VRL Logistics Limited (VRLLOG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to VRL Logistics Limited Q1 FY '24 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Alok Deora from Motilal Oswal. Thank you, and over to you, sir.

Thank you, Nirav. Good morning, everyone, and welcome to the 1Q FY '24 Earnings Conference Call of VRL Logistics. So we have with us today Mr. Sunil Nalavadi, CFO of the company. I would now hand over the call to Mr. Nalavadi to give opening remarks and discuss on the performance of the company, and then we can take up the Q&A session. Thank you, and over to you, sir.

Thank you, Mr. Alokjee. Good morning to all participants. I am Sunil Nalavadi, CFO of VRL Logistics. I welcome all of you once again for the Earnings Conference Call for the quarter 1 of FY '24. At the beginning, I would like to inform you that this is a year start with standalone goods transport business along with other small business that is transport of passenger by air. This passenger by air business consists of 1 aircraft, as informed the Board has approved to sell this business being an only unrelated business in the company. And accordingly, this business has been sold from July 31, 2023. During the quarter, the total revenue increased by around 11% from INR 617 crores to INR 683 crores on a year-on-year basis. The increase in revenue is mainly on account of increase in tonnage to 1,020,000 tons from 940,000 tons, with a growth rate at 11%. The increase in tonnage is mainly on account of increase in branch network of the company. We added almost around 205 branches from April 2022 to June 30, 2023. And these branches have contributed approximately around 6% in booking tonnage and approximately 8% for delivery tonnage in quarter 1 of FY '24. Our strategy of expansion of branch network is going to be continued and planning to add around 25% to 30% every quarter, especially the untapped market. Apart from the expansion in branch network, the contribution from the existing customers also supporting for our growth. Further, we are acknowledging that many of the customers are shifting from unorganized operators to organized operators on account of increasing compliance under GST law. On the other side, due to delay in variance in the monsoon priority during the year, there are such as -- there were fluctuations in the demand from certain sectors, expected agro-related products and consumer durables, and these products have not contributed as per our expectations. And further, during the current quarter, we have implemented the bar code and QR code system for our all other consignments for smooth and efficient payment of the consignments. We see some initial interest, especially in our hubs, due to which there were some cases of delay in loading and unloading activities. On account of these interruptions is impacted on the growth in tonnage in the quarter to some extent, especially for the spot bookings. Within the quarter, this project has been successfully completed. Now the entire operations running smoothly across our branches and transshipment hubs. During the quarter, the realisation per ton is almost maintained. We have not increased any freight rate. And moreover, the other income increase as compared to the last year on account of one is around INR 1 crore, INR 1.5 crores south on the profit on sale of certain old vehicles. And we received certain incentives from OEMs also for the warranty period for performances. When it comes to EBITDA, it has increased from INR 94 crores to INR 110 crores, and percentage to revenues increased from 15.26% to 16.22%. The year-on-year EBITDA benefited from a decrease in fuel costs as a percentage to the revenue by almost around 1% plus. And the average procuring cost per liter of diesel has decreased from INR 93 in Q1 '23 to INR 87.54 in Q1 '24. The procurement for refinery is as a percentage to total quantity increase to 32% as of in the current quarter, whereas in the last year, same quarter, it was almost nill. And apart from that, there are reductions in certain expenses, especially in the lorry hire service as a percentage to the revenue is reduced, the tyre cost is reduced, the cost of [indiscernible] is reduced due to increase in the kilometers doubled by the [indiscernible]. Then toll charges as a percentage on the other side, certain expenditures are increased as a percentage to the revenue and impacted on the EBITDA margin. One is the toll charges increment. It has increased almost around from 6.9% to 7.76% on account of increasing toll prices as well as increasing the toll debt. The loading and unloading services also increased by around 0.35% from 6.24% to 6.59% due to increasing in hamali rates -- loading and unloading charges rates at various places. The rent expenses also increased from 1.8% to 1.97% as a result of addition of new branches and enhancement of section certain key branches and transhipment hubs. The employee cost increased by 0.33% from over 15.95% to 16.28% on account of increase in the employee spend by around 1,100 people. And this is on account of increase in the branches and also internal promotions on selective basis. The rest of the expenses were in line with the increase in the revenue and not impacted on the EBITDA margins. The EBIT of good transport segment is reduced from 9.86% to 9.06% on account of increase in depreciation. The depreciation and amortization cost has increased from INR 33 crores to INR 49 crores on a year-on-year basis. The increase in depreciation is mainly on account of increase in the CapEx and also increase in ROU as per [ INR 206 ] on accounting of rental expenses of a long-term lease agreement centered for the enhancement in major management transhipment hubs as during the quarter. The finance costs also increased from INR 12 crores to INR 16 crores, going to increase in debt to some extent and also increase in lease liability as for Indian financial accounting. The profit before tax we reduced from INR 49 crores to INR 46 crores, and as a percentage to the revenue reduced by around 1.22%. This is mainly on account of increase in depreciation and finance costs. The profit for the quarter had been reached to around INR 34 crores and which is reduced from INR 36 crores on a year-on-year basis. And percentage to the revenues also dropped by around 1%. And it is mainly on account of increase in depreciation in finance cost. Similarly, on a quarterly basis, the good transport segment is the revenues decreased by around 2% to 3%, and this is mainly on account of decrease in the tonnage. And during the quarter, the relation per ton is almost maintained. The EBITDA is decreased from INR 118 crores to INR 111 crores. And the decrease in EBITDA is mainly on account of, to some extent, the lorry hire have been increased on account of disturbance in the operation on account of -- bar code and QR code system introduction. And the tyre costs also increased a little bit on account of replacement of tyres on a periodical basis even for the new vehicles. The toll charges also increased on account of increasing the toll chargers and toll booths. The loading and unloading charges again, it has increased on account of increase in the loading, unloading rates. The employee cost also increased a little bit in the current quarter. Again, this is only on account of the internal promotions on selective basis to the keen employees. The rest of the expenses were in line with the increase in the revenue. And moreover, the fuel cost as a percentage. On the other side, the certain expenses have been reduced as a percentage to the revenue and supported to increase in the EBITDA margins. One is the fuel cost, which is almost reduced by again 1%. And this is mainly on account of increase in the procurement from the refineries. This is almost increased by 7% on a quarter-on-quarter basis. And also the fuel prices have been -- the procurement cost has been reduced from INR 89 to around INR 87.5 in the current quarter. Again, the EBITDA margins of this segment impacted mainly on account of depreciation and the depreciation increases only on account of increasing CapEx and increasing ROU, and more of finance costs also increased because of increase in debt to some extent and also increasing the lease liability as per Indian accounting. The profit before tax is again reduced by almost around 1.89%. This is only on account of -- to some extent, the EBITDA margin is impacted and also on account of increase in depreciation and finance costs. The profit for the year -- for the quarter has been declined as compared to quarter-on-quarter basis, again, because of decrease in EBITDA as well as increase in depreciation and finance costs. During the quarter, we have invested around INR 87 crores in CapEx and mainly in our commercial vehicles, and most of this CapEx has been increased incurred for the replacement of the existing capacity. The net debt of the company reached around INR 193 crores as of June 30. And considering our expansion plans in terms of expansion of branches or shift of customers from minorities place to organized place. And increasing the fleet sales, we are confident in our growth plans going forward. We wish to say that we are adding another 2 own fuel pumps in Delhi and Ambala, which will further increase the fuel process from the refinery and which will further reduce the fuel procurement cost. And we are also expecting that the fuel prices are not going to increase in the coming days on account of lower crude oil prices as of now. So since the fuel cost is a major cost in operations, if it is cut in the controlling manner, then definitely, you can see there is some improvement in EBITDA margins going forward. Apart from that, the bar code or QR code system, what we introduced for each and every parcel now we are having the codes, so that it will increase a lot of efficiency in the system and the smooth flow of all the consignments across our system. This will increase a lot of operational efficiency, especially in assured or excessive materials in various cases. And to that extent, whatever manpower, we are deploying that cost curve can be minimized. And please note that the increase in depreciation and finance cost in the current quarter is fixed and periodical immature. We are hoping that once our tonnage growth reaches at an expected level, then these expenses as a percentage to the revenue will come down and further, it will give a boost to increase in EBIT and PBT margins. With this, I wish to conclude my initial remarks. Now I request to the participants to open the questions-and-answer session.

We now begin the question and answer session. [Operator Instructions] First question is from the line of Amit Dixit from ICICI Securities.

I have a couple of questions. The first one is essentially on tonnage side. So in this quarter, if you see, there was an impact, as you mentioned in your prepared remarks, on delay in loading, unloading and as well as had grow remaining a little bit soft. So how much can you quantify the impact if these things were not there, then how much tonnage would have gone up by?

Actually, agriculture and the consumer durables, say, I can say around 1, 1.5 percentage of tonnage has been declined on account of that. And moreover, about this QR code system, at least around 2% to 3% tonnage has been impacted. Most of the spot bookings are impacted in many of the bigger cities, basically the booking branches and transshipment hubs. Because of certain initial system, they were unable to move the consignments. And to that extent, whenever forward booking customers come actually because of these, the booking have been shifted to other operators temporarily.

So it could have been around 5%. Is it reasonable to assume that?

Yes. Overall, around 4%.

Okay, sir. The second question is essentially on the vehicles. So if I look at the vehicles have been reduced, mainly because we have procured vehicles and we have scrapped some. Now did it have any impact on volume and profitability? And when we can see during the year, the increasing [indiscernible] for us?

No, this has not impacted on any performance and other things. Basically, so some of the older what we do every time, we conduct a lot of preventive maintenance in the quarter 1 before this rainy season starts every year. Now during the what we did whatever some major maintenance for the older which is instead of doing preventive maintenance for those vehicles, we scrap those vehicles. So that's the reason whatever vehicle additions have been done. Those are all replaced as older capacity.

Okay. So I mean during later -- the second half of the year, possibly, we will see...

Yes. Subsequently, this will be the additional capacity it is going to be in that system. The scrappage percentage will be reduced to not to the extent what we did now.

Next question is from the line of Mukesh Saraf from Avendus Spark.

Yes. My first question is regarding the pricing environment. We took a 5% hike...

But your voice is not coming clear.

Is it better now?

Right.

Is it better now?

Yes.

Yes. So question is first regarding the pricing environment. We took a 5% price hike in December. But I guess in the Jan, Feb, March period, we didn't see too much of an impact of that because we have to take some discounts, et cetera. So now how is that playing out now this quarter? How has it been in the pricing environment? Any of those discounts still continuing? And when can we see the effect of the 5% price hike we took?

The discounting, whatever the same prices are continued even in quarter 1 also. That's the reason it is a realization person almost maintained. So the same strategy is going to continue even during coming quarters. So the realized on overall basis, it will be maintained.

Okay. Okay. All right. All right. And secondly, sir, from August 1, the e-invoicing threshold is now further reduced to INR 5 crores. So in this first week of August, have we already started seeing some shift again from unorganized to organized? I mean, what is the impact we have seen so far in August of that threshold coming off?

Yes. Basically, on certain products, again, which were dependent on unorganized players, most of those sectors are interacting and coming forward for booking in our places in our branch offices. And definitely, this will support us. And see if I go between this INR 10 crores to INR 5 crores that are huge number of customers in the system. So those are going to be shift to us gradually.

Right, right. So it could be.....

Especially in this textile market and all dry goods market and even in leather products, still, we are conducting this meeting association meeting at various places. So all these states that are having the association in the local pace, essentially our management is going and meeting these people, especially the marketing team. So that a lot of inquiries on a yield able even sometimes our management calls me directed from the meeting places about the inquiries on the customers on these fronts. So definitely, it is going to help us.

Right, right. Understood. And sir, I think until the last quarter -- and the last quarter, you had provided some color on the geographic volumes, East, West, North, et cetera. So if you could give for the first quarter, how that mix has been for us.

Mix is very much similar to what I stated, almost around, say, 30%, 35%. 35% is from the south origination, I'm saying. Again, around 20%, 22% from the North and East and remaining -- from the North and West and remaining from the Eastern.

Next question is from the line of [ Hiren Kumar ], an individual investor.

Yes. First question is, during the month of July and maybe part of August, was there any impact of this flooding situation in many parts of North and Western India?

Yes. To some extent, it's affected in July. But in others statuary the momentum is very good. So the last one we [indiscernible].

Will you be in a position to indicate like what kind of impact it may have on overall volume?

Around 1% or 2%, not beyond that.

Next question is from the line of Suraj from Sampanda Investments.

How much reduction in turnaround time do you expect from the implementation of our QR code and bar codes?

Yes, especially for the loading and unloading, at least we used to take around 4 to 5 hours in the transhipment for a cycle. So now what is happening, the time is reducing almost around 3, 3.5 [indiscernible] initially. And forward, we can reduce it.

So have we implemented, we said at Times India basis, we have just implemented it.....

Yes. For each and every consignment movement across the company.

Okay. And sir, are you still giving discounts to the new banks that were opened last year because of the first set of new ventures that were open when we embarked upon this expansion plan. So are we still getting discounts in those brands?

Yes. We set the rate at the time of beginning. But still, those rates are continuing. There is no revision in the rates.

So we still haven't got the required amount of volume that we would want?

No, we got the required amount of volumes. But what is happening further, the revision will take place normally whenever certain -- see, from April, we plan to increase. But considering again the volumes, what we are facing and genes hold that increase in the freight rate. And going forward, we are looking for this season now, how it is going to be turned. And depending on that on a periodical or some selective routes, which is we may increase the rate. But as of now, the same rates are continued. The internal cost process is there to analyze the can route and the product was analysis is happening. And the branches performed very well. So as I said, around 6% of the tonnage is in the current quarter came from these new branches alone. So the tonnage is coming as per what we better than what we expected. And the rate -- freight rates, we have not taken a call to increase in those routes.

Is it because of the competition that we are not increasing rates or we are just not rather than saying increasing rates [indiscernible] discounts?

No, we want to customers stay with us for a longer term. Normally, we see what will happen at least we are to maintain around a period of 12 months. So that confidence will come in the minds of the customers.

[Operator Instructions] Next question is from Krupashankar from Avendus Spark.

A couple of questions from my side. First is on the tonnage growth guidance. So given that the first quarter has been relatively weaker and agree it's also seeing so slowdown then given that I also contribute roughly about 10% of our portfolio. Do you intend to revise the guidance for the tonnage to some of those? Or would it more or less be offset by the incremental new customer addition?

Basically, now after this -- the [indiscernible] policy that has changed now that has been reduced to INR 5 crores between from INR 10 crores to INR 5 crores from [indiscernible]. That is one. And second thing, whatever tonnage is impacted in the quarter on these are having a specific reason. And we are not seeing that those reasons are going to impact further in the quarter 2 or going forward. So that's the reason. Because of these 2 reasons, we are hoping that definitely, the tonnage will bounce back in the coming quarters. So definitely, on a year-on-year basis, we are hoping the release around 15% plus tonnage growth.

Got it. And the second question was on the scrappage. Do you have a number in mind for the number of trucks you will be scrapping this year?

No. I'd say that we cannot define in advance. But however, around 900-plus vehicles still we are having more than 15 years.

Okay. There is no step plan as such that 400.....

Is also not compulsory now. It all depends on the status of that particular vehicle. If any major maintenance, major expenses then we will scrap it. Otherwise, this will continue.

Understood. And last question from my side is on the hub release agreement were in which you had was renewed. Would it be possible to share what is the location at which the lease agreement was reviewed -- and can we expect any other major leases to get renewed over a period which will drive up ROU the component?

The major revision in the hubs in the country; one; Delhi, whatever is the new expanded area we look at still almost around additional -- existing, we were having around 2.5 to 3 lakhs square feet [indiscernible] . Now that another 2 lakhs square fit the area of areas has been added in Delhi. So that is one. And in Hubballi also, the existing premises as well, we are having the 1 facility, this was -- we were unable to handle the volumes. Then again, we have taken an additional 1 area has been planned in Hubballi. Similarly in Pune, Ahmedabad, Raipur, Salem, Chennai, Kanpur, Patna, Guwahati, Siliguri, Cuttack, Ludhiana, Madurai there are some of the key places.

So there is no mature hub, which we perhaps lease can get renewed due to which there can be substantial spike? Maybe addition will come in to support the tonnage growth, but nothing which can drastically change?

No. See, Delhi is a major impact in the current quarter. It was almost addition of another 2 lakhs square feet. That impacted a lot of the ROE and the lease liabilities.

[Operator Instructions] Next question is from the line of [ Keshav Bagri ] from VT Capital.

So my first question would be like we know that weather is a big disruptor for logistics [indiscernible] we are seeing slides and all the destruction that has been happening there right now -- so have seen impacted our numbers in the line time like you just mentioned, is in fact in the range of 2% to 3%. So branch additions, have it impacted that as well?

Your voice is not clear.

Is it possible through the handset, please?

Yes, of course. Is it now? Is it okay now?

Yes.

So my question is on the fact that we know that weather is disruptors for [indiscernible] industry, and you're seeing these distances happening in Gurgaon as well. So you've just mentioned that tonnage might be impacted by 2% to 3% at max. So what is the outlook on branch addition? Has it been affected as well?

Yes, branch extension, every quarter, we are planning for at around 25 to 30 branches. That plan will continue.

Okay. And sir, like the second question would be like you have mentioned in your previous one that you're targeting a volume growth of around 18% to 8% for the year, and this would translate to revenue growth as well because they not care any price hikes? So are we confident of maintaining this guidance? Or do we want to increase or reduce the guidance?

Previously, I mentioned that the tonnage growth will be upward to the 15%. That is maintained.

Okay. Like you mentioned that consumer discretionary and other sectors, which have actually outperformed like underperformed your tonnage expectations. So are there any specific sectors which have really performed well more than what we expected them to?

Yes, the performance, there are certain commodities we performed well, especially -- just a minute -- this some of the automotive spare parts and other things performed better. And similarly, in the hardware items, actually, the performance is better.

Okay. And sir, any utilization numbers and CapEx numbers for this quarter?

Yes. Every quarter, the CapEx fee in the range of around INR 85 crores to INR 90 crores. That is going to continue.

And capacity utilization?

The capacity utilization, again, the vehicle action will be based on the increase in the volumes based on the requirement. So always our capacity action will be based on the growth in the tonnage it's 100% utilization.

Okay. And for my last question would be like we are adding branches to tap in more into interlines and getting new customers. Apart from adding branches, are there any conscious efforts which are taken by the company to add more customers and make sure that the existing customer also increased their volume with us?

Yes. Basically, what we are doing, we are approaching this MSME and small SME customers because of this reduction in the inversion policy from INR 10 crores to INR 1 crore -- or INR 5 crores from this August 1. We are approaching a lot of these associations, like the Cloth Merchant Association, Dry Fruit Merchant Association, and there are some good leather product association, especially in UP and surrounding area. And recently, our management did the Customer Association meeting with Srinagar as well. So basically, we are going to various places conducting this association meeting, and the many people are having a lot of confusion about the compliances as of today. So we are giving confidence to the customers that once they ship to us, definitely, we will take care of the compliances. So all this confidence we are building and we are putting some competitive rates also on the initial time, especially in the untapped market. These are all efforts we are doing. And wherever we are doing the promoting the people, especially we did in this quarter, we are giving a lot of additional responsibility for them. And most of the promotion happened in the operational and management team to focus -- sorry, operational and the marketing team. So this intentionally, we did this kind of a promotion to give a lot of responsibility to these people to increase the business. To increase the volumes to go and approach to the customer. That's the reason. These are all in addition to that, we are putting all these efforts.

So's last question would be realizations are expected to remain flat for the year? Or we are planning to take some price hike for some something on some selective rates?

Since selective rate increase and decrease, it is a continuous exercise. But overall, the relation will not change. And basically, since the fuel price is under control and even we are taking the initiative to reduce it further. Anyway, it is the internal policy that the refinery and other things. But even on the market set the government also not increasing much of a fuel price because of the crude oil prices are under control, and even the election is due now. I don't think so the fuel price is going to be increased in the coming days. So because of that, see everybody -- if we increase the rate, then everybody will ask about what is the same in the fuel price. They will not consider increase or decrease in other expenses. Considering this environment of this scenario, we are not going to change or increase the rates.

[Operator Instructions] Next follow-up question is from the line of [ Hiren Kumar ], an individual investor.

Yes. My next question is since we are doing a lot of CapEx buying new vehicles and all that. Will you be in a position to approximately give a number to interest outgo and depreciation numbers on a quarterly basis?

Yes. Basically, the interest cost will not increase because of the CapEx. Because most of the CapEx we are going to use through internal approvals. Even in the current quarter, if we see we did a CapEx of around INR 85 crores, but that is increased hardly around INR 25 crores to INR 30 crores. And apart from the CapEx in the current quarter, we also funded buyback of shares in the current quarter. Because around INR 61 crores has been employed for the buyback of shares as well. So basically, on account of this, around INR 30 crores debt is increased. Going forward, since there are no these kind of outflows and the entire cash generated by the business will be utilized for the one quarter -- first for the CapEx and then if any [indiscernible] then we utilize for the repayment of existing debt. So considering this scenario, if we incurred even CapEx of around INR 85 crores to INR 90 crores every quarter, the debt will not increase. So debt will not increase, then interest cost will not increase. But depreciation on this is going to come through additional around INR 2 crores to INR 3 crores additional depletion cost is going to come.

Okay. So this quarter, if I see it is INR 49 crores. Will it remain around this number? Or will it go up a little bit?

Around INR 1 or INR 2 crores increase will be done.

For mix. And one more question is, so we have ordered this new vehicle. By when is the entire stream of supply getting over? Like when are we likely to hit that maximum capacity, so to say?

No, we are planning to add this capacity in the current year itself. Again, as I said, this completely depends on the increase in tonnage also. Unless these vehicles are required and the system is not by vehicle and see vital capacity. So it depends on how the quantity increase. See now we are expecting year-on-year, this is around 15% plus on a similar basis. So that much of additional capacity will be profit.

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

Just one question. What's the branch additions we are looking at in this financial year?

Every quarter around 25 to 30 branches.

And sir, last year, you had mentioned that branch turnaround time is taking nearly 3 to 4 months. So that's the run rate now also or it's going to slow down?

No, no. It is maintaining at the same time for it. Whatever we are opening this time in market, now the performance of those branches are very good. And even on an overall basis, if you see in quarter , around 60% of the growth is only on account of this addition of 200-plus branches over a period of last 1 year.

And this year, you mentioned about 15% volume growth. So a similar number would be there for next year as well?

Yes. Next year also, at least around 2 to 3 years, we are having this guidance. And this Q1 is on a specific reason because of some internal modification that estimate. But in long term, it will give a lot of efficiency. And even control on the operational manpower, definitely, it will bring a lot of control on the manpower also, the operational process. The bar coding and QR coding is what we implemented in the current quarter. But one time we have to do this because to bring that much of efficiency in the system. Otherwise, the growth will be normal as per our expectation of at least around 15% plus.

So just last question. So our margins have come down from 16% plus to nearly 15% plus now. So we'll move back towards 16%, 17%? Or what's the target now because what we understand that...

The EBITDA margin will support going forward, the fuel price basically that currently, around 35%, 36%, almost around 37% we are buying from the refinery. Plus, the addition of these 2 pumps, again, it may reach around 40%, 45% from the refinery alone. So definitely there, again, the cost is different. It increased earlier the savings was around INR 2. Now we are saving almost around INR 3 plus, compared to the market price versus the fuel was we are proceeding from the refinery. So that is going to help us to increase the EBITDA margin. And moreover, the bar coding system, what we put again, take you a lot of efficiency in the operations. Again, that will give boost us to increase the EBITDA margin going forward. So we are in that definitely, the EBITDA margin will be better than this quarter going forward.

As there are no further questions, I would now like to hand the conference to the management for closing comments.

Yes, thanks to all the participants. Basically, as I mentioned, one is our tonnage growth will be intact going forward. And also the EBITDA margins will be better than what we had in the Q1. So with this, I thank all the participants and conclude my call. Thank you.

Thank you very much. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.