Release Date: February 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) reported an 11% year-on-year volume growth for Q3 FY24.
- The company has consistently clocked a monthly volume of approximately 100,000 tonnes.
- Six out of eight planned hubs under phase one of infrastructure amplification are now operational, improving service levels and client confidence.
- The rollout of dimensional weighing and scanning machines across 12 locations has improved billing transparency and revenue collection.
- The company has initiated a project for price increases with customers, targeting a 6% inflationary price hike to be effective from April 1, 2024.
Negative Points
- Revenue from express business decreased to INR371 crore in Q3 FY24 from INR379 crore in Q3 FY23.
- Gross margin for the express business dropped to 21.7% in Q3 FY24 from 27.8% in Q3 FY23.
- EBITDA for the express business fell to INR7 crore in Q3 FY24 from INR21 crore in Q3 FY23.
- The company experienced a drop in business from high-yield customers due to stricter payment terms and customer code blocking for long overdue customers.
- The geopolitical tensions and global economic uncertainties have impacted trade and commerce, affecting overall business sentiment.
Q & A Highlights
Q: Can you explain the exceptional item regarding the P&L this time, specifically about GIPL?
A: There are three exceptional items. The biggest one is a write-back of INR23.6 crore related to a corporate guarantee given to IDFC on behalf of GI Hydro Private Limited. Since GI Hydro has repaid the money, we reversed the provision. The other items include a gain on the sale of non-core assets (INR9.42 crore) and a small gain from a property settlement (INR50 lakh).
Q: When will the impact of the hub expansion reflect in the margins?
A: The reduction in direct operating costs due to hub expansion and efficiency improvements has already started. The network effect will continue as more hubs are built or renovated.
Q: How much of our total volumes this quarter were intra-zone, and what is the impact on margins?
A: We do not publicly disclose the segmentation of interzone and intra-zone volumes.
Q: What are some digitalization initiatives to improve operations?
A: Major initiatives include the build-out of Gems 2.0, improved POD visibility, enhancements in our control tower, and the implementation of Salesforce.com for our sales team.
Q: Despite volume increases, why haven't revenues increased significantly?
A: The cleanup of receivables and stopping trading with high-yield MSME customers who defaulted on payments impacted volumes and yields. We are also working on price increases to be effective from April 1, 2024.
Q: What are the synergies from integrating the contract logistics business with Gati?
A: Benefits include cross-selling opportunities, increased customer stickiness, and overhead cost optimization. Customers prefer end-to-end logistics solutions from a single provider.
Q: What is the competitive intensity in the B2B express market, and why has there been a Q-on-Q degrowth in volumes?
A: The industry has seen a degrowth due to a surge in volumes in September and geopolitical sentiments affecting consumption. For us, the cleanup of receivables also impacted top-line growth.
Q: What is the strategy for scaling up in a competitive market?
A: We are pivoting our strategy for the SME-MSME segment to a contactless sales model and changing the credit policy to cash on delivery. This segment is crucial for growth and yield.
Q: How much of the credit loss provisions can we expect in upcoming quarters?
A: We do not expect significant reversals of ECL provisions. Any further reversals will depend on cash flow improvements.
Q: What kind of price hikes are being implemented, and which customers will be affected?
A: We are targeting a 6% inflationary price hike for all customers except large ones who come through RFQs. This includes KEAs, SMEs, and retail customers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
