Release Date: May 16, 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) recorded its highest ever express volume during FY24, indicating strong operational performance.
- The company achieved a 100% jump in EBITDA compared to the last quarter, reflecting significant cost optimization and efficiency improvements.
- The gross margin improved to 26% in Q4 FY24 from 22% in Q3 FY24, showcasing better operational efficiency and yield improvement.
- Allcargo Gati Ltd (BOM:532345) is now debt-free on a consolidated basis with a cash surplus of INR33 crores, strengthening its financial position.
- The company has initiated several strategic initiatives, including sales team restructuring, headcount rationalization, and the establishment of an inside sales team to target MSME clients, which are expected to drive future growth.
Negative Points
- Total tonnage handled in Q4 FY24 decreased to 306 kilotons from 318 kilotons in Q3 FY24, indicating a decline in volume.
- Revenue from the express business fell to INR355 crores in Q4 FY24 from INR371 crores in Q3 FY24, reflecting a sequential decline.
- EBITDA for FY24 stood at INR54 crores, down from INR72 crores in FY23, indicating a year-over-year decline in profitability.
- The company faced challenges in retaining MSME customers, leading to a decrease in the MSME and retail client mix from 38% in FY23 to 30% in FY24.
- Despite improvements, the company still faces competitive pressures and macroeconomic uncertainties that could impact future performance.
Q & A Highlights
Q: Historically the calls per your guidance for margin improvement over the next year or so. Can you please elaborate a bit more on that? Is that going to be driven by better realizations or are you looking at cost optimization that should come through? Any more color on that would be appreciated.
A: Yeah. So for us at Gati, we have identified that cost optimization will play a very, very important role in our profit expansion, margin expansion. We have already seen over the last one year, reducing our cost reducing and we further have identified opportunities to further reduce cost. So very large portion of our margin expansion will come with, cost reduction of costs at every opportune time as renewals come up, we will also look at how we can improve our yields with our customers. But what is in our control absolutely is the cost reduction. And we have identified in every bracket of our business, whether it is pickup and delivery, line haul or feeder, we have identified areas and we have already started work towards cost reduction.
Q: Over the last couple of quarters, you also alluded to the fact that there will be contract renegotiation, which may happen from April onwards, which may lead to realization increase. And you were also looking at improving performance metrics, DIFOT, so on that you had mentioned with help in getting better realization from customers. So can you talk a bit about that? One, how do your metrics on DIFOT delivery in full and all compare versus competition today? And second, from a realization perspective, have you been able to bridge the gap? Or is there a lot more work which needs to be done?
A: From a service. I would say we are as good as anybody else on the although there is still room for improvement for the industry as a whole. And for Gati in particular, we are hovering DIFOT around 89%, 90% that is scope to go up to maybe 95% too. This all comes with better infrastructure, which we are seeing getting developed both from a government perspective, which is the roads and also our own infrastructure, which is developing. On the yield and pricing side, it is a journey as and when our accounts come up for renewal and the confidence that the large customers have shown by growing their volumes, we fell it's an opportune time for us to get the right pricing from the customer, but that is a journey. So what is fully under control for us is our service and our direct costs.
Q: Since you mentioned that there's been a lot of work that has happened on the cost initiatives by when do you expect some of these benefits to start flowing into the numbers?
A: So as you can see in the fourth quarter of this year already, the benefits have flown into the numbers. And every quarter, we will show a cost improvement happening in our operations.
Q: Any number that you can put to us to what is your internal target for the next one year? And what would be a three year target?
A: So basically, this is a combination of various factors. We, as an organization, are looking at reducing our direct cost by at least another 5% this year.
Q: So basically, if I started to look at that yields stay where they are, you would expect about a 5 percentage point expansion in margins over the next 12-months.
A: Yes, we would also expect some of the deals to improve. But yes, you're right.
Q: In the previous quarter, we had also, I kind of mentioned that some of the volume that we had lost was due to billing migration towards e-docket for retail customers. So is it kind of resolved now? Or is it -- I mean it's still in progress and we could see a further volumes and something on the retail side?
A: The loss of volume is now already standardized. So there is no more loss of volume that we have seen. We have stabilized with e-docket and we should only see growth in retail business from here now.
Q: Our FY26 target of INR3,000 crore revenue 9% to 10% margin stays intact?
A: Yes.
Q: Whether we have seen, fall in realization because -- given the cost optimization you have achieved sequentially, if you know the realizations would have remained at least stable, the margin expense would have remained higher than what we have achieved. Is that true?
A: No, there is no fall in realization in the last quarter. If anything there is a very small increase in realization, but very small. So that's not true, that there is a fall in realization.
Q: One of your peers had highlighted that some of the express players are entering into LTL kind of businesses. So we do not have participated in this? Or no there has been increase in this volume sequentially during quarter four?
A: No, so we do not sell LTL as a service in Gati at all. Having said that, some of the smaller customers do not distinguish, I think between and the LTL and express, they just are happy if the price that they want is met with. So it's always the larger customers who distinguish between express and LTL when you go down the line to the smaller customers for them, a two extra does not make a big difference, but Gati does not sell LTL at all.
Q: Whether you have seen any preferences for larger players to move towards LTL? Or you are, there is no such preference for larger players at all?
A: No. In fact, what we are seeing is more and more players are looking at time-definite deliveries nowadays. So I'm seeing a shift from LTL to express rather than the other way around.
Q: While I could note that sequential decline in revenue, as well as throughput. Just wanted to get a sense is there an increase in competitive intensity? Or is it more of macro-led change, which has resulted in a sequential decline?
A: So generally, the third quarter for Express Logistics is higher than the fourth quarter. It is only the month of March in the fourth quarter which is high. Otherwise, we see that a lot of multinational companies, January becomes very low because their year ending in December and then they start doing their new year from January. So it is to do with the industry and not to do with anything else.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
