

Yes, I would say, the volume numbers that you see right now are only likely to be sustained and grown. Naturally, I'm again adding a qualifier assuming that we don't have a significant external environment impact, basis the world played in GDP forecast that we see across, I would say that these volumes should continue to improve. I can say for certainty that in the LCL consolidation space, we are global market leaders, and you would only see a further expansion of our market share. So given the marketing -- market opportunity remains good at large. You would see continued sustained growth in this business.

And last question on CFS business. There also, our margin seems to have improved. So there also there's impact of operating leverage on [indiscernible].

So to some extent, yes, it is an operating leverage because your handling of containers is not leading to additional SG&A costs. But at the same time, like I said, particularly during the months of lockdown, what happens is, your volumes go down a little bit, and your dwell time increases a little bit up. And therefore, there's a natural -- so the absolute number would remain the same, but because you're achieving the same EBIT from lower number of TEUs, your realization at the EBIT level would also be impacted because of that. So these are driven by both growth on the same base as well as there could be an impact of lockdown as well. As the lockdown would reverse, you would find higher volume, but there could be a marginal decline in the EBIT per TEU, as the dwell time may again correct by a day or so.

The next question is from the line of Akhil Dhawan from Locus Investment Group.

Just a couple of questions on the MTO side. I think one is, could you just comment on market share in the LCL business where you are today and how that might have trended?

Yes. Sure, Akhil. So just to give you a perspective, the global LCL consolidation business is roughly about 100 million cubic meter market, of which approximately 70% comes to neutral consolidators like ourselves, and the 30% is managed directly by the freight forward, which means you're talking about a market size of 70 million cubic meters. Out of that, we operate in most part of the world, but we don't operate everywhere. So we capture a market of approximately 60 million cubic meters, which is almost like 85% of the total global market available for us. And in that 60 million, our market share is in the range of about 13% -- 12% to 13%. It has continued to increase historically and -- but at a very -- I would say, at a marginal pace and organically and substantially led by acquisitions. As we move forward, we see this growth, both on account of organic and potential inorganic opportunities as well.

[indiscernible]

I couldn't hear the last part...

Yes. There is some disturbance on the line. I just also wanted to get a sense, I mean, given this is a highly fragmented market, how the landscape is looking? I think you all mentioned that smaller players have trouble with working capital, et cetera. So how does that look today? And if you could also just comment on digital and what portion of your business now comes through the digital interface.

Yes. So as you rightly mentioned, the smaller players have found challenges, both on account of working capital requirements and also, when it comes to digitization, the investments required to commit to a secure IT environment and your digital initiatives, those are potentially not possible for many of the smaller players to make. And customer is also increasingly looking at global service providers. Therefore, we see an underlying current of shift from smaller players towards global organized players like ourselves. So we should benefit from that undercurrent and the ability to achieve higher market share. In terms of digitization, we believe that there's going to be a significant impact of digital interfaces and the whole digitization right from the customer-facing functions to back-end operations. And if you look at in the context of the LCL consolidation industry, I would say we are significantly ahead of the competitors. And our digital platform, ECU 360, which allows customers to book end-to-end with all the functions on visibility, booking and further follow-ups, we are seeing significant month-on-month improvement. Today, we already see well in excess of 20% of the bookings going through the ECU 360 platform, and that number should see steady rise quarter-on-quarter until the end of 2022, and we have high aspirations to convert a large part of our operations to be driven through the digital platform. And that's something which is certainly going to be a significant game changer in the industry. And we believe that we are well positioned and ahead of the competition in the digital journey.

Great. That's helpful. And just last question for me is on just the overall debt. I think, Deepal, you mentioned this about INR 15 crore, INR 25 crore net debt today. Once this Blackstone transaction is consummated, where do we expect roughly the net debt to land at?

Yes. So I would like to highlight that there will be an impact of Blackstone transactions and a couple of other things also. For an example, this is the consolidated debt. If you look at Gati, we also spoke about how we have Gati Kausar as a subsidiary, which is almost INR 100 crores in debt. And we have already signed the term sheet and that is also in the process of being hived off, divested and which should mean that the INR 100 crores would also go off our books, just to highlight that. And also the working capital increase, which will happen, as the freight rates normalize, that should also see a little bit of a drawback. And on top of that, the Blackstone transaction would have a significant impact as well. I would request my colleague Deepal to answer on the impact of the Blackstone transaction and then additional incremental number.

Yes, yes. So currently, we are at INR 15 crores, INR 25 crores, and we expect the net debt levels, like Ravi rightly said, a combination of Blackstone, a combination of Gati and the shrinkage of working capital. To -- by end of FY '22, we expect it to be close to INR 1,000 crores to INR 1,100 crores. That is our expected rates that we get there. We are hopeful of getting below INR 1,000 crores. We are working towards it. But if everything works out, at least INR 1,000 crores, INR 1,100 crores is what we will be seeing the debt levels at by end of the year.

I see. And how much of a block of warehousing will we be left with at that point?

The current transaction with Blackstone covers our logistics parks across state of Karnataka, Haryana, Goa and Hyderabad. We still would have a large logistics park in Jhajjar, which is actually also coming up as in ICD and a multimodal logistics park for us, and an upcoming logistics park in the JNPT area, where we used to have the CFS earlier and now that's being converted into warehousing zone. So these will be the 2 key assets, which would still be potentially outside the Blackstone perimeter. But once this transaction gets consummated, the company would take a call on how to plan its focus and investment in the domain. Like I said earlier, the priority is to move towards asset-light digitally-enabled businesses and, therefore, it may not fit in the scheme of things. Yes. But any additional impact of moving these assets out also will be incremental in terms of reduction of debt.

Yes. And how much would these represent -- these assets that are left in -- just in terms of gross [ block ]?

Yes. So Deepal, do you want to answer on that? That should be about INR 500 crores to INR 600 crores?

500 -- yes, INR 500-odd crores. Yes, yes, all put together. Around close to INR 500 crores.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you. Thank you all for joining, and apologies for disruption at my end at the beginning. I would like to conclude by expressing that the company has performed very strongly over the last 12 to 15 months, which were extremely challenging times given the pandemic situation, restraints, constraints. The acquisition of Gati and its turnaround from an entirely remote working environment, managing the global ocean freight consolidation and general FCL operations, all of this being done in a very new environment was not easy. But I would like to highlight that the company management across businesses has come together very well and delivered a strong performance. As a group, Allcargo is focused on asset-light, digitally enabled, high ROCE, value-creating businesses. And that has been the focus since quite some time. However, given the pandemic constraints, the company had to first protect and grow the business and then look at opportunities to accelerate the plans towards asset-light focus. The way to look at the Allcargo business would be to look at the 3 core segments: one being the global ocean freight business, the MTO, LCL consolidation, and FCL; second would be the CFS-ICD business; and third would be Express and Contract Logistics, which is sitting in 2 different subsidiary companies. And these all 4 business segments in the 3 baskets have continued to demonstrate strong performance. Outside of this, Logistics Parks and P&E are slightly different businesses. But within those businesses, we have seen significant turnaround, the Project Logistics seeing a significant increase in the order books; equipment going into an exceptionally high utilization level, which are far exceeding the industry standards; Logistics Park being fully occupied. And if one was to look at the business rationale, it may not be the same way to analyze, but those businesses have also continued to do well. So as a group, we believe that the business performance continues to be strong. The restructuring initiatives such as the one transaction with Blackstone, which is likely to get consummated, would further bring the debt levels down and allow the company to focus on high-growth businesses. And we continue to be confident about strong performance to continue. There's a lot of resilience in the business model that we operate in. And that has come to the foray in the times of pandemic when the company across most business has seen significant growth in opportunity, and that has been converted into a solid performance in revenue while maintaining similar or higher profitability numbers as well. The company is committed to the overall transformation, which is why we are working with multiple partners across sales, operations, digital, IT and finance transformation, working with partners such as McKinsey, Alvarez and Marsal, KPMG and group, et cetera. And that has certainly been helping company align with the long-term vision. And in the coming times, you would find the company would continue to transform its operations and become a more future-ready, digitally enabled organization. So thank you all. That's all for today. Thank you all for joining.

Thank you. On behalf of Antique Stockbroking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.