Navkar Corporation Limited (NAVKARCORP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Navkar Corporation Limited Q2 and H1 FY '21 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Viral Shah from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.

Thank you, Faizan. Good afternoon, everyone. I welcome all the participants to the 2Q and first half FY '21 results conference call of Navkar Corporation Limited. We have with us Mr. Anish Maheshwari, CFO of the company. We would commence the call with the opening remarks from Mr. Maheshwari to give you an overview on the company's performance, followed by a Q&A. Now I will request Mr. Anish Maheshwari to begin with his opening remarks. Over to you, sir. Thank you so much.

Thank you, Viral. Thank you. I have with my team members, Nitin and Kunal also. Good afternoon, and warm welcome to everyone present on the call. As we all are aware, the novel coronavirus or COVID-19 has overrun the entire globe leading to its depletion as a pandemic by the World Health Organization of which India is a member. In this regard, there have been several restrictions and movement of the cities in local lockdowns are in place since the start of March 2020 and continued till June 2020 by which of appeal to stay at home by single state local authorities that includes the Prime Minister of India have been made and structured leading to complete lockdown are enforced nationwide. But now the relaxations are being announced and India is under the unlock phase from second quarter onwards. Foods and connected solutions like ours that provide container station services, inland container depot services and railway terminals, we will continue to operate with the available staff, but strictly within the guidelines placed by the central state and local operatives as we are all duty-bound to stop the spread of this COVID-19 with all our might, dedication and sincerity. To ensure that the nation is not affected with a link being broken in the supply chain of essential, we continue to be a -- we will reveal as keeping the wheels of the supply chain of essentials earning at our CFS, ICD and PFT. Regulator's scenarios improving since unlock phase, and the impact of the same is evident in second quarter results, and more favorable outcome may be visible in incoming quarters on account of business entities getting reopened with normal levels, export, import mix in relation to containers movement getting better along with the scenario at the country by level. I just wanted to highlight the financial update of quarter 2 FY '21. Revenue for Q2 FY '20 is INR 147.2 crores, which has increased by 21% on a substantial basis and 12.8% on a Y-o-Y basis. The increase has been mainly led by the increase in domestic revenue, which has increased by 335% as compared to Q1 FY '21 and increased by 212% as compared to Q2 FY '20. However, the average realization was increased by 9% on Y-o-Y and decreased 25% on a Q-o-Q basis. The main reason behind increase in average realization were due to EXIM mix change. EXIM mix earlier warehouse stores as in Q1 Q2 FY '20 was 46% versus 54%, export was 46% and import was 54%, whereas in Q1 FY '21, EXIM ratio was 38.62% -- 38% versus 62%, export was 38% and import was 62%. In this COVID pandemic, our net revenue was decreased whereas our domestic operations revenues increased, which impact our per-TEU realization also. Over and all, business operations is impacted by 20% to 25% in this COVID-19 period. The operating profit for the Q2 FY '21 has increased by 40% on Q-o-Q basis to INR 56.52 crores compared to INR 40.41 crores in Q1 FY '21. The EBITDA of Q2 FY '21 has increased by 141% on Q-o-Q basis to INR 38.49 crores compared to INR 15.95 crores in Q1 FY '21. Now I just wanted to highlight the operational update. We have seen a positive growth in the volume for this quarter, with the total volumes begin 74,349 TEUs in Q2 FY '21, increased by 25.9% on a Q-o-Q basis and decreased by 23.3% on a Y-o-Y basis. The volume at Mumbai CFS increased by 32.2% to 42,091 TEUs in Q2 FY '21 from 31,842 in Q1 FY '21, of which 21,999 -- 21,909 TEUs were for imports, 20,182 TEUs exports. On a Y-o-Y basis, the volumes at Mumbai CFS declined by 26% as compared to Q2 FY '20. The volume at Vapi ICD in Q2 FY '21 were [ 32,250 ] TEUs as compared 27,209 TEUs, an 18.5% increase on a Q-o-Q basis. However, on a Y-o-Y basis, it is increase by 2.2%. Now Vapi volumes were mainly driven by the import volumes, which is 18,442 TEUs, exports were 13,816 TEUs for Q2 FY '21. On the PFT side, the total trains handle for the quarter was 653 trains, which was increased by 26.8% as compared to Q1 FY '21. The main reason behind this increase in domestic's movement that our CFS and ICD. Now I just wanted to update application of index 116 in respect to our [indiscernible]. As we had just changed the methodology for our Valvada ICD with our balance sheet, as per new Index 116, there is no difference in the treatment of operating lease from finance lease because of the present value of remaining lease payments starting from April 1, 2020, after discounting as the incremental borrowing rate is recognized by right-to-use asset in balance sheet and an equal amount will be recognized as a lease liability on the other side of balance sheet on initiative date. After that, the notional depreciation will be charged over the assets recognized and the financial liability amount will keep increasing by the lease cost element and decrease by the actual lease rental accounts paid. In this manner, both the balance sheet of assets and liability recognized in respect of lease will be diluted over the period of lease. This has resulted in our increase in amount of property, plant and equipment by INR 1,581.21 lakhs, increase in amount of financial liability by INR 1,646.87 lakhs, increase in depreciation and amortization cost by INR 171.56 lakhs, increase in finance cost by INR 99.90 lakhs and increase in other expenses by INR 205.80 lakhs. As we all know about the COVID pandemic situations, now the improvement side is open. And if we'll compare with our numbers from quarter 1 to quarter 2, it is in the positive side. So now I just wanted to hand over the call for Q&A session.

[Operator Instructions] The first question is from the line of Vikram Suryavanshi from PhillipCapital.

Congratulation for a good improvement on Q-o-Q basis. I have 2 questions. One is that now we have increased our rail operation. Currently, we are operating, including lease and loan, is there any change? That is one. And the second thing, how is the revenue and volume accounted for the Ahmedabad [ ICD ]. So is that volume included in EXIM? Or how -- if you can just give some idea about the revenue and volume from that Ahmedabad ICD?

So total, we are operating now 8 trains, out of that 2 is owned by the company and 6 is on a lease basis, unless we were having 9 trains, correct? So we are improving our efficiency by 1 train while using our 2 trains. Secondly, as you asked about Valvada ICD, Valvada ICD is adding certain amount of revenue, but which is very less, almost we did in past quarter around 100 containers in the entire quarter. It has gradually improved because we are more focusing on the [indiscernible] now.

[Operator Instructions] The next question is from the line of Viral Shah from Prabhudas Lilladher Private Limited.

So to began this, first of all, congratulation on a good set of numbers therein the current situation. Sir, in terms of our -- we had this vision on a product set of facing to domestic market as well. Sir, what -- where are we in terms of -- since we have now [indiscernible] as well...

Mr. Shah sorry to interrupt you. The audio is not coming clear, sir, from your line. Please check.

Is the audio, audible?

Yes, please go ahead.

Sir, to begin with, we had this -- our long-term vision was also to cater to the domestic clients per se and increase our volume on the domestic front as well. So we already -- now we have already taken Ahmedabad on lease, and we have Vapi and Mumbai per se. So where are we? And what do you feel in terms of our strategy going forward from a 2-year or a 3-year perspective of -- in catering to domestic volumes per se? That is the first question, sir.

So, Viral, I just wanted to add here. Our domestic operation till last quarter was in a positive note. And due to last quarter of -- last means, I just wanted to tell you about the last to last quarter, Q4 of the last year, where we have operations of around INR 29 crores. And last quarter, because of the June quarter, the entire country was switch-off kind of a mode. So there were only INR 8.48 crore and which is now INR 38 crores almost. So there onwards, domestic operations will definitely will be improved more in ICD side because people like our ICD model, and they would like to be shift more in rail. So there is a huge change we can see. And secondly, EXIM volumes compared with the last quarter and this quarter is -- remains same. There is no such incremental movement we have seen in EXIM volumes. But domestic definitely as the entire country is -- as government has also announced the phase unlock 5 of country, then after that, I can see the actual volumes will be -- add in our quarter 3 and/or quarter 4.

Fair enough, sir. Secondly, sir, I just wanted to have some math if possible. If by any chance, a late distance of our domestic volume or catering to a late distance of around 200 kilometers or less or maybe slightly higher or less than 400 kilometers, is still rail a beneficiary in terms of cost-benefit analysis, still a benefit to go for rail through railways or is it road is beneficial? So if you highlight that if possible.

If you ask me, I can tell you, definitely, railway's more in a positive side. Because on the rail operations, we are earning more. But we are using both the methods because sometimes what happens for domestics, we are giving -- I will just give the example on last quarter also, I gave the same example. This quarter also is going to add, like we are doing the services for ourselves in metal now. So for them, we are doing services from [indiscernible] to ICD and ICD to CFS via rail and from CSS to Khalagpur by road. So we are operating multi-model things in the same operations. So this is really hard to tell you, if I'm doing the same operation -- entire operations by road, it will definitely -- having a high cost. If I'll be using all the mode of transportation, then it will be on the lesser side. And although in domestic, still now, we are not making much profit like our CFS ICD model. But yes, there is a profit, and which will be gradually improved because we are using our trains in a better model.

[Operator Instructions] The next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to understand, you mentioned that EXIM volume is kind of the same quarter-on-quarter, whereas the domestic volume is increasing. So how do you see volume normalizing? Like do you still expect that by fourth quarter, we would see volume kind of normalizing what we used to do earlier?

So I'm telling you in the value terms. Basically because last quarter, if you'll see the export-import total was 59,000 TEUs, which is 74,000 TEUs in this quarter. So in this quarter, our exports were on a higher side. The revenue proposition, if you'll see, definitely, there is a marginal add-on. But the volume side, that impact has already been there, 26%, 27% we have added in this quarter. And that will remain -- continuing for next 1 or 2 quarters. And I think so after fourth quarter of this year, then the situation will be very normalized for the ports.

After fourth quarter, right?

Yes. So -- but there is a gradual improvisation. If you'll see, last quarter, we did 60,000 TEUs when the quarter 1 was totally closed. Now the domestic operations, which we added almost -- last quarter, we had a number of domestic operations was INR 8.49 crore, which is this quarter, INR 37.75 crores. Means, with the 75% -- 70% or 75% factories are all open now. Rest of the factories will be open after Diwali, and I think so will be December month, correct? When the season is over, then we will get to know what will be the market for the domestic as well as the EXIM. So this quarter, maybe in the same situation, quarter 4 may be in a positive from here. And after that, there will be boom.

Sir, after that, like earlier, we used to do INR 1 lakh plus kind of TEUs on a sustainable basis?

Yes, yes. We are hoping that. By quarter 4, we will be in a same reach.

Right. And now I see your export/import is more balanced, earlier the imbalance that we saw in the first quarter. So it is more balanced as of now. So that would have helped your margins, right?

Yes, yes. That is the main reason as we -- in this quarter, revenue-wise, we are not improving them much because EXIM mix was almost in a 55%-45% range. But from here onwards, if the EXIM volume will be the import side will be improvement side, our profits will be more because domestic is almost in the range now.

Right. So does that mean that like to coming back to our pre-COVID kind of a margin, your volume also has to...

That we are targeting to reach very soon.

The next question is from the line of Sanjay Kothari, individual investor.

Sir, [Foreign Language]

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That I will check, sir. [Foreign Language]

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[Foreign Language] If you have any kind of a problem to see the results, you can call me again. [Foreign Language] You can take my office number, you can call me. I will share you on WhatsApp. There is no problem.

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[Foreign Language] No worries.

[Operator Instructions] The next question is from the line of Aditya Tambre, individual investor.

Am I audible?

Yes, yes. Tell me.

All right. Congratulation on the good set of numbers. I have one simple question. The realization at Vapi, we've seen that it's dipped. It's going to around 18,500 change, if I'm not wrong. But just what -- I thought the average realization should be improving because we have seen that the sea freights now are going up. By any chance that our realizations are going to go up in the coming quarters?

Yes, yes. There's a chance because now what happened, Aditya, we are on a verse to get that numbers, which was early quarters, correct? So now if you see my last year in the same quarter, we did handled 97,000 TEUs versus this quarter, only 74,000 TEUs, which is almost 30% decline until now. But at this sometime, my business is compensated by the domestic volumes, correct? So there -- in there domestic volume, there is no such profitability. But yes, still there is a profitability. And in the EXIM volumes, gradually, it will be increased and the fixed cost will be remain same. As I told on earlier question that on that we had already been discontinued on lease. Secondly, we are negotiating another lease payments. As on peak, our lease per train was around INR 20 lakh for nonavailability of trains. Now which is in the range of INR 15 lakh now, again. So we are negotiating again for the better rates for the leasing amount. So these will help me to adding in our profits.

Right. We've actually -- I've been reading about the export volumes picking up actually too much compared to the imports.

Correct.

Right. Because of this, our costing is going to go by any chance because our export/import is...

So in that case what happens, there is no question about the costing. Costing will remain the same. But in exports, what happens, the realization per TEU is very less comparative to imports. That is the main problem. So if you will see my last quarter, per-TEU realization was very less because imports was almost 62%. Got my point?

All right. Right, right. Okay. And one more last question is this finance cost we're looking at somewhere around INR 15 crores for this quarter...

This is because of the treatment change by index 116, and which is notional.

All right. So that means that coming quarters it's going to reduce?

Yes, yes, yes. Definitely. If you see the fair value of that particular interest cost remains same. The treatment because we'll have to change as per the -- as per suggested by our auditors, what I mean by that because the long-term lease were not ICD, but you are charging on the balance sheet -- P&L. You will have to add in our -- add in your assets. So you'll see the justification for the same I had already been elaborated on the call, and we are also putting on the website.

[Operator Instructions] The next question is from the line of Viral Shah from Prabhudas Lilladher Private Limited.

Sir, in terms of volume when you look at for the quarter. So what has picked whether it is Vapi, which has done phenomenally well or it as JNPT, which has done phenomenally well in terms of volume growth? Where you have seen a significant pickup in terms of the volume per se?

Vapi positively, I can say, Vapi is in a high side comparative to last quarter. And Vapi will be more faster than the CFS because CFS [indiscernible] after DPD. So we are -- we just wanted to maintain our previous levels at the CFS side because there was no such margin. In Vapi, we have more opportunities, and we are more focusing on the [indiscernible] port also for the Valvada ICD. And we would like to cater till Ahmedabad in future. This is our core target very near.

Near, okay.

Within Ahmedabad, we would like to target.

Okay. Fair enough, sir. Sir, secondly, in terms of our DFC, when do you expect to get commission? Are you seeing something which is -- of let's say, '21 or '22 is where you can expect -- March '22 is where it can expect it to commission? Or it can be delayed by a year more?

So yesterday, I had a meeting with DRM railway, central railway. They are still saying that they are on track on the DFC side. There may be a delay of quarter or 2 maximum. So they are very much positive about the DFC line.

Okay. Fair enough, sir. Then lastly, sir, in terms of our -- when you look at in terms of our margin profile per se, post-DPD, what do we expect a stabilized margin for TEU to be in terms of EBITDA? If you could highlight that, that would be -- from a CFS and ICD perspective. I know value-add can be added to your EBITDA margin per se, but from a CFS and ICD perspective, your EBITDA per TEU or a number which we can take it going forward, sir?

Yes, Viral. So this is really a tough question for me, but I can tell you if you'll see my earlier numbers 2 years back, EBITDA level was almost 38% to 40%. And on peak, we were having a EBITDA level of 42%, which is not 26%. And we are targeting to reach first at 30% to 32% very soon. This is our core target. And once it reaches over there -- I just wanted to add one more thing over here. For CFS, we are opening the further business for the Pune and Nagar also. So we are taking business from there for domestic. Like now we have online from ICD towards domestic to the Khalapur, Mumbai. At the same time, we were targeting the business from Nasik, Pune and Nagar for the CFS side as domestic. So our main target now to -- if you'll see from last 3, 4 quarters, we are always saying the same thing, we would like to utilize our assets in a better manner. That is our core target. Earlier what happens, after DPD, we got to know, there is -- if we will restrict with our profit margins, then we'll have to lose the business.

Fair enough.

So now we are taking steps towards the target only on the business side first to utilizing our assets in the proper manner. Then we will look at the profit margins, how to improve that.

Fair enough, sir. Okay. Fair enough. Sir, have we lost any market share at JNPT by any chance? And has there been a cannibalization in our volumes because of this Vapi ICD as well?

So if you'll ask me about the cannibalization, I think so there is no such volumes, which is earlier coming to CFS and now going to ICD. There's no -- there was hardly 15% to 20%, which has already been there, and we look at -- very early back 2 years back, correct? So your question about the CFS, if you'll ask me about. So there is -- on the EXIM side, we are not looking at such volumes, which was earlier for the CFS level. After DPD, the levels have always been a downside and down train side also. So there might be change after certain decisions taken by the JNPT port or the other authorities. But we are not looking at that situations that may be on a same page again. But how we will be, again, utilizing our assets because we have a full assets over here in Mumbai? And at the same time, we have Vapi. So Vapi, we are definitely getting the business in which we are targeting. [indiscernible] and Mumbai, there are certain challenges, but still, we are giving our best.

Fair enough, fair enough. Okay. Fair enough, sir. Okay. I think, Faizan, do we have any more questions or we can end the call?

Sir, we do not have any questions in the queue.

Okay. Anish sir, we don't have any questions, so can we end the call?

Yes, yes, No worries. Thank you so much.

Thank you, everyone, for participating. I want to thank the management for giving us an opportunity to host the call. Thank you, again. Anish sir, any closing comments from your end, if any?

I would like to thank, everyone, joining on the call. And I hope we have been able to respond to your queries adequately. And as festival seasons are coming, I would like to wish you all the participants happy Diwali and happy New Year in advance. Thank you so much, Viral.

Thank you so much, sir. Thank you so much. Thank you, Faizan. Thanks, again.

Thank you. Ladies and gentlemen, on behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.