Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allcargo Gati Ltd (BOM:532345, Financial) is now debt-free with a net cash positive of INR196 crores after a successful QIP of INR169 crores.
- The company reported a 33% growth in EBITDA for the Express business, reaching INR20 crores in Q1 FY25 compared to INR15 crores in Q4 FY24.
- Gross margin for the Express business improved by 100 basis points, standing at 27% for Q1 FY25.
- The company has successfully implemented Phase 1 of its infrastructure update and launched a new technology module named GATE (Gati Associate Tracking Engine).
- Allcargo Gati Ltd (BOM:532345) has appointed Ketan Kulkarni as the new Deputy Managing Director for Gati Express and Supply Chain Private Limited, further strengthening its managerial team.
Negative Points
- Total tonnage handled for Q1 FY25 decreased to 300,000 metric tons from 306,000 tons in Q4 FY24.
- Revenue from the Express business slightly declined to INR358 crores in Q1 FY25 from INR367 crores in Q1 FY24.
- The company faces persistent uncertainty around inflation outlook, impacting cost structures and pricing strategies.
- Despite improvements, the company still has a higher S&OP cost as a percentage of sales compared to competitors due to outdated technology.
- The Contract Logistics business, although high-margin, remains a small portion of the overall business, limiting its immediate impact on consolidated margins.
Q & A Highlights
Q: Sir, we have seen a 1% improvement in gross margins for the first quarter, quarter-on-quarter. Is it reasonable to expect that we can improve gross margins by 1% every quarter given the cost reduction initiatives?
A: We have identified that gross margin expansion will happen mainly through cost reduction. We have substantially reduced our operating costs and will continue to do so. We are also changing the mix of our large customers to SME and retail, which will help us achieve this expansion quarter-by-quarter. (Pirojshaw Sarkari, CEO)
Q: What is the aspirational customer mix between KEA accounts and SME, retail, in the next two to three years?
A: Our first benchmark is to bring it to 60-40, and the aspirational target is 55-45. (Pirojshaw Sarkari, CEO)
Q: Can you share some broader strategy in terms of adding new franchisees or associates? What is the payback period for the new franchisees?
A: Our business model is to keep growing our network. We open up a franchise when we have substantial volume to service the customer well. The return on investment varies from PIN code to PIN code. (Pirojshaw Sarkari, CEO)
Q: Is it reasonable to expect a 12% to 13% volume growth in FY25 and the year after?
A: We are targeting around 15% growth this year. With the season coming up, we expect to ramp up growth and maintain a 15-16% growth rate for the next couple of years. (Pirojshaw Sarkari, CEO)
Q: What is the status of the corporate restructuring plan? Is it on time for December this year?
A: We have filed with the stock exchanges and SEBI. Post that, it will go to the NCLT. We believe the merger will be completed by the first quarter of next year. (Pirojshaw Sarkari, CEO)
Q: Are we seeing any slowdown in the overall industry volume? How is the Express business expected to pan out in the next two to three years?
A: Express Logistics will play a significant role as manufacturing grows in the country. We expect exponential growth in this sector. The first quarter was subdued due to elections and natural calamities, but we expect a strong second quarter. (Pirojshaw Sarkari, CEO)
Q: What is the assessment of yields for the company? Have the yields stabilized?
A: We aim to improve our yield by changing our customer mix rather than reducing prices. The mix between zonal and national play is improving, which should enhance our gross margins. (Pirojshaw Sarkari, CEO)
Q: Does the recent fundraiser cater to our growth strategy for the next two to three years?
A: Yes, the QIP provides us with growth capital for infrastructure, technology, and other processes. We have funds for the next growth phase. (Pirojshaw Sarkari, CEO)
Q: Can Gati sustainably be the number two player in the B2B Express space in the next three to five years?
A: Absolutely. We aim to grow quarter-over-quarter, beating market growth to become market leaders. (Pirojshaw Sarkari, CEO)
Q: Are we done with the old legacy issues with respect to key accounts?
A: 99% of the old legacy issues are over. The reduction in ECLM provisions over the last four quarters indicates that most legacy issues are resolved. (Pirojshaw Sarkari, CEO)
Q: What are the expected CapEx numbers for the next two to three years?
A: We have set aside INR30 crores for technology and INR40 crores for infrastructure over the next two years. (Pirojshaw Sarkari, CEO)
Q: How are we building on the additional revenue with the amalgamation of Contract Logistics and B2B Express business?
A: We will leverage cross-sales and apply for RFQs for both warehousing and distribution together, offering a single unit price to customers. This will make our Express business more sticky. (Pirojshaw Sarkari, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
