Delhivery Limited (DELHIVERY) Earnings Call Transcript & Summary

My first question is on the Express parcel side. Just wanted to get a sense around pricing structurally, given the fact that Sahil you've said that the industry has seen a consolidation as well as outsourcing is gaining traction. So how should we look at pricing and margins beyond specific hits like fuel hit and so on. Structurally, how do you see this going ahead?

Sure. Krupa, you said you have more than 1 question. Do you want to just quickly read them all?

Sure. So the second one is that -- you did mention that the QC pricing and margins on hyper-local build collapse, just like for delivery so just wanted to get a sense around how do you see this going ahead of why do you believe so? Just in -- and how quickly do you think this can pan out something on those lines? And lastly, on the new initiatives, I just also wanted to get a sense around how does that spend split across your local, your rapid financial services and so on? And how do you see that business going?

Sure. So in terms of pricing, structurally in the e-commerce industry, even irrespective of the inflationary cost that we've seen in the last quarter or so, I discussed this in the past -- in the last earnings call as well. We don't see significant pricing pressure in the market any longer. I have mentioned this in the past that, call it, 2 years ago, we did go through a period where there was pretty poor pricing overall. And frankly, that allowed us to consolidate the industry last year as we did. We see much less of that at this point in time. And so structurally, we don't anticipate any need for pricing or yields in this business to come down. We will -- at the bare minimum, it's safe to assume that yields will hold. Of course, yields in any given quarter will change like I've discussed dozens of times in the past in reaction to the weights that we are carrying, the distances we're carrying, the client mix and so on, that typically, for example, H2 yields will be higher than H1 because you're carrying more heavy and so on. But broadly speaking, no change. And of course, this inflationary environment as we gather more information as more of the cost structure becomes manifest. These increases in labor costs. These increases in fuel are obviously passed through to customers. And frankly, our discussions with customers on this are fairly smooth because most customers do realize that it's not just a delivery problem. This is an industry-wide problem in irrespective of whether they happened or an in-house logistics or work with [indiscernible] everybody is subject to the same cost inflation. In terms of quick commerce. I'm not always sure that you're asking somebody who's already skeptical. So take whatever I say perhaps with a pinch of salt. But why do I believe and how soon do I believe there will be structural pressure, margin pressure on people who are providing third-party services or rather why will there be more attention to these costs is because this fundamentally, first of all, is not a super high-margin industry to begin with. There's not a lot of margin when you're delivering a INR 500 AOB product and trying to deliver it within 15 minutes because it is a point-to-point delivery. One of the things to understand in quick commerce, you guys have asked this question in the past in PTL. This comes up in freight all the time, which is directionality of load makes a big difference to the cost at which you serve. I mean, if I have to run a truck which goes from Delhi to Kolkata and then comes back empty from Kolkata to Delhi, the chap who ships from Delhi to Kolkata is more or less the chap who ends up paying for the entire trip. Quick commerce by virtue of being a point-to-point delivery is a doubly expensive delivery as opposed to a consolidated delivery, which is what we do. And so the ability to eke out efficiencies in this business, first of all, are minimal, which is one of the reasons why structurally Delhivery stays away from this business. There are limited to no network benefits when you're trying to deliver in such a short period of time. I mean the math behind this is largely undeniable. You have a person arrival of orders. If you don't have a sufficient queue of agents, you either get exponential delays or you have to overstaff. I mean this is really not rocket science. It's more or less sort of predictable as to what will happen. And -- to give you another example, you've already seen this happen, for example, in cabs. The great promise when cabs began whether everybody would be riding and air conditioned Mercedes cars at INR 8 a kilometer forever. But the reality is that as demand goes up, if you insist on maintaining a 10-minute arrival of cabs, either the reality is that you have to have a lot more cabs in which case, the company, which is the platform has to burn that money for idle utilization or everybody has to pay a lot more. And so today, cabs don't cost a INR 8 kilometer and cost 3x as much. So that is a choice, of course, that quick commerce will have to make at a certain point and are we going to truly reflect the cost of this extremely fast delivery. In which case, of course, the question is what is the real demand? Or alternatively, the point is that somebody is going to have to really pay for this OEM. So I don't really know. That's one of the reasons why Delhivery has stayed away from this. I don't think you can manufacture efficiencies. And how soon are companies going to come to start looking at this cost. The reality is that when you're in a process of rapid growth, you will try and outsource and say anybody who can set up a dock store for me is as good as me doing it myself because companies at this point in time will say, "Look, we lack enough organizational bandwidth, and we would rather launch people are throwing outing and we want to launch 3 dock stores a day or whatever it is. Now when you need to launch 3 or 4 or 5 darkstores a day, you probably do need to have as many partners as you can possibly have. One of the indicators which worries me when I look at that is that the number of start-ups, which came in saying, we are [indiscernible] specialist and no longer exist already in a period of less than 12 months is fairly significant because as a company, we see this pretty often, somebody will come to us and say, can I run dark stores for Delhivery and we say, "Who are you in this year, we happen to run 3 dark stores for quick commerce in Chennai, we run 2 dark stores in Bangalore or whatever it is. And the reality is that, that first set of 6, 8, 10, 15 dark stores and so on, it happens pretty fast, and then the economics don't stack up and this company essentially runs out of gas, and this sort of gets seamlessly transitioned back to the quick commerce player. So in that sense, it's difficult to see how this becomes a scale business. And like I said, ultimately, as delivery, what we are most interested in is businesses which have strong and sustainable network effects. The fact that I happened to run a dark store well in Kurmangla in no way makes it any more likely for me to be much better at running a dark store in whatever, in Mumbai, somewhere Ahmedabad or in Delhi or whatever it is. They're not, frankly speaking, no network benefits at all. So how soon will it come? As soon as quick commerce companies start seeking greater and greater efficiencies. Wherever they happen to have outsourced this. But again, like I said, the world surprises me all the time. So this is just my point of view, take it with a pinch of salt. To your last question on local and investments across new initiatives. The largest portion of the investments in new initiatives are in Delhivery Local. This is also the largest and the fastest growing opportunity that we're chasing at the moment. Financial services is extremely new. We just got our NBFC approval in July. So it's still relatively a very, very new business. So practically speaking, the safest one to think about is all of the investments that we're making in new initiatives is largely in Delhivery Local. The good news, of course, is the Delhivery Local at this point in time is growing faster than we had anticipated. We were expecting to exit the financial year on the INR 250 crore ARR. But here we are sitting in August, and we're already hitting -- sorry, in July, and we are hitting INR 150 crore ARR. So it's a good sign, again, we're revising the target upwards. And b, contribution margins have been better than we originally expected. So in that sense, the amount that we earmarked in October, whatever I crores, crores for the financial year, at least looking at current trajectory, we should be well within that.

The next question is from Jinesh Joshi.

Sir, I have a question on B2C realization. This much sound a bit repetitive, but I just wanted to get your thoughts on this. So while we understand that the realization is a function of wait and distance, as you highlighted in response to the previous participant's question. But the general -- the general thinking that we have is that once our market share increases post acquisition of e-com, ideally, we should be getting some kind of pricing power, right? Obviously, this adjusts further dilution that comes from the lower weight of the acquired network. But at some point in time, yields have to settle down at a range from where on a sequential basis, we see an improvement come through. And now if I have a look at your numbers from 1Q of FY '26, the yield, which was at about 6.5 million in 1Q of FY '27, we are at about 58%. And every quarter, we have seen that decline come through. So just wanted to get your thoughts as to when on a sequential basis, this decline will get arrested, and we will see the benefits of pricing power come through?

Yes, Jinesh, this is a repetitive question. Between Q1 of last year and Q1 of this year, I think we addressed this in Q2 last year, which is -- and I'll bring it up again, E-com Express did not provide heavy delivery services at all. So essentially, our acquisition was of a small parcel delivery network. In Q1 of last financial year, we were a stand-alone network. So the proportion of heavy consignments in the combined volumes of Delhivery and E-com Express, which is in Q1 fiscal '27, our delivery consolidated effectively now is lower than it was in Q1 of fiscal '26 and materially lower because we acquired a small parcel Delhivery network. As a consequence of which, the yield is materially different. So mix is the simple answer as to why there's a big change between Q1 fiscal '26 and Q1 fiscal '27? It's just fundamentally as a proportion of the total volume would remind you, we're also carrying 55% higher volumes in Q1 fiscal '27 as compared to Q1 fiscal '26. So it's fairly simple math. That's really why the yield is different between fiscal '26 and fiscal '27 Q1. In terms of pricing power, when will you see now, as an example, and where we do have this discussion at the end of Q3, you would probably see compared to Q1 a sequential increase in yields because the proportion of heavies, for example, goes up. Typically, intercity shipment distances tend to rise during this period because you see much larger volumes coming in from Tier 3, Tier 4 cities and so on. So you would see that. But that, again, would not be evidence of any change from a pricing standpoint. That is just evidence of the fact that the mix has changed. If -- I think the question that you're getting at is, will there continue to be cuts in pricing? The answer to that, as I mentioned, is no. For 2 reasons. One is in an inflationary environment, first of all, even if you're maintaining price or if you have the ability to increase price to less than the impact of inflation, effectively for your customers, that's still better. So we don't anticipate that there will be any -- this inflation, you on, customers are not going to come to us and say, "Look, you need to reduce prices at any point. And so there's no pricing pressure from that standpoint, first of all, from a customer standpoint. The second is this is an industry-wide inflation. So it's hard if there are any other players who have the ability to absorb this if anything, Delhivery has the ability to absorb these inflationary forces much better than anyone else, which perhaps is reflected in our increased volumes. And the third is in any case as the number of players in the market has come down, the need to respond to any one's irrational pricing has also reduced quite significantly. There's no need there. There is -- we don't have the competitive situation there we have. Now -- if your question is, are we going to take pricing up sequentially. As I mentioned, we continue to monitor exactly what's going to happen to statutory labor costs going forward. From a fuel standpoint, of course, first of all, the impact of fuel in our Express network is significantly lower. And also relative to other players who provide only e-commerce services, it's still lower because of the form factor of the vehicles we use, for example, the structure of the network, the distances that we travel. And so the inflation of fuel has a slightly lower impact relatively for us in the Express network. But yes, if statutory wages go up, and this is a discussion that we're having with customers, pricing has to go up in response to that. And that is a negotiation that is ongoing with most of our customers. And I mentioned it's not a particularly difficult negotiation to have because it is an industry-wide problem.

Got that, sir. Pretty clear. One last bookkeeping question from my side. I think in the press release, we have mentioned that are back before the com integration cost is at about INR 62 crores, while our reported PAT for the quarter was about INR 32 crores. However, the E-com integration cost that we have reported in this quarter is about INR 17 crores. So can you please highlight the difference of INR 50 crores that is there in this quarter?

Jinesh, I'll take that. On the -- the INR 17 crores is more like a cash cost equivalent. But on the actual start, P&Ls you'll also have depreciation, and you'll also have the depreciation on tangible assets, but you also have the rent, which actually shows up as depreciation on ROU assets. So the -- on the stat P&L, this number is closer to INR 30 crores. You can see the line-by-line difference in the 2 columns that we have the start column and the management estimate column. So that's why the PAT difference is higher than the EBITDA level difference.

The next question is from Swapnil. As there is no response, the next question we'll take is of Aditya Mongia.

I had a question firstly on the Express parcel segment. I wanted to get a sense of how much is now in the small parcel business for you in the entire mix and the context is that -- if there's an expectation that this mix will keep on increasing, but so is there a need to probably thinker or change the way deliveries business model or network is kind of structured to be more effective in taking care of maybe different requirements that are there?

Sure. You have a couple of questions, right? You want to just lay them all out.

I prefer to go on , that's fine Sahil?

Yes. So on the first question, can you just walk me through how you're thinking about it? Because see, fundamentally, our legacy, of course, is we began life as a small parcel delivery network. So the underlying network structure per se the structure of the Delhivery centers and so on, they don't need any fundamental change as our small parcel volumes go up. So the fundamental architecture of the first mile under sortation centers routing into whatever the last mile delivery points continues to remain more or less the same.

Understood. I think that an answer from you, and I can move on. But the context was just that is there any change that you would want to do? Let's say, if this small part of the business was to become a majority of our business, which can happen at [indiscernible] become whatever, 35%, 40% of your overall business or 55% of the express costs [indiscernible] starts scaling up a single line work. Is there any change that you would want to bring about and the way things are being down?

I see. Well, one of the things that structurally does I don't know structurally is the right word, but it does change in the network. There are 1 or 2 things that change. And these are sort of -- it's an interesting question. Two things a little bit. One is the last mile delivery center average sizes as the service center network gets larger, does change. Now let me okay, actually, this is a good question. Let me sort of try and explain what's going on. Let's say you're in a city and you were earlier doing both PTL and heavy delivery out of distribution points, which are also doing last mile delivery. And let's say, last mile delivery for e-commerce, and we didn't have a service center because we were only about 180-odd service centers. But let's say, I'm making this up, but and we do have a service center in Patna, but let's say, you were in Patna. And you did not have any service centers. You had no freight service centers. So freight and heavy is being directed into Patna were being delivered by DCs which were as while e-commerce delivery DCs. Those are now providing the serviceability. Now what happens is that when you activate a freight service station in Patna, which now has the ability to do PTL freight as well as heavies. What's happening is you're withdrawing the average weight from the DC network back into a gateway or a service center. And when you do that, the average size of delivery centers that you need in that specific city suddenly crashes because you no longer have the requirement to service 100 kilos of freight or 200 kilos of freight. And so the opening of a service center and subsequently, of course, we're already seeing this happen in the freight network as well. When you take service centers back for certain kinds of loads back into the gateway, so for example, loads that were over 200 kg have now been withdrawn wherever possible into gateways as opposed to being delivered from forward service stations. So what that means, for example, in Chennai is that our gateway will deliver all LRs, which are above 200 kgs as opposed to our service centers. When you do that, the average size of the service centers also starts reducing. So in that sense, yes, there is a structural change that happens to the network. What happens is that you try to deliver in a more consolidated fashion, the heavy goods from a centralized point points further down in the network, reduce an average size. And when there is a reduction in average size, 2 things happen. One is, obviously, your rental costs come down. your supervisory costs tend to change your storage costs tend to change and your delivery architecture changes a little bit. So yes, actually, as I think of it, there will be some changes as small parcel goes up and as the freight architecture changes.

So great to see the companies on top of this. The second question is a little bit philosophical that I have. Sahil, the way I understand in the way things are going, obviously, we are going to focus more and more on certain [indiscernible] going forward. It seems the journey of Delhivery has been a clear focus on the hardware operation. Okay, the mid-mile network. There are other elements which peers may be doing? And then focusing more on Delhivery and what we can do from here, let's say, doing more services of kind of taking care of more pinpoint to the same customer, there was logistics whatever that may be called. On the flip side, there is this delivery partner of yours, let's say, he's given more jobs in hyperlocal, is happier working for you. Some of these you are doing, you're doing the financial services part, but I'm trying to try to take that -- is there a stage wherein the company thinks that there is a lot more to be done on the software side of things, the customer, the vendor, the [indiscernible]. And -- just trying to get a sense of me whether that's the right you are thinking through the hardware may have its own limitations. Let me get hit somewhere. And that's the question there.

Yes, I know what you're getting out, Aditya and it's a good question. Yes, our focus -- so let me sort of try and give a short answer to what is a pretty interesting question again. Look, our focus on the mid-mile and what we're referring to here on the mid-mile and the automation has largely been because a significant portion -- the most important portion of a problem in logistics rarely boils down to how do you navigate the last mine. The last mile is expensive. Yes, it is one of the most expensive parts of the entire delivery process. But it's not the hardest or the most challenging part, and it's not the part where optimization either in terms of the simplest one is route optimization, which delivers a certain amount of benefit, but it's not as significant as people typically tend to imagine or time optimization of a rider who needs to work a certain number of hours and so on. Yes, those have certain advantages, but they typically cap out very fast. The hard part in logistics has always been, how do you get goods to the last mile with a very high reliability? And how do you select where they go to? And how do you select once they get there, what is sort of the form factor that you are going to use to deliver. So while a lot of our focus may have appeared to be purely just on the automation side alone. From a software standpoint, one of the areas and we've spoken about this in the last couple of earnings calls, 2 or 3 earnings calls because these systems are starting to mature is how you shape your demand and how you shape your serviceability. I'll spend just 30 seconds on that. On serviceability, one of the more interesting choices you make as a network is what is the last mile note that is most appropriate to deliver a certain kind of load because as an example, a 300 kg LR in freight and a 50 kg LR in freight are not the same. 50 kg made up of 5 boxes of 10 kilos each and a single refrigerator or not the same. A parcel going into a delivery center, which is 98% utilized versus a delivery center, which is slightly further away, but is 72% utilized are different. 140-gram parcel, which yields, let's call it, 21% gross margin versus a 370-gram parcel, which yields a 27% gross margin are not exactly the same. A lot of the focus of the company, therefore, has -- even from a software standpoint has been on establishing these kinds of serviceability rules and making them more intelligent over time, determining what node is the right point from which to deliver a specific form factor. Now our belief is that these deliver value, which is very difficult to replicate. These are very difficult decisions to make not even nonreal time in real time, they become particularly complex. And I think over time, we've been able to mature our systems to a point where now we are making a lot of these decisions in real time, which packages do we accept, which packages do we not accept. Which packages go to what kind of location, what is the right architecture. Like I said, we've been withdrawing freight backwards into the network. You asked the question earlier saying how does it change when small parcel becomes a larger percentage of our business. Clearly, the architecture of the network itself will change. So from a software standpoint, the focus has not just been on the mid-mile in the automation, but also on what we call orchestration, which is a very difficult problem. In terms of the capabilities that other players in this space are building. Do we have the capability to do all of these and do we provide them already Yes. Where we have lower relative scale compared to some of our competitors in certain segments within reverse logistics is a good example. Our relative share in reverse logistics is certainly lower than our relative share in forward logistics. But the reason it is lower is fundamentally because we have the ability to examine the profitability of every parcel that we are taking. And so as a consequence of that, when we see bad reverse logistics volumes, which ultimately result in claims, and claims are a particularly complex thing because claims are not a cost which manifests instantly, right? You go and do the reverse pickup today, you bring it back, it takes 20 days to sort of mature at the end of the seller who you go and report it to, then there's an entire process where that guy raises a claim to the platform, the platform then comes to you and then you sort of have to bear that cost further in the future. We've tried to stay away where we have these kinds of uncertain SOPs and where it's not always very -- let me put it this way, but we don't feel comfortable carrying the kind of volume. So typically, in some of these capabilities, we've been more conservative with how we build them out. And we tend to sort of stay with high-quality volume because that allows us to deliver a high-quality service. And on the multiplexing of time of the riders, we already do provide that. Of course, our desired goal is that rider spend a defined work day working for delivery with a defined load level. And the reason for that is, I think the directionality of the conversation when you look at the changes to statutory wages or when you look at things that are coming into effect on the [indiscernible], is justifiably gig workers as well as regulators are looking at this and saying if somebody ultimately. Look at how big worker contracts are really structured, right? At the end of the day, while everybody theoretically talks about how somebody is working for a food delivery company on Monday and then an e-commerce delivery company on Tuesday and then delivering quick commerce on Wednesday and flowers on Thursday or whatever it is. The fact of the matter is the incentive sheets of each of these companies are designed in a way that you only stack up the incentives when you really work for them all day and work for them all week. You get bonuses for working whatever 8 or 9 hours a day, cannot say 9 hours a day, I think there are bonuses based on log-in hours. But outside of that, there are bonuses based on a minimum number of tasks that you complete, which cannot be completed in anything less than those 8 or 9 or 10 hours in any case. And then there are additional bonuses which are based on how many you complete in a week, which you might as well tell the guide do you work from your all day and you work for me all week. So we've philosophically not really tended to go towards this idea of how do we multiplex everybody's time. The other reason why we don't want to do it is that in this situation, we've seen that the delivery metrics of people who stay with us and who deliver for us regularly, unsurprisingly are superior to ones who are both newer and people who tend to drop in and out of the system very frequently. And so there's a lot of sort of benefit to designing systems where people work for you for the 5 days a week carrying a defined number of packages in a defined time frame. And our job from a software standpoint, therefore, is not so much to take advantage of whatever little free time this person may have, but to figure out how to make that person as efficient as they can possibly be within the hours that they're already dedicating to delivery. So it's a slightly different approach to how we think about what kind of tools our riders should have. For example, for us, a hugely complex problem is how do we make sure that the rider can precisely get to a customer and make sure that the delivery is done perfectly. This means both being able to identify the location, but equivalently being able to identify the preferred time at which the customer may want the delivery on a preferred day and the more data we collect, obviously, the better we get at this, which is also, of course, the Genesis, for instance, for delivery maps. But does it mean that from a user design standpoint, it's slightly less important for us to be able to flash saying, we have 3 jobs for you. Could you come and work for us for the next 2 hours? Yes. In an order of priorities, problem #1 to our mind over the medium and long term is a significantly more important problem than problem #2. So you're right, we have stayed away from -- or rather we have relatively speaking, less focus on certain kinds of problems, but that is driven by our viewpoint of the world.

Just maybe on this question as to your second [indiscernible] just of, let's say, softer aspects of business, okay. And on the same question I can with you. There's one day of increasing margins, which is in the way we have gone about things. The other way is to solve pain points and that leads to leverage, which leads to margins. [indiscernible] logistics may not work for you as a claim or the business by itself, but it gives you leverage when you're negotiating contracts maybe on the forward side of things. Similarly, with a delivery partner, who's getting some extra income having the flexibility of not working 9 hours a day in one go, but as in the morning doing account will happen in the night, so you do something else. It does give, let's say, if you start doing it all your peers if they're doing it, some leverage, and that leads to margin expansion? You can have a very short answer to this question, [indiscernible] or you can see it makes sense. I just [indiscernible]...

It's not rubbish at all, and it's an absolutely valid point. And I have no truck on no argument against what you're saying whatsoever. Yes, solving specific pain points for specific customers. Of course, leads to margins. It, of course, gives you the ability, theoretically, at least to be able to expand and go beyond whatever you're doing. But at the end of the day, as a business, we have a responsibility to look at the field of opportunities that we see ahead of us and see which ones make the most sense. I'll give you an example of the pain point problem and why we stay away from certain kinds of things. And look, -- more often than not, we do tend to get it right, but we always got it right, the answer is not really, right? But long back, there was this [indiscernible], and it comes up even now every now and then people still come in and says we want to have try and buy delivery where we want to ship 10 products for some customer and you want to bring back 9 of them. And this has been there now for the longest time. In fact, if you go back to press releases from whatever, 6, 7 years ago, everybody was talking about how this was the best thing since [indiscernible]. Jabong launched this back in the day when they were relevant. And the whole view of the e-commerce industry is going to change forever because everybody is going to do try and buy services. And as Delhivery, we just said, look, we're going to stay away from this because, yes, is it a pain point, certainly, if you define your problem as I require 10 products to be sent to a consumer and 9 to be brought back. Is it a pain point? Yes, of course, it is. It's a pain point because you've defined it as such. Is it something that is going to endure for a long period of time, it's very hard to say. So it's something that we have to keep judging. Now do we always get it right? The answer is? No, we don't always get it right. Are there certain things that we continue to monitor. We watch and we say, okay, we need to respond to this, and we need to build up a network? Yes. And we're very happy to be second movers in some of these cases because our execution capabilities allow us to scale up and our customer relationships allow us to scale up. So there's a little bit of a -- we don't always have to be the first movers into everything. But that said, suffice to say there's nothing within logistics that we've seen that any of our competitors is doing that sort of we've looked at and we either don't do at all or that we've looked at and said, "Oh my god, this is something that we absolutely never thought of so far. There be things in the future, I don't know. So it's a choice. It's a question of where we put our attention. And our view is that our fundamental responsibility at the moment is to continue to make forward delivery as efficient as it can possibly be as fast as it can possibly be hook it up to our fulfillment network. Of course, we do reverse logistics. We do a very large absolute volume [indiscernible], it's just as a percentage of our total volumes, it's lower. And with one specific client, we have a different approach as opposed to other players in this industry. So it's a complicated sort of answer to your question. Is it a bad question or are you incorrect? No, I don't think so. And on the riders, again, I don't disagree with you. If there are people who would like to work in the morning for 4 hours as a newspaper delivery agent or whatever it is or somebody is finishing a shift as a security guard and then wants to come in and work for 6 hours delivering food or quick commerce or whatever it is. Certainly, there's -- who is Delhivery to cast any sort of judgment on that. But our point of view is we have found more than enough people who actually are looking for a stable job with a stable employer and they want to work a defined number of hours in the day and they want their employer to expand as much effort as possible towards making the job easy. When I look at our retention rates of field staff across the country, it's actually -- it's something that's really worth seeing. And also the other reason why we do it is that in a network which is as operationally intense as ours, a large portion of our supervisory layer over a period of time has come from people who have started out in the field. And this is important to us as a company. This is hugely important to us as a company. Ultimately, we have a supervisory span in the distribution centers of maybe 1:15, 1:20. So if you join us as a field executive, 6% or 8% of those people are going to make it to a supervisory level within, call it, a year or 1.5 years or 2. And to a significant percentage of the population of India, the idea of being able to build a long-term career where they have the ability to see a company invest in them to develop their skills and not remain a delivery agent until the end of time is significant. And given that it is significant, we have made a choice as an employer, that's the kind of opportunity that we wish to provide. Do we also provide the ability to do what you're talking about? Yes, we do. We obviously have the ability for you to sign up and to come and work for us for a short period of time. Do we expand every possible effort when you do so to explain to you why you should work for us full time, absolutely.

The next question is from Jainam Shah.

Sir, the first question is on rates. If you see during the last quarter commentary, one of the key margin positive that you were thinking was the corporate overheads to go to the -- towards the 7% range, which will be eventually around 2%, 2.5% increased from the existing level in a way the margin part. What we see is that in FY '25, in FY '26 and even in 1Q FY '27, the corporate overage as a percentage of sale has been stable at around 9.3%, 9.4%. So when we can see some operating leverage going out from the revenue and overall percentage to take our EBITDA higher. Shall I go ahead with all the questions or shall I go one by one?

Yes, go ahead. Go ahead.

Yes, second questionis on integration part. It has been highlighted that the difference between INR 17 crores of the EBITDA versus INR 30 crores at the PAT, the INR 13 crore has been largely attributable to the, let's say, ROU or the depreciation or the other intangible costs as well. What I see is that during last quarter, the seminar number was around INR 6 crore difference between this EBITDA and PAT, excluding the other income. So is it going to be a normal kind of depreciation and ROE run rate and it is not a onetime cost that we can think of? Or are we thinking something on this particular integration cost part. Third one would be on the new services part. So if we see for any additional single of revenue, we are still spending INR 1.5, and we are still negative contribution of around 50%. What kind of run rate that we expect from the newer services, maybe, let's say, after 3 years' time, 5 years' time? And what kind of contribution margin that it can take up to? And how it will be done? Like is it on a volume-based thing? Or how we should be eventually approaching this segment? Because the loss combined overall tail rate is more than INR 100 crores, but still we are doing for any additional revenue, the cost is 1.5 years. So how do we see this segment contributing to the financial point of view, of course, we are solving a problem and the thing has been there, which is good overall from the customer point of view. But from a financial point of view, how do we see this segment probably for next 3 to 5 years' time? And the last one would be on the contract labor part. So can we get the number that we used to have as a linehaul expenses and all those things. There was a 1 line item, which was contractual manpower expenses. Can we get that number for this 1Q FY '27 to better understand the margin from, let's say, the labor cost, which has increased?

Sure. Let me take questions 1 and 3, and Vivek can comment on questions 2 and 4. On the first one, very quickly on corporate costs, there are 2 components to this. One part is something that we've been talking about. I spoke about this in my analyst calls on quarter 3 and quarter 4, which is the expansion of our business development teams specifically for our part truck and full truck freight businesses, essentially moving to a different, much wider cross-sale structure, which would allow us to penetrate, I think now in whatever 100 cities all over India much more deeply compared to where we were earlier, which was really the top 3 cities plus some. And the reason that investment was necessary is that we don't -- we looked at our relative geographic market share and realize that actually, another interesting statistic is that we believe that we service such a small percentage of the total number of shippers in India that, in some sense, is the market opportunity for us is practically intent. I think we looked at it on a penetration basis our overall list of customers from 3%. This is despite being the largest logistics company in India. So a large portion of this was towards building out our business development teams, which is what we had started doing sort of November, December last year. It's sort of solid gathering pace in Jan-Feb. And the large part of that buildout happened through the March, April period in preparation for the new financial year. So one of the reasons why you see increased wage costs in Q1, outside of the fact that this is our increment cycle, a lot of this normalizes through the year as well as the certain amount of attrition. But a large portion of this, of course, is because the business development team has been built up. And the good thing is that the cross-sales team is actually fully active now. And we're already seeing pretty strong traction on cross-sales in terms of generating volumes for the Express business, generating volumes for the PTL business, generating volumes across border business as well. The other, of course, is that technology costs have gone up year-on-year. Some of this is directly volume linked. AWS cost, for example, go up in proportion to the increase in volumes. Of course, we have certain scale benefits. But broadly speaking, the absolute costs go up. And there's also a currency issue that happens. So there's about INR 5 crores to INR 6 crores, I think, impact which comes from that, Vivek can share more details. Now in terms of new services, when will we break even? It's different for different cities. So the first city that we launched in Delhivery Local, for example, which was Ahmedabad. In fact, it looks set to break even most likely at some point within quarter 3 unless of course something completely under what happens. But so far, the trajectory is that's what you will break even. Now these -- this point is, of course, different for different cities because given that it's an intracity logistics problem, the sizes of different cities are completely different. So the breakeven point for Delhi and Bangalore will be perhaps slightly pushed out compared to the breakeven point that we had for Ahmedabad. But the breakeven point for Jaipur is going to look more like the breakeven point for Ahmedabad or perhaps even sooner. So it really depends. The composition -- the relative composition of these different cities and how they grow, will determine where the breakeven point for the business overall will be. That said, like I mentioned, both our growth trajectory on new initiatives on Delhivery Local as well as our contribution margin trajectory at the moment continue to be ahead of plan. We had anticipated that we would do INR 250 crores in this financial year. It does look like we will exit with a higher ARR than that given where we are today, and contribution margin also actually significantly ahead of where we anticipated we would be in Q1 itself. And we continue to see some improvement in Q2 and anticipate that, that will improve further in Q3. Because again, similar to the rest of the business, Q3, Q4 tend to be sort of -- end Q2, early Q3 tend to be much busier quarters as compared to Q1 and Q4. But anyway, Vivek, do you want to take questions 2 and 4 please?

Yes. Jainam, nothing -- it's the same the depreciation on ROU and depreciation on tangible assets and the amortization on intangiblw assets. The numbers were different because it was -- the last quarter was a fiscal year-end quarter. So there may have been some specific adjustments. But otherwise, no, there is nothing different in those depreciation items. And your other question was the contractual manpower. That number would be INR 371 crores for this fiscal -- sorry, for this quarter of -- this first quarter of FY '27.

Got it. Sir, on the depreciation but the question was more on that is it a recurring nature of thing of INR 12 crores, INR 13 crores, which has eventually led to the difference between EBITDA and PAT of the integration? Or is it something that you should take it as a one time? Because of...

It's recurring because the -- see, one is that we'll be spent on, say, people as [indiscernible] got absorbed in Delhivery or say they let then we spent on some of the contracts, which eventually we did not intend to retain, but until those contracts couldn't be exited if we had to continue. And then we spent on facilities, which were under lock in, and we couldn't exit. So all of those were just cash costs. And so they are part of the cash integration cost, which [indiscernible] but there are certain unused assets, which are awaiting disposal and they are also being depreciated. So that's -- while we are not really incurring any cash cost on it, but the depreciation for that is part of our statutory P&L. So that's the item here. The more relevant number is the INR 17 crores because our initial guidance of INR 300 crores was a cash integration cost guidance. But here, because on the statutory P&L, the depreciation on unused asset also impacts the PAT, we are separating it out and kind of showing you the true business part, which is comparable to the quarters in which there was no e-commerce express related integration costs.

It. Sir, sir, just one clarification part of this contractual manpower, is it safe to assume that all the labor cost would be parking into this expense largely this expense side?

Yes, largely, yes.

So sir, the question would be on that last year similar quarter, we were having 12.2%. The contractual manpower expense as a percentage of revenue. This quarter, with all this wage raising across the states, this is 12.8%, so the EBITDA margin impact at the service EBITDA would be at around 0.6%. The other cost that has been talked about is on the fuel cost. And what I generally believe is that it would be in the range of around 30%, which we used to report as a line haul expense. And this 30% cost for 1 month increase at around, let's say, 7%, 8%, would have been around, let's say, 0.67%. So around 1%, 1.5% impact of these 2 things, the, let's say, diesel cost as well as the manpower cost would have impacted the EBITDA margin overall. But when you see sequentially or, let's say, on a year-on-year basis, the impact has been large. So if you can clarify, is there any other cost structure item that would have changed during the quarter, which would have impacted us and might be recurring in nature going forward. Of course, I believe that 1Q has been seasonally weak quarter from the margin perspective. But has there been anything that has changed the cost structure materially because this is just maybe maximum 1.5% impact of these 2 things on the contractual manpower and line all expenses.

The line haul impact would actually be larger than 30 percentage. Now that's all just fuel. But linked to oil price, you also have cost of consumables going out. You also have cost of air movement of parcels going up. In a way, you also have the cost of last mile partners going up because while we don't pay them fuel separately for your gig workforce, but their expectations on what they need to on a daily basis goes up when the fuel component goes up because for them the petrol is a large cost on a daily basis. So it will show up in your last mile cost increase as well. Apart from that, now all of that is linked to the minimum wages and the fuel price increases. But apart from that, even in a more normalized environment, the first quarter would have had the annual increments coming in, so your employee benefits costs would have gone up. And your first quarter onwards we would also have our network expansions coming in because first quarter -- first half is where the capacity is added because the third and fourth quarter are respectively the peak quarters for our express and PTM businesses. And so though your overall fixed cost base were also go up during the first half of any financial year. So there are -- this increments and network expansion costs, which would be true for any financial year. And on top of that, there is fuel cost increases and minimum wage increases and the oil price-linked items cost increases, which was more specific to this financial.

Got it. Sir, that was very helpful. Just one suggestion if you can just start providing this expense line item which we used to provide 2 to 3 quarters that would be really helpful. Of course, our [indiscernible] has been always approved work. So if you can just start providing those details as well.

Thanks, Jainam, and thanks, everyone. That was the last question. Sahil, over to you for any closing remarks.

Thank you, everyone, for joining. I know it's a Saturday evening and later on the Saturday evening, and Dhruv from AMBIT team, as always, thank you for hosting us. Hopefully, from here on, as we look forward, this pretty decent start to Q1 with record volumes in Express and high volumes on PTL continues. The external environment, of course, the reality is it's been a challenging start to the year. Our view at least at the moment is that things seem to be easing up a little bit. Now hopefully, we're right. And as that continues, we'll keep you posted, but structurally a good start to the year and look forward to seeing you in Q2.

Great. Thanks, Sahil. Thanks, everyone. You may now log out. Have a nice weekend. Thank you.