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

Good evening, ladies and gentlemen. I am Simran, the moderator for this conference call. I would like to extend my warm welcome to all of you for joining us today. Today, on behalf of the management, we have with us 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, Simran, and good evening to all of you again for joining this call. As usual, we will begin with our investor presentation and followed by the questions. Now I would request Mr. Agarwal for earnings presentation. Thank you. Over to you, sir.

Thank you, Simran. Thank you, Ashish. We're just putting up the presentation. Again, I would also like to extend my heartiest welcome to all of you at this investor presentation, investor call for quarter 3 of TCI. We would, of course, put up this presentation on to the stock exchanges as well as on our website. So I will -- many of you are already familiar with the company. So I will not get into too much detail about what we are as a company, but I will get into specifics later on. And we'll be happy to look at your questions. So let's go ahead, please. I think the logistics growth drivers really do not change much over quarter-on-quarter. But certainly, what we are seeing is that the consumer trends for this particular quarter are a little weaker than the previous quarter. Post Diwali, things had to slow down a little bit as we are aware because there's a stocking that has happened and then some amount of reduction in consumption happens. Maybe some impact of higher interest rates is also starting to be felt a little bit on the consumer side. But predominantly on the B2B side, which is where we are active, we're really not seeing any kind of a slowdown or any kind of a degrowth happening. We see order book from many of our engineering companies, very, very robust. We see the status of almost all the metal side of the businesses also relatively robust. So generally speaking, we have not experienced anything which is structurally different on the B2B side. Some of the impact of the government expenditure on infrastructure is also having a very positive impact. I think related to, for example, movement of infrastructure equipment like the [ JCBs ] and others of the world. Those are also doing quite well. So no major trends that have changed over the last quarter, but certainly, the pressure to grow is also quite high in the system. Next, please. As a company, we are quite well focused. If you are aware with the range of services that are -- that many of our customers want on a continuous basis. So we provide for almost all the major verticals as well as the single window concept as well as control towers for many, many of them. The multimodal network, it's -- as you know, it's part of our strategy and part of the growth plans that we have. And that has been continuously has been enhanced continuously. The full rate movements in the last 9 months have gone up by more than 30%. A lot of this is, of course, automotive rate movement as well. And so this continues the strategy to move towards multimodal is in place and it is having an impact. On the container side, the management -- the container movement has been slightly lower, I guess, some of it because of our CONCOR business, which is -- but it has done better over the last quarter, if not in the first 6 months. The ship size and the quantity all remain the same. We manage our -- from 55 yards, which are automotive for the automotive logistics and terminals are for the container management. We are positioning ourselves to some interesting and high-growth segments like chemicals, agriculture, renewables, cold chain and also neighboring countries. So these are good growth prospects in the next few years, which we will capitalize on. The operations are highly technical, technology driven. And I did present last time, for example, which is also on the next slide, is what we are doing in terms of control tower for a large heavy electrical goods company, where we are providing a combination of FTL, LTL services and including now in the next quarter, perhaps even warehousing services. So we are managing a lot of the order processes, et cetera, through various controlled parameters as well as through a control tower for greater visibility and planning for both ourselves as well as for the customers. And just to inform you, we were doing this for many, many other customers right now as we speak across the country. The last quarter has been one of our highest ever quarters in -- on a consol level, we did about INR 973 crores of revenue. This, as I said, almost all the high-frequency indicators are pointing towards good growth. So our various divisions, almost all divisions contributed to it. Overall, we feel that the -- with higher interest rates, there is a little bit of a tightening in the market for credit. But for us, as a company, our net borrowing remains zero, and we have additional cash plus also available. Now I'll pick up specifically division-wise results. So you know already about the division structure, so I will not get into that. But the freight business grew at about 14% in the quarter. Again, over the full 9 months, the growth has been almost close to 20%. The margins are maintained even though the LTL business is starting to catch up, but it is not completely there as compared to what it was in the previous years. So we are confident of achieving this 40%-odd by 2025. But for the time being, there is definitely a little bit more business that's happening on the FTL side rather than on the LTL side. Nevertheless, we've been able to keep up the margins to almost the same level. What is good is that the ROCs of this business has really kept up with the growth. So we are at almost 25-plus percent now, which has moved up from the 17%, 18% a few years ago. And we are quite confident that even though with -- there is some inflationary pressure that is there in the system. But even then we should be able to keep maintaining the ROCEs also. From a supply chain perspective, again, the business has grown quite robustly by almost 21% in the quarter and about 26% -- 27% in the 9 months. Of course, this is clearly that the auto sector has picked up quite a lot -- and we are seeing good growth there and good demand also in the next few quarters with new orders as well as specifically in the area of EVs. Yes, the margins are a bit lower comparatively. It's because the movement has been quite heavy when it comes to the last mile as well as the finished goods movement. And hence, that is typically at a higher cost structure. So -- but we are hopeful that it should normalize in the next few quarters. EBIT margins, of course, maintained at the same levels. The ROCE is a bit compressed at 18.7%, but again, we are quite confident that for the full year, we should cross 20%. On the [ Seaways ] side, all our 4 ships were under operation. So that was a good trend business grew at about 12%. And for the full year -- for the 9 months, we've also grown at about 11%, even though there's no international volume, literally no international volumes in this quarter. So as I had said in the last quarter in the meeting as well, that the volumes are quite robust, and the margins are not too dependent on the international margins only. It is -- a lot of it has to be our based on our operational efficiency. As you can see that some margins have come off, which was expected from a percentage perspective, but the quantum has gone up to -- in the -- at the EBITDA level. At the EBIT level, yes, we have a INR 10 crores -- about INR 9 crore drop in 9 months. But again, as I said, this was expected. Our normalization is about 30-ish, 30%, 35% of EBIT levels. So I think we should be able to maintain that going forward as well. We don't have any more dry docks in this year, this financial year. We have a dry dock in quarter 1 of next year. But -- and ROCs are maintained in the excess of 40%, which I think will continue as well. Amongst the joint ventures, the CONCOR joint venture has in the first -- after the first 6 months where business was slightly negative. It has picked up -- and the first 9 months have been -- we have a positive growth. For the full year, we do expect it to be at the same level or slightly higher than last year. Margins are more or less maintained. Cold Chain business also, we've rationalized some of the portfolio there. There were some businesses related to short-term businesses that were there in Cold Chain, which we have let go and hence, business growth has not been that high compared to last year. So with the base effect, I think we should possibly end at the same level as last year also. Our Transystem joint venture has done quite well with a 42% growth and margins are also higher than last year also. Overall, at a stand-alone level, we have a 21.7% growth on the top line and 18% growth on the bottom line, which is at the PAT level. If you -- you might see that the PAT for the quarter is higher at the stand-alone level versus the consol level. This is because we have received a dividend of about INR 19.6 crores net of TDS in this quarter from our joint venture company, which meant that the number was offset in the consol level in terms of the share of the profit of minority interest. So -- but the effect is at the stand-alone level, we do have a good growth of about 23%. If we remove this number of the dividend that we've got versus the dividend in the same quarter, we still have a growth of about 10%, 15% on the bottom line, even though the Seaways margin has come down. So as we've been saying that even if Seaways margins does come down, the other businesses will compensate as the cycles keep changing, which we are seeing. So we are able to definitely demonstrate a consistent growth in our businesses on a regular basis, irrespective of the market trends. Some of the key performance indicators are all looking good. ROCs at 24-plus percent. The RONW is at 23% and EV/EBITDA is in the excess of 10%, 10x. The Board decided on a dividend of 125% for this quarter, which makes it a total of 250% for the 6 months -- for the 9 months that has gone by, which is about 16%, 17% of the complete so far, the payout. And the depending upon what the profit for the last quarter would be, the Board might take a view on whether they want to enhance the dividend further accordingly. Our ESG norms, we are quite stringent on them, and we are quite -- we are following a lot of -- falling on a lot of areas. For example, we've converted a lot of our older trucks into CNG vehicles also. And we have a fleet of 200 CNG fleet within the company. We've also added several areas, several rooftop solar plants, which are helping us in energy conservation as well. So the -- clearly, the impact of CapEx is there, which means that we cannot -- we've not been able to grow faster on the Seaway side of the business, and that is because you've not been able to add a ship again, in the prices of ships do remain exorbitant as well as they are not easily available. We've done a CapEx about INR 81 crores, INR 82 crores so far. We expect that to be roughly about INR 125 crores, INR 130 crores for the full year going forward, which means that some of this CapEx will shift for the next year. We do not have -- we clearly have a visibility that we will not be able to now purchase a ship in Q4, neither we think we'll be able to buy it in Q1, possibly at the end of Q2 as we have -- might have some visibility around Q2 FY '24 is when we have some visibility. But nevertheless, some of the other CapEx will continue, and we do expect that we are able to sweat the assets that we have right now on our balance sheet much better. Thank you so much for your presence today, and I look forward to your questions.

Thank you, sir, for the valuable insights. [Operator Instructions] So the first question is from Mr. Ravi Kumar Naredi. Sir, please go ahead.

Your CapEx plan for financial year '23 is INR 315 crores. Why are we able to do INR 82 crores CapEx so far? As you -- as our CapEx is low, it will impact our current year as well as financial year '24 growth working. So what other way you plan for company? How you overcome this situation?

So the growth will get affected only to some extent on the Seaways business. But otherwise, all the growth plans remain intact. And as you can see that all the other divisions are doing relatively well. We also see a lot of growth opportunities in the joint ventures in the automotive joint venture, for example, with Toyota, the Cold Chain joint venture, the CONCOR joint venture. All of them have very high potential. And as I said, we are also incubating a lot of sectors. So those are also very attractive right now in terms of growth opportunities. So I do not see that growth for FY '24 will be severely negatively impacted. There could be some minor impact because of the non-addition of a ship. But otherwise, we do think CONCOR should be robust.

Okay. Secondly, you have declared the result at 2:45 p.m. Your investor presentation come 3:25. So what is the necessity to make the concall at 4:00 p.m. We are less than 30 minutes you had given to us. We also need to read a lot of between the lines. So what is the necessity to all make the call immediately after result?

So basically, we used to upload the presentation after the call always last time and even before that also as were available as the Board meeting finished within the statutory time right now.

My request is that you make a concall [indiscernible] what is the necessity, it is 30 minutes, you are making concall. And you understand that how many concall today?

Yes. We do not know how many concalls are there today, sir. But what I'm telling you is that we have given the results in -- well in advance for you to study. Yes, the presentation might have come out late. If you have any further questions post this call, please call us up. We'll be very happy to answer you anything that you have. Sorry for this delay.

Please understand, why you do not give -- same problem I have raised last year concall, last quarter concall, why you are so early in concall?

I'm sorry, last year we did not, last year, we had one full day before you -- we had given the time.

Okay, sir. We will take up -- Mr. Naredi, we will take up your questions. No problem. We will take your questions after call as well. You can call me, we will make up for it. Thank you.

The next question is from Krupashankar. Sir, please go ahead.

We can't hear you Mr. Krupashankar. He dropped out.

Please take the next question, Ms. Simran.

We will now begin with next Mr. [indiscernible]. Sir, please go ahead.

Hello. Hello.

Please, please go ahead.

Hello. [Foreign Language].

Yes. Yes, we can hear you.

[Foreign Language]

Sorry, I think we can't hear him. His network is poor.

Okay. Simran, please take the next question.

We next begin with Prit Nagersheth. Sir, please go ahead.

Good afternoon. Yes. All right. So Vineet, what I wanted to understand was that the ROCs on the freight has gone up substantially from about 17, 18 to 24, 25 percentage. You say that it is sustainable at these levels. So what has led to this increase in ROCs?

So one is that in the last few years, we have not done any CapEx on the business in terms of adding new trucks, et cetera, or whatever do. So one is that. The second is that we're able to sweat the money better in terms of the receivables. So most of the assets there, capital employed is essentially on working capital. So since we are able to sweat it better, that's the other advantage. And the third is that the margin structure has also changed because of LTL being added on. So that -- with the increase in LTL, we are seeing that the growth is -- growth in profitability is there, which means that the cash flow is also better. So all of those factors have led to an increase in ROC.

So will this trend continue with, say, a target of reaching 40% by FY '25?

No, I think that's -- the 40% is LTL, not necessarily 40% in ROC. I think...

No, I meant exactly that.

Of course. That continues. That continues, yes.

Okay. The other question I want to understand is that because we've not been able to do the CapEx, we plan to because of ships being in a sense and other things and you will have the additional cash flows coming in next year in terms of business. Do you plan any kind of buyback given that the cash is going to be generated on the books and you will not deploy it in CapEx?

No, we don't have any plans for a buyback. I think what will happen is that the moment we start looking at the start the CapEx, the additional cash flow will automatically flow out quite fast. So really speaking, it's not prudent. We're not looked at buyback at this point in time.

Which means you already have plans to utilize the cash that is being generated for this year, even for last year, there was a surplus and the subsequent years once the ship comes into play?

That's right. Correct. You're right. So see, the working capital limits are at zero right now. We have more than about INR 140 crores, INR 150 crores of cash on our books, maybe some additional cash gets generated. But the moment you start hitting the CapEx in terms of buying the ships, et cetera, I think all of that will go away. And then we can easily leverage by our working capital limits or by borrowing. So that's why I think the buyback will be a little bit of a short-term play versus looking at the next few years CapEx, we would need the cash.

Right. Vineet, one other question is on the trends. So you mentioned certain amount of slowness that you're seeing in terms of vis-a-vis expectations you may have. So do you have any sense in terms of FY '24, where it is headed or do you stick to the 10%, 15% guideline that you normally make?

We've not come out with the guidelines yet, Prit, for the next year but I think, my sense is that it might be a slightly slower year comparatively. I think it's the election year also. It also has a lot of other factors, with the COVID impact also receding. So it might be a slightly slower year, but I think I'm quite confident that the infrastructure spend will continue and which will -- which does have a trickle-down effect on many, many sectors.

Wonderful. Thank you, Vineet. We wish you guys all the best.

We are happy to take everyone's question. [Operator Instructions]. The next question is from Srinivas Seshadri. Sir, please go ahead.

Am I audible?

Yes, yes. Please go ahead.

Yes. This is Srinivas from Mirabilis. Firstly, I just want to start with Cold Chain. We have been at the like INR 14 crores, INR 15 crores kind of turnover for a few quarters now. For the -- I mean it's quite an emerging segment and our kind of belief was that the growth would be kind of much faster track. So just wanted to understand the constraints that we face. Is it like the investments that we made, we need to invest more in the infrastructure or the vehicles and so on? Or are there other things which we need to put in place in order to kind of reaccelerate the growth in this segment?

Thank you for the question, Srinivas. The Cold Chain business at INR 15-odd crores of -- at a quarter level is only for this last few quarters. The growth in the last year has been almost as you saw, 60-plus percent. So yes, it's a little bit of a base effect. The second is that, as I said, we are rationalizing some businesses. Some e-commerce guys on the Cold Chain side were not doing too well. So we dropped off those customers because we wanted to protect our margins. There are many cold chain companies today in the market that are not even making money. So for us, as I always maintained, we will slow down growth if necessary to maintain our margins in almost all our businesses because protecting margins will lead to long-term growth and long-term sustainability of any business. So for that matter, it's a short-term correction, but the growth prospects are massive, as you rightly said. And we have some very exciting contracts that we are working on, which we hopefully will convert in quarter 1 of next year and see that benefit going forward.

Okay. Okay. So from first quarter, we should start seeing some growth within the segment?

Certainly, yes.

Okay. Sure. The second one is on the supply chain. See -- and there is good growth in industry volumes. You have also grown quite well in the last quarter. But the margin seems to have kind of been at that level. So I wanted to understand, is getting an operating leverage or challenge in this segment in a sense that with increasing volumes to customers demand like lower pricing and pass-through of operating leverage? Or how does that dynamic work for us in this segment?

So I think it's just straight away contradict what I just said previously, but no, but in the long term, what is happening here is that there is a certain amount of -- in the short term, there is a certain amount of growth that we are seeing. And what will also happen is that this will start normalizing in Q4 and going forward. So we should be able to get to the higher margin structure. But one thing is that if you see the EBIT level, things are still okay. We have the same level, slightly better in the last 9 months competitively. Even on the top line growth is about 26%, 27%, but the EBIT level growth is about 30-plus percent. So that way, the overall margin is maintained. There are years, as I've always said, that the margin will oscillate between 10%, 12% on an EBITDA level. So that's what continues here as well.

Okay. And here has the -- just to follow up on this, has the competitive intensity changed in any way like in the last 6 to 9 months or so?

No, I think it's consistent. There's nothing which is exceptional, I would say, but it continues. From a quarter-on-quarter, no, nothing major has changed.

Sure. Thank you. That's all from my end. I wish you best for the rest of the year.

The next question is from Alok Deora.

Yes. Congratulations on decent numbers. Sir, I just had a couple of questions. First is the Seaways ROC, what would be the ROC, if we were to calculate that on market value, you know the ships which we have to date. Any broad number if you could indicate?

So basically, if you have this 45% ROC and shipping prices obviously would be a kind of a double or triple. So that time, actually, you would divide the ROCs. So it would be 16%, 17%.

16% to 17%, is it?

Yes.

Hello.

Yes. Yes.

Hello.

Yes. We can hear you, Alok.

Yes. got it. And also, just wanted to understand now the freight rates have come up quite significantly, the shipping rates. So how are we seeing that? Because you mentioned that the shipping ship rates have not come down. So just when do we really see the ship rates come down now because of freight rates have come down quite significantly if you were to see what it was like one year...

Alok, we are not able to hear you.

I got your question. I got your question a little bit. I think on the domestic front, the rates are not affected too much by the overseas rates. So yes, the overseas rates have come down, but domestic rates have not had an impact. Domestic rates are a function of the fuel prices, the bunker prices, which as you have seen that they remain high. And the second is also because of the demand and supply. So since demand is quite robust on the Western Coast as well as on the Eastern Coast, the prices are [indiscernible]. So I think we are not seeing anything coming off right now on the rates. But again, if fuel starts coming down and more capacity comes into resonate sectors, you might see the rates coming down a little bit. But as for now, also we are looking to maintain the rates.

Sure. Just one question. on the container rail side. So we have the JV with CONCOR. So if the divestment were to go through, how does that impact or it is like it doesn't impact us?

We can't say, it's too early, depending upon who the new partner is, what the intention is with this JV and what can be done and not done. So I think it's very speculative to comment on it right now.

Got it. Got it. Just one last question. I might have missed if you would have answered this before. So if assuming the ship does not come through until the third quarter of next year, then what kind of Seaways revenues we are looking at for next year, the growth?

So I would think about the flattish growth for even if there is no ship addition till then, because assuming that rates might come down a little bit but capacity remains on stream. So I think more or less, we should look at very marginal type of growth, but margin should be almost at the same level if side-to-side at that 30% EBIT.

30% EBIT level. So the current margin should continue?

That's right.

Sure. Thank you. That's all from my side. Thank you, and all the best.