Transport Corporation of India Limited (TCI) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I am Komal, moderator for this conference call. Before we begin with, I would like to extend my warm welcome to all of you for joining us today. On board, we have with us today Mr. Vineet Agarwal, Managing Director; and Mr. Ashish Tiwari, Group CFO. [Operator Instructions] Please note that this conference is being recorded. I would now request Mr. Ashish Tiwari to embark on this meeting. Thank you, and over to you, sir.

Thank you, Komal, and good evening to all of you for again joining this call. I hope that all of you are safe and doing fine. To begin with, we would have an earnings presentation, which is updated for quarter 1. And then we will be open to questions from the participants. Now I would like to invite Mr. Agarwal for his opening remarks and earnings presentation. Over to you, sir. Thank you.

Thank you, Ashish. Thank you, Komal. Thank you so much for joining us today for the earnings presentation for quarter 1 of TCI. We are pleased to say that we had a good quarter in spite of the lockdowns in the middle of the quarter with the second wave. However, the divisions have done reasonably well and have gotten to some semblance of what we are looking towards our target. So just I'll quickly go through some of the points, and then we can take question and answers. This is the group structure. As you are aware, we are close to 600 crores, 700 crores in -- $600 million in revenue and about roughly $1.25 billion in terms of market cap. Next slide, please. We are aware of the industry growth drivers, so predominantly consumer-driven changes that are happening that is really helping the logistics sector, simultaneously customer-driven changes are also quite rapid, and they are essentially also changing because of the pandemic, for example, several companies are looking for more stock from -- moving from just in time to just in case. So that means that more demand for warehousing is also started to increase and several large customers are talking about a full holistic 4PL, fourth party logistic solutions, so that also is interesting trend that we have started to observe. The industry is poised for a lot of changes and growth in line with GDP growth as well as the fact that logistics sector per se is quite underrepresented in the country as a whole and extremely fragmented. So the chance, the ability for us to grow here is quite high. Several regulatory changes are helping to formalize this industry as well as formalize many of our customers who want to work with organized players like us, specifically using -- the use of GST or e-Way Bill and e-invoicing is all helping. Clearly, infrastructure is going to be a big driver for us in terms of moving up the ranking for national on the logistics performance index globally. Next slide, please. Certainly -- apart from the strategy that we have, one of the few things that we do very well is -- and those are now clearly our USPs are -- the fact that we have a wide range of services amongst -- and everything is internal. So that gives us the confidence to really service customers much better. And also that gives us higher margins also in some cases because we are able to cut out some middleman. Our strong multimodal network, we are truly a multimodal company now. We're using all 3 modes of transport. We -- all our operations are very tech driven. And we incubate new areas and new businesses, segments on a regular basis. And that's a culture that is in the organization, which is very strong, that we are able to understand customer needs and position ourselves well. Next slide, please. So in terms of the range of services, you can see we have covered almost everything and a huge range of verticals. We -- the presentation will be available on our website as well as after this meeting. Benefits for customers are that we provide a single window solution we bring about certain economies of scale. And this sort of helps us to capture a larger wallet share amongst our customers. Next slide, please. In terms of the multimodal network, we have 3 trains, 2 are already with us. One is in the process of getting delivered, 6 ships, of course, the road infrastructure as well as the container infrastructure. In the last year, we moved about 2 lakh TEUs. In the first quarter, we moved about 32,000 of them. We also moved about 200 trains in the last quarter versus about 1,300 in the full year for FY '21. So these are all full trains that we have moved. In terms of the incubation, we see good growth opportunities in several sectors, and we are very well positioned in all of these, chemical, pharma, the agriculture side, e-commerce, cold chain. And of course, our neighboring countries are the subsidiaries that we have, we are seeing very good traction in many of these places. So we believe that these are the opportunities that translate into higher growth opportunities for us in the future and keep up the growth trajectory for us as a group. Next slide, please. I mentioned about technology, and that's very ubiquitous to us. We use it from our -- not only from a customer interface perspective but from our own organizational employee perspective, where almost everything is app-driven. All our workflows are also available online on our -- on a mobile or a tablet. So people are very getting accustomed to using this on a very regular basis. Next slide, please. In terms of the highlights for the quarter, it is not really comparable to Q1 of last year because of the lockdowns. We know that the last year, the lockdowns were more supply-side lockdowns because companies were shut, factories were shut. And also, there was an impact on the demand side. This time around, it is more on the demand side. Factories are not that badly shut, some are -- certainly in states like Maharashtra, Tamil Nadu, et cetera, we did see a crunch in April and May. But broadly speaking, it was not a national lockdown. So there was a certain amount of business volume that continued, and we were able to grow at about 71% over the last quarter from a revenue perspective. We've really worked hard on our receivables. And though it's tightened a little bit in the last few weeks, but we feel that we still have strength to pull through some of the receivables, and the cash availability that we have out of our limits is almost complete. We've not utilized the limits at all. In fact, we've paid off several of our long-term loans as well -- long-term high-cost loans rather, and we are at a good number of only about INR 150-odd crores in terms of borrowings at the end of the quarter. I talked a little bit about the robust pipeline that is quite strong right now. We have good traction with a lot of companies. And we are seeing that in cases where road infrastructure is slow because of lockdowns, et cetera, our other businesses, the rail, the sea have all helped us in a certain amount of volume movement. Next slide, please. I'll talk a little bit about each division now. Moving on to the next slide about the freight business. You know that the -- next slide, please. Freight business is essentially our largest business. We operate 3,500 trucks at any given time, mostly all market -- sorry, 4,500 trucks at any given time, mostly all are from the market or leased. We have a 700 branch network here as well and provide a whole range of services, both FTL and LTL because we've seen customers want both of those. They don't want only LTL or only FTL like some of our customers -- some of our competitors are focused on. We also have a strong key account management system so that we are managing large customer requirements at a pan-India basis quite seamlessly. Next slide, please. Freight business grew at about 82% in the quarter and margins are also in line with what we achieved in Q4. In fact, it's slightly better as well. LTL has started to show some trends for pickup. In the last quarter, of course, we got hit in May, but subsequently, it started coming back in June, and we are confident of achieving our target to get to 40% of LTL business as we go ahead. The ROCs in this business have also, as you have been seeing, steadily improving over the last few years. And based on the current trends, we think we should be able to cross 20% in terms of ROC for this quarter -- for this financial year. In the supply chain business, broadly speaking, we are present in all areas of supply chain management. Of course, auto is about 75% to 80%. And as you're aware, auto for us is not just automotive 4-wheelers, but we also do 2-wheelers, earthmoving equipment, tractors and so on. We have a very strong multimodal distribution network, again quite unique to the industry, where we have created a hub-and-spoke system for many auto majors for their finished goods. And these help them to service their dealers more promptly across the country. And some of these hubs are also multi-user hubs. So we use both a combination of rail and road to service the dealers from these hubs. Supply Chain Solution provides from conceptualization of the supply chains to final execution, all kinds of services, including 3PL/4PL as well as control tower solutions. We have a large warehousing base over here of about 12 million square foot of space. Next slide, please. And operate -- own about 1,000-odd vehicles as well. The business grew about 100% over the last year. Again, because in the first quarter of last year, we got heavily affected by auto sales, and that brought down the revenues and subsequently the margins as well. But we are in line towards the growth targets for this division as well. The trends that we are seeing in terms of automotive or FMCG are decent. However, there are some cost pressures because of increased fuel prices and the transfer of those fuel prices are -- fuel price increases are underway to our clients. Next slide, please. The Seaways business, as you know, we own 6 ships, 1 ship was sold in February of this year. The business has been very steady, and we've been able to grow quite rapidly also in spite of the fact that we do not have enough vessels right now. Clients have been using many of these services because of green logistics also. Next slide. And the business has also grown by about 70%. In the last quarter of the last financial year, the business was still relatively okay because our road sector was quite badly affected. So the growth has been about 70%. We have been able to get a good amount of return cargo from Myanmar. You know -- as you know, 4 of our ships operate on the East Coast, from Chennai to Port Blair. So we've been calling on Myanmar, and we've got good cargo back. Freight rates have increased quite dramatically on the international markets, as you're aware. We, of course, operate only on the domestic market barring this a little bit movement that we've done towards Myanmar. The margins are better because we have almost all the ships under operation. Only from this quarter, that is Q2 onwards, we have dry docks that are scheduled, and they are all -- one after the other, every quarter, we will have 1 dry dock per ship going forward. Though fuel prices are still on the higher side, they have not increased much. That is the bunker prices. So the margins are more or less maintained off the last year levels, in fact, slightly better. Our joint ventures also started to pick up in the quarter. The cold chain business has doubled its revenues from quarter 1 of last year, and we are seeing good traction for a lot of clients, including pharmaceuticals. The CONCOR business we have, the business has been more or less flat over last year. But again, as I said, when alternate modes of transport were being used in quarter 1 of FY '21, rail was, of course, one of them as well. The joint venture for handling logistics of Toyota, that is Transystem, has started to pick up again. As you can see, it's about 170% growth on the top line and bottom line has also started to stabilize. Overall, for the quarter, the business grew at about 70-odd percent and about 85% at the stand-alone level. The margins were, of course, much better at about INR 48 crores at a stand-alone level. At the consol level, some margins are lower because of the -- netting off of the dividend income that we get, we got from Transystem. So that brought -- the netting off brought the PAT levels at the consol level slightly lower. But overall, we have -- we've seen good trends in terms of profitability at least for this going forward. Our debt/equity ratios are at an all-time low, and we're definitely very well placed in terms of any kind of CapEx or any kind of acquisition if the opportunity arises. The business has been consistently delivering returns from a PAT perspective or doubling -- tripling in the last 5 years or so. ROCs in the business have started to improve in this quarter, though it might come down a bit once some CapEx is initiated. Next slide. The dividend ratios have -- rather the dividend payout has been more or less the same. However, the ratio has increased quite substantially. And we have a good follow-up from analysts like yourselves, where we have almost all buy rating. Our short-term -- long-term rating with CRISIL is at A -- AA positive and with ICRA is A1+. Clearly, this is one of the best in the industry. From a CSR as well as social responsibility perspective, HSE perspective, we have been very active, including during this pandemic in the second wave, where we moved oxygen. We also delivered oxygen concentrators as well as right now even working on the PSA plants. We've moved close to 200 PSA plants for our clients across the country, and we have something called Safe Safar where we are talking to a lot of our customers about -- and truck drivers about safety. And on the environment side, we've included added roof place -- roof solar in several facilities so that we are able to save on some costs. In terms of an outlook, we are looking at the same 10% to 15% revenue growth and about 15% to 20% top line -- sorry, bottom line growth for the next -- for this financial year, given that the 10% seems to be -- seem to be okay. We were a little skeptical as to how the second wave will play out and how the third wave is going to play out if there is one. But with the kind of trajectory that we are seeing, I think we should be able to maintain this guidance. The CapEx has been a bit slow in quarter 1. It is also because we've not been able to find a ship yet, though it is part of the quarter 4 CapEx. However, it -- things did slow down in the first quarter, so CapEx has been quite limited. I think depending upon how the ships are -- how the ship is available, we should hit anywhere about INR 150 crores to INR 200 crores in terms of CapEx for the full financial year. The festival season is upcoming, and we are seeing that inventory buildup has also started in many places. Thank you, and I look forward to your questions.

[Operator Instructions] So the first question is from [ Mr. Sunil Kothari ].

Really commendable job during this very challenging time. Sir, my question is -- it's a little larger and structural change what we are observing is things are moving from unorganized to organized, formalization is happening more. You are using really good technology, you have hard assets also. So my question is, if there is a sudden spurt in demand, how are we prepared? I mean it's right, you say this current year, 10%, 15% revenue growth and all. But looking at our size, we are at just INR 2,500 crores, INR 3,000 crore company and looking at our country, logistics, supply chain, transportation and all these things, the size of market must be very, very huge. So -- and the way you are speaking -- I'm hearing you since last 3, 4, 5 years, the shift is happening, and we are preparing ourselves. So on a larger scale, a little bit longer view that how well prepared we are for the bigger opportunity, and what is the size of opportunity? And second question is from where we are capturing this business? I mean whom we are removing from the competition or we are -- it's just additional services we are providing? So thoughts on all these things will be really helpful.

Sure. So see, the business opportunity is large, but we also know that '19, '20 volumes or rather overall market was quite down. And in 2021, we were hit by COVID. So last 2 years have been a little subdued for sure, and we've not been able to really grow at that pace as we should have. But if you see our businesses where we had focused because of the long-term future, for example, our container business of -- by rail, that business grew at about 71% -- 70% plus last year. And then our Seaways business, again, that we have positioned for high growth opportunity has also grown quite rapidly. So the other story is that how much business we want to take rather than what comes to us. And there, we want to be careful in terms of not overextending ourselves because a lot of customers today are going to give you business but not going to give you margins. And we know there are some companies who go for revenue buyouts versus really going for margin growth. Our attempt is because of our experience in the last 60 years, is that having a strategy towards only revenue growth is not fruitful in the Indian market. You have to have a margin growth strategy because that ensures that you are able to invest for the future and into newer areas, into larger scheme of things and able to handle larger things if and when the opportunities come. And we have several INR 100 crore plus contracts that we run today or several in double-digit kind of INR 50 crore plus contracts. So that way, we are addressing that growth opportunity. Certainly, the markets are getting more and more favorable. You're right that unorganized sector is turning towards organized a little bit as well as they're becoming not directly competing with us also. So they are becoming vendors to us or vendors to the larger companies. So that is a change that is happening in the competitor landscape as well. I think we also have to see that the gamut of services we provide helps us to really grab a larger market share from clients. One of the examples that I shared in the last presentation in -- for the full year is how we started with a specific group, business group -- large business group, which has freight business. And now we handle chemical logistics for them. We handle food logistics for them by rail, by road, as well as cold chain for them. So the whole business has transformed from just pure transportation to lots of value-added services. And that business itself is in the INR 50 crore plus range as -- for the whole group as a whole. So these are some of the trends that we are seeing, and I'm pretty sure that our positioning is such that we'll be able to capture some of these growth opportunities better.

And sir, are we prepared for this? Not prepared -- I'm talking not about current year, but maybe over the next 2, 3 years, if economy is now after maybe 7, 8, 10 years, coming hopefully back to normal course, so are we prepared well? That is what my question is.

Well, preparation is nonstop, so it has to continue. We are -- when we make -- these CapEx plans are also based on the fact that we are seeing potential growth trajectory and growth opportunities. So clearly, the front-ending some of this CapEx is necessary. And that's the idea. So yes, we are getting ready. We are ready in many places. We can take up larger volumes. You saw the fourth quarter, I mean you've done INR 700 crores in terms of consol revenue in Q1, we did INR 900 crores in Q4 of FY '21. So we have the potential, we have the capabilities to grow also as the opportunity comes.

Right. And sir, last question, just some understanding on -- some clients, like you say, big clients, INR 50 crore, INR 100 crore revenue they provide or they give to us. They're -- ultimately, they are at a cost benefit, they'll be paying you overall -- will there be savings in terms of their efforts and costs after doing every contract and every service is taken from you?

Well, they look at not just a cost benefit, but also the fact that we are able to provide an integrated solution because many times a customer says that, look, I need this, I need warehousing, but I also need a cold chain warehouse. So for example, that's where our divisions or different companies that we have come into play. So we provide an integrated solution rather than just looking at a cost solution. And that is what is the unique factor that we bring.

The next question is from [ Ms. Shalini ].

Yes. Can you hear me now?

Yes. Yes.

Okay. Sir, I had a couple of questions. Sir one of the -- the first one is how did you get this kind of 70% business growth because even though you had like 30%, almost a 40% decline in the previous quarter as in the first quarter financial year '21. But then even this year, at least for the whole of May, most of the country was shut down. And I mean, before shutting down also, there was a slowdown in activity and even after the lockdown is opened. So how did you get this kind of growth?

You know, the -- as I said, this time around, this was not so much of a demand-led shutdown -- supply-led shutdown but a demand-led shut down. So a lot of the factories were not entirely shut and definitely, May was quite weak in terms of business. But June, we did see a lot of pickup. And of course, April, we did see the hangover from March continuing. So April was also decent. So I think the overall trends were good. So hence, we were able to keep up the growth.

Okay. And sir, I just wanted to ask you, in the Transport segment, through the whole of last year and probably the year before that, we've seen growth below 5%, except for the last 2 quarters. So I mean -- and that is a trend witnessed across different segments in the company. So I mean, in the last 2 quarters or perhaps 3 quarters, what has changed?

If you're talking about the last quarters of FY '21, actually we saw business -- I mean the overall country had really started to increase in terms of demand, whether it was restocking that was happening, whether it was new production that was happening, when we saw decent growth across all types of businesses. So I think we are quite aligned to GDP growth, and hence, we were able to capture some of that growth. And the trends before that were weak not just because of COVID, but also Q4 of FY '20 was also quite weak. So that way, the trends have been that as unlocking has happened, whether it is revenge shopping or revenge purchases or certain government contracts started to get executed, financial closure happening in some places, financials -- sorry, money getting released by the government, infrastructure spending started -- starting, all of these things have helped some kind of growth for us. And including the agri side, so we've done a good movement in the last, I would say, 3 quarters, including now for movement of food grains and other such products.

Okay. And sir, now that you mentioned food grains, just wanted to ask you, just is moving food grains a profitable venture for you?

Yes, of course, we do multi-modal movements, so using both rail, road and sea. So depending upon the kind of requirement by the client. So yes, it is profitable.

And sir, my last question is that even EBITDA margins are at near high. They're not at all-time price but at near highs. So I mean, there is an increase in the demand for logistics, but what explains the high margins?

So some of the cost structures were definitely lower, for example, traveling and conveyance and all those cost structures, admin-related cost structures were lower. And some other repair, maintenance, et cetera, costs were lower, our finance costs were much lower since we were able to save money by -- since we were able to utilize -- sorry, our receivables had come down or rather we were able to -- our cash flow has improved overall. So that helped us also. So a few factors helped us in improving the EBITDA.

Okay. And sir, like going forward, you expect that the EBITDA margins are on uptrend. I mean it's not just financial year '22, but overall, do you expect EBITDA margins are on an uptrend?

Yes. I do see some cost pressures in terms of fuel hikes, how fast can we get those fuel hikes. Of course, employee costs have gone up. We've given increments to every employee. We've given -- we've not cut anyone's salary. We've promoted people. We've not laid off anyone. So those costs also will increase. But I'm confident that with the top line increasing as well, we should get some benefits on the economies of scale as well as the value addition that we're providing with different services, that should also help us to maintain the EBITDA levels as we are at right now.

Okay. And one last question from my end. Sir, freight rate, I mean, have freight rates gone up?

Yes, freight rates have gone up across not just in this quarter but previous quarters as well for several reasons. One is clearly fuel prices that are much higher. Secondly, the capacity that is available in the system is much lesser because new addition of CVs has not happened to that extent and specifically because either many transporters don't see the value of adding new capacity right now because we don't see a demand outlook or they are -- they find the cost of the new BS-VI trucks quite expensive. And so these are some factors where we have seen that. And of course, some imbalances on different sites where some growth has happened in some places. And in some places, things have gotten affected. So that has created also imbalance in terms of availability of trucks in certain locations, leading to freight price increases.

Sir, how much has the freight rates gone up on a Y-o-Y basis?

It's sectoral. So I cannot say, but at least between 10% to 20% depending upon sectors.

The next question is from [ Mr. Jasdeep Walia ].

Sir, in the presentation, you mentioned that a lot of your customers want both FTL and PTL services, which is a bit intriguing to me because FTL services are available pretty easily off the shelf. So could you just talk about any case study here just to explain the value for a customer for availing both FTL and PTL services from you?

Sure. So take the example of a large company, which is manufacturing out of 20, 25 locations, and they're doing projects all over the country and they need movement not just from the factories, but they also need it from third-party vendors. And they're seeing, okay, let's -- so there's a project that's happening, let's say, in Northeast and they need to move 25 FTL from different locations and several hundred tons of LTL from small vendors across the country. They need all of this in a consolidated service and all of them -- origin points are multiple and delivery point is just one. They need a single window solution as a key account where somebody can observe all of these movements, give them feedback as to where they are because they are at a project site and project needs to get executed in the time lines that they have committed to their customer. And then they want a common billing system, common CRM, common -- and they might say, look, you have picked it up from 35, 40 locations, but I want all this billed in 1 location. So we can do that as well. So this provides a comprehensive solution to that particular client. And there are many, many such clients like this who want both FTL as well as LTL services across the country. You are on mute, [ Jasdeep ]?

Yes. Sir, just the last question. What's the net debt at the end of first quarter?

I think INR 151 crores, right, Ashish?

Yes.

The next question is from [ Mr. Preet Nagarsheth ].

So Vineet, I just wanted to better understand the impact of not having the eighth ship. What would it be in terms of volumes or expectations for a shipless division?

So that's a seventh ship. We have 6 right now, seventh was sold in February. So the seventh ship addition was anyways planned for Q4 of this year. So the impact is quite negligible right now in terms of our plans.

Okay. But there's a lot of movement on the ship side, containers are in short supply. So would you -- I mean, are you -- would you have seen higher demand, higher business if the seventh ship was available?

We are -- basically, our 98% -- 95% of our business in our shipping business would be domestic cargo only. So really speaking, the international freight rates or the shortage of containers has not affected us to that extent. However, if we had another ship, it could have meant that we would have been able to add perhaps more services. But at the cost -- at the current cost that the ships are available, the pricing that has gone a little bit out of whack, would mean that we will not really make money on it. So in that sense, we might lose a little bit of a business opportunity, but from a margin standpoint, I think we'll be better off.

Vineet, the ROC profile for freight, you mentioned, should be at around 20%. What about supply chain and ship freights for this year?

So supply chain currently is at about 18%.

18%. Yes.

18%. Yes. And I think we should steadily get to the 20% level also depending upon some of the CapEx that might happen in Q3, Q4. Some of it would be truck related or adding the train that is impending. So which might bring it down slightly, but I think closer to the 20%. And similarly, for Seaways also, I think we should get closer to 20%. Already -- if you see Q1, the ROC is, of course, much better. But for the full year, it will depend upon ultimately the CapEx. So yes, the objective is to cross 20%.

Right. And lastly, in terms of these 3 months, July, especially July, are we back on normalcy in terms of demand side as well? Or are you still seeing some kind of lack of demand?

Broadly speaking, June itself, where what we can talk about is, yes, was back on the same levels as last year, I would say at about 75% of March levels, I think -- and I think the strength continuing and more towards the positive side only. So as I said, because the festival season is impending, and we are seeing that stocking has already started, for example, Onam is the first festival that is in August. And already, we are seeing some stocking for automobiles, for example. Though Kerala is facing another wave right now, but some movement has also started in many of these places.

The next question is from Mr. Krupashankar.

Just one question on your -- on one of your initial comments, you had mentioned that there is some traction on 4PL and how that is increasing? And can you just elaborate a little bit on that and on which sectors are you seeing this sort of a trend emerging?

So the trends on 4PL are essentially customers telling us that, look, there could be other logistics providers. And you could be one of them, as TCI could be one of them, you manage all of them. So that's how 4PL typically works. And we are seeing that some clients are, specifically on automobile side, where we have a lot of strengths, we are seeing clients actually asking us to do that. And -- but the broad 3PL type of contracts are also coming about specifically in the area of, let's say, chemical logistics or even in some FMCG companies as well. So we are observing the trends, and I think we are also a little conscious of the fact that it should not be a cost exercise for some of these -- for some of our customers versus a value exercise. So if you are able to provide value, then only will we really try to get a bit aggressively for some of these contracts. Otherwise, we would like to wait and watch it.

And one more question on the automotive transportation side therein we have added the new rake. So are you intending to increase this -- is this going to be a new way of moving automotive finished cars or bikes going ahead? And you're seeing that more and more rakes will get added over the longer term?

Absolutely. I think this is a complete shift that has started to happen because if you think about the plants of many of these automobile companies are in certain clusters, whereas the demand is spread across the country. So for that, they will need to service different parts of the country more efficiently. And which means that today, if I'm a dealer, I want to keep less stock but I do not want to lose sales also. So if I order something I wanted in the next day or -- if I'm a dealer and my client ordered something, I want it delivered to him in 24 hours or 48 hours, and that's where the hub-and-spoke system will help. And in the hub-and-spoke system, it's most efficient to move things by rail because you can move bulk at 1 shot itself. So not just from our end, but the industry-wide change is quite visible. In fact, if you see some data around the car carriers in the country, their numbers have actually come down quite a lot. But capacity addition has not happened to that extent in that space because some of this share has gone to the rail side. Whether we will add capacity, it's not necessary. We will add a strategic amount of rakes. As you know, that we tend to adopt a middle asset strategy where we will take some rakes of our own, but we can also hire, lease based on availability.