VRL Logistics Limited (VRLLOG) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the VRL Logistics Q2 FY '22 Results Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you, and over to you, sir.

Yes. Thanks, operator, and good morning to all the participants, and thanks for joining in. We have -- we are here to discuss Q2 FY '22 results of VRL Logistics. We have from the management, Mr. Sunil Nalavadi, CFO of VRL Logistics, to give his opening remarks. Over to you, Mr. Nalavadi.

Yes. Thank you, Mr. Abhijit. Good morning to all participants. I'm Sunil Nalavadi, CFO of VRL Logistics. And this is earning call of our company for the quarter 2 of FY '21/'22. On account of revamp of economy from impact of COVID and being the organized player in the unorganized road transport sector in India. We are in a position to reach the highest ever quarterly revenue and profitability in this quarter. During this quarter, the total revenue of the company increased -- reached to INR 638 crores as against INR 442 crores during the same quarter of the last year, and it has increased by 44%. The increase in revenue is mainly contributed by the goods transport segment of the company. The revenue from goods transport segment is increased by 40% from INR 408 crores to INR 569 crores. The growth in revenue of GT segment is on account of increase in realization per ton by 7% and around 33% increase is on account of increase in tonnage. The increase in tonnage is on account of revamps in the economy out of the slowdown due to COVID impact and addition of the new customer, expansion in network by opening of new branches and focusing on geographic product-wise marketing. We are hoping that considering our focus to increase our network going forward from the untapped market by opening of new branches and the shifting of customers from unorganized player to organized players, the unorganized market who are contributing major share in the Indian transport industry, our growth pattern will continue even going forward. The revenue from bus operation has also increased to INR 50 crores from INR 17 crores in spite of reduction in buses by 54 numbers. The increase in revenue is mainly on account of increase in the number of passengers. The total EBITDA of the company has increased by around 23% from INR 89 crores to INR 115 crores, and the percentage of total income is decreased from 20% to 18%. The increase in EBITDA in actual terms is mainly contributed by, again, our goods transport segment, which has increased by 30% from INR 84 crores to INR 110 crores and percentage to revenue yield almost maintained at 22%, around 19%. The improvements in EBITDA is mainly on account of increasing goods transport volumes and increase in freight rates periodically. The slight reduction in the margin is due to increase in the diesel cost, which is major cost of our operation. The diesel cost as a percentage to the revenue has increased from 27% to 31%, and we are continuously monitoring the diesel rates since diesel is major for us. In view of the better control of diesel cost, we are focusing to procure more quantity of diesel from the refineries along with the biodiesel. Currently, we are having our own pumps in 6 locations and another 1 is in the pipeline to commence. Further, we are passing the increase in cost by increasing the freight rates. The diesel price has increased from INR 74 to INR 95 per liter, whereas our procurement cost has increased from INR 67 to almost around INR 89. The tire cost also little bit increased in this quarter. It has increased from 1.66% to the revenue to 2.78%. The increase in tire cost is due to issue of more tires to the vehicle during the current quarter. Due to increase in volumes, the percentage of fixed cost to the revenue has been reduced. The employee cost, which is a major fixed cost in our company, is reduced from 16% to, say, around 13.76%. The EBITDA of bus segment also improved from minus INR 88 lakhs to INR 32 lakhs, and total EBIT of the company increased from INR 51 crores to INR 75 crores. And percentage to revenue has increased from 11.47% to 11.83%, despite the little bit decrease in the EBITDA margin because the depreciation is a fixed expenses and percentage of depreciation to the revenue has been reduced from 8.83% to 6.22%. On account of improvement in EBITDA and EBIT, the overall profit before tax of the company has increased from INR 41 crores to INR 66 crores, and percentage to revenue has increased from 9.44% to 10.29%. And the profit after tax has increased from INR 31 crores to INR 49 crores and percentage to revenue is increased from 6.99% to 7.75%. When we compare our performance in this quarter to the previous quarter, the total revenue of the company increased by around 53% from INR 417 crores to INR 638 crores, and the increase in revenue is mainly contributed by again the goods transport segment of the company. The revenue from goods transport segment increased by 48% from INR 385 crores to INR 569 crores. The increase in revenue of goods transport segment is on account of increase in realization by 8% and increase in tonnage by 40%. The revenue from bus operation has also increased from INR 18 crores to INR 50 crores. In spite of the number of new vehicles, buses have been reduced from 291 to 280 buses. The increase in revenue, again, is on account of increase in the number of passengers. The total EBITDA of the company has increased from INR 40 crores to INR 115 crores, and percentage to revenue is increased from 9.48% to 18%. The increase in EBITDA mainly contributed by the goods transport segment. It has increased from INR 43 crores to INR 110 crores and percentage to revenue has increased from 11% to 19%. The increase in EBITDA is mainly on account of increase in goods transport volumes that has been resulted in those reduction in fixed cost percentage to the revenue. And the EBITDA of bus segment is also turned positive in the current quarter from minus INR 3.8 crores to plus INR 32 lakhs. And the total EBIT of the company is increased from INR 1.88 crores to INR 75 crores. The increase in EBIT is mainly again from the goods transport segment, which has increased from INR 14 crores to INR 79 crores, and bus segment EBITDA has -- EBIT has improved from minus INR 7 crores to minus INR 2.84 crores. On account of increase in EBITDA and the EBIT, the overall profit before tax of the company has increased from minus INR 7 crores to INR 66 crores. And simultaneously, the net profit of the company for the quarter has increased from minus INR 6 crores to plus INR 50 crores. As at 30/09/2021, the net debt of the company has increased to INR 154 crores as compared to debt as of 31st March -- it was around INR 101 crores. During this half year, the company has invested around INR 83 crores in the capital expenditure. Again, it is into mainly the goods transport segment. Since we are expanding our network and also adding many new customers, we expect that the volume growth will continue in the coming quarters. Further, as we are having the best method of operation with our own infrastructure facility, we can have a better control on key expenses such as diesel cost, et cetera, by procuring this diesel from various sources. And due to good kind of volume growth, the efficiencies in the system has improved, especially the turnaround time of the vehicles with optimum load factors. With this, we can achieve more kilometers per vehicles and also higher revenue per kilometer. In this background, our revenue growth momentum will continue in the coming days with the maintenance of the margins at the current levels. So with this brief introduction, now I request to the participant to ask their questions.

[Operator Instructions] The first question is from the line of Alok Deora from Motilal Oswal.

Congratulations on a great set of numbers. Sir, just wanted to understand that the margins, so it's almost back to the -- your 17% to 18% levels. So just wanted to understand like the diesel prices have increased further post this quarter, post -- from October onwards. So how are we -- and we had also taken a price hike at end of 1Q. So how are we looking at margins going forward? Is it like a bit of a one-off that we have kind of managed this kind of margins or it's kind of sustainable at these levels?

Yes, definitely the margins are sustainable. Especially with respect to this decrease in diesel cost, see, our strategy in 2, 3 ways. One is what we are internally improving upon our system is that let us procure more diesel quantities from the refineries through our old firms, so that it will be cheaper by almost INR 3 to INR 4 as compared to market rate. Currently, we are procuring almost around 40%, 45% of diesel quantities from refineries and around 40%, 45% from the designated firms again with IOCL, and around 10% to 12% of quantity we are procuring to biodiesel. So going forward, we are targeting to increase the diesel quantity from the refineries, so that it is a cost benefit of almost around INR 3 to INR 4 per liter. And apart from that, we are examining the increase in the freight rates also, so that whatever additional diesel costs will come, one is we will have a control through our own mechanism and, other one, whatever increase will be there it will be passed it on to the customers. So with this, definitely, the margins are sustainable.

Sure, sir. And also, sir, so that CapEx, if you could just highlight what's the CapEx number we are looking at because we were also looking at some one major CapEx in transportation hub. So if you could just highlight on that. What's the status there? And are we going ahead with that? Or if you could just throw some light on that, sir?

Yes. In the first half year, we have already invested around INR 83 crores. And this is predominantly for our [ goods and post ] vehicles for buying of the new vehicles. Again, since the volumes are going up, we are targeting again to add more number of vehicles in our system, so that we'll have a better control on the margins if we add more number of vehicles. So in view of that, again, say, on a full year basis, the CapEx will be in the range of around INR 140 crores to INR 150 crores.

Sure. And any update on one of the hubs we were looking to procure?

Yes. That actually, we are still verifying the documents and all, but there is no conclusion in it.

Sure, sir. Sir, just one last quick question from my side. Sir, in the bus operations, we have seen a very decent kind of pickup, which was kind of not expected at this level. So has it like almost moved to the normalized run rate? Or how do we see this segment going from here?

Yes. Based on the current trends, definitely, the growth will come in this quarter also, in quarter three, because of the festival and holiday season. And this segment, again, it will -- we are hoping that it will back to that original shape of the EBITDA margin of say around 15%, 16% in the coming days.

The next question is from the line of Chetan Shah from Jeet Capital.

Wishing everybody a very happy and a prosperous Diwali.

Thanks. Same to you.

Just one quick question, sir, continuation of the previous colleague. Can you just kindly highlight which are the segment which has contributed better or they are back to pre COVID level in terms of the area in which we operate, just to get a sense of the ground reality of the economic activity? If you can share that number that will be very helpful. And second, in terms of understanding the incremental cost pressure, both on the account of higher diesel price compared to the price hike, which we have already taken, what is the extra price increase you think we need to take to retain and maintain the margin? And do you think industry is well poised to absorb any kind of incremental cost pressure from here on? Those are the two things from my end.

Yes. With respect to your first question with -- regarding the contribution from the different segments. See, almost all segments the improvement is there. And there is extraordinary performance in case of the textile commodities. There actually earlier the contribution was, say, around 15% in quarter 1. So that has been increased to around 17%, 18% in the quarter 2. That is one. And in rest of the commodities, be it the industrial goods, be it pharmaceutical, be it all agriculture commodities and automobiles, in rest of all commodities, the contribution is almost similar. So that's the reason there is an improvement in all segments, and there is outperformance in textile. And with respect to the diesel cost and the sustainability of the margins, see, I already told one is we can have a control on the diesel cost through different mode of procurements. That is one. See, even though the price is increasing, say, in the range of say INR 6. In the month of October itself the price is already increased by INR 6. But for us, again, we can have a minimized increase in the cost due to change in our procurement policy. That is one. And apart from that, whatever increase will be there, even we increased rates in the range of even 3% to 4%, we are hoping that it will take care of the increase in the diesel cost. So that we are examining on route basis, where actually we can increase the rates and all that examination is on the -- we are working on it. And definitely, we are taking care of passing off this increase in diesel cost to the customers.

Yes. Just 1 question. Does our vehicle compatible with the biofuel? And do you think we need to take any kind of CapEx to change the vehicle? And does this required any sizable or significant CapEx? If -- that this one clarification.

Absolutely no. Just to as a change the storage and mechanism for the biodiesel. But we have already done for all our vehicles. There is no additional any CapEx is required to use a biodiesel.

The next question is from the line of Anirudh V.N. from Nagoba.

Happy Diwali and...

Yes. Thank you. Same to you.

I just wanted to know that you say in your presentation that you have procured about 8 electric vehicles. So I just wanted to know your broad road map for electric vehicles now that you have fast charging networks that Tata has deployed on highways. So I just wanted to know what is your view on that as far as goods transport vehicles are concerned.

Yes. With respect to electric vehicles, we are already using around 28 to 29 vehicles in our systems, and these are all [ full ] capacity vehicles which are operating from hub to spoke. And going forward, again, the charging point and all actually we developed ourselves in our branches. So currently, we are focusing more towards electric vehicles. Wherever possible, we want to introduce these vehicles, because the cost of operation is much, much lower as compared to the normal vehicle. But initially, it requires some good amount of CapEx. CapEx in the sense, if you see the CapEx per one ton capacity, the normal vehicle and electric vehicle is much different. So that's the reason we are ready to put that kind of a CapEx to minimize our operational cost. And wherever possible from hub to spoke operation, actually, we want to procure more of an electric vehicle, and then these numbers will further increase in the coming days.

Okay. As a follow-up, so as I understand, this is only hub to spoke that you are doing. So between hub and hub, that long haul, you are not considering as of now, correct?

Yes. We are examining those options. But considering the load factor and even -- see what will happen is the electric vehicle, the gross weight of the -- the vehicle weight will be much more as compared to the normal vehicle because of the weight of the batteries and all this. So considering -- yes, considering these factors, we are also examining to see that, currently, we are buying 1 ton, 2 tons capacity vehicles as electric vehicles. Now we are working on, say, 6 tonner vehicle, 7 tonner vehicle, whether we can adopt those vehicle into our system. But to have like 20 tonner, 24 tonner, 28 tonner vehicles, what we are operating, at those capacity vehicle we cannot -- or even electric vehicles are not available as of today.

And these are retrofitted to your existing chassis or these are new vehicles that you are procuring?

No, these are all completely new vehicles.

The next question is from the line of Mukesh Saraf from Spark Capital.

Sir, the first question is on the addition of vehicles. At the end of first quarter, we had said that we will probably end up spending about INR 60 crores, INR 70 crores for vehicle addition. And now we are talking about close to INR 150 crores, so we are doubling that. So could you give some sense on how many vehicles we'll be adding and what gives us -- I mean, obviously, we have kind of doubled the capacity. Are you saying...

Sorry to interrupt, Mr. Saraf. Sir, can you speak a bit louder? We're not able to hear you.

Yes. Is it better now?

Much better.

Yes. So could you give some sense, sir, on what has driven this vehicle addition plans? And in relation with that, how is your outside vehicle hiring charges moving?

See, our strategy is very clear that if the volumes are increasing, if the actual volumes are, definitely we are going to increase our own capacity rather than depending on the hired vehicle. So with that background, since we acknowledge the good kind of a volume growth in the current year -- current quarter, we added around 138 vehicles in the current quarter.

Right. What will be the plan for the year, sir, in terms of vehicle adds?

And similar kind of vehicles will be added in the coming quarter. Around 100 vehicles per quarter, at least, we are planning in next 2 quarters.

Right. Great. Great. And so this quarter, how was the vehicle hire charges because last quarter it was about INR 25 crores which came in at maybe 6% of sales. How was it this quarter, sir?

Yes, again, hire charges, the percentage is more or less same it is as compared to the percentage to the revenue.

Okay. So maintained it around that 6% number.

Yes. It is around 7% to the revenue. Whereas in absolute terms, it has increased by 62% from INR 25 crores to INR 41 crores.

Sure, sure, sure.

And percentage to revenue is maintained at around 7%.

And we will want to maintain this kind of level, sir, 6%, 7% because we are adding our own vehicles? That's what you are saying.

Yes. Yes. Around 7% to 8% we will maintain the hire charges.

Understood. And the second part is in the opening remarks you had mentioned about network addition. Could you give some clarity, sir? I mean, are we adding more these collection centers in the North India or East India? I mean which regions we are adding. Could you give some more sense on how we are placed in each of these regions?

Yes. Basically, we are planning to add more number of branches in the untapped market, especially in the North region, Eastern region and Northeast region. And currently, we have already added around 22 branches in the -- this quarter. And going forward, we are planning to increase our network. We are planning to add another 100 branches into our foray in next 2 to 5 months. Especially these branches will be in the untapped market because now earlier we were unable to expand our network in these areas because of the compliance issues and all these things. Now we are seeing better control. And most of the people, they want to have a compliance in their transactions. So in view of that, we are planning to add around 100 branches in these areas, especially the Northeastern part and Northeastern part.

Understood. And these are all owned -- company-owned branches? Or is it like franchised also?

Yes. These are all company-owned branches, what we are planning. Yes, except, see, we opened around 4 to 5 branches in Kashmir also. So those are agency branches. But in rest of the places, we are having our owned branches. And initially to begin with, these are all small offices like say around 2,000 square feet, 3,000 square feet area with one or two staff. And as and when the tonnage will improve again the space will be expanded.

Right, right. So the -- I mean, as such opening of these branches, you can breakeven quite quickly at the branch level. That is not an issue, sir. It will be...

Yes. Absolutely. See, the one thing -- what will happen is that whatever new area we enter, the rest of the branches will support to this branch. Say for example, the moment we opened a branch at Srinagar, booking from all the places to Srinagar has been started. Even though origination from the Srinagar it will take time, but delivery to that area will start from the day 1.

Right. Right. Right.

So that it will not take much for it to reach a breakeven point.

The next question is from the line of Rishith Shah from Dhanki Securities Private Limited.

So while most of the questions have been answered, just 1 question. In the bus operations, can you just give us the number of passenger increase as well as the fleet occupancy?

Yes. Sure.

Quarter -- year-on-year, sorry.

Can we move on to the next question?

Yes. The passenger revenue has increased from INR 17 crores to INR 50 crores. And this revenue is mainly on account of increase in number of passengers. Almost it is 200%, say, 1,33,000 passenger to 4,77,000 passengers. And the realization is not up to the mark. Still it is in the range of around INR 1,000, INR 1,100. And the seat occupancy level has been increased by 7%. So earlier last year it was around 71%. Now it has reached to 78%.

The next question is from the line of Vikram Suryavanshi from PhillipCapital India Private Limited.

Yes. And happy Diwali. Most of the questions were already answered. But can you just explain? The biodiesel consumption was a bit lower than what we normally target. So what were the concerns?

No, just I want to give some brief about the biodiesel. Given the cost of the biodiesel is increased drastically because of their raw material cost has increased, especially the palm oil prices. So that's the reason -- the quantity will be maintained at around 10% to 12% because there is no much gap between the cost of diesel through refinery versus the biodiesel. So considering this fact, we are more focusing on procurement of more quantity through the refineries through our own pumps. And the biodiesel quantity will be maintained at around 10% to 12%.

Okay. And sir, just a slightly technical question. In this biodiesel, is it tested by our own experience in terms of quality and performance or is it approved by any government agency so far?

No, no, it is tested by our own. See, our technical team has examined the usefulness of this biodiesel and how we can use it on our vehicle. That's why our source of biodiesel also very limited through very limited suppliers because there are many suppliers in the market -- they call it as a biodiesel, but that fuel will not -- is not suitable for our vehicles. So we identified 2, 3 sources. Only from those sources where [ when it enters] only that fuel is suitable for us.

Understood. And you have already explained about outside vehicle usage, but is there any significant increase in the cost we are paying for per ton basis or -- rates? Or is it mainly because of the volume growth what we have increase.

Yes. Obviously, see, one is always our vehicles should be focused more and our turnaround time, the load factors should increase on our vehicle. And because of the increase in volume in the last quarter, that is also another big factor that the turnaround time of the vehicle has been improved a lot and along with the load factors. So considering all these parameters, only on need basis we engage outside vehicles. If the volume growth again is -- definitely the momentum is there as of today. And with this -- even in quarter 2, we hired vehicles in the range of around 7%, 8% of our expenses as lorry hire charges. So going forward also, the -- more or less the percentage will be continued.

Yes. I got that. My point was like does -- the rates what we were seeing last year for, say, a particular one truck -- outside vehicle and today what we are seeing, is there any significant difference? Or I was just trying to understand. Is there any very high increase in freight rates or rates we are paying for outside vehicle for same capacity or...

Yes. In correspondence to the increase in diesel cost, again, lorry hire charges per kilometer is also increasing.

So mainly because of diesel cost. Otherwise, there is not much -- because of market tightness or something we don't see much impact.

No, no, no. It's mainly on account of the diesel price.

The next question is from the line of Harsh Shah from Dimensional Securities Private Limited.

Congratulations for great numbers. My question is -- I joined the coin (sic) [ call ] a bit later. So can you share the volume growth for the first half for company as well as industry?

No, we do not have any industry information. .

And sir, can you give us an indicative hint whether you have gained the market share? Or how is it?

Yes. Definitely, see, a lot of new customers have been added into the system.

And...

And if you the half year basis, the tonnage has increased by almost around 63%.

63% for first half?

First half, year-on-year.

Okay. Okay. And sir, we are seeing that we are once again embarking on a CapEx cycle. So just wanted to understand. Say if I look at VRL's number in FY' 17 to FY '19, we used to do fixed asset turnover of around 2x. It has dropped down to almost 1, 1.1x. So here on, can we expect 1x two to three years from the existing grossed up -- the CapEx which we are doing to go back to 1.8, 2x kind of fixed asset turnover?

Yes. Definitely, it is possible. The reason is because of the volume growth and because of again the improvement in the realization also, the asset turnover ratio will improve drastically now.

Okay. And if I have to ask you what kind of trend you are seeing for next 2, 3 years? Can we expect double-digit volume growth CAGR for next 3 to 5 years?

Yes. Even during last call, I commented that definitely we're hoping that the year-on-year there will be 15% volume growth. So definitely, that is achievable.

Okay. And sir, currently, so the margins which we are doing, this quarter we did around 18%. So definitely, this margin is post Ind AS 116. But if I look at the historical numbers of VRL Logistics, we used to do 17%, 18% pre Ind AS margins, which would translate into 20% to 22% post Ind AS 116 margins. So do you think that is achievable if the cycle turns in our favor?

No, even if we see pre Ind AS our margins are in the range of around 14%, 15%. And that has been reached to around 19%, 20% now, especially in goods transport segment. So this 19%, 20% is going to continue. There is an improvement -- say, 14%, 15% to 19%, 20% is improved, one is Ind AS. And on a normal basis 19%, 20% post Ind AS it is a maintainable margin in goods transport segment.

Okay. And sir, in case of bus transportation, any update on the nationwide permits? And what is our expansion plans there?

Yes, currently, see, that all India permit has been given for the buses. Now the state-wise permit is not at all required. So considering this fact, now our focus is to use existing vehicles at a more optimum level with hardly increase in numbers say around 15, 20 vehicles, wherever some of the routes we need to use a new vehicle. But apart from that, once these vehicles reach at a good utilization level, then we can think expansion. But until that, we are concentrating more on in a existing market how best we can use these vehicles. So once this segment reach at a normal level of growth with the profitability, then post that definitely we'll think about expansion.

Okay. And just the last question. What would be the capacity utilization for our goods transport and bus transport for this quarter?

Bus transport I've told the utilization is around 78% -- the passenger capacity utilization. And in case of goods, so we have already [ looked at areas of a region. ] But because of the increase in volume, the turnaround time has been improved lot in the current quarter.

Right. If we exclude the -- if we take the average capacity for the quarter, then what would be the utilization?

About?

Sorry.

No, no. Will you repeat your question please?

Sir, If I take the average capacity that is old capacity plus the new -- average of old capacity and the new capacity which we added, what would be the utilization in terms of tonnage in our goods transport?

Yes, tonnage utilization always it will be 100%. So we are adding the vehicle based on the requirements. We will not add a vehicle and seek for a capacity or seek for a tonnage. Since the tonnage is available in hand, that's why we are adding the vehicles. See, temporarily we engage outside vehicles. If the volumes are continuously increasing, then we shift -- instead of hiring the vehicle we shift to own vehicles.

The next question is from the line of Suraj Nawandhar from Sampada Investments.

Happy Diwali to you. Sir, what was the -- I joined the call a bit late. What was the volume book for this quarter? And if you can compare that with the pre-COVID levels, so not last year, but the FY '19...

Yes, in fact please you refer our con call reports.

Okay. Okay. And sir, we are doing a lot of CapEx, opening new branches and buying new vehicles. So what gives us the confidence that so much of volume growth is coming? [Foreign Language] is it based on your interaction with your customers or what gives us that confidence?

See, confidence mainly on account of one is tonnage growth from the existing customers. And apart from that, we are adding a lot of new customers across all sectors. So that is giving confidence for us that definitely these volume growth are sustainable. And in view of that, basically the new branches we are opening in untapped market. See, all these days, we were unable to establish our business in these areas, especially the Eastern, Northeastern market and even some of the pulse of the North India, only on account of the low compliance level in those areas. Now what is happening after GST, after e-way bill and e-invoicing, now a lot of transformation is happening from non-compliance transaction to compliance. And even many of the players actually they want to shift from unorganized to organized players. That's the reason actually which is giving lot of confidence for us. And we have examined even some of the sectors that in our 40 years of business we are unable to carry a single consignment of these commodities. Now most of these commodities are shifting, especially about the coconut products from south to north which are moving. And the betel nut was -- supari what we call, we were unable to get any load of these commodities earlier. Now many of the customers are approaching and we are carrying these goods. That's why giving a lot of confidence for us. And even from the North side, the all leather products, especially the Kanpur and surrounding areas, earlier we were unable to get these goods. Now actually, many customers are approaching to transport these goods across India. So that's the reason, actually, we are very much confident and a lot of new customers are coming into our purview. That's the reason we are opening up of our network by opening the new branches.

Okay. And sir, just a clarification that you talked about many people selling their goods first time in some new categories. So they were transporting goods with someone else and now they are doing with us or we are staying in that category for the first time?

No, no. They are shifting from other operators to us.

Okay. Okay. So we gaining the market share from other players. Okay. That's great.

Yes.

The next question is from the line of Abhijit Mitra from ICICI Securities.

So I have 2 questions. First of all, I missed the data point. You said that you'll add 100 branches in those 3 regions, Northeast and Northeast. What is the time frame for this branch additions?

Yes, around 4 to 5 months.

4 to 5 months. Okay.

Yes. See, we already surveyed the market. We identified the place just to identify the location, establish the office, to take that some of the GST permissions and all these things. We needed some time. So within a period of around 4 to 5 months, these branches will operate.

Okay. Okay. Got it. Got it. And second question I had is regarding your Gujarat hub. I'm sure with textile recovering you would have seen a decent ramp up in the business from that particular hub. What more ramp-up potential do you have in terms of either revenues or in terms of ROC if you can highlight over the next 18 to 24 months that you foresee?

Yes. This is a good question actually. We -- in overall tonnage improvement, see, we did around 40% growth and all. But from Surat, the increase in tonnage is almost around 150% compared to year-on-year growth in the -- say, if you see the July, August and September, see, almost it has increased by around 150% in tonnage. That's the kind of a growth actually we achieved from that area. And thanks to our infrastructure facility that we are in a potion to handle this commodity because earlier most of the times we were unable to book the consignments because of sudden rush in the market. But this time, we handle complete overall from this market. So that's why on account of that, it has almost increased around 150% year-on-year growth is there from the Surat area.

Okay. And in terms of either revenue potential or return potential, how much more can this deliver?

Yes. Definitely, still, there is a scope. Now what is happening. Even most of the return goods from different place to Surat actually only VRL is forward in the survey. And -- because we are having a good delivery office, storage facility in our premises. That's why even to Surat also it has been improved by almost around 50%, 60%. We are hoping that, that will also reach to the level of say around 100% growth in the coming days from rest of the places to Surat.

Okay. Okay. No, just to quantify, investment was around INR 100 crores. So what is the revenue now?

Yes, revenue is almost we are doing say around 140 -- around, yes, INR 100 crores, INR 110 crores, INR 120 crores.

Okay. And asset turn can reach to what level as per you, 2x, 3x it can be, sure?.

Yes. It will take some time because it is investment in a asset, means property. So over a period of next 4 to 5 years definitely it will be at around 2x.

The next question is from the line of Prateek Kumar from Antique Stockbroking.

I wanted to ask that we seems to be in super robust environment and also you even said to us saying organized are helping us. I wanted to ask that when did we last felt such kind of environment for us in terms of tonnage growth?

The question was not clear. Will you repeat please?

I wanted to ask, sir, when did we last saw such kind of growth environment for us -- our company or maybe industry, either in last 5 years, 10 years?

Yes. In the recent quarters, there were no such kind of a growth as well as the margin growth. See, just we compared even from say 2020 onwards -- it has been already covered in the presentation also. So in quarter 1 of FY '20, we were at INR 542 crores top line. Now we reached to INR 638 crores. And with EBITDA level of INR 91 crores during that time now, we reached to INR 115 crores. So it is much more than the pre-COVID level what our performance is. And if there are no disturbance, again, this momentum will continue.

Also, you said that first half tonnage growth was 65% year-on-year. What can be the -- I mean because this is obviously for the base normalization. But as base catches up, what can be the tonnage growth in second half? It's 15% you said this second half.

Yes, 15% year-on-year growth. .

Tonnage growth in second half. Okay.

Second half, yes, tonnage growth.

So that will take our annual tonnage growth to what number, maybe 40%?

Tonnage now 40%, then another 15%. So definitely...

I mean we don't have absolute base tonnage number. That's why I'm asking. What will be our annual tonnage growth number if, let's say, we say a second half 15% tonnage growth?

Yes. It will be in the range of around 45% year-on-year.

45%?

Yes, because first half is around 60% plus. So now it will be around 15%. So this -- it will be in the range of around 40%, 45%.

And 5% to 7% would be realization growth rate. So we will have 50% of...

7%, 8% realization is already -- the rates have increased. This will continue. And again, we are thinking about the increase in the rates. There will be further improvement in realization also.

So we may have a 50% top line growth in goods segment?

On a full year basis?

Yes, full year basis.

Yes, it is 1,700 plus 2 -- roughly INR 2,300 crores, INR 2,400 crores top line.

Okay. And one -- just one question on bus segment. While we are looking to add fleet and goods segment, is there outlook on addition there? Because that fleet number is conversely now going down.

Where? In buses?

Buses, yes.

Yes. Buses, see, the INR 50 crores has been already talked in quarter 2. There will be improvement from this INR 50 crores. You see, according to me, the revenue will reach to around INR 60 crores, INR 65 crores at least.

Sir, sorry. I think your voice -- I couldn't hear you. Can you repeat that?

In this quarter, we did around INR 50 crores. So again, there will be a growth of -- say, 15%, 20% growth we are expecting in coming quarters, especially in quarter 3. And quarter 4 a little bit again slowdown will be there because of these exams and all. But the true picture in bus segment will start from quarter 1 of the next financial year. There will be improvement in Q3 and Q4. But again with things are normal from Q1 of the next year, it will bounce back to the original shape like turnover -- because of the number of vehicles have reduced, the turnover will be in the range of around say INR 250 crores or so and with EBITDA margin of around 16%, 17%.

The next question is from the line of Sachin Trivedi from UTI.

Actually my questions have been answered. But I will still want to actually go back to the point that, let's say, you are guiding for that you are working towards achieving a 20% volume growth for -- or, let's say, a double-digit volume growth for next couple of years. In which case, let's say, for at least next 2 years, what kind of CapEx that you would look to do, if you can guide towards that. You already alluded to the fact that you're working towards increasing the asset turn ratios. We're still trying to figure out what kind of CapEx that you would be doing in next 2 years assuming you were to achieve that 20% volume growth?

No, again, just I want to clarify. The growth in volume has nothing to do with the CapEx. See, the addition of the vehicles and all, it is to bring efficiency in the system. But in spite of that, yes, as our strategy is to adopt or to provide service more from the owned vehicle. So overall CapEx number will be in the range of around INR 120 crores, INR 130 crores in a year, which is current whatever the expectation of the volume growth.

Okay. And sir, in terms of -- you've been also pointing to the fact that there are newer and newer geographies you're trying to add branches. So just trying to understand in terms of large clusters, if we were to say that what is -- how much market is untapped for us, if you can give us some color. I know I'm asking a broad question, but in the large -- yes, if you can answer that.

Yes. Just I want to give clarity about the region-wise contribution. See, currently the South region is contributing almost around 40% of our volumes. And this is based on the originality of the bookings. And the next one, the North are contributing in the range of around 20%, and rest of the market is contributing say around 10% of the volumes. Now going forward, definitely, there is a scope that we can reach this regional growth or regional contribution from even West to North in the level of say around 30%, 35% on an immediate basis. That's what actually we are planning. And the South is -- see, definitely whatever -- we are having a good kind of a presence in all these things. And here, the more contribution will come from addition of new customers and growth from the existing customers. But from North and some of the Western market, even the Eastern market, these are not yet -- these are completely untapped market. So we are hoping that there will be good growth of volume contribution from these regions going forward. So even there is a scope that even these regions can increase their contribution too in the range of say around 25% to 30% in the coming days from the current level of 20%.

Okay. Yes, yes. Okay. So immediately, these are the markets that you would -- but eventually I'll -- is it fair to understand that we were present in some of these areas, but we were well entrenched in South and now we are actually trying to grow ourselves and improve our network in some of these markets, which are known to us, but now we will go full heartedly in these....

Yes. Yes.

And sir, just one last question with respect to the employee cost. So I know for this expansion, we might have to add a number of employees as well. But in terms of if I want to understand the cost inflation because now everything is getting expensive. So in terms of drivers payment or in terms of employee costs, which are on the fixed rule for us, how do you see that inflation for us?

Yes. Basically, the drivers are -- again, the driver payments are completely variable cost. Only their minimum wages is accounting as a salary and balance is accounting as part of our operational cost. And with respect to the other than driver employees cost, see, it may increase in the range of around 12% to 15% in absolute percentage in next year.

This is how it is reported as the employee cost because anyways, the drivers are reported in your...

Part of the operating systems.

Okay. Okay. Yes, sure. Sure. That helps.

The employee cost to what we are -- yes, sorry.

Despite that, we are saying that in goods transport segment, we can do close to 19% to 20% margin?

Yes.

The next question is from the line of [ Rajesh Iner ] from ITI Limited.

Sir, my question is on the alternate fuel or the next generation fuel that have been talked about. So one is, of course, the [ ancillary segments ] which we are seeing, [indiscernible]. How exactly the EV economics work? Or again similar question is for buses. Does EV make any sense, even if we include the payment to subsidiaries for the buses to handle internal as well as various states and non-states? And the third question is for the both CNG or LNG. How -- economically how is the feasibility of switching over to these things? And are we thinking at invest say over [indiscernible] significant shift to these ways of technology?

No, CNG, LNG option is not immediate option for us. That is very clear because we also studied feasibility of those fuels, alternate fuels. But considering the kind of storage, the kind of modification in the vehicle needs to be done, see, for existing vehicles and even the addition what we are doing currently, see, definitely the alternate fuel of CNG and LNG is not suitable as of today. And even the availability of the CNG and LNG across India is again a question mark, the pumps available or suppliers from various parts of the country. That is another issue. So currently, we are not looking for that option on an immediate basis. So going forward, if any change in technologies and if such kind of a vehicle will come into the market, then definitely we will look into that option.

And sir, for FCV, LCV, how does the economics work for EVs or transfer? I mean, initial costs or -- so what kind of breakeven, let's say, if we have to shift, let's say, today? How much time and the money will it cover?

So basically, since these are not suitable as of today, based on our current level of operation, so they are not studied at that level.

Not for CNG and LNG. I am asking FCV, LCV in the context of EVs or electric space. So if we may looks to EVs how...

EV vehicles, okay?

Yes.

EV to our vehicles?

Yes. So if they were to convert IC or let's say not go for IC for new case and nice EVs how would the economics of that will breakeven on that given our current running and all those things?

No, the smaller vehicles now -- the cost per kilometer on a normal basis it is in the range of around, say, INR 35 to INR 40 on a diesel basis. Now electric vehicle the cost will be in the range of around INR 15 to INR 18.

It is per kilometer?

Per kilometer.

And typically, how much, let's say, are vehicles to in a month...

Yes, in place of investment of INR 2 lakh, we have to invest around INR 5 lakh.

Sir, also a lot of subsidies which is offered by payers as well as internal working, so passenger. So is that an area where we will do shift to EVs because initial cost is very high and breakeven -- I mean without subsidies it would be difficult. Is that what your observation was?

So for buses currently see, we are -- just our immediate concentration is how to bring that segment at a good profitable segment, how we used to operate earlier. And about bringing of new kind of vehicles and all these things we have not yet examined.

And sir...

Sorry to interrupt. Mr. Rajesh, may we request that you return to the question queue? There are participants waiting for their turn.

Okay.

The next question is from the line of Depesh from Equirus.

Sir, in the last call, you gave a guidance of 15% tonnage for the second half. And you said that you have enough capacity for that. But now that you're adding the capacity, so -- but you have maintained the 15% tonnage guidance. So just wanted to understand, is your guidance conservative or you're basically building the capacity for the next few years?

Yes. It is -- see, once we establish this capacity, it will be there for at least 15, 16 years. It is always a long-term view. And currently, see, the thing is, again, because of this increase in diesel cost, because of increase in the lorry hire charges, because...

Hello, Mr. Nalavadi? Mr. Sunil Nalavadi, we are not able to hear you. Ladies and gentlemen, we seem to have lost the audio from the management's line. Please stay connected while we try to regain the audio. [Technical Difficulty] Ladies and gentlemen, thank you for patiently holding. We now have the line for Mr. Nalavadi reconnected. Over to you, sir.

Yes, Mr. Depesh?

Yes, sir. Sorry, we lost you, sir.

Mr. Depesh, can you repeat your question for the benefit of the management?

Yes, sir. Sir, I am just asking the capacity that you're building, you said that you already have a capacity for this kind of a growth. So are you basically building for next few years or your guidance is being conservative.

No, definitely, the plan is once we add the vehicle, definitely, we have to operate these vehicles like 15, 20 years. That's the kind of -- historically, if you see, that's the kind of life of the vehicle, what we are operating. And basically, see, again, because of the increase in fuel cost, the lorry hire charges are increasing. And because of the improvement economy, again, the availability of vehicles on some of the selective routes is problematic. To come out of these issues actually we are concentrating or we are moving some of the capacities through our owned vehicles.

Got it, sir. And sir, given the price hike that you've taken on the last 1 year, so how much the realization growth can we see in the second half? I think 15%, 20% is the right number that you're looking at? If you don't take anything...

No. See, last year to this year, again, the realization -- if we will not increase the rates, then it will be in the range of around 7%, 8%.

7%, 8%. Okay. Got it.

Yes.

Okay. And lastly, sir, after success of Surat hub that you talked about in one of the questions, are you planning any more such hubs in the North India, where you are gaining market share?

So in rest of the places, actually, we shifted to bigger areas on a rented premises only, leased premises. So in Delhi, actually, we are expanding again on a leased premises. The existing owners will be constructing additional space for us. And similarly, we shifted in Hyderabad. In Chennai also, actually, we are shifting to new location with additional capacity -- space. And in Kolkata also, we -- some of the space expansion has been already taken. Like that you see in those areas, wherever it is available on a lease basis, we will prefer that only rather than having the own hub. And since in Surat there were no such kind of warehouses earlier, that's why we built on our own -- as our own facility.

Got it, sir. And sir, how much vehicle life do you -- how much time you depreciate the vehicle over, sir, 10 years or 15 years...

Yes. We are depreciating over a period of 9 years as of today.

9 years. Got it. Got it.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

Yes. Thank you all participants for your patient hearing. And considering the discussions and the factors what we discussed definitely, our growth momentum will continue with sustainability in the margin side. So with those closing remarks, I wish to conclude this con call. And once again I wish all the participants to wish you Happy Diwali. Thank you, all.