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 change my warm welcome for joining us today for this quarterly earnings call. On board, we have with us today Mr. Vineet Agarwal, Managing Director, TCI; and Mr. Ashish Tiwari, Group CFO.[Operator Instructions]Please note that this conference is being recorded. I would now request Mr. Ashish Tiwari, Group CFO, to embark on this meeting. Thank you, and over to you, sir.

Thank you, Komal, and good evening to all of you. Once again, I extend my sincere thanks to you for joining us today out of this busy earning call season. We will begin with the investor presentation, earning call presentation followed by question-and-answer session. And now I'm inviting Mr. Agarwal for earnings call presentation. Thank you. Over to you, sir.

Good evening, and welcome to our earnings call. Thank you for being here today. And I will just take you through some of the presentation points. Then we can have a more detailed discussion. I think all of you and most of you are already aware of the group's structure today in terms of the businesses and the operations. But I think on the growth side, the interesting things that have started to happen on the drivers is the GATISHAKTI program. The whole execution of the national infrastructure pipeline, that was always a little bit of a doubt, and I think with the GATISHAKTI coming in, it's all coming under a larger umbrella of things where national monetization will happen, the investment -- infrastructure pipeline will be there. And essentially, all the other projects subsumes into it more or less. So I think that gives a great perspective as to how the logistics asset of the country is going to get built for the next few decades. And that will, in turn, help logistics very, very strongly. The plans that we have seen from multimodal logistics parks to further investment into the rail infrastructure, et cetera, are all very, very positive. So I think that's -- it's a great move from the government perspective and really creates a deep focus towards the logistics industry and to improve the ease of doing business. In terms of the services, I think the range of services continue to be very beneficial for us, as you see in the next slide, which is essentially the whole gamut of road, rail, sea as well as end-to-end solutions, including warehousing, et cetera. So all of those have really helped us to counter -- to really act as a counter cycle to different things that are happening with one specific industry. So as you have seen that the auto industry is not doing that well, but we've had shipping that is doing very well. So I think the positioning of our company as an integrated multimodal logistics provider is definitely helping us to get various pockets of businesses to ensure there's a more equitable and standard growth path that we are seeing for the next few years. Our multimodal network has become stronger, and we continue to work very strongly to build it. We've added a new calculator for GHG emissions. That is, we saved about 22,000 tonnes for emissions last year. This is a number that we keep growing now as customers keep wanting to shift from road to rail or to see. So that's -- it's an interesting development. Our third AFTO is underway. It should come in the -- in quarter 3. We do own about 8,000 marine containers that are operational in the Seaways business, and some are operational in our regular, some divisions here and there. If you see the number of containers handled has come down in the first half, but that is because of some contracts that were more for short distances, which got converted into long distances, but the value did not change much. So number of containers went down, but revenues remain the same. Earlier, I talked about some of the areas that we are incubating specifically on the pharmaceutical side and the chemicals as well as the agriculture side. These are all going quite well. And even our Cold Chain business is doing quite well with almost a 90% increase in the business over the half year. We've also had good growth on the SAARC side, especially because we've been able to now move railway rakes directly into places like Bangladesh. So that has helped us and given us a quantum of -- increased quantum of business opportunities. The technology piece is a constant endeavor to keep adding on to it. And we've changed a few things from the previous slides to become a little bit more focused. We've also added the dimension of cybersecurity because that is becoming quite critical now as one of the risk factors in the -- in businesses. So we've created a -- we do have a strong and robust, tested cybersecurity system, which is always going through some changes or the other because of the fact that it is a very dynamic section of IT. In terms of the key highlights for the quarter, we've had a good growth of about 17% in Q2 versus Q2 of 2021. And of course, 2020, also the numbers are far higher. So the trends are looking quite decent, quite good. And the overall liquidity is also strong. We've been able to reduce our borrowings substantially now, in the last few months. And that has also given a lot of confidence. The vaccination has given a lot of confidence to our team members to go out at meet customers as well, and almost 90-plus percent of our employees have been double vaccinated. So this is a good sign overall, and we are quite positive for the next 2 quarters. I think the freight industry, you're well aware of, and the capabilities that we have in the business. It is a very strong business for us. And as the next slide shows, has grown significantly over the last quarter by 22% and with a strong jump in the EBITDA margins as well. This is clearly in line with our strategy of increasing LTL business more and more, and that has started to happen. EBIT margins are higher because interest costs have come down, depreciation has come down. So overall, the business has done quite well. And we are now crossing 20% in terms of our ROCE numbers, so -- on an annualized basis. So I think net-net, it is a good quarter for the trade business. On the supply chain side, as you're aware, that we are quite focused on the automotive side of the business. And if you see the next slide, which talks about a lot of the various ways that we are trying to mitigate some of the slowdown that's happening by using yards and also diversifying into other aspects of auto, which includes the 2-wheelers, the -- and also on the EV side, we're doing work there, as well as farm equipment or even earthmoving equipment. So those have also helped us to keep the volumes up to some extent. And though the business has been hit a little bit because of the semiconductor shortage, but we think that as it gets resolved in this Q3 and Q4, it should start coming back. There is clearly a pent-up demand and that pent-up demand needs to be fulfilled over time and that we will see that this business should be able to drive that growth when it comes. In terms of the warehousing footprint, it remains more or less the same. It doesn't change much, but when we acquire clients or some clients, we are modifying into more cubic footage. So overall, the business has been stable. And we are seeing that some customers are slowly thinking, now starting to think about revamping the supply chains post pandemic, but it's been a slower process, much slower than what we anticipated. The Seaways business is the business that has done exceedingly well in the last quarter. If you -- as you're aware that we have 6 ships, 2 operate on the West Coast and 4 operate on the East Coast. We had won a few sailings that happened to Myanmar, and that really helped us in terms of having this exceptional profitability for the quarter. This is something that perhaps might continue for a few months. But again, this is not something that is perhaps sustainable over the long run. However, we have seen freight rates or rather rates for containers also inch up in the -- on the Western Coast. So it is looking quite positive for the time being. The impact of fuel has also been passed on to customers. So it is not -- we've not lost out on any cost increases here. Though there was a ship that was under dry dock, which has come back in October. And we have 2 more ships that are going for dry docks in Q3, and 1 in Q4. On the JV side, CONCOR business is more or less flat this -- in the first 6 months of the year. This was because the -- as I said, some contracts got changed, and we moved less containers. However, we moved the same amount of revenue. So there is a little bit of a slow there -- a slowdown there. But I think, again, it's a little bit seasonal. Last year, we had some food grain business during the pandemic, which we did not have this year. So they have a good pipeline, and hopefully, they'll be able to exceed the growth, the revenues that they had over the full year. Cold Chain business has grown by 89%, again, looking at very interesting developments that are happening. The Transystem business has grown by 76%. So again, we're looking quite positive as well. On the 6-month basis, at a stand-alone level, we have almost a 42% increase in turnover and a 178% increase in bottom line. That is also reflected on the consol numbers also for the year. Performance-wise, it's been one of our best quarters so far. We've almost become debt free. We have only about INR 75 crores of debt that is left, which is some debt, which we cannot get out of. And the overall ROCE numbers and RONW numbers have also crept up. The dividend policy is -- remains more or less the same, but because of increase in profitability, we are seeing that the payout volume has increased. We have given 100% interim dividend. So this is more or less in line to achieve the same numbers as a payout for the full year. In terms of the overall CapEx is something that is a little bit of a concern. The CapEx has not happened because the ships are not available in the market. We know that the ship prices have gone up substantially in the last few months. And we feel that at this price, it just does not make sense for us to buy a ship or any other marine assets, including containers. So this has a bit of a -- it's a bit slow for us in terms of CapEx. I'm hoping that in the Q3 and Q4, we should be able to get a little bit more visibility on some other assets that we are looking to purchase. So we might hit closer to under INR 100 crores in terms of the CapEx because we do not see a visibility of the shift for this year now. And I think this is more clearer for us as we speak. We are also revising our guidance based on the current output to 15% to 20% for the revenue top line growth and 35% to 40% for the bottom line. Q3 and Q4 looks a bit moderate for 2, 3 reasons. One is that between last year -- the last year was quite good also. So we had a good pickup in the previous financial year. So we have a high base effect. The second is that we still feel that the last half of the year, there could be some impact if there is a third wave. So keeping our fingers crossed and hence, a little bit on the conservative side. However, definitely a change in the outlook. That's all for now. We'll be very happy to take questions. Thank you.

Thank you, sir, for the valuable insights. [Operator Instructions] So the first question is from Mr. [ Pawan ].

I am Pawan. I'm an individual investor. So I had one statement to make, and one question to ask. First of all, the statement, thanks to all the employees and the Management, I think we have seen enormous wealth creation on the market cap very recently, and I have been a shareholder since 2007, and I appreciate all the efforts of every employee as well as the Management. And the question now is how does the new logistics startups, which we see, I mean, many of them are coming up in different domains. So how do we see them in terms of our company, do we see them as competitors who -- somebody who can leverage help with? Or any thoughts, any ideas on that front, please?

Yes, sure. So thank you, first, Pawan for being a shareholder for so long, and thank you for your trust in us. Greatly appreciate that. Start-ups are an interesting domain right now as we are seeing the kind of interest that is there as well as the fact that there is a certain level of disruption that they bring to certain markets. We've seen that also happen in our industry. And one of the things the Board took a decision 4, 5 years ago was to set up a subsidiary for investment into startups directly. So we have entity called TCI ventures that invest directly into start-ups within the logistics and supply chain field only. So that helps us to see the deal flow. It helps us to see what new technologies are coming up. It also helps us to acquire some of the technology. It helps us to also think about larger acquisitions if it may be necessary. So it is an interesting space, and we are very cognizant of what's happening. There are a few start-ups that have done quite well, and they grew very fast -- But I think the business strategy was not necessarily correct, and they have been able -- they've not been able to keep up, they bought a lot of assets and they've not really delivered in terms of the value, and many of them are in the process -- several of them in the process of actually shutting down. The businesses that are -- which you are probably hearing about Delhivery, for example, that is getting listed shortly and is in the papers on a daily basis. We do not compete with it directly. It's a business that our Express business in the group competes with directly. We might have some impact in terms of warehousing, some fulfillment sectors, but not too much directly. So the direct competition comes from some companies like BlackBuck et, cetera, which is competing with us in the Freight business. So on the start-up side, a lot of them help our companies on the back-end side. But on the front-end side, there are a few companies that we are competing with directly.

The next question is from Mr. Alok.

This is Alok from Motilal Oswal. Sir, congratulations on the great set of numbers. If you could just highlight that the margins in the Seaways segment has really shot up. And so how sustainable is that? And even the share of Seaways have kind of increased in the overall revenue mix. So if you could just throw some light what kind of -- are these 12-plus percent margin on an overall basis kind of sustainable in the next couple of quarters? If you could highlight that, and then I have a couple of more questions after that.

Well, as I said, it is not sustainable to the entirety because of the fact that it is I guess, to some extent, an exceptional profit scenario because we've been able to get some return cargo from overseas destinations, which were at -- as you know, the shipping rates internationally are at exorbitant prices. So we have capitalized a little bit on it, but we cannot capitalize a lot simply because ours is a domestic service. We cannot eliminate our customers on a long-term basis. So it could be a little bit of a flash in the pan for 1 or 2 quarters as long as these good times last for the global shipping industry, but certainly not sustainable over long term or even the midterm.

Sure, sir. And you mentioned about the CapEx of the ship getting postponed to FY '23. So what's the CapEx number we are looking at for this financial year?

So that -- we are looking at between INR 50 crores and INR 100 crores, depending upon some of our land and building projects, how they progress. Some of the investment that we were looking, as the rake investment will come in, in this Q3 and maybe a few trucks that we might end up buying in Q4 as a replacement for some of the contracts. But mostly, I think it should be between INR 50 crores and INR 100 crores.

Sure. Just last question from my side. So sir, in the 3PL segment, we have seen some margins also come under a little bit of pressure. And even though volumes are slightly below than what you might have expected. So if you could just elaborate that when we could see a real pickup in this segment as well, like how we are seeing in maybe a Seaways and in the Freight segment.

Well, Q3, Q4 is typically a good time for the automotive market also as we know that. So I think that the shortages of the chip in the industry or the raw material prices that auto companies are -- increasing raw material prices auto companies are facing is possibly something that should start getting resolved in Q3 and Q4. So definitely, I'm quite positive that going forward, we should see better numbers in the supply chain business.

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

Sir, the top line growth in both the Freight and Seaways business has been substantial. So what is the contribution of volumes to that growth, if you could quantify?

Well, in the Seaways business, it's not necessarily only volume growth. It's also -- the value growth is quite substantial because the -- we were able to realize more value from the overseas shipments. So that is why I would say that Seaways is slightly different. On the Freight business side, of course, there is a volume growth that happens. There is also a value growth simply because there is -- the freight rates have gone up across the country by between 5% to 10%. So I would say it's a combination of value plus volume, perhaps equally, just to give a broad answer, I think, on the Freight side.

Sir, on the Seaways side, I believe you have 1 less ship this year, right, versus last year? So despite that, there has been a substantial improvement in the top line. So I'm guessing it's entirely value rather than volumes.

Yes. I mean you're right. In that sense, there is a lot more value. And also we had Q3 -- Q2, we had less capacity also available since 1 of the ships was at dry dock. So yes, you're right, that it's mostly value.

Got it, sir. Sir, this -- in the presentation, in the starting few slides, you've given the number of rakes you have moved in the first half, and there's a substantial increase in the number. Where is that revenue captured, is part of your JV with CONCOR is it part of the Freight business?

So the revenue is essentially divided amongst various businesses. It goes into the JV with CONCOR., it goes into our supply chain business, which also does rakes, as you know, for automotive. So these are the 2 divisions that capture that increase in rakes in terms of increase in volume, not in the Freight business at all. We don't do any rail in the Freight business.

So if you could quantify the revenue in total from this Railway business on a consol basis.

Well, in the CONCOR businesses, everything is rakes. Most of this is rake related. So it's not too much of an issue there. But on the supply chain side, it's very difficult to quantify the amount of rakes equivalent to revenues because it's also a first and last mile that come, and the yard that is there. So the value-added services make a package. It's like -- a company says, okay, need to move to 200 cars from my factory to the dealers in a particular area. So that entire package would mean that picking up the cars from the factory by trucks, taking it to a yard, loading it on to a train, delivering -- getting it again at the destination, put it onto a yard. Finally, doing some PDI, which is speed-delivery inspection, including some amount of billing et cetera and then doing the last mile. So this whole package is a price, and it's -- we don't really break it up specifically.

And sir, on the supply chain side, the margins have been a bit underwhelming, but despite the significant growth in top line. So is it because you've not been able to pass on higher fuel prices, and we'll see that impact of maybe the price increase that you have taken in the coming quarters, so margins should trend up in the supply chain business going forward?

Yes. Some of it might happen from that perspective that there is a lag between when you are able to pass on the fuel prices and when you -- so I think there is definitely a bit of a lag. It is a very competitive business also. I think you are seeing some of our competitors being very aggressive on revenue growth, which means that they are aggressively buying revenue at the cost of their margins. It's very, very evident. And so we don't want to get into that game where we are compromising our margins for the sake of just increasing revenues. So we are a bit cautious from that perspective. And so perhaps you might see subdued growth, but it is quality growth.

The next question is from Mr. [ Srinivas Seshadhari ].

Yes, great quarter, sir. First question, I wanted to understand, you briefly mentioned about that you started working with some EV players. -- for the supply chain. Can you give some color on what kind of work, and how is it like different in terms of logistics versus the traditional IC engine kind of logistics that you handle? That is the first question. And also, maybe some brief qualitative idea of what kind of a business potential you see with respect to these new age kind of products or customers.

Right. So on price [Technical Difficulty] I think on the EV side, there are interesting developments that are happening. So I think first thing is that it perhaps will lead to lower volumes across the system because a number of operating parts are lower from an IC engine versus an EV. The good part is that we have only less than 10% market share in the automotive logistics space. So there is a very large room for us to expand our market, not just in the current companies that we're working with, but also the EV guys who are coming in or even the older guys switching to EV. In terms of the logistics, the inbound logistics is more or less the same. I think sometimes, of course, the volumes might be lesser in terms of the weight. But overall volumes will possibly be the same. There's a lot more electronics that is moving in the EV side. And on the outbound side, on the finished goods side, the model is slightly different in some companies where they are saying that we are -- we want to deliver directly to consumers. We don't want to have a middle mile in the sense that we don't want to have a dealer. So there are lots of those possibilities that are emerging with different companies. And so that might cut some of the supply chain and make it a lot more flatter. But notwithstanding the material, still will need to move to destination. So for us, that is still a volume that is going to move. The overall requirement on the supply chain side is all the same. So inbound, outbound, yard management, spare parts management, all of those factors remain the same. So yes, so the business opportunity looks interesting in the next few years.

Yes. Second question is on the Cold Chain. I think it looks like the business is tracking better than what you earlier had indicated to us. So can you talk about how that business is developing in terms of like what kind of stuff are you moving in the reefers? What kind of customers and also what kind of pipeline is being generated in terms of future business in that segment?

Yes, Cold Chain, I think for us, we have been very, very prudent in terms of how we want to go about doing that business. And the way that we thought to expand it was not to create capacity and then attract customers. Ours was to follow the customer strategy, which is if the customer says, please pay capacity in so and so location, we will do that. And that's what we have done first. Secondly, we've not invested 100% of our own assets into all the requirements. It's a combo model that we've used in all our divisions. And we have seen that to be very, very successful. -- whereas some of it is, we own -- some assets we own, whether it's trucks or the warehouses, some of it is leased or rented. So that -- or we are vendors. So that helps us a lot in terms of overall capital management. And third is the diversification into various product segments there, not just the food and the dairy and the QSRs, et cetera of the world. We are doing work in chemicals, we are doing work in pharmaceuticals, vaccine movement. We're also doing work around some of the dark kitchens, including some dark stores that have been set up by some companies who say that they will have a few SKUs, maybe a few hundred SKUs only, but you will get a delivery in a few hours -- sorry, a few minutes. So those kind of small warehouses also being set up, which includes -- which is mostly Cold Chain driven also. So lots of interesting things are happening in that business. And I think that's just the fact that we've seen good growth and improvement in profitability gives us a lot of confidence.

Great. Just one final question. This -- the CapEx, other than the ships also, it seems to be tracking on the lower side, the ones which typically go into your supply chain or part of the Freight business in terms of warehouses or trucks that you buy. Just wondering why that may be -- so is it just that after Wave 1, you've taken -- Wave 2, we've taken some time to kind of come back? Or are there any market issues constraining our investments?

On the warehousing and on the construction of the small warehouses sector, there is a little bit of a lag because of the -- as you rightly said, from Wave 2 coming back out of it and resuming the construction, et cetera. So they are all underway. A lot of the projects are underway, and we're looking at Q3, Q4 for some of this to get completed and commissioned. On the truck side, we do not have a great visibility yet. We do have enough capacity right now. So what we are thinking is that Q4, we will see how things are progressing with some of our clients, and then we will look at the replacement strategy. The rake should come in Q3.

The next question is from Mr. [ Sanjeev Goswami ].

I have this query on the Seaways side. I think in your presentation, you mentioned that the total size of the market is around 84 million tonnes. So can you give some color, some idea about the market in terms of how much is the capital market, how much is the bulk, how much is containers, how much of the third-party market?

Yes. Maybe I don't have the exact numbers on that. However, I think -- Ashish, just move up to that slide, please. It is clearly divided into all of those segments. And I think what's starting to happen is a lot of business is starting to become containerized. And hence, we are seeing growth for container shipping across, whether it is on the left on the -- right on the East Coast or the West Coast. So that is a good development overall, but not withstanding the original movement has always been some overs moving from eastern part of India to the western part or food grains moving from western part to eastern and so on and so forth. So that's the overall breakup. I unfortunately do not have an exact breakup. I'm sure that number is also changing quite rapidly. But I think we can check from the Ministry of Shipping to get those exact numbers.

But can we get some broad idea in terms of how much must be containarized as of now? Because I believe coal and petroleum products is a very large number.

Yes, it is. But again, I think the 6% that you see on the coastal side is of the overall volume. I would say probably not even 1/3 would be, no, no, I think even only about 20%, possibly 10% to 20% might be containerized.

Okay. Fair enough. Now, Vineet, one more question I had as a follow-up. So I was comparing with one of the other companies which was in this business, still is on the business, but now has been sold to DP World, which is Share Shipping. When I try and compare his numbers, though officially in terms of revenues per DWT or revenues per containers because that's the data that we had, you numbers are almost 2.5 to 3x that of Share's. And so was the profitability and revenues also much higher. Can you explain some dynamics of the market in terms of what was the difference between what we were doing, what they were doing, what competed downage and pricing that we have or customers we have, which explained so much of a difference?

Yes. See, there are various businesses that we've been doing with -- we've been in the Seaways business now since 1983, or '84. So we've had a 35-plus years of experience in this business, and we have a lot of clients that have been there with us for many, many decades now. And we provide a very strong service to customers. And that's why we are reluctant to make the short-term profits to go here and there and get international cargo so that we get those profits. But in the end, we might lose some customer loyalty that we have. So that's a tricky balance. Over the long term, you are able to build that customer loyalty as well as customer service that they are willing to give you the better pricing also sometimes. And we also provide end-to-end service from branches, picking up the containers or delivering it at their final destination. So those are other things -- and there are, of course, some captive cargo that we have that we typically have long-term contracts, which help us also. The other thing would also be that some of the ships that our competitors have bought have been at much higher prices. And whereas we only bought secondhand ships at -- which possibly would be 10 to 12 years old. So our CapEx is not extremely high, which has a positive effect on our depreciation and interest as well. So I think those are some -- that's possibly 1 more area that we tend to score slightly better.

And the last is just to give an idea because ship market is very, what you can say, transparent market, of the 6 shifts that we have, what will be the approximate market value of those ships?

I don't think we have calculated that. I think we have calculated -- we might have the depreciated value of what's on our books. But I don't think -- again, the market value is not relevant if you're not selling your ships. So it's like we are living in a house. You don't want to know the value because you are going to stay in it, right? So we've not really found out the pricing, the current market value.

The next question is from Mr. Mukesh Saraf.

My first question is on the Freight division. Could you give some sense on what's the mix of the LTL versus FPL in the first half? Because I guess, last year, we were at about 33%.

Yes. It's about the same 33%, 34%. I think it's not a major change yet. I think over the second half of the year, we could see some movement there. What has the first half of the year, Q1 was not that great for MSMEs with the second wave. So I think it's taking a bit for them to catch up, but we are confident that we should get to 34%, 35% in this -- at least 34% for sure for the quarter -- for the full year.

Right. And in terms of the fuel prices in the Freight segment, while I guess most of it gets passed through, there probably are some contracts where there is some delay in the pricing reset. But we've seen our margins go up Q-o-Q despite the kind of the fuel price movement. So is there a case that you might see a lot -- I mean, some more price hikes that we will take with the lag and hence third quarter can be better with the pass-through? Or have we already gotten all the cost.

Well, this is an ongoing thing. And really, it does not have a major impact on any of the profitability or on the revenue side. This is quite minor. Some of it gets passed on immediately because there are some contracts that have an immediate escalation, some contracts on achieving a certain target, which could be like a 5% overall cumulative increase in fuel prices, some is on a monthly -- so they are all various computations. And the impact is not that significant since it is quite distributed over hundreds of customers.

Okay. And my last question is on the Seaways again. And you've done about 62,000 containers in terms of throughput, at least first half. So how do we look at -- I mean, is there a way of looking at it per vessel throughput -- and as you add vessels the throughput can go up by a certain number -- How do we look at this throughput that you've done for this first half?

The 62,000 containers that we presented earlier was not specific to Seaways, it is actually across the company as a whole. So this includes the containers that we moved for our railway business, that is TCI CONCOR, there could be some containers in various road-related movements, there could be -- and there are Seaways related containers. So there is no specific way to really -- we don't share that specific number for division or company specifically. And I think it might not be the right way to look at the revenue per container because if there is an international movement that we've done, the revenue per container will be very distorted compared to revenue on the domestic side.

Got that. And in continuation with this, I mean now that we had like a benefit of getting the cargo from Myanmar, is there an option of kind of making this like an ongoing kind of a route that we operate on by adding vessels because it seems quite profitable. And obviously, return cargo helps us in our efficiencies.

Yes. We would love to do that, but it's just that it's not available. The freight -- ship market is so tight right now. It's just the pricing is absolutely haywire. So even at these kind of prices, you will not be able to make money because we have to see the tenure of the ship, the life cycle of the ship, which is from -- you're buying a 10, 12 year old ship, you have another 10, 12 years left of that ship. So from that perspective, assuming that the rates moderate after a few months, which is what is expected post April, May is when next year rate should start moderating quite rapidly because of capacity coming in or just all the bottlenecks getting sorted. So definitely, in that context, we will not be able to generate adequate returns on -- if the ships are purchased at today's prices. So as much as we would like to do that, we cannot unfortunately. We don't want to take that call right now.

So when we add a ship, it's going to be largely again in the same routes only. We don't see a kind of an option of increasing the number of routes?

No, because there's enough and more capacity -- demand on these routes. So we definitely want to continue. In fact, what's happened on the West Coast, for example, is that there has been -- when the -- there's a shortage of containers, a shortage of capacity for ships on the West from Kandla or Mundra going to further -- to Kerala, We have seen some cargo getting diverted to rail also because if it's not available, then it will move to rail. If it's available, then it will come to the coast. So -- and that helps us as an organization because we -- when we go to the client and say that look, it's not available, we have a rail option, they'll give us the cargo still. So those are the things that we are able to sell quite nicely compared to some of our competitors.

The next question is from Mr. [ Sunil Kothari ].

Hearty congratulations for such a good number. Sir, my question is little bit to understand this environment and situation in the business in which we are operating compared to maybe some 5, 10 years back, looking at this formalized, unorganized to organized movement, and your customer is also becoming bigger and sophisticated. Do you see it's difficult for somebody to easily enter and compete with you and then outcome is a little bit easier for you to do business in a sensible and very profitable manner?

Well, no business is easy. So -- but definitely, I think creating barriers to entry for all our business is critical, whether it is a smaller company coming in, whether it is a start-up coming in, which is bringing some disruption. So that is our always attempt to create barriers to entry to ensure that we build a moat around our businesses so that we are not attacked from various elements. And that's where the group structure helps because we are able to assist each other in various customer-related queries and needs. Apart from that, we also are ensuring that our financial structure is very strong, whether it is debt -- virtually no debt or not compromising profitability for just revenue -- for just the sake of revenue growth. So we are ensuring all of those things. Definitely, what you are saying is right that GST and other such changes that have started to happen or have happened is changing the marketplace and customers do want to work larger companies more and more. But I think when there are certain cost pressures, many of these, many of our customers also look at going to smaller companies if they're able to give them a lower cost structure. So that balance is always there, and this is where our challenge is also.

I think, yes, it's a great reply because internally, everything the right things you are doing in terms of technology say, very conservative capitally sane control of cost and focus on profitability. So that's great, we hear. Sir, my last question is, you cater to across economy, would you like to share some of your thoughts and views on the situation on the ground and how you see the things moving with the sector specific or whatever you would like to say.

Yes. Certainly, on the overall marketplace perspective, we are seeing good positivity from customers. They are indicating more growth going forward. There is capacity utilization has increased, and those -- the lead or the high frequency indicators are all showing that also from, take power generation to even e-way bill movement, et cetera, are all indicating that the economy is on the recovery path. Certain industries like auto, et cetera, are hit because of the external circumstances which we're all aware of. And there are some industries that are getting hit again because, for example, if coal is not available and some smaller companies that work using coal are not able to do that -- run their operations efficiently. So there is some impact there. There is some impact of some raw material increases for the engineering side or for the other types of companies. However, the demand cycle is robust, agriculture looks good after the monsoons. So it looks very, very positive going forward. The only issue is the third wave. Predominantly, that seems to be the only issue. If there is a third wave, then things will definitely change. So let's see how things go. But yes, that's the trend.

The next question is from Mr. Prateek Kumar.

Congrats for great set of numbers. My first question is on -- I mean I think you have partly answered it, but -- so in the 3PL segment, how is the pricing environment, particularly because as we know and understand that industry is trying to move to organize the Grade-A warehousing housing. So some of their new or older competition, are they trying to chase higher revenue per door pricing because results for your competition looks quite deep versus what is for us. So is there a material pricing pressure in that segment, which we are letting go, and that's why our revenue growth looks lower.

Yes, thanks, Prateek. But that's very obvious, and you can see that. I think you see the results of our competitors, and it's more of a revenue buyout that they are doing, and it is reflecting on the profitability. From day 1, we've maintained that profitability is very, very important for us and growth will come accordingly because ultimately, we have to create value for the customer, and value for the customer cannot be at the cost of our profitability only. So it's a balance. And I think we've chosen to take the tougher route, which is to ensure that we are not going to just start get revenues only. So yes, I think that's the typical trend, as you rightly pointed out.

And is there any specific segment like, for example, FMCG or FMCD or e-commerce or auto, which has particularly higher competition, I mean I know auto as the most tainted, but other than that, any particular segment has more competition on pricing than other or smaller B2, I mean SMEs have more pressure.

No, nothing like that. I think it's -- when the customers are changing over to a different service provider or they are looking for new RFPs, et cetera. Some of them are also looking at a perspective of lowering costs. So at that point in time, you want to be cautious to see whether it's a real exercise of change management or whether it's an exercise for price discovery. So I think those are the things that we have to be really careful about, and that's where we -- so it could be across any industry. It is not specific.

And one last question on your comment on Delhivery, that you said that we are not direct competition. But as we understand, they also are into 3PL segment. So which in a way, I think, is a competition. So -- or aren't they, aren't they compete for same volumes?

Yes. Well, a lot of companies claim to say that they're doing 3PL. However, I don't think it's necessary 3PL They could be running a few warehouses for few clients, few fulfillment centers, but I don't think it's hardcore 3PL that we are doing. So I would be a little cautious to say that we are competing with them directly. We don't see them in some of the contracts that we are completing. We don't see them directly facing us.

The next question is from Mr. Shrenik.

This is Shrenik from JM Financial. Sir, my question is pertaining to mainly the international sea freight business. So basically, as you see in the recent months, the ocean freight has gone up a lot in the recent months. And also there are container availability issues. So could you throw some light on the current scenario and your view going forward?

Sure. I'm not a global expert on this subject. But the information that we have or the information that we have when we talk to our counterparts globally or ship brokers, et cetera, is that these shipping rates that are there are actually for the next few months. We have the year-end coming up in the U.S., which means high volumes there. We also know the kind of -- almost 2% of shipping fleet, global shipping fleet is right now stuck outskirts of North America, whether it is on Long Beach or whether it is New Orleans or whether it is New York. So that is having an impact. But these things -- and the fact that there will be Chinese New Year in February, all of these would mean that the shipping rates are not going to really come down before March, April next year. By that time, at least the container issues are going to get sorted out from China side. But definitely, the issue of capacity will always remain -- it will remain until new ships start coming in, which is possibly in '23, late -- mid '23 onwards -- late '23 orders, actually. So yes, so that's a thought process that I've heard, and I think moderately, this is what is being said around in the shipping circles.

The next question is from Mr. [ Shivaji Meta ].

Sir, when we listened to the commentary of large semiconductor players like Samsung, Intel, et cetera, what we gather is that the semiconductor shortage could persist for the next year, 1 to 2 years. Do you feel that the auto slowdown can impact you for the next, say, 3 to 4 quarters? Or is there a different commentary that you're hearing from the auto players?

So I think a few points here. I think the -- it will have an impact certainly, but not to that extent. I think because we are quite diversified in our business that we do in the automotive and mobility side. We are, as you know, that we do 2-wheeler, 3-wheeler, 4-wheeler, tractors, earthmoving equipment, et cetera. And that helps us to ensure that there is adequate volume that is flowing through our system. So that will continue. And there could be ups and downs. Companies like Toyota, for example, had enough chips and they are able to sell -- produce and sell quite robustly. But there could be some companies that will certainly go through challenges. And so yes, I think it's a plus-minus across the system. So -- but we are thinking that the availability should be better than what is being said right now.

Sir, just one last question from my side. What would be the auto revenue contribution to our top line?

Almost 75% to 80% of our supply chain business is automotive. I mean the broader automotive space, which includes everything in it.

[Operator Instructions] The next question is from Mr. Prit Nagersheth. Sir, please go ahead.

Congratulations to Vineet and Ashish and the entire team. I think [Technical Difficulty]

We can't hear you that well, Prit. Would you like to put your question on the chat box? In the meantime, we'll take the next question.

The next question is from Mr.[ Bhaskar ].

I was looking at the presentation, and the EBIT margins and ROCEs in your supply chain and Seaway segment have been trending down for the past 5, 6 years. Apart from the noise of the first half, what do you think are kind of normalized levels of these 2 ratios for these segments over the next maybe 2 or 3 years?

So the margins on the supply chain side have more or less remained in a band. You'll see some years, it has gone up, some years has come down, but it's more or less in that band of EBITDA of 10% to 12%. That has not changed over the last at least 7, 8 years. So you will have some years which are quite good, some years where they're not as good. So that is quite evident. In the shipping business, we've been maintaining that the initial margins are on the higher side, but we've also been fortunate enough to get bumper years like this year where the margins have really escalated. So ideal scenario is a 20%, 25% EBITDA on the shipping side, but it has kept moving up, or rather not really -- it has come down some time, but it has gone up also like this year, for example.

Mr. Prit, please go ahead.

[Technical Difficulty]

Prit, can you write your question on chat, please?

Okay, I guess, I'll take it offline then.

Sure. We'll do.

So there are no further questions. Now I hand over the floor to Mr. Ashish Tiwari for closing comments.

Thank you, everyone, for joining this call today out of a busy schedule, and I wish you all a very happy and prosperous Diwali in advance. Thank you very much.

Happy Diwali to everyone. Thank you.