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

Good evening, ladies and gentlemen. I'm Simran, the moderator, and I'd like to extend a warm welcome to everyone joining us for the Transport Corporation of India Limited Quarter 1 FY '27 Earnings Conference Call. 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 call is being recorded. With that, I now invite Mr. Ashish Tiwari to begin with his opening remarks. Thank you, and over to you, sir.

Thank you, Simran, and good evening to all of you. Thank you for joining the call. My apology for reinstituting the call because of some unavoidable situations with us. Before we begin the call, I just wanted to put a disclaimer that some of the discussions and statements from our side might be forward-looking. So we would start with the opening remarks of Mr. Agarwal and presentation, and then we would have a question-and-answer session. So thank you, and over to you, sir.

Thank you, Ashish. Thank you, Simran. So let me start off by giving some broad outlook. I think in the last quarter gone by, of course, top of mind has been the impact of the West Asia crisis. That has had an impact. Of course, you are aware of the increase in diesel price. Of course, things had come down when there was a cessation of the hostilities and then it again has accelerated. So this has also had an impact on the bunker pricing. So hence, we have seen that the impact -- the bunker prices came down and then they have again started climbing up in the last -- in this month, actually, not in the month of July and not so much in the first quarter, April, May, June. So -- but there was in the initial part of the April and May, we did see the bunker prices being higher. Of course, the impact of diesel price hikes have just started to be shown. Some of our growth has also captured some of the value increase and some volume increase, of course. There is a large backlog of containers in both JNPT as well as Mundra is what we're hearing, almost 10,000, 12,000 containers at JNPT. Rail movements are also very slow across the country. It's also the monsoon season. So container repo is repositioning has also been a challenge. Of course, international container prices have also gone up substantially, as you're aware, and that is also putting pressure on exports. What we saw as an inventory buildup last year in quarter 2, also, we are seeing some of that possibly happening in quarter 2 as well. Some of the companies that were affected and that is in line with the festival season and just general restocking. The companies that were affected by the gas shortage have restarted in June, though we are fearing that some of them might shut shop in the next few months -- next few weeks in case the prices remain high. We've seen some places, export production getting affected, specifically some engine manufacturers, et cetera, that were sending products to West Asia. I think that has been slightly affected. Barring all of that, we have seen robust growth in the auto sector and some other areas. We've seen a little bit of a revival or rather not revival, but I would say, some impact on the MSME side on the positive side. So that is a -- that's positive. Apart from that, on consumer trends are more or less the same, similar. Quick commerce is accelerating, and we are seeing that a lot of supply chains are getting rejigged because of that also. So that's broadly some opening comments. Let me take you through the presentation. I'm sure all of you are mostly aware of it, but let me go through some of the basics. I think all of you are aware of these integrated strengths. Again, we continue to remain a strong player in the multimodal segment. In fact, the only player with an integrated approach. And these are some of our services. We continue to add something or the other on the basic services side. Let me share a quick case study. This is a case study for an apparel brand where we run their entire warehouse. It's about 37,000, 38,000 square feet facility. It has about more than 30,000 bins and our throughput is almost about 80,000 SKUs. The problem has always been that there used to be volume surges during the month end as well as the -- there used to be delays in the return management as well as the picking system used to be quite outdated. So we came in with a proper facility where we were -- we've integrated the multichannel that they are supplying to not just their own stores, but the different other channels as well as the e-commerce platform that they have set up. So this way, the replenishment is very quick and also the reverse management has improved substantially for them, and they are able to reduce the wastage that is in the system. So this is an operation that is quite scalable for many companies, and we continue to provide these kind of solutions to them. From a technology perspective, things are quite strong. We create -- we have the various layers where we are able to provide a holistic approach, not just to our operations but also to our customers. In terms of the last quarter movement, we did about 623 rakes -- 24 rakes, which is almost the same as last year. We -- as you're aware, we own 3 rakes of our own. The tonnage handled, the TUs handled, last year versus last year is almost the same as this year in terms of the numbers also. And of course, the yards that we manage about 67-odd yards across the country. We are present in all major sectors and especially in the high-growth sectors, we have a strong presence. For example, we built in very deep capabilities on the renewable side, where we manage the -- for companies which are manufacturing solar products, we move in bulk by -- from the factory by road as well as by rail. There are also some companies that are providing -- are doing warehousing, specifically where they want a solution where they are able to kit various solar products that go into a home with the Pradhan Mantri Yojana of providing solar power to homes, we are providing a kitting facility and then delivery to homes also in some cases, out of that warehouse for some clients. On the quarter gone by, it's a consecutive quarter, 24th consecutive quarter of growth. We grew at about 9% on the top line consol level. We have close to INR 160 crores in cash. Of course, some of that has been used because of the continuous investments that we are doing. The investment in the first quarter has been about INR 167 crores. As you're aware, last year, we did about INR 370 crores. Our CARE rating has also been enhanced to AA+. On the freight business side, the margin has been slightly -- there's been slight improvement, but top line has also grown by about 10%, 11%. As I said, some of it has come because of volume growth and some of it has come because of slight value growth. The percentage of FTL to LTL remains the same, but we are seeing a good traction and good pipeline in our LTL business as well. So the guidance for this year, as we've indicated about 10% to 12% on the top line should also apply to this business and our profitability should improve from the last year. On the supply chain side, growth has been a little moderated. We are coming off from a higher base from the previous year. But we have seen that margins also are slightly improved on the EBITDA level because of the investments that we have made. However, the EBIT level is almost the same. The investments that we are doing in this business are quite continuous from new warehouses as well as the equipment that goes inside the warehouses. So there is a little bit of lag always with the kind of returns that we start getting immediately. It takes a few months for the business to stabilize. We also have a decent amount of bench strength that we have created as well as some warehousing space that we have, that we are going to utilize in this that we're utilizing this business. As you've seen that the capital employed has gone up quite a lot is also because of the number of trucks that we are adding here based on the new contracts we are getting. So again, I think this business should grow in the higher teens, 12% to 15% for the top line. On the Seaways side, as I mentioned about bunker pricing, bunker pricing, as you can see by the graph, really shot up in end of February, March because of the Middle East crisis. It came down a little bit in the first few months, but now again, it has ramped up to about, I think, till last week, about INR 86,000 per tonne. So this continues to have an impact on the costing. We did increase our rates with our customers. So we -- but the number of voyages that we had were almost similar to last year because of the dry dock that we had on one of the ships. The increase in top line is because of the similar voyages, but maybe some increase in the revenue side with the pricing increase that we have had. Margins have been flat. On the JV side, CONCOR joint venture has grown about 8-ish percent. Cold Chain has grown quite well at about 48%. On the CONCOR side, the business remains stable. We are seeing continuous inquiries. Of course, our expectation was that the -- if diesel prices increase on the road side and hence, freight rates increase on the road side, we should see some shift towards rail. We didn't see much of that happen. I think also because quarter 1 is a little bit of a lean season on the logistics side. So not much shift happened to the rail side. Also, railway congestion has been pretty high, especially in the East, et cetera, is the feedback that we've got. And a lot of standing has also been there of the -- of rakes as well as engines. On the cold chain side, we've acquired some decent contracts in Q4 of last year -- Q3, Q4 of last year, which has started to play out in this year. Our Transystem has grown at about 11.5% also on the top line, about the same kind of percentage growth. We're expecting this growth to be similar as with the growth of some of our Japanese clients here. On the consol side, it's about a 9-odd percent growth on the stand-alone about 7%. EBITDA is about 9% and PAT is also at about -- I'm sorry, EBITDA is about 1.6% is flat on the bottom -- on the stand-alone as well as about 5-ish percent on the consol level. PAT is slightly negative on the quarter 1 for the stand-alone. Our dividend that we received from the JVs also was slightly lower in the first quarter. So that has had a little bit of an impact on the profitability. But at the consol level, it's almost the same. All the other numbers are more or less the same with ROCE at about 23% and RONW at about 20%. No change on the other -- on the performance side. Again, on the outlook, we are at about INR 600 crore budget -- INR 550 crores to INR 600 crores budget, out of which we've done about INR 167 crores. The second -- the new ship is expected in September, end of this year, the next 2 months. And the next ship should be -- well, actually probably October -- September, October and again, October, November for the second ship. So somewhat in that line that we're looking at Q3 is when we see that they both get inducted in. And that's what the payment for the ship will be. In case if we order another new ship, which we are exploring right now, some advance payment will go for that as well. The other expenditure on the other rakes and on the trucks, et cetera, are ongoing. The expectation is that we are cautiously optimistic. There is some uncertainty because of the Middle East, but with the possibility of increased sales during the festival season, we are seeing that restocking starting, and we do expect that to continue in the next few months. We're happy to answer any questions. Thank you.

[Operator Instructions] Our first question is from Mr. [ indiscernible ] Shankar.

3 questions from my side. First is on the supply chain business, given the pace of growth has slowed down a bit. And just wanted to get a sense around looking at the outlook on second half with respect to automotive sector having a high base and potential slowdown with respect to Y-o-Y growth. Your guidance on 12% to 15% puts a lot of ask on the second half. So just wanted to get a sense around where exactly are you expecting the growth to come in the supply chain business? And on -- is there any element of the new rake addition, which comes into play, first on that please.

Well, -- there is a lot of pipeline contracts that we are working on in the supply chain business. So we do expect the growth to pick up in the latter half of the year. We are also seeing that already in quarter 2 going forward. And the -- so some of that will start playing out for us. The investments that we're doing to new trucks, et cetera, is also going to help us in terms of acquiring -- we've acquired some new contracts, and those will start coming into play as well. Also, the trends towards -- of course, you'll also get a little bit of a value increase because of diesel price increase. That also will start kicking in because we have submitted supplementary bills, et cetera, to our clients, and those will come in this quarter and subsequent quarters also. So yes, I think we are quite confident from a perspective -- from a pipeline perspective that we should be able to get to that 12-plus percent growth for the quarter -- for the year.

Got it. So would you be able to quantify what would have been the diesel price led growth in the first quarter in the supply chain business coming from these price hikes?

Not much from the first quarter because typically, the price hikes, I think, came in mid-May or so. And after that, subsequently, we saw the submission of bill, et cetera. So some of that realization once it happens, we'll know. But most of this has been volume increase.

The second one is on the Seaways business. Just wanted to get a sense around the bunker prices at this point and how much of an impact it can further have on your profitability? Or do you see that the profitability will improve with further price hikes in the second quarter on.

We were on the track to get better profitability because we had increased the prices, but -- and the costs have started to come down. But again, in this quarter, it's a mix -- going to be a mixed bag. If the hostilities stop in the Middle East, then the prices tend to come down quite rapidly also. So let's see how it happens. So it's a lot of uncertainty, as you can imagine, and that has a direct impact because the pricing -- the fuel prices are dynamic in this case. It's not like the diesel pump prices. And every day is a different price. So even the discounts that the fuel companies were giving in the past has also come down or in fact, it's not there anymore. So that way, we are keeping a very close watch. So it's very difficult to give you a prediction that what's going to happen because it can go either way. We still have almost 2 months left in the quarter. So let's see how things progress. But as we are speaking, the bunker prices are again up. And so yes, margin does get compressed then.

Any change to the dry docking of ships, the schedule? Any specific change in comparison to what you have mentioned earlier?

No, no specific change. I think we have plans for 2 ships, right, Ashish?

Yes, 2 dry docks, one already happened and one would be the end of this fiscal year, in the March.

Understood. Last question from my side on the freight business. Just wanted to get a sense, you mentioned that EBITDA margins will see some improvement in the coming year, FY '27. Any direction in which you can say that this can be the expectation in this? And what are the key drivers for this margin improvement? Is it just a mix or anything else?

Well, certainly, the volume increase is helping to some extent. That's one. Secondly, we are -- the mix is also as we've committed that those -- that will also keep changing. As I mentioned in the last call that we have a leadership change as well. So some of these things are starting to play out. It's a slow process. It's a big shift to turn around, and it's taking its time. We've opened 30 new branches also -- sorry, 30 new planned. We opened 10 already this quarter. So that network expansion as well as the mix change and some volume growth are all essentially going to help us.

The next question is from Mr. Ragunath.

Sir, my question is related to the growth of the company. If we see the new age logistics companies, they are growing at a much faster rate than TCI. A few of the new age logistics companies are growing at around about 25%.

For example?

For example, Delhivery's is growing at 24% CAGR from last 5 years. But our guidance is always 10% to 12%. Is there any market share loss that we are seeing?

We don't compete with the Delhivery in most areas. So it's not a direct comparison. So there's no market share loss in that case.

The next question is from Mr. Divyansh Gupta.

Hopefully, I'm audible.

Yes.

The first question is, if I just read all the commentary of auto players, right, across 4-wheeler, 2-wheeler, CV, everyone has mentioned that, let's say, the Q1 has been great, even though March Q4 is a higher base always, but even Q1 is higher. But somehow -- and for us, auto sector, I'm not saying only CV, but combined is a decent share of our business, right? But it's not showing up in our P&L. Is there any particular reason or maybe auto is there, but the others didn't fire up to that expectation? So how should we understand that part.

Yes. So for us, as I said, auto sector is all kinds of auto. We do 4-wheeler, 3-wheeler, 2-wheeler as well as earthmoving equipment, tractors. So we play in all spaces and all types of services, which is first mile, last -- sorry, inbound, outbound yard management, spare parts management, et cetera. So we see that some customers have fired in the last quarter, some customers have not. Also, in some places, we've seen that the -- a lot of inventory that was there in the pipeline. For example, we were holding a lot of inventory in the yards. So those got delivered. So some of that was captured in the previous quarter because the primary movement happened from there to the yards. For example, if there's a plant company, there is a plant based in Chennai. So a lot of the primary movement happened in Q4, and it is in the yard in, let's say, NCR. So the last mile delivery is probably what happened in Q1 more and more. Now we are seeing again more movement on the long legs because inventory replenishment has started to happen again. So in the last 6, 9 months, post the GST cuts, we've seen that there is a lot of inventory that was there. And I was a little afraid before the GST cuts happened that there's way too much inventory because our customers were saying that why didn't you give us more yard? We need more space, we need more space. So that has diminished quite a lot. So one is that. So I think the -- on the supply chain side, a lot of the inventory at the far end has been used up. Now more replenishment is happening. Hence, the longer distance revenues that we are going to get will come in subsequent quarters. That's one. Secondly, some of the customers that have grown, we don't work with also all the time. For example, Mahindra's, we don't work with because they work with Mahindra Logistics. And have you seen that the growth of Mahindra Logistics has been good because of more than 60% of their business is just one customer, which is Mahindra. So that has some -- we lose some amount of growth. But the other customers that we work with have shown decent growth, and we are continuing to grow there as well.

Understood. Understood. The second question was on the fuel pass-through. So if you can take across all the 3 business verticals, right? So freight can be MSME, which might not be long contracts. So there we would have passed and some we would have some longer-term contracts where, let's say, the pass-through is yet to happen, right? So if, let's say, the volumes -- how much of, let's say, fuel price hike, either you can say loss this quarter or benefit that assuming the pass-throughs get approved. So what was either the lag or the hit?

It's very difficult to give you percentages because those things, those numbers come out much later as well as -- and the impact is not really extremely large also. I mean some of it -- some impact happens on the spot higher basis as it is because if diesel prices go up, spot rates go up and we pass it on right away to our customers. Some cases, the contract customers, there's a little bit of a lag. But the impact, see, I think diesel price hike has been totally about 6% to 7% odd. The impact should be about 2% -- 1% to 2%, 3% max. So I think that's where we are waiting to see how things are going to play out. But maybe 1%, 2% is the kind of increase we'll see.

Understood. The next question was regard to the opening commentary that you mentioned that, let's say, a lot of containers are stuck at JNPT and other terminals. Replenishment, I understand that containers are stuck you can't replenish. But you mentioned something on the export side. So the 2-part question is, is our shipping more towards -- my understanding was more domestic shipping, right? So how does the export part affect us?

It doesn't really. Export on the shipping side is not affecting us. It's -- but I was just giving a general commentary, sometimes because if there's a deep congestion, then we can -- our ships might not berth on time, but we've not had that issue yet.

Understood. And let's say, 2 more questions. You mentioned new ships. So is it a new ship or it's a new old ship?

New, new ship, it's the 2 brands.

Those two, I understand. But you mentioned that you are looking also at a new ship if it happens then.

So that's a new ship also. And of course, we're keeping an eye on secondhand ships.

Got it. And just the last question, because of all this Middle East crisis and, let's say, any demand that might have spilled or we were not able to deliver. Was there any loss of business that we could have done, but just because of all this let's say, ad hoc-ishness of the war and economic uncertainties that revenue didn't happen?

No, not really. We did not lose because domestically, it doesn't affect -- it's not a direct impact because we are mostly -- we don't do any exports, right? So we did not lose any kind of business because of that.

But it can be that our clients, let's say, example-wise, Maruti will manufacture, sent from Gujarat to the port, and then it will go for exports. While you are handling the export leg, but ultimately, Maruti might not send because your exports are not happening because of the shippage reason. So that's why I was...

Yes. I mean, basically, the domestic leg of the export. So we have, in some cases, there is an impact, but it's very minuscule. It's not so much.

[Operator Instructions] The next question is from Mr. Pinaki Banerjee.

Am I audible now?

Yes, yes.

Normally your receivable days are normally 55 to 60 days. So looking at this current situation, do you think there is going to be some pressure on your receivable days in the coming times?

Ashish?

Yes. So our receivable days, working capital days rather 55 to 66 days and we do feel that there might be some pressure on the working capital because of the rate hikes and things like that. But we are having our own credit policies that are fully implemented, and we would try to kind of put more effort. As such, we are not seeing it as a real challenge. There are some noise on some numbers. Can you just see it.

Sir, can I have the second question please?

Yes, please.

Sir, you have outlined the CapEx of around INR 1,000 crores to INR 1,200 crores for the coming 3 years. So could you please outline it in FY '27, how much will it be sanctioned in the following financial year? And which segment are you laying the thrust on more.

So what we are doing as you -- Ashish just move that slide, please? So most of -- in this budget for this FY '27, expenditure of about INR 237 crores is essentially on ships. So we are looking to buy the 2 ships that we've ordered. We are going to pay the final amounts for those ships. And maybe in case if there's a third ship that we decide to buy, maybe some advance payment for that. And then about INR 100-odd crores in warehouses, about INR 20-ish crores on trucks and new rakes that we're adding and about INR 100-odd crores in warehousing equipment and IT services, et cetera. So that's about the extent of the budget for this year, INR 600-odd crores -- but I'm estimating depending upon how things go between INR 500 crores and INR 600 crores for this year.

The next question is from [indiscernible].

I had a few questions. First was out of like the Anand, Vijay and Express out of the 3 dry dock ships, which ships would go to dry dock this year? If you could.

Ashish?

This year, so we have 2 ships in the dry dock. One is already completed, and these are all not the ships. There are different ships. Shipping, which we have completed dry dock completed last year, they would again schedule for dry dock in FY '28 and later. So the dry dock actually is after 26 months.

Okay. So no dry docks as of now?