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“TCI Express Limited Q4 FY2020

Earnings Conference Call”

May 11, 2020

TCI EXPRESS MR. CHANDER AGARWAL – MANAGING DIRECTOR

MANAGEMENT: MR. MUKTI LAL – CHIEF FINANCIAL OFFICER

ANALYST: MR. ABHIJIT MITRA – ICICI SECURITIES LIMITED

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Moderator: Ladies and gentlemen good day and welcome to the TCI Express Q4 and FY2020 Earnings

Conference Call hosted by ICICI Securities Limited. As a reminder all participant lines will be in

listen-only mode and there will be an opportunity for you to ask questions after the presentation

concludes. Should you need assistance during the conference call, please signal an operator by

pressing ‘*’ then ‘0’ on your touchtone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you and over

to you Sir!

Abhijit Mitra: Thanks Neerav, and good afternoon and welcome to all the participants. So we have with us

today Mr. Chander Agarwal – Managing Director of TCI Express and Mr. Mukti Lal – Chief

Financial Officer of TCI Express to discuss Q4 and FY2020 Results. Without further adeu over

to you Chander for your opening remarks.

Chander Agarwal: Thanks Abhijit. Good evening everyone and welcome to the fourth quarter and full year FY2020

Earnings Call of TCI Express Limited. Before we begin our discussion about industry and

business, I would like to thank you all for joining us during the ongoing health crisis caused by

COVID-19 and hope you and your loved ones are doing well and keeping safe.

On this call we will start with quick business overview for the full year followed by discussions

about impact of COVID-19 on the industry and the business and how we are gearing ourselves to

manage the impact of this pandemic then I will hand over the call to Mr. Mukti to discuss

financial performance in detail. Our earnings presentation has been uploaded on the website and

stock exchange and I hope you have had a chance to review it.

Now coming to the results, I am pleased to report overall encouraging performance during the

year FY2020 despite the challenging economic and business environment. On a full year basis

TCI Express delivered Total Income of Rs. 1,036 Crores, it is flat compared to last year and

EBITDA was at Rs. 126 Crores with margin of 12.1%. Our company delivered a robust growth

in profit after tax of 22.3% to Rs. 89 Crores. During the year we continued our focus on

enhancing margins and improving profitability through higher capacity utilization, penetrating

deep in the cities and taping into growing SME customer and of course the efficient working

capital management. In the light of overall strong performance, the company distributed dividend

of Rs.4 per share for full year with a payout of 17.2%. TCI Express has added 70 new branches

during the year to penetrate deeper in selective geographies and this strategy has been successful

in contributing to the company growth. We have incurred a total capex of Rs. 32 Crores towards

the construction of new sorting centers in Gurugram and Pune. The construction of these sorting

centers was halted earlier due to the NGT ban and now with the COVID-19 it has got delayed

further. However last week we have got the government approval to restart construction at these

centers and I am hopeful that our new sorting centers will commence operations from third

quarter of FY2021. We are putting our full efforts in making that happen. The complete

automation and implementation of business intelligence at our sorting centers will result in

shorter turnout time, higher utilizations and enhanced operational efficiency in the long run.

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Overall it is important to note that the business environment during the year remains challenging,

with the economic slowdown in the year 2019-20, weaker industrial and manufacturing activities

across sectors. Despite all these challenges the company delivered a topline growth of 5% in the

first 11 months from April 2019 to Feb 2020. Normally March is considered to be the best

operational month, where we see high movement of goods due to stock clearance; however with

the unfortunate India shutdown because of COVID-19 in the middle of March it impacted our

business performance. Although the nationwide lockdown brought businesses to a halt and

disrupted the economy, we stand in full support with the decisions taken by the government.

During these times, health and safety of our employees, partners, vendors and other stakeholders

remains utmost priority. After the announcement of the lockdown on March 24, 2020 the

company allowed work from home policy and promoted video and audio conferencing tools to

interact internally and externally. Our offices resumed on April 20, 2020 and we have taken

various initiatives such as operating with limited workforce, sanitization, social distances at

workplace, employees screening at regular intervals, mask and sanitizer distribution. We believe

that all these measures are critically important to ensure safety of our employees at the

workplace.

COVID-19 impact on the industry- the business environment came to a grinding halt with the

announcement of the nationwide lockdown in March; markets rapidly deteriorated after mid

March with a closure of factories and offices along with the interstate movement and that has

clearly impacted the transportation and logistics sector. COVID-19 has impacted all categories of

industries and India’s core sector output also declined by 6.5% in March and is expected to

decline in April as well. The pandemic has been rapidly evolving on daily basis, the government

has extended lockdown multiple times and now with some relaxation, the economic activity has

started, but at a lower capacity. Last mile delivery are facing challenges such as strict restrictions

on interstate movement, especially in the metro cities such as Delhi, Mumbai, Kolkata due to

high cases of Coronavirus, coupled with migration of labors adding to transportation challenges.

How TCI Express is managing the impact of this pandemic- Company is closely monitoring the

impact of pandemic on the economy and business and have taken serious or strategic initiatives

to mitigate business risks. Through cost structure optimization, we are reviewing all our cost

heads negotiating with our business partners and objectives to reduce fixed cost. Cost control

measures such as promoting digital communication tools and reducing travels, field operations

footprint, process of improving productivity and optimization in working capital and carefully

planning our capital expenditure plans, collaborating on various projects to deliver health

equipments like ventilators and medicines, with all these initiatives we have committed to

optimize our cost structure and improve our margins and profitability.

Looking ahead the actual impact on the business will depend on the severity and the course of

COVID-19 in the near term and we shall have a better clarity in the coming days once the

lockdown is lifted. I believe we are better placed than other companies as we have the asset light

model coupled with a strong balance sheet, which will not only allow us to navigate through

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these unprecedented times but also emerge stronger. We are confident that once the economic

activity revised, we will turn on our operational and financial performance as we remain the

preferred partner of choice for offering time definite services to our clients. Now I would like to

hand over the call to Mr. Mukti to discuss the financial performance in detail.

Mukti Lal: Thank you Chander Sir and good evening to all of you. I will present the key highlights of our

financial performance for this quarter. However Q4 FY2020 is not fully comparable with Q4

FY2019 due to this unprecedented situation arising out of COVID-19, which impacted our

performance as mentioned by Mr. Chander in March 2020. Our revenue from this quarter has

declined to Rs.238 Crores from Rs.266 Crores in the same period of last year and it is a decline

of 10.5% on year-on-year basis and absolute EBITDA stood Rs.28 Crores in this quarter against

same quarter of last year at Rs.35 Crores, EBITDA margins declined to 11.7% against of 13.1%

in last year same quarter and Profit after tax is also stood at Rs. 19 Crores. also a decline of

12.5% but margin levels are the maintained at 8% and last year it was same at around 8.1%.

Capex in Q4 FY2020 - we have done a capex of Rs.9 Crores and total outlay for the year was

Rs.32 Crores and this was largely used for the construction of our sorting center. Thank you very

much and we are now ready to address your questions.

Moderator: Thank you very much. We will now begin the question and answer session. First question is from

the line of Nishant Shah from Dolat Capital. Please go ahead.

Nishant Shah: Sir, just wanted to know what is the volume for the whole year?

Mukti Lal: Volume for the whole year is around 8 lakh 40 thousand tonne for the whole year and for this

quarter it is 2 lakh tonne.

Nishant Shah: Will you be able to maintain a 50%:50% mix between the SME and the other segments?

Chander Agarwal: Yes, we are not changing that mix at all; there is no need or requirement to change it.

Nishant Shah: That means looking at the current situation, the focus will be more on acquiring more customers

on the SME side?

Chander Agarwal: Absolutely, the large customers are not in a position to expand their businesses and we are seeing

that the opportunity is only arising from the SMEs. Interestingly, India is a country where we will

see that when there is an economic slowdown it is the smaller guys - SMEs, which give you more

of the business, contrary to what we have seen in the news i.e. they are talking about the ultra

small SMEs, who are dealing in cash, who are dealing with the export material, so they are the

ones who are in serious problem because they have manufactured, but they are unable to ship out

their materials.

Nishant Shah: But suppose if you add a one new corporate then what will be the mix change and how will be

the margins get impacted?

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Chander Agarwal: Obviously large corporates are also being added, it is not like they have probably shunned out,

but you see in the past two years the growth that has been happening in India, I will say last year

before the shutdown till February, the growth was coming from SMEs, the large customers who

are all not growing, they themselves were not growing and they were not allowing their logistics

players to go, whatever growth we had till February is 5% or whatever, was because of the

SMEs. I think going forward also, we will see that even we will add the large customers the same

proportion is being added in that number of small customers in that equal proportion or even

somewhere is more, depending on the volume and the quantum of the large customer.

Nishant Shah: Are there any chances that you will be having a cut on the employee’s salary?

Chander Agarwal: We are the only logistics company which has not cut down the salary, we only cut down the

salary of like, I think, only one senior person that is MD and I do not think that going forward

also this would be happening as there is no need. Our salary cost is not very high, it is only like I

think in total it would be about with top management, about maybe Rs, 6 Crores or something in

a year, so it is not like we’re an MNC or something, or paying like crazy amounts of salary.

Nishant Shah: Right now Sir the fuel charges have come down drastically which I think might help the margins

in expansion, but do you think that benefit will be passed on to the customers in the future or it

will be retained by the company?

Chander Agarwal: There are two angles to it. Number one- the fuel cost has gone down, but the Excise Duty has

increased, you must be aware of the Excise Duty so we will have to see how that plays out when

the economy opens up and who will absorb what. At this point we are not touching the price; we

are not doing any price transfer to the customer or to the vendor or anyone else because it is too

risky. Once it opens up, we will have a fairly good understanding where the Excise Duty stands

and where our rates stand, so we will do that benchmarking and the analysis after May 17, 2020.

Moderator: Thank you. The next question is from the line of Yang from Tokio Marine Holdings. Please go

ahead.

Yang: I just want to ask after the third quarter call, the outlook for the first quarter was quite positive,

P/E sales growth for the fourth quarter, just want to know if you could give us month by month in

the fourth quarter, what the sales trend was like just to get a sense of the impact before COVID

and the impact once COVID has started?

Chander Agarwal: I think January was something that we were all expecting to be very good and it turnout to be

only a growth of maybe I think 3% or something and February was better than January I think

percentage was about 5% or 6%.

Mukti Lal: Yes, in March if you take figure in absolute terms, we almost lost Rs.40 Crores revenue in this

quarter and as mentioned by Mr. Chander that was supposed to be a very good month for us and

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we should have added Rs.40 Crores more revenue for that, which means that we would be at a

growth of about 5% in the month of March over January and February.

Yang: Okay that is my main question I will get back in line. Thank you.

Moderator: Thank you very much. The next question is from the line of Vishal Biraia from Aviva India Life

Insurance. Please go ahead.

Vishal Biraia: My question is, in this year what is your outlook on pricing and outlook on utilization because

volumes could take a massive hit as MSMEs specifically are at risk, so in terms of what would be

your outlook for pricing and utilization and also your outlook on distributors, could there be a

rise in receivables from the MSME’s side in this year?

Chander Agarwal: No, I do not think from SMEs, we are going to see any rise in the receivable from their side

because they do not have any reason to hold back, I do not think we deal with that kind of a SME

base. For Pricing and capacity utilization it is very early to say anything, like I mentioned earlier

the receiving real data and the analysis will only be done once the engine starts running, which I

am hoping that it will be in full gear by July. So I think it will be very difficult to kind of like say

at this point, how we will tackle both. All I know is that, we do not want to be in the position to

be reducing the prices anywhere, but we also we are working on cutting out the pricing for our

vendors, which is our cost aspect that is something that we can consider doing also. So that is

something which we will get to know once things are moving.

Vishal Biraia: So what is the utilization currently, after the lockdown ease up from end of April till today what

has been the pickup and at what rate are you operating currently?

Chander Agarwal: We have had about, I would say, at about 25% capacity utilization.

Vishal Biraia: Okay I will come back in the queue. Thank you.

Moderator: Thank you. Next question is from the line of Pritesh Chheda from Lucky Investment Managers.

Please go ahead.

Pritesh Chheda: Sir what will be the extent of fixed cost in our business, how much of that fixed cost is possible

to cut down in FY2021?

Mukti Lal: So, we have a very good opportunity to rationalize various costs or even semi variables, like

traveling expenditure because we are now focusing more in digital communication and all,like

traveling, conveyance and then some customer meeting expenditure. We also want to take an

initiative, where we are not putting any stationary expenditure this year because we are providing

a digital contract note or docket note to our customers and then with various suppliers we are

negotiating with them, so many expenditures we have already planned up.. Salary cost may be

cut down by 5% or 7% due to cost associated with meetings & other reimbursements of

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employees salary etc. , but on other cost we are trying to cut at least 20% for the whole year for

2021 and there are various, various options for we have as I mentioned on that part.

Pritesh Chheda: You said 5% to 7% in employee and the other expenditure at 20%?

Mukti Lal: Yes.

Pritesh Chheda: So if I have to put it that, these two costs put together about Rs. 150 odd Crores?

Mukti Lal: It is Rs. 175 Crores annually.

Pritesh Chheda: Okay Rs. 175 Crores, so approx. Rs. 20 Crores odd is what you are aiming to cut in FY2021?

Mukti Lal: Yes, salary will not be cut at all, rest this is related to my employee related other expenditure,

like meeting expenditure and all, that may be cut down and some incentive may also take a hit,

that is just variable kind of expenditure, so that is there only.

Pritesh Chheda: Thank you very much Sir, and any thoughts on the competitive landscape, how it will behave and

what changes do you see in the express logistics industry over the next couple of years?

Chander Agarwal: Yes, there will be a lot of consolidation happening, already I am getting fillers almost on daily

basis for acquisitions. So I think this is something, which we knew is going to happen and for any

startup, or for anyone, which is asset heavy is definitely going to take the toll.

Pritesh Chheda: Thank you Sir.

Moderator: Thank you very much. Next question is from the line of Sriram Rajaram from Ratnatraya Capital

Partners. Please go ahead.

Sriram Rajaram: I have couple of questions. Now, if we see your book, SME forms 50% of results and do you see

any possibility that SME shift to the unorganized players in due to growth part, so that is my first

question, second, if you could throw some light on your capex plans for the next two, three

years?

Chander Agarwal: I do not see any reason why the SME will shift to the unorganized segment because unorganized

segment is in shatters right now, so possibly there is no incentive for them to do so, like

unorganized segment is in a very bad state so that is not going to happen and number two, yes of

the Rs. 400 Crores we have already spent Rs. 120 Crores and this year we will spend about Rs.

80 Crores as we have planned, so there is no change in that.

Sriram Rajaram: The next year it will be Rs. 100 Crore?

Chander Agarwal: Yes, about that much yes.

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Sriram Rajaram: Why I asked you this question is, in SME’s people are on a cost cutting mode and people may

not see the value add that we provide, so there is a possibility that they could shift to unorganized

sector, that is why I asked you this question?

Chander Agarwal: From cost cutting point of view they always have the option of going to the unorganized segment

earlier also, if they wanted to, but it is just that they will not be able to provide the service and the

assurity. Now is the time when we are seeing that companies are shifting and wanting our service

more, they are not wanting point to point service as much because manufacturing is also not

100%, it is now staggered and it is going to go in parts and loads, that is what the express

business. The hub and spoke model is now going to come into full effect, like well it was already

in full effect, but it is going to come, it would be enhanced further for our customers because they

will be shifting their point to point to express, so I do not think the unorganized segment will be

able to provide this kind of service that we are looking at, at the pan India and all of that. So I did

not see that as a threat at all.

Sriram Rajaram: Thank you. I will join the queue.

Moderator: Thank you. Next question is from the line of Sangeeta Purushottam from Cogito Advisors. Please

go ahead.

Sangeeta Purushottam: My question is a followup to an earlier question on the fixed cost, you said that your fixed cost

and some semi fixed cost together are about Rs. 175 Crores a year, so it is roughly about Rs. 15

Crores a month is it, so as long as you are doing more than Rs. 15 Crores a month of revenue you

should be profit positive, would that be a fair statement?

Mukti Lal: No, fixed cost is other than my operating cost, so my operating profit if you see in last whole

year is around 30%, so for that to be charged against Rs.1,000 Crores my operating cost is Rs.

700 Crores, then Rs.3,00 Crores we have as a reminder, is for this fixed cost and profit..

Sangeeta Purushottam: Could you just explain this, if you have Rs. 1,000 Crores of revenue, what is this Rs. 700 Crores ,

your operating cost is it total variable?

Mukti Lal: Yes, 100%. Actually what we are completely asset light model company and we do not have

any fixed cost related to my operating cost.

Sangeeta Purushottam: Okay, so Rs. 1,000 Crores in revenue gives you an operating profit of Rs. 300 Crores and from

that Rs. 300 Crores about Rs. 175 Crores is fixed?

Mukti Lal: Yes, that is correct understanding.

Sangeeta Purushottam: So, what is your breakeven point for a quarter, say how much revenue would you need to do in a

quarter to be a bit breakeven?

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Mukti Lal: It is Rs.100 Crores.

Sangeeta Purushottam: Rs.100 Crores revenue for quarter?

Mukti Lal: Yes, for the quarter we are talking.

Sangeeta Purushottam: So, if you did Rs.100 Crores of revenues for the quarter your operating cost would be Rs.70

right?

Mukti Lal: May be slightly down even with that, we are targeting for even reducing further because that

figure belongs to last year, now we are targeting to reduce further.

Sangeeta Purushottam: Okay, so I am a little confused on this number, so I am just going to go away with you Rs. 100

Crores of revenue you do Rs.70 Crores is your cost, Rs. 30 Crores is your operating profit and

your fixed cost per month Rs.15 Crores so you need to do maybe Rs. 150 to 200 Crores upwards

roughly, say Rs, 150 Crores in order to not to bleed right, not Rs, 100 Crores?

Mukti Lal: So whatever fixed cost right now we have, we are negotiating our all infrastructure cost with

everyone and we are confident to reduce it by that number.

Sangeeta Purushottam: Right, but at the moment with whatever cost that you have, would it be then fair to say you need

to do at least Rs, 150 Crores of revenue per quarter not to go into the red?

Chander Agarwal: Let me explain, our fixed cost per month is about close to almost Rs. 11 Crores we are taking Rs.

3 Crores extra because we have this travel and all others, like advertising and all of that was part

of it, which is not going to happen this year. So, essentially we would be getting our fixed as

salary and the rental part, which comes up will be about Rs. 11 or 12 Crores, I do not know I

will have to see the exact numbers, so that is about Rs. 30 Crores for three months and for Rs.30

Crores what we will be needing is about almost Rs.100 Crores business to breakeven, is what I

am looking at.

Sangeeta Purushottam: Right, so that means Rs. 100 Crores of revenue per month?

Chander Agarwal: Not per month, it is quarter.

Moderator: Thank you. Next question is from the line of Ankush Agarwal from Stallion Asset. Please go

ahead.

Ankush Agarwal: Firstly, if you can just give some color on what kind of stress, if any, are you seeing on you

receivables part and secondly, if you can give the tonnage growth for the quarter and for the

whole year?

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Mukti Lal: So on receivables we do not feel anything, our receivable, if you see in the balance sheet on the

SEBI, we have the receivable number as for the last year, so my receivable days are equal to 48

days what was also in last year and same in this year, so there is no challenge we are facing at all

and we are able to get the money even in April and May also, so there is no challenge at all. So

tonnage growth in this quarter was negative by 11.5% and for the whole year, it is negative of 1%

only and for complete year, it is around 8 lakh 40 thousand tonne and for this quarter it was 2

lakh tonne.

Ankush Agarwal: Okay, thank you.

Moderator: Thank you. Next question is from the line of Paresh Jain from Bajaj Allianz. Please go ahead.

Paresh Jain: In the initial part, you said that you are looking to reduce your fixed cost by Rs. 20 Crores for the

financial year 2021 right, now this Rs. 20 Crores reduction is likely to happen because of

reduction in advertising and travel expense or is it that Rs. 11 Crores expense will be reduced?

Mukti Lal: If you see, in Q1FY21 especially, we are negotiating for whatever kind of indirect cost we have,

like rental for the godowns and electricity and then again as Mr. Chander had mentioned

traveling, conveyance and advertising is what we are looking for, whatever we can reduce we

will be able to reduce so we are targeting to have only Rs.30 or Rs.32 Crores fixed cost for this

quarter, that is our target.

Paresh Jain: And this will be normal of Rs. 45 Crores, right?

Mukti Lal: No, if you see, different quarters have slightly different fixed cost, depending on various events

in the company and all, so if you see last year this quarter has the only Rs.40 Crores fixed cost,

that we have reduced to Rs.30-32 crores.

Paresh Jain: I understand that advertising and travel and everything this is probably variable because as the

business activity picks up you may spend more, if the business activity comes down you would

reduce right. My whole point was this Rs. 20 Crores of reduction would happen because of this

reduction in business activity, which is advertising and travel or is it related to a rental expense

which is slightly more perpetual and slightly longer-term?

Chander Agarwal: It is both. Yes, because as a company we do not like to reduce rental, if there is a branch rent less

than Rs.10,000/- , I do not like to reduce that, I do not like to burden that person so we have to

take into account and factor in everything, most companies are not even paying, even I do not

need to pay the salary if need be, but we do not seem to do that. I think where it is totally

nonessential, we have chopped it already, we have already cut it out and of course like we are not

going to be giving any salary increase for at least Q1, Q2, possibly and in Q3 if we may be

giving, so our full effort is to reduce as much of the fixed cost as we can, rental is not much

rental is only about Rs.3 or Rs.4 Crores a month and above that you have the miscellaneous

expenses, you have consultants, you have other normal indirect expenses that you have in

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running a business, so that is something that we are cutting down. Salary I am not very keen,

maximum I have cut out my salary for Q1 and I don’t think we can go below that.

Paresh Jain: I think that is a fantastic thing that you have done and I really appreciate that because that is a

difference between good and great I will say, in that way, that is fantastic what you have done.

So, congratulations to you on that for one mark retrenching and for ensuring that your employees

are getting salaries and secondly in terms of, since we get trucks from outside right, so are we

able to see some reduction out there?

Chander Agarwal: So what is happening is, I will initiate this process after May 17, 2020, I do not want to be like

touching before, because it is very sensitive, there are driver issues, there are labor issues, there

is fear of the unknown. The more we shake the beehive the more we might just take the stump so

I do not think now is a good time to really do any of that. Obviously I have my sight on that and

we will have to do it very, very tactfully. I know that there could be a possibility that we might

even have to reduce the number of vendors we have from the system, instead of just reducing the

prices, we might just get rid of them because I know that this Q1 is not going to be very, very

large in volume and possibly Q2 also may not be that large in volume we do not know, it remains

to be unknown, so more than just reducing the Re.1 or Rs.2, we will just cut down the vendors

completely.

Paresh Jain: Thank you and all the best.

Moderator: Thank you. Next question is from the line of Avnish Tiwari from Eastern Bridge. Please go

ahead.

Avnish Tiwari: Could you articulate how DFC could provide, you either in terms of opportunities or in terms of

any risk you see in your business?

Chander Agarwal: DFC has got nothing to do with my express business, where I am doing 40 thousand delivery and

pickup points in India. DFC,I do not know, it has been 20 years and it has not come up, I do not

know when it is going to come up next I do not put my rupee on that, I have not seen any other

businessmen put any rupee on that, they are definitely not a threat in fact last year from the Niti

Aayog and from Mr. Gadkari it was a clear mandate, that it is being made to reduce the export

time it takes and the cycle time it takes from North India for containers to reach Nhava Sheva and

all the export containers and the commodities is going to move on that and a recent chat also with

Mr. Gadkari and all these eminent people, politicians, it was very clear that the focus is also now

because they are building a Delhi to Bombay highway where it is guaranteed 10 hours you can

reach in 12 hours or 13 hours and the truck maybe in 14 hours and where they have industrial

corridors on both sides that is a better lucrative more opportunity than the DFC and this highway

will be ready in three years. So I think investor should look at this highway and what it is going

to hold for them and for the economy versus the DFC, which has not come up in 20 years and

very clearly this new highway says that the biggest problem of DFC was land acquisition, which

is still there, but this highway is now going to be is in the rural in the interlinks and is going to be

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cutting through that and it is going to be built for companies like us ,who will possibly deliver

Delhi-Bombay in like 8 hours or something so DFC is not really something that we are looking

on or banking on or betting on.

Avnish Tiwari: Okay great. Thank you.

Moderator: Thank you very much. Next question is from the line of Vihang Subramanian from Samsung

Asset Management. Please go ahead.

Vihang Subramanian: Basically my first question is when there is a degrowth in your volumes of like say 20% or 30%

like how should one look at margins because obviously most of your cost like the employee cost

and the rent expenses are going to remain the same but like your operating expenses freight

which is like the major chunk of it so you have tie ups so it is like a lot of vendors and they might

be like unorganized or small truck operators, etc., So how do you sort of like do you renegotiate

it with them based on the revised volume that you have got or how do you sort of like manage the

margins when there is a volume decline?

Chander Agarwal: So we pay the usage by the kilometer right, so if we are not using their trucks then we are not

paying them, as simple as that.

Vihang Subramanian: No, but say you have contracted with, say you have a guy who is running a 10 tonne truck and

you are paying him per kilometer and earlier you used to get 10 tonnes but now you are getting

only 7 tonnes, so do you still have to go with the same guy?

Chander Agarwal: We go with the same guy but we would not go with 10 trucks, we only go with one truck.

Vihang Subramanian: No, but it is not the number of trucks its the tonnage I am talking about, so you are paying on a

per kilometer basis but then if you have tonnage decreases then how do you manage that?

Chander Agarwal: Our pricing is the same what we give them whether we use 700 tonnes from them or 7 tonnes or

700 kilos so because they drive the vehicle as per my company requirements and this is how we

are paying them, like today if there is a need of just 7 tonnes, as you said for one truck, we will

only pay that for one truck, it does not mean that the pricing will increase or something, it is a

fixed.

Vihang Subramanian: Then your margin will decline right, sir, because for instance if we were getting 10 tonnes earlier

you are charging your client on a per tonne basis know?

Chander Agarwal: No, this is not on the spot, this is vendor system, on the spot the margins will decline and by the

way the on the spot market hire is now almost 100% of the current whatever freight rates are

there, so market on the spot is only different and what you are talking it will decline, but no not

really and does not vary for us in that manner, but for 7 tonnes at 50 paisa per kilo, it is going to

be 50 paisa, or if I send 700 tonnes it is going to be 50 paisa, obviously the volume is now lesser

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much lesser so you are not going to get the gains of 700 tonnes, you will get the gains of only 7

tonnes that is being booked.

Mukti Lal: Yes, to add to Chander Sir’s statement, what we are insuring is the capacity utilization, it has to

be intact actually in this condition we are not going to send truck empty like that, as you have

mentioned out of the 10 tonne if we had a 7 tonne materials, we will leave the truck where we

will in ensure that the truck has filled up completely.

Vihang Subramanian: Exactly, that is exactly, what I was asking actually, will utilization decreases because of the

decrease in volume.

Mukti Lal: We will not allow to decrease the utilization level as Mr. Chander advised, so if earlier there

were three truck now we will only move one truck but it also has to be completely full.

Chander Agarwal: Yes, that we cannot move empty, just because it has come down to one truck they do not lose the

capacity utilization effect that will always be intact that is the company policy.

Vihang Subramanian: Assuming that suppose the lockdown and everything starts now in June, like after 1Q when you

have like remaining three quarters for FY2021, so could you kind of probably help us with like

just two things here what sort of volume or turnover kind of growth and margins you are

expecting like ballpark numbers and second thing is could you just also say how much capex was

incurred in FY2020?

Chander Agarwal: We are looking at, about maybe, a business growth of at least 10% to 12% depending on how the

remaining plays out and we would be having our profits equally.

Vihang Subramanian: How much capex was incurred in FY2020?

Chander Agarwal: We spent about I think Rs. 32 Crores and the remaining we will be spending about Rs. 80 Crores

this year.

Vihang Subramanian: Thank you so much Sir.

Moderator: Thank you. Next question is from the line of Abhishek Ghosh from DSP Mutual Fund. Please go

ahead.

Abhishek Ghosh: Sir just in terms of what is that number of fleet touch points that you have in terms of the

vendors? I said total truckers that we kind of have it in our vendor system how many trucks do

we have as touch points at this point in time?

Chander Agarwal: I think about 5,000.

Abhishek Ghosh: There is no minimum guarantee that you have in your clause with your vendor?

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Chander Agarwal: Nothing. See our asset light model is a beauty, right, we do not have any assets, we can play it

like - you own a car you drive it whenever you want, but of course this is not like owning a car

and we just use it when we want, we are not losing money, interest, depreciation, nothing.

Abhishek Ghosh: But you will evaluate this 500 truckers touch points you said post May 17, 2020 may taking a

call whether you want to reduce it or how do you want to go around that?

Chander Agarwal: It has to be done very carefully, because if we reduce it we do not get good quality back and most

likely for a lot of people there is going to be a lot of churning in the industry and we will have to

be very careful to emerge us again at the top and I do not think maintaining this, being at the top

is easier, because it is a asset light and is flexi business model in terms of flexi operations and

everything, so I think it is kind of easy to say reduce price and move them but we will have to

wait and watch, we will have to calculate it.

Abhishek Ghosh: In terms of the way you are looking at reducing your touch points of the vendors I think

everybody around also would be looking to do the same thing and there could be a supply glut,

so you think that could put pressure on the overall freight rates assuming fuel prices remain

stable you think this phenomena itself can put a lot of pressure on the freight rates and better

negotiating power for you guys?

Chander Agarwal: No, freight rates are already very high now, so on the spot if you pick any logistics company,

which is in the business of on the spot hiring and then providing service to the customer there is

going to be in trouble this year only because the freight is rate is ridiculous like 100% more, say

from all of Gujarat any trucker they increase the prices 100% and it is unbelievable, so that

obviously means that the vendor system has come into play, now we have to wait and watch and

see how manufacturers are increasing their price or not and based on that you will take a decision

whether we will increase our price or not for our customers, so a lot has to be done very tactfully

I would say, it may not be done with a mentality that they have increased so we have to increase,

it they have decreased we have to decrease it, no it cannot be done that way.

Abhishek Ghosh: Thank you so much.

Moderator: Thank you. The next question is from the line of Shreyas Bhukhanwala from Canara Robeco

Mutual Fund. Please go ahead.

Shreyas Bhukhanwala: Two questions, one is on the pricing front so I understand you said we would not be looking to

reduce prices but are we seeing any request from our clients or SMEs wherein they are requesting

to reduce the prices and secondly on the SME side again being a 50% contribution, just to wanted

to understand some mix on the client side so is it that so I understand it is quite we have a very

good base of the SMEs, but is it that the top 25%, 30% would be contributing a good amount and

then there would be a long tail or it is widely distributed SME category?

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Chander Agarwal: I think I will answer your second point first, it is widely distributed and maybe 0.1% in small

location, like maybe I do not know Kanyakumari or something, they would not be of the same

category as our other SMEs. So it would depend a lot on the location, but in general, it is the

better SMEs that we operate with. Regarding your first question reducing price, in fact some

locations we have already increased prices and they have agreed also, so I do not think it is going

to be any question of reduction in our case. If this was like plain vanilla transportation, then yes, I

would be like even if you reduce 50 paisa or whatever it makes a big difference, but here it is a

value added service, so the chances of reduction is like negative this is not going to happen.

Shreyas Bhukhanwala: Sure. Thanks.

Moderator: Thank you very much. Next question is from the line of Aman Rathi from Morgan Stanley.

Please go ahead.

Aman Rathi: Two questions from my side, one based on the revised business plan that the company would

have developed for this financial year given the volatile situation, can you give some

quantification on what is volumetric growth we are targeting for quarter-on-quarter or year-on-

year basis first, secondly I just wanted to know more about the business how is the transportation

happens do you use pallet system in order to transport or any other system you have?

Chander Agarwal: Starting with question one, I am expecting about maybe 8% to 10% volume growth this year and

number two, we do use hand pallets and modelized palletization in our sorting centers and in our

branches, but unfortunately in India we do not have the system of palletization in the trucks

because packaging in India is very absurd and different, it is not like same type of packaging for

all types of manufactured items, so therefore it cannot be placed in a pallet in a truck and our

truck quality is pathetic, it like 60, 70 year old technology and of course the highways are great

now, but as you come inside the city there are lot of autos and everything so that is also a big

problem, so palletization is kind of likely really impossible inside the truck at this point. Yes, for

short distance maybe like if you are going from OEM to plant, maybe there they could be doing

it.

Aman Rathi: Okay, so majority of the pallet we used is restricted to the inventory if it is being hold for a

shorter period, if I stand correct?

Chander Agarwal: yes, It is used exactly for our material inventory for shorter period.

Aman Rathi: So, do you rent these pallets or how do you see the demand for these products?

Chander Agarwal: They are not expensive very high quality ia available in India and we buy them because the usage

is pretty on daily basis and are in usage for for like five, six years, thus will not have any

problems.

Aman Rathi: Thank you Sir.

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Moderator: Thank you. Next question is from the line of Dheeresh Pathak from Goldman Sachs. Please go

ahead.

Dheeresh Pathak: So have you shared, I might even missed it in the earlier part of the call, have you shared what

volume decline you are seeing in the month of May and now that countries divided into various

zones and some activities are allowed, what is the business decline that you are seeing volume

decline in the month of May?

Chander Agarwal: Our business has started ,like we have started doing business, we have generated revenues

already and I would say that volume decline is possibly around maybe almost about 70% or

something and this is something which is expected we have to be careful in terms of how we

handle the products, how we get it the manufactured goods, when our people go to that customer

to pick up the material, whether it is sanitized or not, whether they sprayed or not, so all those

things take time, and I think 70% and I would say that by this month end if the lockdown opens

May 17, 2020 and if manufacturing comes back to 30%, 40% by month end then I would

possibly see there could be a high possibility of almost 50% negative from like say almost 95%

in April.

Dheeresh Pathak: Understood. The second question is about the vendor you mentioned, 5,000 truck partners and

you also mentioned on some routes prices have gone up 2x and you said that there in asset light

business there is no guarantee of any business that you are underwriting with these partners, so

then you are also seeing this sort of increase on select routes where prices are going up, for this

prices are you are also seeing parting of these prices with customers?

Chander Agarwal: Our pricing does not go up, if the spot hiring goes up in the country, our pricing does not go up

because vendor trucking is fixed, it was fixed last year and then still the same.

Dheeresh Pathak: You also said that business is asset light and you have not underwritten any capacity with any

truck partner right?

Chander Agarwal: Right, if you are my vendor and you hold 10 trucks, if I would want to use only one truck of

yours I am going to do that, I do not have to pay for the remaining 9.

Dheeresh Pathak: At a fixed price which is committed for a year?

Chander Agarwal: It is not committed, we do not have any commitment of any sort, they are under an agreement

that they will work for us, they will brand their trucks as per our company name and if we are not

able to going to give them any work we are not liable to pay them, our agreement does not say

that anywhere.

Dheeresh Pathak: But what pricing are you suppose to give them, what pricing or is it a fixed price ?

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Mukti Lal: We are paying them as a per kilometer, whatever they run we have to pay per kilometer, we do

not need to pay anything if they stay empty, then in that case we do not need to pay anything.

Dheeresh Pathak: Sorry still not clear sir. So one would be a fuel prices you will pay, a price which is a function of

fuel price plus some price per kilometer basis, right is that what you are are saying?

Chander Agarwal: Our price is determined in the beginning of the year or whenever and it is in our prerogative

when we want to change it and how we want to change it. So the pricing has not been changed if

I am paying them it is on my pricing, on basis of kilometer, how much they run, so if they have

one vehicle running say 10 kilometers I will pay them for 10 kilometers and if they have 9

vehicles which are not running I will not pay them, simple answer.

Dheeresh Pathak: If there is a scarcity of asset and as a truck operator, I am getting better pricing elsewhere why

would I make my capacity available to you?

Chander Agarwal: You can get better pricing elsewhere but you will not get the material, so pricing can be there,

why do you think the truck on this spot have increased the pricing because there is no material,

here what they are trying to do which is a contrary to the belief that if the material is not there the

pricing will drop, no because there are not enough drivers, there are not even enough labors out

there, so they are bearing the burnt, they do not even have the spot truck, trucks do not even have

a second driver, so there actually a disadvantage, so even if the 9 trucks if it does not work for me

where is he going to go, he is now going to get material that you have maybe out of the

manufacturing is all shut but he knows that I will get the material. Ultimately I am the one who is

going to give them work, so he is not going to go anywhere. It also depends a lot on not just the

simple variables like the asset and that, but also like how the market is playing out, who is able to

provide the business, who is not able to provide the business.

Dheeresh Pathak: Got it okay.

Moderator: Thank you. Next question is from the line of Neelesh Dhamnaskar from Invesco Mutual Fund.

Please go ahead.

Neelesh Dhamnaskar: I have two questions, one is which of your client industries or sectors are showing some degree

of revival based on whatever assessment you had recently whatever opening up has happened?

Chander Agarwal: I think now we are surprisingly very happy and glad to say that almost all our branches are

opened across the country, even in the red zone so basically what it starts off with is the delivery

of the material, like in the beginning of April we had 10 thousand tonnes material lying with us,

so the quest is to first deliver that material and once you start delivering is when you will start

doing the pickup, so slowly by slowly the pickups are started to happen everywhere, not just I

will say that only in pharma or only in engineering, it is everywhere, so everybody is desperate to

do business because people are so desperate that they are going to take out their March numbers

as Mr. Mukti was saying earlier Rs. 40 to 50 Crores worth of transportation that we did not do,

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but that much material is pending to be taken. I think it is started all over, there is no one sector

taking out more than the other or something.

Neelesh Dhamnaskar: You said all the branches have already started.

Chander Agarwal: Yes they have.

Neelesh Dhamnaskar: My second question was how is the company going to ensure that driver availability, basically at

the trucking vendor level when things pickup because that has been an issue around, so how

confident are you that you will be having truck drivers when things revise?

Chander Agarwal: I get a daily report of the truck drivers reporting to the trucks, it is very encouraging, even though

truck drivers were not getting paid so they are also anxious to get back to work, our delivery

system that we have, intercity, intra-city delivery that was that we have they all are also

interested to work because they want the money and our ecosystem is as such that they know that

we have the material, we have the goods they can transport if there is going to be sending out

empty trucks. So I think in general, it is about the road blocks we removed out and us gaining

speed and going ahead.

Neelesh Dhamnaskar: So essentially truck driver availability should not be a big issue for you?

Chander Agarwal: No, because our ecosystem already has the driver availability, it is on the spot outside which does

not have drivers and which is facing the crunch.

Neelesh Dhamnaskar: In between, we were hearing that there are lot of state related bottlenecks, which had emerged

because of extra checking and all, have they kind of subsided or are they still having this?

Chander Agarwal: They are not there anymore like the way it used to be.

Neelesh Dhamnaskar: I mean to say the COVID related checks?

Chander Agarwal: Yes, COVID related.

Neelesh Dhamnaskar: So they have kind of smoothened out, is it?

Chander Agarwal: I just did Delhi to Gurgaon this morning and there was no checking, there was a barricade only,

that is all.

Neelesh Dhamnaskar: Okay, great. Yes that is all from my side. Thanks and all the best.

Moderator: Thank you. Next question is from the line of Krupashankar from Spark Capital. Please go ahead.

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Krupashankar: I have one question pertaining to the support, have you provided any support to vendors or

truckers given that there is this driver shortage and no cargo availability, so their financial

position also will be under stress, so is there any extended support giving?

Chander Agarwal: Yes, now I can tell you one thing that the drivers, which are stuck in our sorting centers, we are

providing them with like mattress and all that and food is being provided to them also and

obviously we are not charging the vendor and the vendor has a lot of, from their cycles

perspective it has its revenue coming in and its payments coming in so they also, like us, waiting

for to start the work so we can pay that, so they know that their money is also with us so they are

now very happy in parking the trucks at our premises and not worrying about it. So, our labors

also we are doing the same thing, labors which are in our premises we have not really allowed

them to go out, we convinced them to stay and of course we have the strict sanitization process.

If they leave, then there would be like ultimately loss in our productivity so that we are very well

managed and very well taking care of.

Krupashankar: Chander what I meant was anything on the financial side of things which was paid out earlier

itself, perhaps payout to meet their financial obligations, etc.?

Chander Agarwal: To meet their financial obligations over the last two months, we do not have to pay any advance

if they are not working, we do not have to pay that. Okay, there is a labor sitting in my sorting

center and I am giving him the privilege to stay in the premise there, I will not pay in salary and I

will not pay any of it as he is not my liability.

Krupashankar: No, got it, just as a vendor retainment sort of a measure is the angle where I was coming in from?

Chander Agarwal: They cannot go anywhere, vendor will not go anywhere and he is not going to get any business

or money, nothing. If he leaves my company and go somewhere, he is not going to get any

business, if vendor goes or leaves the company, he will become on the spot hirer like he put some

cuts on the hire so on the spot hiring and he knows that the spot hiring business is dead now,

there is no one hiring so he is totally at loss.

Mukti Lal: So Krupashankar, to fulfill their commitment or finance commitment, we are releasing their

money because you know we had a one month credit with us, so supposing there are no business

after mid of March so whatever dues we have, we are releasing that so they can pay their EMIs

and all kind of that we have supported there and other thing is that the government is also

supporting them they can be defer their EMIs and Insurance, so there is no challenge we face as

such in a whole these two months, nothing new happened on that part.

Krupashankar: Thank you.

Moderator: Thank you. Next question is from the line of Prateek Kumar from Antique Stock Broking. Please

go ahead.

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Prateek Kumar: Sir one question, on the last gross margins you mentioned about the fixed cost cutting on

expenditure in FY2021, so in FY2020 you improved your gross margin by around 50 bps so to

around 29% on year-on-year basis while your exit was around 30%, so how are you seeing gross

margins for FY2021?

Mukti Lal: Yes, Prateek we are looking forward to again improve margin levels by at least 100 basis points,

in this year as well.

Prateek Kumar: So this will be over and above that fixed cost cut of around Rs.20 Crores we are looking at?

Mukti Lal: Yes correct.

Prateek Kumar: And just some question on the business partners. You said we have like 5 thousand business

partners, so these would be like a 10, 15 year age old partners with us or we keep changing?

Mukti Lal: So, if you see majority are basically old relationship person with us, so I think almost everybody

is over 8 year or 10 year with us and as r business increases, the new vendors are also increasing

from time to time, so average age you may take as a 7 year, because whereever possible, we do

not want to be create monopolies with any vendor or on any route that is why we are also

encouraging to add the new vendors and suppliers, that is part of our strategy.

Prateek Kumar: That is it. Thank you.

Moderator: Thank you. Next question is from the line of Yang from Tokio Marine. Please go ahead.

Yang: I just want to come back to what you mentioned about the Rs. 40 Crores loss in March and as a

result if we have that back, the fourth quarter up 4.5% in terms of the topline growth so I just

want to come back to that, coming out of the third quarter the guidance was maybe the key, just

wanted to get a sense what was the shortfall or what was it happen unexpectedly in the third

quarter?

Chander Agarwal: So what happened was like the first of all ,Diwali was a really big problem in India as it did not

take off the way it was expected so Q2 we came up with double digit growth and our PBT hit

60% more than last year and then Q3 is when we were expecting even higher growth but that do

not happen because of a very low Diwali and a very poor December month as well. Then we

expected January to pickup for the entire year, to kind of like equalize the last quarter, which is

always the best for the whole year, January was also beautiful very, very lower because of the

slower economic situation in India. February we saw a little bit pickup happened and finally in

March when we have got to break it at about double digit growth, is when the last 15 days is

when the lockdown effect started to come into play and unfortunately that the only increase was

at 1% growth that we had for last year.

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Yang: Rs, 40 Crores less business in March. I just wanted the outlook that you mentioned just now 10%

to 12% sales growth for this financial year FY2021 and 3% to 7% volume growth for FY2021, I

just want to get your help there. Okay thank you that is all. Thanks.

Moderator: Thank you. Next question is from the line of Lokesh Manik from Vallum Capital Advisors.

Please go ahead.

Lokesh Manik: Sir my question was regarding the topline, it has been pointed out even before that thumb rule is

our sales growth be like at 1.5 times to 2 times GDP growth and even for the Rs. 40 Crores loss

of business we still managed to reach 5% sales growth year-on-year I just wanted to understand

that what are the sectors that may have caused a slowdown, which you were expecting to revive

back in H2 maybe a customer segment either SME or corporate or a sector wise maybe auto,

pharma or any other sector?

Chander Agarwal: So let me tell you that the 5% growth actually came only from SME’s, it did not come from the

big guys at all and this was something, which I knew was coming out to be as we saw the

economy was laundering, the consumption was pretty full and this is something which I knew

also that every time if there is a downturn in the economy in India, its the SME guys who would

always go forward. I won’t be surprised also now in this year, if the growth will come from SME

only, the big guys they are not willing to start the factory also because they know that if they do

not sell 100 motorcycles they will be at massive loss, they will be on a bigger loss for starting for

100 motorcycle versus not starting at all. So I think the growth this year also will come from the

SME and that is why in my client guidance to open at least another 30 to 40 more offices and I

think this will be driving the growth.

Lokesh Manik: Going forward Sir for the next year, what feedback are you getting in terms of disruption of the

supply chain from your SME customers?

Chander Agarwal: Once the lockdown is over there is no disruption at all, first of all India has faced thousands of

disruptions before GST, like VAT disruption and so on, now it is all computerized and I think

this is really helpful and will really push the economy going forward, even if we get a 2% growth

in this year it will be fantastic in terms of the overall growth and I think all the big rating firms

have given the target of 2% and this 2% is only going to come from the SME guys, it is no longer

to come from big people, that is one thing for sure so I think clearly my strategy in all this will

hold true.

Lokesh Manik: Right and that is all from my side Sir. Thank you so much.

Moderator: Thank you very much. Ladies and gentlemen due to time constraint that was the last question for

today. We still have questions in the queue, but we request all the participants to get in touch

with the management for the followup questions, I will now hand the conference over to Mr.

Abhijit Mitra for closing comments.

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Abhijit Mitra: Thanks for taking time out to do this call Mr. Chander and thanks to all the participants for

asking all the interesting questions. There were a lot of questions left we could see but

unfortunately we have run out of time, so if you have any clarifications I think both Mr. Chander

and Mr. Mukti will be more than happy to answer directly, any concluding remarks Mr.

Chander?

Chander Agarwal: Well, I was just like to say that please be safe, make sure your families are safe and this year will

be one of the most challenging year for India, but localized companies will sail through, I think.

Moderator: Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference.

Thank you for joining us. You may now disconnect your lines.