Allcargo Logistics Limited (ALLCARGO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Allcargo Logistics Q3 FY '20 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 from Antique Stockbroking. Thank you, and over to you, sir.

Good morning, everyone. This is Prateek. I'm from Antique. I hope everyone is staying safe and healthy. On behalf of Antique Stockbroking, we welcome today the management of Allcargo Logistics Mr. Parthasarathy, who's Vice Chairman; Mr. Deepal Shah, Chief Financial Officer; and Mr. Ravi Jakhar, who is Chief Strategy Officer. Without wasting much time, I hand over the call to Mr. Ravi for his opening remarks, and then we will Q&A session. Over to you, sir.

Thanks, Prateek. Good afternoon, everyone. I hope all of you and your families are safe and healthy. This is Ravi Jakhar, Chief Strategy Officer for Allcargo Logistics Limited. On behalf of the company, I extend a very warm welcome to all the participants for this third quarter FY '22 financial results discussion call. Today on this call, I have with me Mr. Parthasarathy, Vice Chairman of Allcargo Logistics; and Mr. Deepal Shah, Chief Financial Officer; along with our Investor Relations team and advisers. I hope everybody had a chance to go through our investor presentation and press release uploaded on stock exchanges and the company website. I would like to begin with introducing Mr. Parthasarathy. First of all, he's a professional, thought leader and rotary of transformational change with over 35 years of experience. He has previously served as the Group CFO and Group CIO at Mahindra Group. A chartered accountant and an alumni of Harvard business school's advanced financial program. I would now invite Mr. Parthasarathy to give his opening remarks. Over to you, Mr. Parthasarathy.

Thank you, Ravi. And thank you, Deepal and Ravi for having me in this call. I'm delighted to be with you after some items, okay? So analysts and we have a lot long history being the group CFO for Mahindra for almost a decade and interacting with you and always love these sessions. And also, in a sense, it's very detailed also in the sense to be present in this call today. 21 years back, a little more than 21 years actually, I came in from Delhi to Mumbai with a vision of making a tractor company world number one. So -- and that was a journey which was very exciting, and I think the journey became part of the transformative journey that happens. And today, when I -- again, like don't stand, but I sit before you I could say with a lot of warmth and a lot of delight that there is another transformational journey underway. Being the #1, another Indian company, Indian MNC, taking that path, already achieving for the key things that they want to do is not less than the raw I want to clearly be the leader of the LCL business globally. And that's what is we thought and that's what they are headed to a -- and in whatever small way I can be part of the journey, I'll be delighted to be so. So that's what delights me being with you today morning. And then the environment that I see is one of great positivity. We are poised to turn around and be an 8% to 9% growth GDP next year. So that itself targets well and the GDP and logistics industry have a reasonably close coordination, you would tell me rather than I telling you. And whatever has been done, I call it the important announcement of the budget, ILC, Integrated Logistics multi-model transportation and grid creation and PM Gati safety. So the team makes it important and pivotal for logistics industry to really source along with the India Inc and India as a country. Coming to the people, I think the part of the beauty of being in a transformation is that this is the first group that I've seen where digital is entail insight and marketplace also. And they have impacted digital in each function and each unit. And when it comes to outside we are thinking of marketplace as well I have been delighted because the CIO, not the IT -- the information part, but as an IT head, the CIO has been delighted with this approach, we have seen in action. Many people talk about I see this in action, and it will be my pleasure to be part of the journey with them and seeing clearly that it brings the key differentiator intension, okay? So then the next small thing that I want to say and then I want to start, otherwise both Deepal and Ravi are already looking at me saying, you've talked enough, you should stop and I should. So the last point that I want to make is that both is really energetic in terms of taking them towards next debt. Management is already doing on the volumes and revenue and profit. So that will be a focus area, but that -- others to carry. The board is very focused on bringing diversity. So I'm delighted that 3 women are on the Board of Allcargo. They are very focused in terms of ESG and governance. And that they are delighted with the new direct sales also, which is coming in. And I have always been saying the world should change from 3P, which is profit, planet and -- profit, planet and what? People. Okay? To 2P, plus 2, which means that people and planet are the end cost and the process of profit and process of governance should be the means towards the end and that bring governance. And that the governance would like to focused on as we go on. And with new board members also coming in, this will be well enabled in your company. So with that, I will stop and say that all this make Allcargo very good, and the journey that they are taking is from good to great. Thank you.

Thanks, Mr. Parthasarathy. I would like to share a brief update about the business in terms of the underlying performance and the macro conditions before handing over to Deepal for a detailed financial update. As you are aware, we recently announced the scheme of demerger under which the CFS/ICD business would form part of Allcargo Terminals. This is a business which we have seen that we have a bit of a mix of environment. On one hand, we have opportunity on -- in form of trade growth. On the other hand, we have had some strains and challenges with the Omicron wave coming in and disrupting operations. And that's been largely the scenario across all businesses, but I think somewhere in the background of challenges and opportunities, we have tried to focus more on the opportunity and deliver performance. In the CFS/ICD business, we recently have acquired. [indiscernible] continues to add significant strength to the company. And that acquisition has been being integrated right now from IT systems to progresses, and we believe that we should continue to provide strong momentum for growth, we continue to evaluate in a in the ICD space. And keep an eye on the development of the dedicated trade corridor, it could truly open up the opportunity for setting up and expanding the ICD business, particularly along the vessel line. are demerger, as you're aware, the real estate part and the equipment business is being [indiscernible]. And I'm happy to inform that our logistics parts business continues to perform well with the macro environment being very favorable. There's a huge demand for a warehousing and there are ample opportunities for the business to continue to expand and grow and see significant demand coming in for soon to be [indiscernible], which is already leased out and potential additional capacities, which can be created. And on the equipment business, we are again seeing success with our focus on specific and of equipment, and also looking at a combination of outsource and own equipment to drive an asset-light approach. And the overall market environment has also been favorable. We are seeing an upcycle in successful projects. And all of that would mean that our equipment utilization will continue to be high and people would talk more specifically about where there has been in due course. Apart from these 2 businesses, in the continuing Allcargo businesses, we have Gati, we have spoken about on the Gati investor call as well, the transformation journey continues, and we continue to see new records on revenue and also improved performance in terms of service supplies, and that is something we should consider to drive positive momentum. And on the Contract Logistics side as well, again, linking back to the whole requirement for gray warehouses. There's an increasing demand for Contract Logistics operations as well in e-commerce and for us on this business, which we operate through [indiscernible], we're also expanding into new verticals, started off as a chemical-focused company, expanded it to auto e-commerce and other domains. And we see that continued opportunity to leverage the existing capabilities and expand into the domain, and that's something which holds a lot of promise. Coming to the largest in the main business, which is our international supply chain, which operates under the EQ worldwide umbrella. In that business, basically, over the last 2 to 3 years, we started on a transformation journey. And that is a business which is a combination of LCL and FCL, and we were focused on driving growth. And there are many ways in which the company can drive growth. The most important was the organic growth. And to various transformation initiatives on sales acceleration that we undertook, we saw extremely positive results in creating a new benchmark in those specific countries. And you have more countries covered as we move forward, but there is an expectation of some broad indicated impact on these countries where such initiatives are undertaken. We've been able to significantly expand our market share on the base of sales acceleration. The other opportunities for growth for us has been the acquisitions. And it's almost been in the DNA of the company, which means that we have been very proactive. And with that proactive approach, we have managed to find terrific opportunities, which are value accretive because they are extremely [indiscernible]. And I'm happy to share that our most recent acquisition of Nordicon and the joint venture that we set up in Korea are both performing tremendously well, and they give us confidence to continue to explore growth through acquisition. We have also had successful integration because acquisition is not just about acquiring the company, but I'm more glad to share that the integration of EQ and Nordicon, which was not part of our network has been extremely successful, and they have seen growth in volumes. Usually, whenever such integration happens there is slippage, but in this case, we have managed to outperform the earlier performance. The third revenue for growth at EQ worldwide has been new product launches. And we started with our FCM journey and the result is there for all to see what we have achieved in the last 3 to 8 years. And we believe that now following similar lines we could explore other opportunities. And at this point in time, we are evaluating how we could expand our [indiscernible] business, which is relatively limited at this point in time. So on one hand, we have growth on the back of these diverse strategies. And then there's a multiple impact which gets created by way of digitizing the customer end points. ECU 360, which started off as a maiden platform a few years ago is now an extremely mature cloud-based platform. We used to have a single-digit percentage of our bookings from ECU 360, more than -- little over 2 years ago. And today, we have nearly 35% bookings happening on ECU 360. And if we add back the other EQ interfaces, almost 54%, 55% of all export bookings in EQ worldwide are today happening digitally. And with this digital front end to the customer is saying that we can grow rapidly without having to invest behind expanding our SG&A cost base. And we do not stop utilizing technology on the digital customer base, but it is equally important to automate the back-end processes and bringing significant efficiency. And be it booking processes, tariff management, group management, we have remaining technology, sanitization and processes and automation in every step that we can. And that has allowed us to post a robust volume growth over the last 12 months without having to significantly expand between underlying infrastructure or people. And we believe a similar same would continue as you will be able to create further operating leverage on the back of automation and digitization in Q1. So with an overall transformational approach, driving growth in all possible ways and easing the front-end operating backend is creating a far more efficient organization, which can continue to grow. And from the back of robust trade growth that we are estimating in the coming years, we believe that our market leadership in NCL business at the global level would continue we would further cement our position. We would continue to expand in other categories and gain market share. So I'm glad that, that's the kind of trend which is there across all businesses, where we are at gain market share. At the same time, we continue to focus on divesting noncore businesses, and we are making good progress on that as well. On that note, I would now hand over the line to my college to Mr. Deepal Shah to update you on the financial performance for the quarter. Over to you, Deepal.

Thanks, Ravi. I will now discuss the Q3 financial year donating performance. Allcargo reported a revenue of INR 5,869 crores for the Q3 FY '22 as against INR 2,725 crores will be corresponding period during the last year, higher by a 15% on a Y-o-Y basis. EBITDA was higher by 242% on a Y-o-Y basis at INR 505 crores as against INR 148 crores in the corresponding period during the last year. PAT was higher 252x on a Y-o-Y basis at INR 355 crores as against the INR 1.4 crores in the corresponding period during the last year, including a INR 30 crore share from associates and JV. The earlier part -- just some clarification, earlier PAT for last year had an exceptional of INR 21 crores. You need to adjust that. The PAT was up by 15x. Coming to the 9-month performance of FY '22. So the 9 months ended December 31, '21, the company reported a INR 14,296 crores of revenue as we gained INR 7,149 crores in the corresponding period during last year, which was higher by 100% Y-o-Y basis. EBITDA was 146% higher on a Y-o-Y basis at INR 1,084 crores as against INR 441 crores in corresponding period during the last year. PAT was higher by 711%, stood at INR 724 crores as against INR 89 crores to the 9 month performance of FY '21. The record performance has been delivered by its success of transformational approach led by exceptional leadership of the management team across the businesses. The company put strong focus on attracting and retaining top talent across the world so that the company has demonstrated strong performance on acquisitions. There has been a strong contribution from surge in digital revenues and cost optimization through automation across end to end processes. Now I'd like to discuss the performance of each business segment in detail for the quarter, starting with the MTO segment, the international supply chain. The international supply chain business witnessed sustained growth on back of volume growth and expansion in market share in favorable market conditions. Transformation continues to drive fierce acceleration, value addition across the trade link and also witnessed share of [indiscernible] component in the business. Digital initiatives with the industry-leading platform [indiscernible], continued to provide superior service ions to customers. NPL segment reported a revenue of INR 5,202 crores, higher by 142% Y-o-Y against INR 2,147 crores from the corresponding quarter last year. EBITDA stood at INR 420 crores, a growth of 373% as compared to INR 91 crores in the corresponding quarter last year. On an annualized basis, ROCE improved to 72% in Q3 FY '22. Coming to the CFS/ICD segment. The CFS/ICD business continues to deliver good performance. We continue to consolidate market share across key gateway ports of India and acquisition of multimodal further added strength in the tool business proposition we offer to our clients. Volume handled for the quarter stood at 147,453 deals as against 81,606 deals for the same quarter last year. CFS/ICD vertical reported a revenue of INR 177 crores, growth of 62% year-on-year against INR 109 crores in the corresponding quarter. EBITDA stood at INR 43 crores as compared to last Q3 FY '21 of INR 26 crores, registering a growth of 18% Y-o-Y. Coming to this, we expect positive business. We expect positive business under company's umbrella. The subsidiary, which is [indiscernible] reported highest ever volume and revenue at INR 353 crores by the higher by 20% Y-o-Y against INR 294 crores in Q3 FY '21. The highest ever challenge of 255,000 metric tons for the quarter, a growth of 11% against volumes in the corresponding period for the last year. Digitization of [indiscernible] helped us transform business in the growth path, and it would continue the business momentum entering 2020. Coming to the Contract Logistics business. The Contract Logistics business continues to demonstrate resilience with revenue and copy showing significant growth in the quarter. The business is under ACCI ,they all come to own nearly 61% shareholding. ACCI also has customer scale push is undergoing the demerger, and is that the NCLT stage. ACCI growth of 26% in revenue to INR 187 crores and EBITDA increased by 25% from INR 28.4 crores in Q3 FY '21 to INR 35.4 crores in Q3 FY '22. The company balances approximately 5 million square feet of warehousing area under this operations. Coming to the warehousing, the AMC business, which is the rental and other business and of course, the project segment as well. Project Engineering segment and [indiscernible] -- I will first give an update on the projects in Engineering segment. The revenue stood at INR 87 crores, growth of exports in Y-o-Y. While on the project side, there were execution challenges impacted the overall growth. Exit utilization of port equipment revest at 3-year high levels of almost 80%, we have been maintaining a stance of coming out of low yield loss making equipment and increases are dependent on third-party outsourced assets. Revenues from Logistic part continues to trend above INR 20 crores for the fourth consecutive quarter, with continued demand of global and Indian MNC tenants for great air warehouses, the occupancy level remains stable and earnings visibility in this segment remains very strong. The revenue for Q3 of FY '22 grew by 27% Y-o-Y to INR 22.6 crores. With this robust performance, 9-month annualized ROE stands at -- our key stands at 22.5% and net debt to ratio stands at a comfortable position of 0.85x. Now I will request the moderator to open the line for Q&A.

[Operator Instructions] We have the first question from the line of Faisal Hawa from H.G Hawa & Company.

This business that we are acquiring, looks to be like a very valuable business. So how do you actually capitalize [indiscernible] digitally enabled logistics company?

Sorry, somehow, we did not understand the first couple of words of your question, if you could just repeat the first part of your question again, please?

Sir, the Gati business now looks very valuable to us. And [indiscernible]?

Yes. So I would just briefly respond to this, but I would also request participants to keep the questions to other businesses, since we anyway have a separate call for Gati. But to just to quickly respond to your question, there are 2 segments in the express logistics. One is B2B, wherein Gati EP Express, Xpress play and the second is B2C e-commerce, which is where you have delivery, e-com express, underground transport services, et cetera. So in the B2B domain, yes, like I said, there is a positive momentum on the back of the whole e-commerce as well as the GDP growth. And we continue to see great opportunities for Gati's continued expansion. And like I said, across all business segments, which includes Gati, we are confident of conceiving our market share and, therefore, growing faster than the market growth rate.

And since a new digitally enabled company is -- particularly e-commerce, are getting much better valuations. Any chance of having kind of a buyback or something where we could get 1 other valuation there?

There are no such...

This is between our valuation and [indiscernible].

Yes. So we don't comment on valuations because the valuation is a perception of actually giving it. But we're very clear that we want to create long-term stakeholder value for all our participants. And we don't look at short-term valuation gaps. So that is our approach to the business, and we are here to stay and layer to grow. So if there is a short term valuation, that's not something that we would like to comment on.

Just as an asset because I can't not comment on in sitting that. So very especially U.S. -- just stated, that every company in arsenal has many options, right? And it is the company's intend to use the arsenal for the benefit of our stakeholders. Actually, what which if we do, if you start saying, we'll be predicting the future. The purpose is to explain the performance not predict naturally.

Thank you, Mr. Parthasarathy for that comment.

We have the next question from the line of Keshav Garg from CCIPL.

Sir, many congratulations for excellent numbers. are just wanted understand if you could let us know that sort of in our MTO division, there has been a tremendous growth or how much of it is due to the been provided by the realization growth? And it's already mentioned that we had healthy volume growth in LTL segment but what I want to understand is that is our approximately INR 390 crores of PBIT that we made in MTO segment in last quarter, how sustainable is this going forward? And how much of it is due to the industry pain and the realization growth?

Yes. So I will provide some color on that. Like I said earlier, the growth at EQ worldwide is driven more by market share expansion, which means that it is unique to EQL-wide and not purely driven by market tailwinds. Further, the consolidation business is where we are capturing cargo, which don't fill up the entire casino. And therefore, what happens is that we are able to significantly expand volume, we are able to increase utilization as well. And why we are charging customers for the cubic meters of cargo that we carry for them, our purchase is of the full container that we book with the shipping lines, and we operate like an Uber or an asset-light approach. So as the business grows by such trout volumes, it leads to increased utilization, and that has a significant operating leverage impact. So as far as the LCL business is concerned, the entire benefit is coming from improved operating leverage utilization and the volume growth. On the FCL business, there would be a combination of improved procurement because we are becoming -- gaining larger scale or procure improve expansion into profitable trade lanes. And there will be an impact of favorable tailwinds as well -- it is difficult to substantially to quantify, but we believe that, like I said, the tailwind do not impact the larger NPL segment at all. And then the FCL segment, they have some role to play, which should be taken care of through the organic growth, which has been happening in this segment as well. And therefore, I would comment that the performance is sustainable is what I would leave it at.

Sir, but if you see that in our MTO segment, sir, consistently, we were making around 4% of operator of PBIT margins since many, many years. And now this has doubled suddenly. So I appreciate all your initiatives like increasing digitization, et cetera. but still, is it that once the rates normalize to what were prevailing pre-COVID, then still we would be able to plant this kind of operating margin?

If you notice, while the EBITDA margin has improved, it is a very small part of the overall revenue and cost. And therefore, the operating leverage is a much more significant impact in this business as compared to any other business. So on the gross margin side, if you noticed, in fact, we have had a reduction in the gross margin in this business on a percentage basis, which indicates there is not a benefit coming in from the treated environment. And to take an example, the 1% to 2% improvement in utilization in the container itself can have a significant impact if you do the mathematics on that increase being -- that's the additional revenues they are going to generate without incurring any additional costs. So you just add 2% revenue without increasing adding any cost from container, that will give you some sense of how each initiative can be powerful by itself. And then similarly, if you look at the EBITDA to SG&A cost ratio, you could also see the business driven by people. So when you are able to operate operations, it creates a significant leverage because then effect adding their entire business without having to enter additional SG&A costs as well. So there are multiple operating levers that play at the operating margin, the staffing cost admin expenses, which is all translate included.

So Ravi, just to add -- so your yield improves once you jump over the breakeven, any improvement in the actual vision will add to the bottom line are that's what's happening there. It's very clear. And we sustained a fair amount of growth in terms of volume over the last 11 years.

So we are quite positive, I would say that much of this is sustainable.

Okay. Sir, that's very reassuring. And so lastly, I just wanted to understand that as -- so how do things look as we stand now in the fourth quarter and also looking ahead or how the freight rate environment, are you seeing some dip or are the rates staining?

So we could comment on the present state, and we know that there are to 6-month contracts being signed in the market which indicate that the operating environment is likely to remain similar. Beyond 6 months, there is no concrete visibility on the contracting side because contracts are really 3 to 6 months in nature and it comes with that contracts with carriers. But from a macro trend perspective, there are 2 or 3 things, which one could know, significant consolidation in shipping lines. There are perhaps almost 12 to 15 shipping lines, which were there 10 years ago and do not exist anymore. There has been a whole focus on sustainability, which means that there are multiple regulation restricting the usage of old ships, each segment ship can travel and [indiscernible] as well. And in terms of inventory order book, we understand that there are additional supplies, which may start coming in from early next year. But overall, our sense is in the short term, we market environment may remain similar, and there could be some correction in the medium term. We do not anticipate the freight rates going back to the COVID level, but they should settle at a new normal.

The next question is from the line of PrashantKumar Hazariwala from [indiscernible] Financial.

Okay. All right. So my question is on the same kind of question that other participants has asked. We used to do 10% kind of operating margin before 6 or 7 years, right? So after 2017, I think we have a first time came back to 9% of operating margin. So what are the probability of increasing the operating margin from here and sustaining about it?

So I would say that on the operating margin, like I said, the utilization levels have been improved, which have allowed us to improve the operating margin from the LCL business, the margin should sustain and they will be endeavor to further improve. On the FCL side has been a combination of operating fee environment and scale the operating environment would marginally change causing a negative impact while we scale would make a positive impact and on the back of the volume expansion. I would say that the overall operating margin profile should be more or less steady from these levels. And I would also like to point out that there could be some minor fluctuations on a quarter-to-quarter basis because of seasonality in the trade. So around the Christmas in this significant surge in rate on the transpacific trade lines with a significant amount of being shipped, while there could be a certain period of method of cargo flows around Chinese , et cetera, but also seasonal flows kick in. But from an overall perspective, the operating margin in percentage terms on the LCL business should be steady on the FCM business could see marginal decline over a period of time, but it should be more than compensated with the volume growth is how I would largely put it.

So most of the gains came from the MTO business, right? And we have some -- we have sold some project and engineering equipment, right, in this quarter, INR 100 crores kind of thing, right? What kind of loss retail...

The project cargo transport business, which is a part of the P&E segment.

All right. So what kind of loss it has done during the last year or last quarter? Whatever you are sold, right? I would just wanted to know that what kind of loss you can curiously by selling this stuff?

Yes. No, so we've not had any losses in project division. There have been -- what do we say, some long-standing, some receivables because some of these project companies deal with alternate energy and EPC companies, which takes a little longer time. But apart from that, we've not had any large losses in any of the project division. But see, the ROC and the whole business, the ROCs are at the moment, not this thing. So we were -- in which case, we are to focus on more asset-light business. That was our strategy. That is kind of moved down to black business. Yes. So basically, we as a group have decided to focus on a certain category of businesses and which is why from our perspective, it makes services to exit business while the business may also continue to offer opportunities but it does not get into the of things for us, and therefore, we decided to exit the business, and this is something which you've been stating for quite some time.

Right. So we can see now our project and [indiscernible] business is profitable on the operating side, right? That is what you're trying to tell you -- and whatever losses we are saying is because of this reason, right?

Yes. And also what you're referring to losses in some quarters will be largely driven by the depreciation as well in the different region. So you're looking at the at the PBT level, where in depreciation of this equipment has been a significant number. But the EBITDA, even the businesses have performed reasonably well. Yes and the business that had loss. We have been [indiscernible] -- we are having accelerated depreciation in those equipments. Generally, they have almost a 30-year life, but we have an exceed ranging from 10 to 15. So because of the higher rate of depreciation that we applied the PBT loss. But at the EBITDA level, we are not burning cash in the U.S.

The next question is from the line of Deepak Poddar from Sapphire Capital.

Yes. Now just I wanted to understand like some sensitivity of the freight rate basically. Now if tomorrow fit declined by about 10% or maybe a particular number of 5% to 10%. So how does that impact our margins or the profitability. So some sense if you could just provide would be quite helpful?

Sorry, what -- I didn't hear the word before the rate. What a did you refer to?

What?

You referred to the rate declines, which rate decline did you refer to?

I'm talking about freight, freight rate.

Yes. Freight. So like I explained earlier, our LCL business, which is a main freight business, in the business of consolidation. And we are -- it's not a pass-through cost business. We run the world's largest hence network. And like I highlighted, the gains in the bottom line can be entirely matched to the increased utilization level, which are driven by the volume expansion. So they are not dependent upon the stated expansion. So if you were to look at the yield on a cubic meter basis, the entire upward take has happened on the back of utilization. We do not consider ocean freight. It's almost like a pass-through cost when ocean trade declined or ocean trade increase, we do not get any positive or negative impact on the mainstay business. The impact comes in largely from the utilization levels because that is where the cost leverage comes through to place.

Absolutely. And we do expect our utilization level to remain buoyant, right, given the kind of growth that we are seeing globally as well as within the country?

Yes, we are quite confident of sustained utilization levels on the back of growth and also initiatives for instance we have a senior industry professional who joined us recently primarily to drive yield management at a global level. We also have been setting up a data science seem to work on clean management network optimization. So there are many technology that initiatives as well because ultimately, as a logistics company, our purpose is to make efficient transportation of goods, and we are committed towards that. And in the process, we would continue to enable to improve utilization, which has a positive impact for us and also for we create at large.

Understood. Understood. And in one of the previous participant query, you did mention regarding the EBITDA margins now, the volume addition advantage to be somewhat negative by some environment change? And do you expect your EBITDA margin to remain stable at the level we currently are, right? So just I wonder to what environment change we are talking about here that can negate your volume addition. Is that the freight rate or something else?

Yes, I refer to the freight rate decline. Over which over the few quarters, which as I explained due to that of significant consolidation various regulations, the operating environment is not likely to go back to the pre-COVID level, but the marginal impact of that would come on a part of the business. So therefore, there could be some negative impact of the radical change in operating freight rate environment, but that is what I am letting to get negated by the kind of volume expansion we have been demonstrating year-on-year for quite the same period in the.

The next question is from the line of Chetan Shah from [indiscernible] Asset Management Company.

Congratulations for the superb results. Just one quick question. Can you just kindly explain the MTO business, if you can help us understand in terms of the price movement, you varies how the breakeven point and the profit which we make directly flows down to PBC. But if one wants to understand in terms of our existing capacity post all the acquisition does breakeven numbers have changed or how do you look at it in terms of the volume growth going forward, if one should take a 2- or 3-year time or so?

Yes, so just to give you a quick overview on that. Typically, it would be on a container basis, and it will be on a trade link to trade link. We operate about 2,400 direct trade link and several thousand other indirect transshipment trade lanes. But on every trade link, on a particular container, you would say have an X percent -- excuse me, a ballpark number, let's say, at 65% utilization, breakeven. Every person utilization above 65% profit. Or in some savings, it could be a 55% in some lines it will be 75%. But clearly, what happens is that because your profit is kicking up less 55% or 75% number, as you move from 80% to 85%, the impact on the profit is much more significant than the 4%, 5% impact. That is how the business operates because we are committed to incurring all the cost that has to be incurred for carrying the full container while the revenue is generated based on how much cargo gets carried by in size.

Yes. Yes. I think this was a perfect thing we as to Q4. If I may want to ask one last question that we are very thankful, please. So I just wanted to understand that is 1 volume is up pre-COVID when the normal volume was down, but the shipping rates were quite low and post to eat but now the shipping rates are coming to normal volume of the business on a growing scale. So if you want to look at it, how morale is the volume regarding the pre-pre talking about the price but the volume of the container or shipping in men, if you can give some color on that? And how do you see this changes in the next couple of years?

Yes. So I think broadly speaking, if you look at the port volumes, which are a good indicator of global trade, different countries have had different points in time when disruptions happened, China impact came in Feb, 2020, India impact came in FY '21 largely between April to June. So on a global company number, it is difficult to predict. But I would say, except for the forward less temporary disruption, the overall trend on the trade continues to be positive. And if you look at any of the forecasts on 1 economy or global trade, they're all very positive for the next 3 to 5 years. And I would leave it to those experts to comment upon decades.

[Operator Instructions] We have the next question from the line of Prateek Kumar from Antique Stockbroking.

Yes, sir, I'll ask 3 questions. Firstly, is there any update on time lines of merger or business?

So we have provided for the detailed time and estimated in our investor presentation as well. But broadly, we're looking at about 12 months to put 1 number to it. But there are some details in terms of aside processes which you may refer in our investor presentation.

Sure. And also, can you give the debt number as of December INR 21 crores?

Sorry?

Net debt number, I see we have gross debt number in the...

So net debt is around close to INR 1,400 crores.

Okay. And sir, any update on time lines Blackstone deal or it's still like sort of slow like what we discussed 2 months?

Same comment as last time, things are not in our tempo and we'll update as well as we see any decision on that. So we've received the extension letter from Blackstone for March, and we are hopeful of completing by that time.

So we remain like sort of kind of closing the deal by March '20?

As you are aware, it's related to some government approvals. So we are pursuing it. And we cannot comment because it's beyond us. We cannot comment on that time line. But as far as construction is concerned, most of it is already completed, leases have started. We've taken some lease rentals also LRD is also again on property. So everything is working as planned. Some approvals may take some time. And cognizant and we sold Blackstone about that. So yes. So these are things like Deepal said beyond our control. But just to reiterate, the business continues to perform very the construction has been timely. The leases have already been signed. The operating event continues to grow. And these are all high-quality grade warehouses leased by marquee clients for real long-term. And this is segment which is seeing significant demand. From the business side, it has been absolutely great. And only the transaction on which is more of, I would say, at a holding level, which has been sending you some approval spending, but we, at this point, have against a similar update perhaps it could happen in a month, months Unfortunately, the government functioning has an impact whenever there's a new surge in going cases, and that is kind of appetite us too, but we remain hopeful that now we have seen the end of COVID environment functions should return to normalcy, and we should see this through as well.

One question on -- you talked about new products like in form of air segment. So in what time horizon like we can expect some meaningful contribution to the MTO segment as well as like we would be looking at some M&A clock start in the payment?

We are finally focused on organic growth at this point in time. And we have started building out the business in a few select offices. And it should start to grow over the next 2 to 3 years. But naturally sitting inside the large ocean trade business, it would appear insignificant for quite some time because the business is also going I would say business by extent should again some decent scale over the next 3 years or so.

And last question on product logistics as we are now looking to save tenths business as well. What would be the annual change within get shipped out from any segment related to the business?

INR 150 crores.

Annual revenue you're talking about, right?

Annual revenue EBITDA number.

Yes. So annual revenue will be close to INR 150 crores to INR 200 crores, which is what will shrink and EBITDA will be around close to INR 8 crores to INR 10-odd crores.

The next question is from the line of Radha from BNC Securities.

Sir, my question was with regards to this slump in the Project Logistics business. So I understand that it is a part of P&E segment. So with respect to that, what is the capital employed of just the project logistics part as of December '21?

The capital employed will be close to INR 70-odd crores.

Okay.

INR 75 crores. I don't have the number, exact number, but around close to INR 75 crores is the capital input only for projects other than...

Yes only for project logistics, the part that we are selling off.

Yes. Also, I would just like to add further to add that on the Project Logistics business, we have sought approval from the Board, and we will be signing the agreement in the due course of time over the next 4 to 6 weeks. And we would share more details at the time of signing the agreement as well. We may not be able to share some details since we are in the confidentially bounce period as well. So we'll share more details on all the aspects of the transaction at the time of signing of the agreement, which would be any time in the next 4 to 6 weeks.

Sir, just my last question. So in the MTO business, the major driver for this quarter was realization growth rather than volume. So -- and you said that with respect to the fee rate environment, it will be marginally low, I mean, as compared to cover levels. So -- going forward, can we assume that there will be a major growth factor for this MTO business will be volume strategy and realization?

Look the business would continue to see sustained volume growth. And if you look at a year-on-year basis, there has been a strong volume growth as well in this quarter. And as I mentioned, the realization is driven largely by utilization level, which will continue to remain higher, and we'll continue to see substance in these levels.

The next question is from the line of [indiscernible] from [indiscernible] Securities.

What is your capital allocation plan for the next 1 year? And also how does the [indiscernible]?

If you're referring to CapEx plans for the next 1 year?

Yes.

Can you repeat it more clearly.

No, what is your capital allocation plan for next 1 year and how does the [indiscernible]?

Okay. So on the capital allocation, primarily, like we said that our investment, so we will continue to look -- we don't have any large plans for any inorganic growth. But if there are smaller opportunities available in more particularly in the MTO space, we wouldn't be shy of allocating some capital there. On the CapEx side, we do not have any large outlets except for maintenance CapEx and some transformation-related CapEx, which we will incur over the last 1 year. Other than that, risk, we do not have any large -- big bank plans for capital allocation. And we will see how the cash will be utilized. Yes. So of course, we have the different deals and the returns on the capital employed in our mind when we allocate capital going forward. So currently, the business is growing. It requires higher working capital. So our capital allocation will look at focusing on partly reducing debt improving -- adding some more working capital and improving yield on all of these items. So these will be primary our objectives.

And just to give a color of strategic priorities, we are very focused on asset-light approach, which means that we will not be investing behind CapEx assets across any business, and we are significantly focused on return on capital employed. So any capital allocation from here would be towards an initiative, which create an improved ROCE for the business.

So can we expect around INR 200 crores INR 250 crores net production in this year or next 12 months?

I couldn't hear. Can we expect INR 200 crores to INR 250 crores of?

Net production. Net revenues?

In the next 12 months, for sure.

Okay. Also, what [indiscernible]?

So basically noncore asset approach has largely been shared out Gati. When we indicated that we have approximately other ballpark, INR 150 crore worth of noncore assets, which is an update to share. It has been constantly have been perceived. And this is the total draw part number, including the quarter gone by the next 4 to 5 quarters. That is how I would put it. On the all-cargo side, it isn't about noncore assets, but about gradual reduction in capital employed on the businesses that we do not see as core.

Okay. Okay. So can you please update on Blackstone deal in timing to close?

We just responded to that age back in detail. We would update you.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Maybe appreciate you explaining the business members in detail. Just on the Blackstone deal, is my understanding correct that after the deal gets done, our debt will come down by around INR 500 crores? Or has that number changed?

No. So our debt will be a combination of 2 things. So our debt number will come down by almost INR 300-odd crores. come out the debt, yes. So there will be 2 parts to it. One, we see the LD which you have taken in the SP will move out of our fold and move into Blackstone. And there will be some OCD issued to Blackstone, which will get converted into equity. So we are expecting around approximately INR 350-odd crores of debt reduction directly from Blackstone deal.

And also just to highlight that there is an optional -- there's an optionality as well in that. So that is referring to what is definitive part. There's one logistics part, which is an optional effect, which would have a further impact of an equal proportion, but that's something which has not been continued yet. Once we can dose the first part we cannot share the dates beyond that, but we would upgrade once we see the caution of the transaction.

Right. So what you're saying is after this first phase of the lease is done with Blackstone then down to around [ INR 1,000 ] of net debt on the books, right? And you are saying in addition, if there is a logistic part B, then the debt could come down further by INR 300 crores or so. Is that understanding correct?

That is correct.

Okay. So for the project business that you are divesting, what do you see in the interest level? And as you're sort of closer to filing the deal. What is the sort of valuation expectation we have mean if the book value is around 75%, could we expect that the value realized should be around INR 150 from that?

You've already given the value. And like we said earlier, we cannot unfortunately discuss this because we still only passes. So due to confidentiality returns, we can't -- we cannot discuss around that. But the number is already mentioned. The number is already mean is what was already mentioned in the outcome.

I'm sorry, it's 101. Okay. And so the book value for that business was around INR 75 crores. Is that right?

I get a test estimate, we don't have the exact number.

Understood. Okay. Okay. So that money which will come in will that also go into the debt reduction? Or any plan you have plans for other uses for that cash?

Yes, it will go in for debt reduction. But the money is -- there is a structure to which the money don't come. So I think there are a lot of elements will lead you cannot discuss on this call at the moment.

Understand that. but expect to know that what the strength and if you can corroborate that is that you are essentially moving to a very asset-light business?

Absolutely. So in the long run, we want to create 3 markets which we explain in the leather process. We will have an asset review, which will be the trans India business, which will be -- will carry some warehouses in that land parcel. Primarily the business or cargo terminal will be asset-lite model. We'll be leasing outsource of the assets that they are operating with long leases. And the MTO business will shape back, will actually be the asset light business. That is how we very clearly explaining our demerger or not. And whatever noncore assets that we are carrying or assets which are low in yield, like, for example, some cranes were low in yield, and some assets in case is what we are trying to monetize and try to use that money to reduce debt or to allocate that money for better business has performed better. That's how we're looking at it.

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Ravi for his closing comments.

Yes. Thank you all for joining us for the conference call. And we hope we'll be able to answer your questions. And I would recommend that you also take a look at the investor presentation dated on the companies that sign on the stock exchange that provides deeper insights into some of the growth plans and the operating levers and about the overall business strategy as well. So I would hardly comment that you take a look at that, and thank you for joining us on this call, and I wish you safety and good health to you and your family. Thank you very much on behalf of all of us. Thank you.

Thank you very much, members of the management. Ladies and gentlemen, on behalf of Antique Stockbroking, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.