ALLCARGONSEQ2 FY2024November 21, 2023

Allcargo Logistics Limited

8,141words

76turns

8analyst exchanges

3executives

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Management on call

Abhishek Jain

DOLAT CAPITAL

Ravi Jakhar

GROUP CHIEF STRATEGY OFFICER – ALLCARGO LOGISTICS LIMITED

Deepal Shah

GROUP CHIEF FINANCIAL OFFICER – ALLCARGO LOGISTICS LIMITED

Key numbers — 40 extracted

6.4%

eal estate crisis and diminished external demand. Chinese exports for the month of October shrank 6.4% year-on-year. As per Reuters report we also understand that China’s official Purchasing Managers

nternational Monetary Fund has projected that global real GDP growth will remain steady at around 3% in 2023; however, for 2024 they have revised these forecasts slightly downwards to 2.9% from the

2.9%

y at around 3% in 2023; however, for 2024 they have revised these forecasts slightly downwards to 2.9% from the previous estimate of 3%. Our outlook for the global trade recovery mirrors the growth co

15%

has built significant reserves over the years and the issuance of bonus shares will use less than 15% of the available reserves, which is a sign of company’s health. The company also recently demerge

90%

n as well as in Allcargo supply chain. We also recently increased our shareholding in Nordicon to 90% besides the acquisition in Germany earlier during the year 2023. All of this has been enabled to

ight here that most leading international forwarders have reported a volume decline ranging from -4% to slightly lower in Q2 FY2024. This was accompanied by a decline in yields ranging from -25 to -

38%

to slightly lower in Q2 FY2024. This was accompanied by a decline in yields ranging from -25 to -38% in comparison our LCL volumes are down 3% year on- year and FCL volumes have remained flat. In te

100%

Coming to the contract logistics business which is housed under Allcargo supply chain and is now 100% subsidiary of Allcargo, I am glad to know that business continues to deliver robust performance.

5 million

lities underlying in the Allcargo supply chain business. We continue to manage a little more than 5 million square feet warehouse and we have seen a good pickup in volumes, revenue, and profitability in th

3,307 Crore

r base and a different macroeconomic environment. The consolidated revenue for Q2 FY2024 stood at 3,307 Crores as compared to 5,055 Crores in Q2 of FY2023 and 3,271 Crores in Q1 FY2024. The consolidated EBIT

5,055 Crore

onomic environment. The consolidated revenue for Q2 FY2024 stood at 3,307 Crores as compared to 5,055 Crores in Q2 of FY2023 and 3,271 Crores in Q1 FY2024. The consolidated EBITDA for Q2 FY2024 stood at 11

3,271 Crore

dated revenue for Q2 FY2024 stood at 3,307 Crores as compared to 5,055 Crores in Q2 of FY2023 and 3,271 Crores in Q1 FY2024. The consolidated EBITDA for Q2 FY2024 stood at 118 Crores as compared to 139 Crore

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Guidance — 6 items

Ravi Jakhar

opening

“As we have stated in the past the international supply chain business operates on January to December calendar year, therefore we are also in the stage of budgeting for the next year and in the due course of next couple of months we would also have a better forecast and visibility on our next year’s budget and the three years business plan based on which we also intend to share our revised guidance in the coming months.”

Radha

“Sir secondly you mentioned that till the Chinese New Year we are expecting the demand to remain muted so given that last two quarters we have seen significant impact due to the lower demand and we have seen a drop in our profitability level so going forward especially in 3Q and 4Q partially because of the Chinese New Year do we expect to remain profitable or do you see any kind of scenario because of the SG&A cost and then lower demand to go into losses?”

Ravi Jakhar

“On the loss making offices turning around we have seen positive momentum over the last couple of months, so that trend should continue and should also help improve the bottomline, so all in all if you read into these three trends the performance should remain rangebound for the next quarter and then perhaps start to improve primarily from the April quarter onwards is how we look at the situation right now and of course these are based on various estimates like I mentioned.”

Ravi Jakhar

“So, we were anticipating that there will be an impact on the ocean freight on account of trade disruptions getting normalized this is I am referring to 12 months ago.”

Deepal Shah

“Post acquisition Q2 numbers will be, yes that is correct.”

Hemesh Desai

“I just have a couple of questions the first question will be on the international supply chain business how is the share of India compared to US and Europe?”

Risks & concerns — 11 flagged

We have seen several factors continue to raise concerns such as the muted Chinese trade outlook, geopolitical tensions posing an upside risk to fuel prices and weaker than expected pickup in pre-Christmas stocking, which is usually seen leading to increased shipments from July end that uptake has been relatively sluggish as well.

— Ravi Jakhar

Among the other major economies that impact global trade such as the US and UK, too are facing sluggish demand growth, although on a positive side the risk of banking instability has softened but the trade outlook remains cloudy.

— Ravi Jakhar

I would like to highlight here that most leading international forwarders have reported a volume decline ranging from -4% to slightly lower in Q2 FY2024.

— Ravi Jakhar

This was accompanied by a decline in yields ranging from -25 to -38% in comparison our LCL volumes are down 3% year on- year and FCL volumes have remained flat.

— Ravi Jakhar

The demand scenario continues to remain weak like Ravi said and competition remains high.

— Deepal Shah

We do not foresee a scenario of the performance going further down from here but it may not see a significant uplift over the next two quarters and like I said the impact of cost reduction initiative as well as the improvements in the microeconomic environment should potentially start from Chinese new year around mid Feb and that is where we should possibly start seeing some degree of an upward movement that is our anticipation right now based on what we see on the ground.

— Ravi Jakhar

Sir could you give us any insights on the realization front for this international supply chain business so this quarter we are at 114K per TEU and we are given to understand that given that freight rates have already come down to pre-COVID levels because of lower demand scenario do you see the realizations going down further, if there is any pricing pressure or anything could you give us any insights on the realization front?

— Radha

However, as the economic slowdown also kicked in on the back of the trade disruptions going away the freight rates have dropped significantly now going back to not just pre-COVID levels in some trade lines even below the pre-COVID levels.

— Ravi Jakhar

On the LCL business the challenge is that when freight rates become much lower some of the volume from customers can switch to FCL which leads to further pressure on the volume side.

— Ravi Jakhar

Sir as you mentioned that there is a slowdown in the business in Germany and China so what was the contribution in supply chain business one year back of these countries and how much is the current contribution?

— Abhishek Jain

In terms of the decline on profitability we have seen some of the western European countries, US and China as the most impacted countries exact percentage shares on a country basis we do not share but we will see if we can provide some indications in the upcoming investor presentation so it can be accessed by everyone.

— Ravi Jakhar

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Q&A — 8 exchanges

Hi Sir. Thank you for the opportunity. Sir, firstly I would like to state that in the opening remarks we lost you in between and there was no intervention from the operator as well so just request you to add those sentences in the transcript if possible. Sir my first question was that we had taken many initiatives like digitization, direct sales, and other many cost reduction measures as well previously so that whenever there is a fall in realizations our EBIT per TEU is still maintained at a certain level so this quarter we could not see those benefits reflecting in the numbers so could you g

Ravi Jakhar

I will respond to that. Meanwhile just to reconfirm Deepal were you able to hear me while I was speaking in the opening remarks? Yes, Ravi, I could hear you but then opening remarks were fine but somewhere in the middle I also got dropped out. Anyways I would request the team to make sure that the transcript is duly recording everything that was spoken so that if anything is missed out by any participant that can be referred to later. So, coming to your question on the EBIT per TEU I would break that down into two components it comes down from GP per TEU and then down to EBIT per TEU. First pa

My question is regarding the plan that you have mentioned for a more simplified structure involving Allcargo Gati and Allcargo supply chain could you provide any update on the progress or offer a potential timeline for the same?

Ravi Jakhar

So, this is something which has been under consideration and like we have provided an update in the past the Board had advised us to engage with advisors on potential structures and various advantages or disadvantages of the same and it is still a matter under discussion and we cannot provide any specific updates since the discussions are still underway and there is no concrete decision at this point in time. However, like we have maintained in the past any outcome would be towards simplification of the structure, and we have continued to build synergies between the express and the contract lo

First of all Happy Diwali Sir and thank you so much for taking my questions so just wanted to get a sense I think you partly answered my question so if I can get the correct sense our H2 will also be range bound such as H1 it will be on the similar trajectory in H1 and we can see volume pickup in FY2025 right is that a fair way to look at it Sir?

Ravi Jakhar

So that is largely correct. Our anticipation is that typically the Chinese New Year which falls in the month of February is typically a low season after which the pickup starts so December usually the demand forecast you can typically see two months out because when you are booking cargo and considering the ocean voyage so we are already in mid of November so it appears that the next few months two to three months would remain muted on the demand side and therefore post Chinese New Year which is end of Feb onwards we should see pickup that is our anticipation and that of course yes means that

I just have a couple of questions the first question will be on the international supply chain business how is the share of India compared to US and Europe?

Ravi Jakhar

So, the share of India in terms of the topline has marginally increased on the account of Indian business holding better than the rest of the economies. In terms of profit the share has gone up significantly on a relative basis because India continues to do better as compared to some of the Western Europe and Americas and like I was mentioning a couple of large countries had also been on the loss side which means that the share of India would have gone up. We believe this share would remain on a higher level and should possibly also normalize as other countries recover in terms of trade volume

Hi most of my questions are actually answered. Just a couple of ones you said something about non-strategic trade lines so can you just help me out with the contribution in terms of volumes and how much does it contribute at EBITDA level?

Ravi Jakhar

So, like I mentioned non-strategic trade lanes could be roughly about negative $200,000 for the quarter. These are basically trade lanes which are business trade lanes but not strategically important to be continued in loss and therefore there could be some opportunities for rationalization. So, they have about $200,000 in terms of loss at EBITDA level, right? So, trade lanes you typically look at the gross profit level because the manpower cost or admin cost does not change with trade lanes. Right and this contributes what percentage of overall volume? This will be a very minuscule portion. L

My question is regarding this express distribution I hope this is Gati business in India mainly?

Ravi Jakhar

Yes, the express business is the business operating under Gati Express and Supply Chain which is a subsidiary of the listed entity Gati Limited. So like it is very disappointing to mention that like in India all business are flourishing I know some of the business who happens to be my distant relative they are bringing Crores of rupees whereas their business size is much smaller in terms of the capital investment and so on, on this business we are losing significantly number one, number two in the September quarter we have added about Rs.140 Crores additional segment asset in this segment and

Ravi Jakhar

So, I responded on that earlier that the contribution of India has gone up because India has been relatively better performing market and there are a few other countries which have seen growth from last year, but they are on the smaller size countries such as Brazil and the Latin Americas. In terms of the decline on profitability we have seen some of the western European countries, US and China as the most impacted countries exact percentage shares on a country basis we do not share but we will see if we can provide some indications in the upcoming investor presentation so it can be accessed b

Thank you all for joining in and I hope we were able to respond to your questions providing clarity and insights as much as we could. I would encourage you to stay in touch with our investor relations team, reach out for your queries, feedback, and suggestions, it is your suggestions and questions that help us continue to improve our investor communication and wherever we see a sustained demand for a particular kind of information we try to include that in our investor presentation for the benefit of all stakeholders. On that note wish you continued great festive joys and thank you very much f

Management

Speaking time

Ravi Jakhar

Moderator

Deepal Shah

Nirav Savai

Hemesh Desai

Abhishek Jain

Darshil Jhaveri

Radha

Marsal

Jia Shah

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Opening remarks

Abhishek Jain

Thank you, Dorwin. Good afternoon, everyone. On behalf of Dolat Capital, I welcome you all to Q2 FY2024 earnings conference call of Allcargo Logistics Limited. We thank the management for providing us the opportunity to host the call. From the management side we have with us Mr. Ravi Jakhar, Group Chief Strategy Officer and Mr. Deepal Shah, Group CFO. Now I hand over the call to Mr. Ravi for opening remarks followed by the question-and-answer session. Thank you and over to you Sir!

Ravi Jakhar

Thank you Abhishek. Good evening and a very warm welcome to everyone on our Q2 & H1 FY2024 earnings conference call. Let me take this opportunity to wish you all a very happy New Year, the new Samvat 2080, may it bring prosperity and happiness to all. We have uploaded our results and earnings presentation on these stock exchanges as well as the company’s website and I hope everyone had an opportunity to go through the same which includes the results as well as the investor presentation. As mentioned today I am joined by my colleague, Deepal Shah and we would endeavor to provide you brief highlights from the quarter and a half year gone by and also respond to your questions with utmost sincerity. To begin with let me speak a bit about the macroeconomic environment. The global economy is expected to slowly recover from the pandemic; however, the global trade flows recovery has been relatively even weaker than what we had expected, and this is in line with the economist’s expectations. We

Deepal Shah

Thank you, Ravi. Good afternoon, everyone and a very Happy Diwali and Happy New Year to you all and your loved ones. I will now discuss the performance for Q2 FY2024. Our revenue has declined on a yearly basis owing to a much stronger base and a different macroeconomic environment. The consolidated revenue for Q2 FY2024 stood at 3,307 Crores as compared to 5,055 Crores in Q2 of FY2023 and 3,271 Crores in Q1 FY2024. The consolidated EBITDA for Q2 FY2024 stood at 118 Crores as compared to 139 Crores in Q1 FY2024. The muted profitability along with a slightly higher depreciation has led to the PAT, profit after tax to the quarter ended September 2023 declining to 16 Crores as compared to 195 Crores for the same quarter last year. Point to note is that our balance sheet remains very healthy with a net debt of 120 Crores as of September 2023. Now moving on to the business segment wise performance. I will start by discussing the performance of the international supply chain segment which is

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