Navkar Corporation Limited (NAVKARCORP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Navkar Corporation hosted by PhillipCapital (India) Private Limited. [Operator Instructions] Please note that this conference is being recorded. 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. I now hand the conference over to Mr. Vikram Suryavanshi from PhillipCapital. Thank you, and over to you, sir.

Good afternoon, and very warm welcome to everyone. Thank you for being on the call of Navkar Corporation Limited. From the management, we are happy to have with us here today Mr. Anish Maheshwari, Chief Financial Officer; Mr. Nitin Sharma, General Manager Finance; and Mr. Kunal. Before we start question-and-answer session, we'll have opening comments from the management. I now hand over the conference call to Mr. Anish Maheshwari. Over to you, sir.

Thank you, Vikram. Warm welcome to all in the conference call on the earnings of Navkar Corporation's Third Quarter FY 2022. Good morning, very warm welcome. Looking at the figures of results presented, I'd like to mention that position of current quarter is almost in line with the preceding one. The priority of the company is to improve the profitability in line with measured growth of business, volume in current units of company. The elements of revenue of company during the quarter were as follows. Volume of the import containers handled rose by 8.1% from 23,434 TEUs to 28,583 TEUs on a Q-o-Q basis. And from 30,622 TEUs on Y-o-Y basis, the same is down by 6.7%. And volume of export container handled having declined by 10.2% from 19,613 TEUs to 17,573 TEUs on Q-o-Q basis and from 14,514 TEUs on Y-o-Y basis. The same has increased by 21.1%. In case of CFS PFT, volume of import containers handled stand at 36,951 TEUs from 29,297 TEUs on Q-o-Q basis, which is a rise by 26%, and from 29,587 TEUs on Y-o-Y basis. The same is now up by 24.9%. And volume of exports container handled increased by 50% from 18,980 TEUs to 28,469 TEUs on a Q-o-Q basis and from 34,412 TEUs on Y-o-Y basis. The same is now increased by 16.6%. Now trains handled stands at similar level of 260 in last quarter to 256 at CFS PFT and from 720 to 711 at ICD PFT, which is also same Y-o-Y and Q-o-Q basis. Comparing the same with Y-o-Y basis, the trains handled were 270 in CFS PFT and 770 in ICD PFT, which is overall increased by [ 2.03% ]. EXIM turnover rose from INR 146.42 crores to INR 159.15 crores on a Q-on-Q basis and is led by 8.7% increment. And this is a rise of 9.9% from that in the same quarter of last year, 144.77 crores. Domestic turnover stands INR 55.1 crores in comparison to INR 61.47 crores on Q-o-Q basis and the same was INR 42.07 crores on Y-o-Y basis. Now I just wanted to comment on the profit figures for quarter 3 FY 2022. Operating profit of the current quarter stands at INR 77.43 crores in comparison to INR 71.90 crores in preceding one, which shows a hike of 7.7%. EBITDA margins of current quarter stands at INR 49.33 crores in comparison of INR 47.19 crores in preceding one, which shows a rise of 4.5%. The rise in EBITDA margins belongs to certain reasons. There's marginal hike in turnover of the company, INR 215.29 crores in last quarter to INR 218.5 crores in current quarter. The depreciation cost of the company increased by INR 11 lakhs in current quarter as compared to in the last one. The reason for the gain of the depreciation cost due to the capitalization of assets in the last quarter as well as asset earning during the quarter. Profit before tax of current quarter at INR 21.12 crores in comparison to INR 18.85 crores on Q-o-Q basis, and that of INR 18.05 crores on Y-o-Y basis. Profit after tax of company stands at INR 12.60 crores in comparison to INR 11.6 crores on a Q-o-Q basis and INR 13.9 crores on Y-o-Y basis. The increase pertaining even that other expenses grew by 20% on account of sales and promotions on the occasion of Diwali and bonus elements in the [indiscernible] expenses. Coming to area of new project development continuing at Morbi, the company had received a Letter of Intent from Ministry of Finance on 26th October 2021, for setting up of a type of ICD and in-principle approval for construction of private freight terminal, railway siding at Manaba, Maliya, Morbi District, Gujarat. For this principle, the company has acquired land [indiscernible] the construction of facility has begun and the foundation work is in progress after getting order to utilize the land for non-agricultural use. The management is contemplating to complete the terms of LOI guidance time line and make the ICD operation well before the time. The purpose of the new ICD is to have better connectivity in network to serve the customers better in domestic market also. Management is of the opinion that if we have facility will we acquire new customers and increase the profitability of the company. We also just wanted to add, in Morbi, our 30% foundation work has already been completed. And our interactions with the customer fraternity has already started over there. And we have good interactions with the customers. After highlighting of all above points, I hereby like to state that the company's performance in growth of revenue was almost at par with slight decline and the same is having corresponding impact on the profitability. Looking at this, the company hopes to sustain the operations and profitability in coming 2 quarters where profitability has improved and profit is there. Now we open the floor for the Q&A session.

[Operator Instructions] The first question is from the line of Rishikesh Oza from Robo Capital.

Sir, my first question is, if you see, the realizations have fallen this quarter. So is there any particular reason for that? And what would be our revenue guidance for FY '23?

So basically, I had already told in the call, there was an operating cost, which was slightly higher than the past quarters. And operating cost, I can say that cost for maintaining the truck drivers and other employees, we will have to incentivize them till now. So that is the major reason. Otherwise, if you see, our expense is in line with the past quarters.

Okay. And what will be our revenue guidance for FY '23?

So basically, on revenue guidance, I can say that Mumbai CFS, in the last 3, 4 quarters are staying on the same line. Mumbai CFS is not giving any kind of organic growth and we are not hoping even to [indiscernible] CFS. So now we are in the development of other lines of business in logistics sector itself. Like we are more focusing on the domestic side. And we are trying to drive some other models in the domestic markets too. Other than that, we are hoping that by next 2 or 3 quarters, probably by December, we will try to start operations full fledgedly over there in the Saurashtra region. So after that, I can say that the growth for the company for next couple of quarters will be slightly on the upper side. But after the Saurashtra ICD, which we have already been -- commencement has already been -- infrastructure development has already been in place over there. So we are hoping that in second or third quarter, when we started operations there, then we will be getting actual benefit of our ICD over there [indiscernible] our cross-selling for Bombay, Vapi, and Saurashtra regions. So till that we just wanted to try to maintain this current Exim business, and we are just trying to make sure that in domestic side, we are trying to add more and more customers now, whoever is there in the north side and in the Gujarat region. So with that, we are hoping that our revenue growth, particularly [indiscernible], will be on the higher side from current.

Okay. Got it. Sir, my second question is now from here, like how and why our margins are going to improve from here now? Like what would be the key driver from here?

So basically, margins will largely -- currently, our EBITDA margins have been seen quarter-to-quarter in the improvement mode. Operating profits are also in an improvement mode. So once -- we had already ordered 4 trains, which will, I think so, come to us by April or May. So once that 4 trains will be added in our fleet, then our operating cost is also getting down because now we are using the new trains and the efficiently are getting down. So from year 2, if you ask me for a couple of quarters or for next year, that will be the improvement side.

Okay. So you are saying because you will be adding more trains in May, you said, right?

Basically, what happens, if you ask me, today, we are using 14 trains. Out of that 2 are owned by the company and 12 we have already been on the lease. More business which we are getting from the ICD as well as the domestic market, we use our train facility. We are using our PFTs, we are using [indiscernible]. So in that context, if I say, it would like to be convert more owning train. Then my operational efficiency will be getting improved and cost will be getting low.

Okay. So those 4 trains will be owned, are you saying?

Yes. So 2, we have owned now. And 4 we have already ordered. Payment also been done, around 30% payment has already been done. I think so by April or May, that those trains will be [indiscernible].

Okay. Got it, okay. And any indication how margins will be going up from here? Like any indication on FY '23 EBITDA margins?

I can see my historical EBITDA was in the range of 37% to 40%. But 3, 4 quarters call, I had only been doing that at first target from here. Now our EBITDA margin is in the range of 23% to 25%. So our first target from here in a couple of quarters, or I can say, next 4 to 5 quarters, we just wanted to target 30% of EBITDA. And we are having [indiscernible] over there after the interactions with the customer baseline and new businesses we are getting to establish over there in the Saurashtra region, and ICD business. If you see, our ICD business is in a growing side [indiscernible] a positive thing. Our first target towards the EBITDA margin to take that EBITDA margin from year to around 30%, 32%. That is our guideline actually.

Okay. So you're seeing 30% if I heard correctly? Like 30% in 2 to 4 quarters you are saying?

Yes, approximately 3 to 4 quarters.

Okay. So approximately in 3 to 4 quarters, you are targeting 30%. And that you are saying this is because the trains you are adding, correct?

So it will be generally because of mix of so many things. Now we are focusing on some more commodities, point number one. Point number two, the operational efficacy of new trains will be getting improved. Third one, interactions for our Saurashtra region. So that [indiscernible] what happens, in Gujarat whenever we are going to be in Saurashtra, then [indiscernible] parties are in [indiscernible] for Gujarat also. So with that interaction, we are getting a sense there will no improvement [indiscernible] 3 or 4 quarters.

[Operator Instructions] The next question is from the line of Sanjay Awatramani from Envision Capital.

Sir, I just wanted a clarity. I Mean the previous participant mentioned that you are -- I mean, you mentioned that you're ordering 4 trains and 2 have already been delivered. So 2 will be additional, which you will get in April and May. Is that understanding correct?

No, no. No. So right away, I have 14 trains, correct? Out of that, 2 are owned by the company, they have already been under operations, correct? 12 we are having on a lease model basis, and we already have placed the order I think so 6 months back to [indiscernible]. So 4 trains will be added in our fleet and the rest -- the existing 2, which are on a lease basis, that will be retired.

Okay. So basically, the total operations will be 14 itself?

So basically, what is going to happen, today, there is a dependency on the lease model with the other train operators, correct? When I'll be having my own 4 trains, then if I will be having a lease today of 12, then that number will be going down by 2. Because 4 new trains will be operated by me and the entire administration of operations will be decided by the company itself. So we will be having [indiscernible] operate our own business. Otherwise, we'll have to have some dependency for the lease based trains.

Okay. Okay. So you're not planning to increase any trains above 14? I mean the total train count will be 14, right?

Right now, not. But I can say there is a good traction in the PFT and railway side. [indiscernible] just wanted to shift their business strong route to [indiscernible]. They have so many big clients, which we added in our fleet now. So looking at that, rear vision I can say that 14 trains will be also less for our operations.

Okay. So as per case per case basis. [indiscernible]

If required, we will be taking one on leave, but right now, if you ask me, by April or May, we'll be having our own 6 trains.

Okay. Okay. And sir, do we have any CapEx plans in the coming near future or for next year, any guidance is coming in?

I just wanted to give you some highlight on that. CapEx [indiscernible] Saurashtra has already been moving on. Financial arrangements already done. And right now, what we did in past 1 or 2 quarters, we worked with [indiscernible] from Axis Capital and Bajaj Finance and Union Bank of India. The tenure was almost around 10 to 14 years. So what we did, we used our cash flow for the existing repayment as well as the advance repayment of the loan, and that loan which we used, we used in fact for the ICD. So financial arrangements till now, we are part of the team, and we already have approval from our Board of [indiscernible] Crores. Out of that, we have till now only used INR 100 crores. So is there any further CapEx plan, beyond Saurashtra ICD is not there in the mind till now, but yes, definitely Saurashtra ICD, we have already been using the CapEx for [indiscernible] also.

Okay. Okay. So no plans for CapEx anything over and above the Saurashtra infrastructure?

So we were -- at a time if you see, in the last quarter, we were taking approval for 2 ICDs, one in Maharashtra and one in Saurashtra. But till now, we dropped the idea for Maharashtra. We are more focusing on the Saurashtra side because when we start [indiscernible] there, then the interactions with the customers, I think so we are more keen over the Saurashtra region because there is a huge demand.

Okay. Okay. And sir, I think I missed the revenue guidance part that you gave, anything for FY '23?

So revenue guidance, I can say guidance means there is no such organic growth in the CFS side. but we are definitely in positive side for the ICD. Till now our revenue [indiscernible] for the current year is almost in the range of INR 700 crores. And last year, whole year, we made around INR [indiscernible] crores. So for '23, we are hoping that further 10% to 15% jump from the current 2022 for sure.

Okay. So 10% to 15% growth from INR 700 crores, right? That is what you are expecting?

Reason being that because the [indiscernible] this 1 or 2 quarters if you see, due to the [indiscernible] and all, there were so many operations stuck. So the impact was more or less in the last quarter and it will not be in the same quarter. But from April onwards, the [indiscernible] will be getting down. So we are hoping that from here on next year definitely our [indiscernible] last year, 630 was made [indiscernible] this year, we are already having a [indiscernible] INR 300 crore is still with me. So we will be in range of reaching some of around 900 plus crores, correct?

FY '23, right? FY '23 this will be?

So currently, if you see, March '22 number, maybe in the range of almost INR 850 crores to INR 900 crores, right? Next year, further, we are having a high [indiscernible] for 10% to 15% [indiscernible].

Okay. So just to be clear on this side, INR 700 crores is for full year FY '22 or more than that. Is that understanding correct?

No, no, no. See, in the last 3 quarters [indiscernible] is in the range of 653.

Okay, 653 is already, yes.

And [indiscernible] for the current quarter. It will be INR 350 crores.

That's right, sir.

Yes. So for further, I am assuming that if my Saurashtra ICD will be [indiscernible] by the third quarter of this year. Because what we did in the past, wherever we made the ICD or CFS, we just put the notification for the area which we developed as soon as possible. So there is a development of around 75 acres of land, out of which I did the development of 20 acres, then we will go for the notification. That process we will start by second quarter of next year. And by third quarter, we will start commencement of operations. So when that goes, if I will add 10 more percent from the Saurashtra with the existing one, so we'll be getting additional business from our site. Assuming, if there is no organic growth from the Vapi or the Mumbai CFS, then also I'll be adding 10% minimum. This is our high hopes on the existing marketing team in terms of the [indiscernible]

Yes, sir. So I would say if we are expecting around INR 800 crores to INR 850 crores this year for FY '22, we'll add 10% to 15% more for next year?

The next year will be in the range of INR 925 crores to INR 950 crores. That is our target range.

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

My first question is on your CapEx. So sir, what is the CapEx expected for FY '22 and then for FY '23?

FY '22, if you ask me, there is no CapEx, we are having a fresh new CapEx for Morbi ICD only. So till now, we have already spent out there almost in the range of INR 65 crores to INR 70 crores. Further, we are targeting about next year [indiscernible]. Meanwhile, by 31st March 2022, loan book was in the range of INR 495 crores, which is now INR 530 crores till now, out of which we have a cash in book almost in the range of INR 35 crores, INR 36 crores. So for this whole year, whatever CapEx we take, we are in the same range which was until 31st March of 2021. So now onwards, there may be a further CapEx of hardly a value of INR 100 crores, INR 130 crores.

Okay. So this year CapEx would be INR 70 crores, which is done. So INR 100 crores this year, next year also INR 100 crores. Is this the right estimate?

Yes, definitely.

Okay. And sir...

But you will see, we are still having an advance EMI payment of INR 83 crores. So eventually, if you will ask me, in totality, if I have a loan book of INR 530 crores, minus INR 36 crores, the INR 495 crores, plus I will add further INR 130 crores, it will be in the range of INR 625 crores. Out of which, INR 85 crores is already advance payment to the bank. So almost debt level will be in the range of INR 520 crores to INR 530 crores.

Okay. And what is the total project CapEx which is related to Morbi expansion?

So total CapEx for Morbi is approximately [indiscernible] the land in the range of INR 180 crores to INR 200 crores.

Net it's INR 200 crores. So when we say that we are looking to complete this expansion by 3Q FY 23, so the whole of this INR 200 crores will be incurred or some of it will go to FY 24, or...

Some of it will be definitely wait for the next year because railway PFT and the railway [indiscernible] operations would be, we are targeting to start by third quarter of next year. Once the railway PFT is going to start, then we'll be getting another notification further, which [indiscernible]. So it will take another 2 or 3 quarters. So that entire planning of INR 130 crores new CapEx will take from February 2022 to another 1.5 years in totality. So it may be in the range of June 2023, I can say.

Okay. And are we targeting very aggressive time line because I think this Vapi ICD also was aggressively targeted in terms of time line. And it got also significantly delayed, I mean, quarter after quarter. So we only recently started working on this project and we are now targeting 3Q FY '23.

Vapi operations was started very soon. That's why I am telling you. We are targeting the day for starting the operation. Vapi delay was [indiscernible] because they were also not having a plan to DFC corridor, from where the [indiscernible] will be getting now. So that was the reason [indiscernible] for 3 or 4 quarters. But here, if I would like to start operations via my road operations; Vapi also we started road operations also before [indiscernible] railway was delayed due to certain reasons, but I can say [indiscernible] that's why I'm giving the conservative number of 10% increment of the business in 4 months. So there may be possibilities of further delay in the railway side too. But for starting of the operations over there in ICD Manaba will not be a hit because I have 9 months from here to take the approval from the customers or notification. So once I'll be ready with 20 to 25 acres of the area, we'll open the notification, which we did in the past also. So there is a long path [indiscernible] wherever we have a short area, the minimum requirement is the 10 acres. Above 10 acres, I can go for the notification. And once notifications will be, then I can start the operations.

Okay. Okay, sir. And...

You are very well correct. I really connect with your words because our railway side was delayed almost 4 to 5 quarters period. There may also possibility be, but I can say there were 2 different things -- if I just wanted to add over here, in ICD Vapi, we have 2 major lessons. One was the feeder line from my premise to the next railway station. So it was the further delay, point number one, due to the [indiscernible]. In Manaba, where we are making new ICD, feeder line is hardly on a 50 meters distance, which is same like Mumbai CFS. So we are hoping that -- we are assuming that there will not be an issue for the [indiscernible] also. But yes, I have a past history of delaying [indiscernible]. I have to agree with you.

Sure, sir. And sir, on volume growth in this particular quarter, we see some difference in mix, like our Mumbai volumes did very well while Vapi was sort of stagnant quarter-on-quarter. Any specific reasons there?

Mumbai this quarter the volumes were a little bit on the higher side, which we told you in past also. In CFS, there may be not organic growth, but there may be plus/minus. Sometimes it will be giving me an addition of 5% to 10%, sometimes it will be on the same range. So that is just because of port activity. No such other reasons -- or there is no such reasons like we have added some other clients or...

Okay. But there is a sharp -- I think this is first time we have sort of seen some kind of reversal in Panvel volume.

You're correct. After long time there is a positive growth of our CFS Exim business. And even we have done [indiscernible] again, our expertise in exports. You will see export has been increased by 50% on Q-on-Q basis. So practically, the export which was not done in last 3 or 2 quarters, with the shipping freight and so many reasons, delay in vessels [indiscernible] so many reasons, which was this quarter, and it will remain same for next couple of quarters.

Okay. And one last question on your other expense. You mentioned something on why it has increased. Can you repeat that number?

So basically, that is what I can. If you see my numbers, my cost to indirect expense, which will be in the agri side, where there were 2 or 3 components. Last quarter was lower in the [indiscernible] quarter. So in this quarter, payment expense towards the implementation side and towards the implement cost, point number 1. Point number 2, to retain the existing [indiscernible], we will have to give them incentives. It is not [indiscernible]. So that was there. Due to that, our expenses were getting upper side.

The next question is from the line of Vikram Suryavanshi from PhillipCapital.

Yes, sir. Regarding the volume from this new ICD, particularly this Morbi, what kind of volume we can expect in initially 1 or 2 years? And as you said that we will start operation with the road as you said first and once we're ready with the PFT, we'll move by the rail. So one I'm looking is at volume guidance outlook for this Morbi ICD, and what would be the cost difference for road versus rail cost for Morbi to a port?

So it will be very early to comment on it, because the volumes or the Exim target of [indiscernible], we have some data. I will share with you the review separately, because we have some kind of data which we're getting. There is a volume in that region, almost in the range of [indiscernible] per annum, which is more or less from [indiscernible], some kind of a cargo which is coming from the [indiscernible]. So market is there. There is no problem. But if we see ICD operations over in Vapi when we started. First year, we did 70 [indiscernible] containers in 4 months. So almost in the range of 3,000 to 4,000 containers we were targeting over there. Target was 10,000 containers, which we reached 10,000 second year itself. So second year we did, almost in the range of full operational year with railway was the year where we have a volume of almost 1.5 lakh TEUs in a [indiscernible]. So it all depends on the growth of their cargo and the operational efficiency which is provided to our customers and the cost benefits which will have to be passed onto the customer. Based on that, we will be at the same number. So if you ask me today, this is really very early to comment on that. But yes, I can tell you that there is really a good traction from the customer side, people really want ICD over there. People really want domestic market options, some sort of a railway trading over there. So I will share the letter which was issued by the Rajkot and the Saurashtra region including that Industrial Chamber of Commerce. They recommended to the railway and the government of India actually that for ICD, that there is a need of that kind of ICD for the domestic as well as PFT location. So I can say that this is something that they need, because Morbi is a tile hub. And there is no this kind of a [indiscernible] facility. And we go there and asked the details. They also give us the sense because nobody has even thought of that. [indiscernible] because the problem is that in that particular region there is no raw material kind of a thing they were having over there. So they will have to be dependency for the raw material, which is for the tile and all. It comes from the North, and the coal and other things, which is required for making those kind of ceramics and all, they come from the South side. So there is a need, which we have already evaluated and LOI if you see, they're definitely looking at that because there is a need. So till now we have a sense there is a market, there is a business. Our marketing team is regularly going there. They are getting good sense. So we are targeting first year will be in the same line of business where we did in the past in Vapi, at least 2,000 to 3,000 containers per month would likely be delivered over there.

Understood. And our capacity, if I'm not wrong, it's around 2 lakh TEUs?

Yes, sir, 2 lakh TEUs.

All right, right. But I think given the tile and all that, railway will be much more advantage I mean when it is ready.

Definitely.

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

This is regarding the MAT credit. So currently, the total tax is about 40%. So we are in the 6th year, so is there any [indiscernible] MAT credit or going for the tax model without any rebate from [indiscernible]. So in that case, what would be the net tax percentage? It will be reduced from 40% to 30% [indiscernible] if you apply the MAT credit?

So basically, in last quarter also, we told the same thing. And it will be decided based on this quarter's numbers. So if fourth quarter Mumbai Inland [indiscernible] we'll have to evaluate we'll go for the MAT credit or not. So I will definitely give you the [indiscernible] in the next quarter. You'll be definitely getting the same. So once the fourth quarter numbers will arrive, then afterwards we'll decide that we have to go for MAT credit this year or not.

[indiscernible] this is the year where we need to make the division, either we go for MAT credit or we'll go for [indiscernible] model, right? So this year, I mean we will be taking the decision, correct?

Yes, yes, definitely. That's why I'm telling you, after fourth quarter number, we will decide that whether we will have to go for MAT [indiscernible] or we have to [indiscernible].

Okay. Majorly, the tax rate would be reduced from 40% to whatever may be the number, right?

Yes.

The next question is from the line of Rishikesh Oza from Robo Capital.

Just wanted to clarify on margins. So would it be fair to say that now going ahead in future quarters, our EBITDA margin should be trending up. And in near term, we should be going towards 26% kind of EBITDA margin?

So basically, our base target, if you see for the last 2 or 3 quarters, I am seeing [indiscernible], our first target is 30%. I don't think [indiscernible]. So that may definitely take some time, but our target is 30%. So it might be possible it will be in the range of 25%, 26%, 27% for a couple of quarters in the coming quarters.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments. Over to you.

Thank you so much, everyone, on the call. Thank you so much to PhillipCapital and all the best to everyone.

Thank you. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.