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 for everyone joining us today for the Transport Corporation of India Limited Q2 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 conference 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 again for joining this call. We have our presentation, which is uploaded on the our website as well as sent to the stock exchange. Just to indicate that all the discussions which are there today might have some forward-looking statements. So they may not be coinciding with the actual performance going forward. Now I will request Mr. Agarwal to briefly have some opening remarks. And meanwhile, I am putting the presentation. Thank you. Over to you, sir.

Thank you. Good evening, everyone, and welcome to our conference call. We -- this has been an interesting quarter with good double-digit growth on the top line, though bottom line did not keep up with that same pace. I'll talk a little bit more about it. But the general trend and the feeling is that the things are moving in sync with the current line of growth that we are seeing in the market. And of course, we, as a business tend to see things a little earlier than what's happening and some sectors are showing some signs, for example, a little bit of a pullback that happened in the auto sector, where the auto sector is expecting or other people are expecting more discounts around the festive season so that there is some purchase which has slowed down a little bit. But the dispatches have been okay, not as much as last year or -- so we are coming off from a high base when it comes to the auto sector as well. The pre-stocking, pre-Diwali and pre-festival season also was not as robust, but it still got continued and was also reflected in some of our numbers. Let's start with the presentation. So I think we can go straight to the -- I think many people know already about the company, so I would not go into specifics here. What we would like to hear -- just go back, Ashish, please. So this is the whole opportunity play that, where we are today from all the kinds of areas now. Some of these segments, which are actually verticals, but are also act like horizontals for us. Example is Chemical Logistics, which actually not only the ChemLog business has, but also CONCOR. And similarly, Cold Chain is like a horizontal and vertical for us because it's applied in many other industries. So it is -- some of these businesses are very large in terms of their market size, but not necessarily good in terms of the EBITDA margins. But as we can see, our presence is helping us to provide a bundled service to our customers, which is what I think works quite well on an overall basis. This is an example of a customer that we have in a consumer staple business, where we're actually moving some of their products via -- in bulk via rail and then taking it to a packing facility and then subsequently delivering it literally to the channels directly. We don't, of course, go to the final customer, but we go to the B2B customer. And this is an integrated play. The contract is for some one area that we are experimenting with. But the idea is that if we are able to grow this, we can do it pan-India for this customer. It has impacted very positively for the client where they have been able to save freight as well as also move towards more green logistics. It has also helped in product security as well as consistency because there's no multiple handling, which has really helped the customer being a very clear and clean product to the market. Our technology aspect is continuing to grow and add more value with now we have basically talked to you about how we have moved from more visibility to creating intelligence into the system and ultimately integrating all the various legs across the board so that customers get a seamless visibility as well as intelligence across the system. In terms of rail movements were slightly lower than last year in the same first half, but it is still consistent with the high growth as well as the number of TEUs handled is almost the same. Though if we see volume-wise, things have moved up slightly -- sorry, value-wise, things have moved up slightly, if they have not moved up so much on the volume side. Again, we're present in almost all the major sectors and especially the growth-led sectors, specifically high-tech electronics, consumption, quick commerce and so on and so forth. Let's go to division-wise on the -- sorry, on the overall performance, the business has grown by almost 14.85%, 15% in the quarter, which is a high growth rate. As I said, some of it has also come because of value growth, not just volume growth. So volume in some areas are a little muted, but value growth has come up because of the increase in freight rates as well as diesel prices that led to freight rate increases. Some of it is also new contracts that we've got, and they're not necessarily reflecting in the profitability, but they are starting to reflect on the business growth aspect. We have done almost a similar kind of investment in CapEx. The CapEx investment is almost as similar as what we've done in the full year last year, well, for 6 months already, and we think this will continue at the budgeted level. The buyback that we offered of INR 150 crores, about 7,000 people, shareholders participated, and it was quite successful. Next slide. So going forward on the freight business, essentially, the breadth of the offices, the sector, the network continues at about 11%. We are -- 11 offices have been open, sorry. And the LTL share is still at about 37%. It's starting to inch up, but we're also seeing decent growth in the FTL side. So things have started to pick up a little bit. The EBIT has come down. But as I said, this year is going to be in terms of the overall margin period of rebuilding. So that has started. And you are seeing the top line growth of about 12%, reflecting that also and for the half year, 11.5%. So margins remain lowish to the flattish, but now we are seeing that some of this will start picking up as you can see the overall from the full year ROCE, the numbers have also started to pick up. On the -- actually, to go back on the freight side, I think we are seeing that the enough and more demand coming from certain types of customers on the heavy engineering, on the electrical side of the businesses. But we also -- as I've mentioned last time that there is a leadership change, and we are seeing a new drive towards more customers, more involvement across the board. On the supply chain side, the business has grown at about 10%. It is coming off from a slightly higher base. But we've got very strong pipeline in terms of contracts, both on the transportation side as well as on the warehouse side. Capital employed has gone up significantly because of the continued investment into trucks, warehouses, warehouse equipment, et cetera. So not the real estate of the warehouse, but on the warehouse equipment and handling systems, et cetera. So this is a phase of investment for us, and I think it will continue at this pace. Our margins are slightly up, as you can see. And we again think that some of this growth will continue. In comparison to some of our competitors, we are now -- we have a large issue of growth on the warehousing side, whereas some of our competitors have grown because of inherently internal businesses and rather than external market growth. On the market side, there is definitely some cost pressure. We are seeing that from the new RFQs that are coming in. But quick commerce continues to have a very strong footprint as well as growth trajectory. And as I said, there is a slight slowdown on the after -- on the sales side of the automotive business, but this pre-stocking, et cetera, continued. But I think the market is still waiting to increase the offtake to some extent. I think maybe there is a little bit of tiredness feeling that there are not enough new launches, et cetera, and more launches are happening on the high-end side. So I think some of this will -- is changing. The other thing that perhaps will be happening is that the confusion between -- in the minds of consumers, whether they should shift to EV or not. Because with the higher fuel rates, the economics of having an EV improves dramatically. So I think that sense of whether we should move towards EV or not is something that is ongoing. We think the growth drivers are quite strong here, and we will continue to push for that. In terms of Seaways, we will be happy to note that yesterday, we took the delivery of the first ship, the first 500-TEU vessel, named TCI SETU. It will start -- it will now -- in the next few days leave from China and report to India in the next 2 weeks, 3 weeks or so, and start operations towards closer to the end of the month after its due formalities. It is the addition -- the second addition to the fleet will happen perhaps closer to maybe the beginning of next year in the first week of -- first 15 days of -- first month of January. So they should both be on stream. Last quarter has been very interesting because the fuel prices really shot up again, the bunker prices, as you can see by the graph, the yellow graph also and which meant that we also increased some pricing and that you can see the impact on both the volume as well as revenue growth of about 28%. The EBIT growth was slightly muted because of the increase in fuel cost that hit us a little bit. But as I've been saying that we are coming slowly to the moderated margin structure of about 35%, 40% kind of EBITDA, maybe 30-ish percent also. But with the new ship coming in, we'll also start incurring -- adding depreciation to our costs. So -- but overall, the business remains -- still remains very solid. Most of the -- all the joint ventures have done reasonably well. The CONCOR joint venture grew at about 10.5%. Profitability is the same. Cold Chain business grew at about 50% on the back of new contracts, especially on the quick commerce side. Profitability has also jumped up. It is already double of what it was for the full year. Transystem profitability is slightly muted, and that has also had some impact on our -- on the overall financials of the company because the dividends that we receive are slightly lower. The outlook for all these businesses remain good. I mean, CONCOR should grow at 10% to 15%, Cold Chain about 40%, Transystem about 10% to 12% or so. In terms of the overall financial highlights, stand-alone grew at about 10% top line, consol about 12%, and the EBITDA margins are up also slightly but for the half yearly. I'm talking about for the quarter, of course, is 14.8% on the consol and about 8.3% on the EBITDA. PAT is more or less flat. As I said, the joint venture profits were slightly lower this year. So we've not got the full dividends, but we do hope this will start improving in the second half of the year. Operationally, businesses have done reasonably well. In terms of ROCE, again, the CapEx has still to play out. So the impact is there in terms of the overall INR 300-odd crores of CapEx. So hence, ROCE is slightly muted for the half year and return on net worth is also muted. As you're aware that the buyback happened on the -- earlier this month and which essentially, we had about INR 150 crores -- about INR 200 crores of cash that we utilized about INR 150-odd crores. Apart from that, the overall buyback was oversubscribed by 2x. And we have the promoter holding has subsequently gone up to 70%. There is a certain amount of, of course, debt that we're also starting to take in as the cash reduces in terms of cash flow, et cetera. And so some truck financing, et cetera, and et cetera that we need as a -- just to keep up with the [ mezz ] type of borrowing until the time we start rebuilding the cash results. In terms of the outlook, the margin guidance on the top line remains at 10% to 12% as well as on the margin side because, again, we are at the -- on the first half, second half, as you are aware, is always a better half for us. In terms of the overall CapEx, I think we've been guiding at about INR 500 crores, INR 550-ish crores. I think we should get to about that level. So the payment for this -- for the final payment for the ships will also happen. So some of that will also start reflecting in the overall CapEx. Very happy to answer any questions. Thank you.

Thank you, sir for sharing your valuable insights. [Operator Instructions] Our first question is from Mr. Alok Deora.

So, this is Alok Deora from Motilal Oswal. So, just had questions on the Seaways. So just wanted to understand this quarter, the margins have been slightly on the lower side. So what should be the normalized margins, which can be considered? I mean we have been speaking about the margins kind of expected to moderate. So in this quarter, we have actually seen that. So what should be the new normal margin for that segment? That is number one. Number two is now with this ship coming in, as in the first ship coming in November and the second is expected in 4Q, what should be the fair estimate on the Seaways revenue for this year and more specifically for next year? And third would be that how should we also look at the tax rate now because the tax rate would be also linked to the -- for the Seaways, the tax rate is more on the capacity rather than PBT. So just how the effective tax rate could pan out?

Okay. Well, I think the margin structure 35-ish percent, 40% is what we've been guiding and that will possibly happen. Again, the first ship will come down in November. The real operations will start by the end of November, and then it will take a few months for it to stabilize. So there could be some little bit operational losses, et cetera, that could happen, which will possibly get into -- absorbed into the overall cost that is there. So in terms of overall guidance, I think these are not very large ships. They are about 7,500 tonnes. So both the utilization of the first ship will be literally for only 4 months, for the second ship it will be literally for 2 months out of the 2 years -- out of the 2 ships. So guidance-wise, the top line, I think, will not exceed -- it has grown by about 16%, 17%, but more in line because of value growth of the rates going up. I think this is the kind of -- it will not add substantially to the revenue, but I think, see, the volatility in the market is so high right now. It is just unbelievable. We are seeing that the bunker prices have been oscillating nonstop past 1 month, it's just been going up. Of course, the international freight rates at all-time high or not all-time, but a very high rate. I was made aware that the container prices from India to U.S. has gone up from $3,000, $4,000 to $12,000 a container. So this is having some impact here. And it can fall as fast as also because there is also simultaneously talk about overcapacity. So it has become extremely unpredictable the shipping in terms of committing. But the business for us is very strong because we are a domestically focused company. So I would think that this 15%, 20% kind of growth for the top line and about 10%, 15% for the bottom line should continue with the addition of the new ship. In terms of taxation, I don't think the impact is much. Ashish, maybe you can share.

Yes. So right now, the taxation is around 9.5% to 10%. I think it should remain on a similar percentage going forward because the other taxable businesses, they would also generate more profits.

Got it. So sorry, just a follow-up on the margin side. So what you're essentially saying is that the margins in the Seaways would remain largely in line with what has been delivered in the second quarter?

Mostly, yes.

Got it. Also I was just -- one more question I had on the other segments. So in supply chain, the growth has kind of been slightly lower than what was earlier run rate. So how do we see that kind of shaping up because the base is also catching up now. So do we see more like a 10% to 15% sort of a growth rate ahead? Or how do we see this materializing?

Yes. I mean we are committed to a 10%, 12% -- 10%, 15% more on the higher teen side growth for this financial year also. So higher means that above 10% that could grow 12%, 13%, 15%, maybe even 14%, 15%. But rightly said the base is still high. And last year, there was a lot of movement that happened because of the sudden push towards -- post the GST cuts. I think some of that has obviously moderated this year in terms of volume. But we have a very strong pipeline when it comes to both the auto sector as well as warehousing. So yes, the growth should continue in the teens.

Sure. Just I'll take one last question. So when you said 15%, 20% growth on revenue and 10%, 15% growth on PAT, that is for FY '28 you are indicating, right?

No, 10% to 15% -- these are all current, 10% to 12% on both top line and bottom line for...

And then what should be for '28 once these 2 ships are totally into the system?

I think more on the 12% to 15% side, more on the higher side for sure.

And the EBITDA could be much higher growth because the [ profitability ] will be even more serious driven?

No, no, but also the overall CapEx. The overall CapEx is also high. So trucks, railway rakes. We are also in the process of adding one more rake this quarter.

Right.

So all that and, of course, there's a hard infrastructure that is being built also and of course, the shipping business. So all of that combined EBITDA it will definitely go up.

The next question is from Mr. Abhinav.

Abhinav from Aequitas Investments. My first question is regarding which all the ships are going for dry dock?

So this year, we had already completed one dock dock, and another ship would be going for, let's say, in mid-March next year. So there would be effectively 2 dry docks in this financial year.

Which ships?

There are 2 ships, like, it's smaller in the size, small ships. One is already completed, and another ship is due in the mid of March next year.

Is it Vijay, the ship? Vijay and Express?

Yes. It's a Vijay, yes.

For the newer ship, the second one, which is going to come in the month of January, what is the route and what kind of traffic or traffic volumes can we expect from that?

On the what, sorry?

On the second ship, which is about to come, just wanted to understand what route would it be sailing through?

So both the ships we are looking to move on the West or on the East Coast to different locations. There is some opportunities that are coming up on the Columbo sector, some opportunities coming up on the Myanmar, Thailand, Indonesia sectors. So it is -- but mostly still remains domestic focus. I think opportunistically, we might look at some movement towards some of these countries. But overall, the demand is domestic. There could be some movement between the islands also. So we have enough demand. It's just a question of deploying in the right sectors for the maximum output.

All right. And then on the volume, when you see about these 2 ships, do we think we'll be able to attract almost our peak utilization in the first one itself? Or do you think that this will take some time to be able to [ see ] utilization?

It will take some time because when you are buying a new ship, the whole calibration, et cetera, takes a bit of time. So you don't really -- if it is a 500-TEU ship, we might -- containers, we will not load it with 500 containers. We'll load it with much lesser where we're testing the ship on a continuous basis. So it will take a few months for it to come into full stream. But we are adding so roughly about 20% of the 17%, 18% new capacity. So that should help in FY '28 numbers.

So why we say that we're adding 17%, 18% capacity. However, in view for the shipment, you are mentioning it will increase by 10% to 12% -- 12% to 15%. So can you help me explain why would you say that obviously?

Because I'm talking about FY '28, the full stream will come up because we have 78,000 deadweight tonnes right now. So we are adding 2 15,000 tonnes -- 2 7,500 tonnes ships, which is approximately 17%, 18%, but the impact of that will come only FY '28, not in FY '27. So the increase in business for FY '27 is about 15% to 20%. FY '28 would be in excess of 20%. But as I also mentioned in the same breath that there is a possibility with the freight rates coming down or rather bunker prices coming down, freight rates will also come down. When that happens, the pricing will come down. So it is slightly on the unpredictable side, but our basic idea is that -- basic thought here is that volumes will go up by 15% or 20%, in line with the capacity expansion.

Got it. And for the ships, I think 3 of the ships were about -- or we got extension in FY '28. So any update on them that what we will be doing for that?

Ashish, I think the extension is till '30, right?

Yes. It is now extended to FY '30. And they are there. They are running also because -- and the ships are -- on a very good condition as there is a regular dry docking and other stuff. So that would -- we would take a call, appropriate call as and when it is required. So those are all ships which were expire -- the operational days were expiring in FY '28, that is now extended to FY '30.