Transport Corporation of India Limited (TCI) Q3 FY2026 Earnings Call Transcript & Summary

Good evening, ladies and [Technical Difficulty]

I think she will take some time. It is again the problem. So thank you very much to all participants for joining us today for Quarter 3 and 9 Months Investor Call. I hope that you would have got a copy of investor presentation. It is also available on our website. Before we begin with, I would like to have a disclaimer that some of the statements and discussions we would have probably on forward-looking, and we just -- they may not be contact with the actual results. Now I will invite Mr. Vineet Agarwal, Managing Director, TCI, for his opening remarks and then followed by the investor presentation. Over to you, sir. Thank you.

Ashish can you put up the presentation? Good evening, ladies and gentlemen, and thank you for joining us on quarter 3 call. Sorry for the delay, I think some technical glitches. But nevertheless, just to start, I think we had a moderate quarter as was expected, though some volume pickup was there across the system because of the GST changes that happened in September end. I think some of that carried forward to the third quarter as well. So I mean I would -- I think many of you are already aware of the company, so I would not get into specific details at the quarter level. So I'll just skip to the next slides, please. Yes, I think you are well aware of the industry developments as well as our company. We have -- we offer a wide range of solutions with a strong multimodal network. I think all these things are helping us as we speak, even with the budget, we've seen that the infrastructure focus of the government for the last 2 years, 3 years is tremendous for the logistics sector. There's also coastal shipping that has been specifically mentioned in the budget, which is essentially increasing the share from 6% to 12% in 20 years from now. But that is also -- would mean that it will give a flip to the logistics industry as a whole and specifically for us because we are well positioned in that. The company offers a very wide range of services under a single window. Next slide, please. and focused on very large and diverse kind of industries, areas where we see high potential also on the right-hand side, where there is growth momentum across various levels in these diverse industries. Again, the TCI advantages of a single window solution, operating cost efficiencies and some levels of economies of scale. But bespoke services is something that we are seeing is really working for many of our clients. Of course, in the guise of bespoke, it is also standardized solutions, but it is also -- there is a level of customization that happens for our clients. From a multimodal perspective, we've been growing quite rapidly. Interesting developments on the rig side is that we did 2,133 rigs in the 9 months compared to 2,500 in the full year last year. So there has been a substantial jump in the rail movement. In terms of container handled also, we had about 121,000 in the 9 months versus 154,000 last year as well as cars handled also, we've almost reached the same level as we did in the full year last year. So net-net, the volume increase has been there across the system. And we are also -- this focus on multimodal is helping us to drive volumes, but also shift towards GHG -- reducing GHG emissions, and we've saved about 140,000 tonnes of carbon. I wouldn't mention much about it, but technology is a very base for us going forward. Next slide, please. We're present across some of the very high-growth sectors as we are seeing now and the linkages for us because many of these customers might start with one type of product and then we can move to other solutions also. In terms of the numbers now, we've had 22 consecutive quarters of Y-on-Y growth. And the company with its -- we have about INR 250-odd crores of cash. And I think the whole idea around diversification of our businesses is helping us to ensure this growth trajectory. Now I'll talk about the freight business. As we know, the freight business has been going through some challenges and the numbers are reflecting that. We expect another 1 or 2 quarters more of this challenges and then things should start looking up. We have also reversed the trend in terms of LTL to FTL and the number is starting to creep up. So margins are flat and slightly lower, but the trends are looking to be better in the next 2 quarters. So we are quite hopeful that this will start in terms of some of the changes that we have made in the system, we should start reflecting in the numbers going forward. The ROCEs are compressed also clearly because of the margins. Working capital is a little on the tighter side there as receivables are slightly tighter -- from on the FTL side. Supply Chain Solutions has done well in the quarter. We have grown at about 15% on the top line. Margins are a little bit on the flatter side because of essentially the investments that we are making in the business, not only on the CapEx side, but also on the OpEx side with creating bench, et cetera, for several new contracts that are in the pipeline. So some of the contracts have started, but have not come to the full stream and hence, we've not got the results of that entirely. So margins are slightly lower comparatively. But usually, Q4 is when we see slight improvement in margins also. So it should bring the ROCEs back to the 20-plus percent range. We are seeing good traction continuing. We are -- have solid pipelines in place in terms of growth opportunities and the -- specifically in the warehousing space. The segments like FMCG, quick commerce, et cetera, have all picked up in this last quarter also because of the GST cut. But most importantly, automotive sector is doing very, very well. On the Seaways side, things remain good with the fuel prices being on the lower side until the end of quarter. However, we are expecting now fuel prices to be slightly higher in Q4. Not a major impact on the company per se, but we see that top line should -- as over the 9 months has been flat, would continue to remain flat or slightly higher. Margins remain in this 40%, 45% range, of course, slightly better in the last quarter also. But again, this is season -- some amount of seasonality. All our ships that were under dry dock have all come back and 2 are scheduled for FY '27. This continues to do well for us, and we expect the margin structure to be the same for the coming quarter as well. When it come to the joint ventures, the joint ventures have done reasonably well. Concor growing at 20-plus percent, cold chain at about 17% and Transystem at about 12%. The margins are slightly tight on each of the businesses. But again, that's a function of the competitive pressure that almost all businesses are facing at this point in time across the board. And -- but the shift in terms of -- as we've been always saying that our overall growth trajectory comes from the -- not just the divisions by itself -- by themselves, but also by the joint ventures and the subsidiaries that we have. Consol growth is about 9% on the top line, about -- roughly about 12% on the bottom line for the 9 months. Quarters have been slightly better. Again, dividend income that came in -- because of the joint venture in this quarter has also helped. The guidance that we kept of 10% to 12%, we should be able to get to on a consol level and on the 15% odd on the bottom line at the consol level should also be achievable. Not very significant changes in terms of the numbers or the ratios, I think all of them are almost at the same level. We did a little bit of a bump up in terms of the dividend payout ratio, about 15% currently as in -- sorry, the percentage was a little higher, but the payout is the same in terms of the overall payout to profits. ESG goals, again, we are very focused on that using green trucking, using renewable energy wherever possible and of course, shifting our customers to multimodal as much as possible. Some case studies, et cetera, some of these you can scan and you can see we have a lot of information on many of our publications, et cetera. Outlook remains positive. Q4 remains positive. Some of the trends in terms of stocking is continuing from an auto perspective. Of course, things are not as robust as it was in September, October and even a little bit November. But still, there is movement and across the board, whether it is 2-wheeler, 3-wheeler, 4-wheeler, commercial vehicle, tractors, earth moving equipment, we are seeing some movement in all these segments. Overall, in terms of CapEx, the budget was for about INR 450 crores. I think we've reached about INR 266 crores. We should get to between INR 350 crores and INR 375 crores for this fiscal. And we're looking at similar kind of budget for the next year also. We're very happy to answer any questions you have. Thank you.

This ends the presentation. I would request to raise your hand and just tell your name and where you are. Simran, if you can continue if you have fixed the mic problem?

Yes, sir. Am I audible to everyone?

Yes, please go ahead.

[Operator Instructions] We have Mr. Krupashankar with us.

Krupashankar here from Avendus Spark. A couple of questions, Vineet on -- first on the CBS business. Just wanted to get a sense on the margins side of things. The expansion is quite good. And just wanted to see the momentum, which can continue in the coming quarter as well. And while in the press -- rather in the media coverage, you had mentioned that it will drop in the next year. Any specific reasons why you believe there will be a very steep decline?

No. I'm not saying there's going to be a steep decline, Sankar, but I think it will be just the fact that there is -- I think the -- one is the fuel prices should go up -- would go up a bit. Secondly, I think there could be increased competitive pressure. Third is that new ships will start coming in, in FY '27. So there will be higher depreciation and interest on those as well. So those all will add to some amount of margin compression. But again, the range is still quite decent. So I've been maintaining anything above 25%, 30% is good. So I think we'll still remain at 30-ish percent even after that.

Got it. And for 4Q, you do expect that margin will be similar to 3Q levels?

I can't say for Q4 entirely, but all the ships are in play right now. So it should continue to help. But I would not really say that entirely on Q3 level. But yes, I think perhaps closer to that.

Got it. Second question more or less was on supply chain business. While we have seen a very strong momentum with respect to automotive segment. Just want to get a sense around the growth engine, you had indicated in the previous calls also that you were getting more orders from e-commerce. So just wanted to get a sense that are you expecting sort of a 15% to 20% growth going ahead given the momentum and the auto cycle in favor? Is that something which is an expectation -- a conservative expectation.

Well, not a conservative expectation. I mean we are quite confident about the 15% range, plus/minus a few percentage points for growth in the next fiscal also for FY -- for supply chain. I think not just the automotive, but the other areas, as you mentioned, are also picking up quite rapidly. So that will continue. And we are also gathering more market share from our competitors because we have this holistic solution of road plus rail and using yards, et cetera, across the country. So net-net, I think it's -- we should be able to maintain this 15%.

Got it. Lastly, just wanted to get a sense, there are 2 new rig additions coming in next year. When are they expected?

I think closer to the end of the calendar year, if I'm not mistaken.

So most of the benefits would come in from FY '28 onwards on that?

Yes.

But actually speaking, the benefits are more strategic rather than monetary to that extent because we are already hiring a lot of rigs from the government from the railways on a regular basis. So we own only 3 rigs right now, but the number of trips we are doing is in the excess of 500 per month -- per quarter. So essentially, they're all coming from the Indian railways, the other wagons that they have. So by having these 2 additional rigs would be, firstly, we're looking at a new model where we can actually carry more vehicles on it on a double deck level. Secondly, they would just be strategic for some customers where we are able to provide them capacity and service when the Indian Railways are not able to. So we will not have a specific large monetary impact.

We have the next question from Mr. Sunil Kothari.

Sunil Kothari from Unique PMS. Sir, you mentioned in your opening remarks about the next 1 or 2 more quarters of challenging freight division. And also you mentioned about the competition in all the JV-related businesses. So if you can a little bit explain in detail how is the competition from where are those competition coming in? And how prepared we are to overcome those competition and coming back to a respectable profitability?

So competition pressure is not just in the JV, but across the board, I would say that whether it is freight, supply chain, seaways, cold chain, railways. Everywhere, there's competitive pressure. I think India being an attractive destination for car companies. So we are seeing that the investment also is increasing into capacity building or just essentially looking at logistics as an attractive field, whether it is not just by domestic companies, but also by overseas companies. So there is competitive pressure across the board, and it will continue to remain. We, as a company, are continuing to diversify into new value-added areas, niche areas where we are able to protect our margins better and also provide services which are more wide ranging so that if one service, we're not able to make as much money, we are able to do it in different areas, different segments. So that's the general comment. On the freight side, yes, the challenge is essentially how we are able to rework our existing structure, and we are working on some ideas there as well as we've implemented some things. But since we were at, I would say, a cycle for us, which has not worked positively, that cycle has to complete completely still we don't hit the positives, more and more positive. So some of that is internal. Some of that is external with the MSME sector still being slightly on the weaker side. So all of those particular improvements in the next 2, 3 quarters is when we'll see growth coming back to this business.

Specifically on this JV because it has a very sizable contribution to our consolidated numbers. That profit is substantially down. So any specific reason would you like to comment on this?

No, it's not substantially down, slightly down. But I think we are -- as I said, there are customers' challenges sometimes or the other. So I think -- and it's also on a growth phase, that particular company. So these are normal a little bit plus and minus. But net-net, I think for the full year, we should be close to last year's profit levels.

[Operator Instructions] Mr. Deepak is with us.

This is Deepak from Unifi Capital. Sir, firstly, I'll just go segment by segment. On the Freight division, we are seeing that despite you taking a lot of efforts on branch addition and pulling up your FTL mix, the growth and margin seems to be suffering. So anything more that you need to do internally to beef up the growth and the margin profile? And what gives you the confidence that after 2 quarters, the revival would happen in the Freight division firstly?

Yes. Well, I think some of the network expansion and some of those other things have to continue because those are more long-term measures rather than short term. So of course, that's one side. The second is I think the market -- overall market is on the weaker side. So that we are hoping will start improving now with the GST cuts, et cetera, because that's a little bit more of a trickle-down effect that happens with the MSME sector. The third is we have also made some management changes there. I think that should also start having an impact in the next quarter or so. So all of these things are work in progress and gives us more confidence for the next 2 quarters.

Understood. Sir, given that the competition is quite high in that space, do you think that you need to change your strategy to maybe discount and get volumes? Or is there any strategic shift that you're thinking about to revive the growth in this segment?

I won't get into very detailed operational systems here. But I think essentially, we are looking at all kinds of -- we have looked at different kinds of models, et cetera. We know that discounting doesn't work in this highly fragmented business because then you are basically at a falling cost falling revenue model where everyone is trying to reach race to the bottom. So that doesn't work too much. And also you're working on -- anyways working on thin margins. So if it becomes even more thinner, then you can get into deeper trouble. So that balance is critical, and that's where we are trying to ensure that we are able to manage it. But 2 years ago, this division was doing extremely well. I think you can see in '23, '24 also, we had 20% kind of return on capital and year before that was 27%. So this is a cycle, I think 3-year cycle that we get in freight, which is now coming hopefully to an end and as well as now we'll see the positive momentum.

Okay. Understood. Sir, going to the Seaways segment, we've seen very good margins and you've indicated that most of it should continue in Q4. But going back to the media interaction that you had today, the 30% margin that you indicated, are we going to see that number coming as soon as, say, Q1, Q2 or that shift -- that gradual shift to 30% margin would be over time, like, say, around Q3, Q4 type?

So it's 30% to 40% is what I indicated. And that's what will come over time in -- not in Q1 so far, but over the year because, as I said, the new ships will get added on depreciation interest. et cetera and a few months that it will take for the ships to be fully utilized and come at full capacity and utilization. So yes, so that's the idea was not specifically for any quarter, but for the full FY '27.

Okay. And the 30% you meant was EBIT margin, right?

Yes, correct. Correct. Yes.

Okay. Understood. And sir, has there been any delay in the ships that we have ordered because we were expecting them to come by August around and now you're expecting them further later. So is there any challenge there?

No, not really. It's just 1 or 2 months plus/minus based on the schedules of ship making there. So we've always indicated really close to Q3 FY '27. So that's what September plus/minus.

Sure. Okay. And sir, lastly, on your supply chain business, the growth rate on the top line has been good, but margins have been coming off. And you indicated that you're increasing your branch strength. So...

More like bench strength, not branch strength because what we are doing essentially here is that we are adding capacity from people and systems and processes as well as some of the warehouses, for example, would have started in the end of the quarter or we don't have the full capacity utilization there. So I think those factors really play out in terms of initial investments that we are making into the business before the results start coming in fully.

Okay. My question was, sir, when should this entire cycle end and the EBIT growth would also mirror revenue growth? When should that phase start for us?

So we are at -- in terms of the percentages, we'll see some up and down. We've always said that the margin structure is here at 10% -- 9% to 10% plus/minus a few basis points. So we are -- I think some years, you get a good year because you kick in some economies of scale. And some years are investment years like this year where your margin gets compressed a bit, but then they start taking off over the year. So I would think that we'll possibly see some definitive growth in Q4 because it's a good quarter. But going forward, is the EBITDA margin of 9.5% to 10.5% range is what we expect for this business.

I see. Okay. Sir, got it. And sir, overall, you've done well in FY '27 despite your ships going for dry dock and challenging times in freight, thanks to good margins in the Seaways. But since...

And dividend income.

Yes. So sir, my question was that since the margins would come off in '27, so how should we look at the overall company's earnings growth in the next year given that the Seaways margin would come off.

So the margin will not necessarily come off to a great extent that I have also indicated that. Secondly, I think if as the JVs continue to do well, we should continue to get the dividend income. Thirdly, the other businesses will start picking up. So supply chain will start picking up, freight will pick up. So that will also add positively to the margin. So overall, I think the consistency that we have in our diversified operations is what has helped the company where we have had a few years ago when the Seaways business was not doing too well, then freight and supply chain was doing well. And then supply chain was not doing well in 1 year when -- a few years when freight was doing well. So the balance that we are getting because of the multiple divisions is what helps the overall growth of the company. So I think holistically, when you look at the company, this is what is working in our favor in terms of our strategy.

Understood. And sir, you mentioned that Transystem JV would come back to the whole year's profitability in Q4, so which means that Q4 should be exiting on a high run rate. Should we expect that Q4 run rate and the growth that we're seeing this quarter to maintain in the next year and we get to about 8% to 10% growth in that business as well?

So there, we -- I'm not -- I don't think we'll get to the full year growth, as I said. Perhaps full year margins of last year, I think it will be perhaps lower than that -- slightly lower than that, but not having a major impact. Growth for next year, I think, yes, we can take a 10-plus percent range. There is a lot of cross badging that is happening between Toyota and Maruti, so that should help sales. They are also building a new plant in the West in Aurangabad. So there's a large opportunity that will play out in '28 onwards. So there onwards, we should see volume increase. But as we speak, it's business as usual there. So Toyota continues to do well as a company and so will the JV.

The next question is from Mr. [ Dhruvin ].

Actually, most of my questions have been asked like answered by you because of the previous speaker's doubt. Just a couple of follow-up questions from my side. One would be about our CapEx schedule, like we definitely have a broad plan for FY '26. Would you care to elaborate a little bit spilling over to FY '27, '28 as to the commencement and how much are we like looking to invest that way?

Exactly mean?

So we -- in our PPT, we've given a broad plan as to how FY '26 CapEx is going to be scheduled out. Moving over to FY '27 or '28, can we have like some overview as to what will be the CapEx amount in those years?

That year FY '27, we don't have the exact numbers, but the ship is going to complete the 2 ships that we've ordered are going to come in, we will make the full payment for those ships. So that itself will be about INR 200-odd crores. And apart from that, the regular investments in warehouses, trucks, rates, et cetera, will continue. So we expect the budget to be closer to INR 450 crores to INR 500 crores around the same range. This year, as I said, we'll probably end at INR 350 crores, INR 375 crores. But yes, it will be higher in the next financial year.

Okay. And the revenue and profit growth outlook that we see in the same slide, the 10% to 12%, that is as on '26 that we have been targeting...

We did not come out with the guidance for FY '27.

All right. And in each of the segments, is there going to be one particular segment where we expect like a turnaround in terms of, let's say, margins or revenue?

No specific turnaround. I think our businesses go around gradual shifts, not dramatic shifts. And so I think gradually, we'll see improvement in all the businesses -- in the businesses that are a little bit on the lower end. Any other question?

Yes. Can I ask one more question?

Yes, sure Deepak.

I just wanted to touch upon the competition in all 3 segments from the freight to seaways, how do you see the competition panning out? And is it easing because the growth in the sector and the economy is on the recovery phase and coming back? So if you can just highlight on the competition part?

Competition remains intense, I think, across, as I said, in the freight business, there is also not just the regular competition from the regional players, but sometimes you see some of the express guys also moving towards the LTL business with their pricing strategy. Then FTL has always been competitive, not just from local players, but also from larger national players. On the supply chain side, we have a few companies that are there, but there are, of course, several regional players, several local players who are dominant in some areas with some automotive companies also. So we keep expanding also keep pushing the envelope there. We also see some international players coming in more and more because of the international contracts that they have. On the Seaways side, there is some amount of competition on the Western Coast, Eastern Coast. We have some companies that are, I guess, to some extent, seeing the kind of work that is happening on the coastal side, some of the growth that our business has seen. I think that is also attracting some customers -- some competitors there. So lesser pressure from, I think, in terms of intensity of competitive pressure between the 3 segments would be the highest in freight then supply chain and then seaways.

[Operator Instructions]

Vikram here from PhillipCapital. Just one clarification, so Q3, we had one dry docking in Seaways and despite that the numbers were quite good. Is that right understanding? In Q4, there won't be any drydocking.

Yes, that's correct. There was write-off during quarter 3.

Understood. And any idea if you look at from December to currently, what kind of increase is there in bunker price?

Bunker prices are as shown in the graph for quarter and 9 months, there is a kind of difference of 17% to 18%. So rates are softer by 18% from last year levels.

Okay. But from December to February, is there any significant improvement or they are still at rate bound level?

They are still at the same level from that point of time.

So I think there is no further question. Thank you so much all participants taking out the time for this investor call. If you have any further question, probably you can write me back or you can call me as always. So now we come to end to this call. Thank you so much and wish you all happy festival and we will meet in quarter 4. Thank you. Take care. Bye.

Thank you.