Mr. Vineet Agarwal |
- In conversation with Vineet Agarwal, Joint Managing Director, Transport Corporation of India
The spike in rail freight rates, just before budget, which is estimated to bring about Rs 20000 crore for Indian Railways, has brought some sheen into the Indian road transport sector. But with crude oil prices boiling, the government may raise diesel prices, and so it is not an unfettered bonanza for the roadways sector. Also, with increasing presence of MNCs in Indian industrial sector, the logistics players are moving up the value chain to become integrated multi modal logistic players.
Transport Corporation of India is a leading and established player in Indian logistics sector in general and road transport sector in particular. To know more about the developments in the Indian logistics sector, and the initiatives of the company, Capital Market's V.Kandaswamy initiated an email interview with Vineet Agarwal, Joint Managing Director, Transport Corporation of India. Excerpts.
Q: What are your expectations from the government for the road transport / logistics sector in particular.
- The government should look at according industry status to the logistics sector. TCI suggests setting up a separate regulatory authority for the logistics sector in accordance to the Insurance Regulatory & Development Authority or Telecom Regulatory Authority of India, as it would help to coordinate between the various ministries for an integrated policy for the sector.
- The government should also implement the much awaited Goods and Service Tax in the budget. The recent announcement in the Budget of introducing in August 2012 is a welcome step.
- With the logistics boom, there is a need to develop more access-controlled expressways.
- Warehousing for non-agriculture commodities should be treated at par with infrastructure projects and should enjoy similar benefits.
- Better technological investment should be made in order to speed up the transactions of the documents especially during the verification of the documents at checkpoints.
Q: Kindly share the dynamics of the Indian freight transport market, with the share of rail, road, air and seaways. At what pace has each of these segment estimated to have grown in the short, medium and long term hitherto. Do you expect the pace of growth to change differently for each of these segments, from hereon?
- Rail: With the fourth largest network in the world and a total track length of more than 64000 kms the railways catalyze socio economic growth. Rail transportation accounts for more than 30.8% of inland movement of goods.
- Roads: The Indian road network (over 3.34 mn kms) is the second largest in the world and carries 60-70% of freight traffic. The transport sector accounts for about 6.4% of India's GDP of which road transport alone accounts for 4.5%.
- Ocean cargo: The Indian shipping industry is the backbone of the country's international trade. With 12 major & 187 minor ports as well as a 7500 km coastline, ocean freight is an important economy driver.
- Air cargo: India's air cargo segment is expected to grow owing to rapid international air cargo traffic growth, fuelled further by a growth in export of gems and jewellery, special chemicals and high value pharmaceuticals, among others.
- Express Cargo: Cost and time efficiency combined with expected growth in document shipments and high value products have created the need for a high speed express segment using road and air network. This segment is growing at 15-20 %.
- Yes there will be varied growth in all segments based on infrastructure up gradations, investments and policies affecting the sectors. Overall, the Indian logistics sector is expected to grow at 15-20 percent annually reaching revenues worth USD 300-450 billion by 2015.
Q: India has witnessed rapid improvement in road infrastructure in the past few years. But your company's market cap is almost same as Rs 532.58 crore in January 2007 as Rs 500.90 crore by 26th February 2012. Even factoring in the Rs 49.61 crore market cap of TCI developers (which was hived off), the net accretion to market capitalization is negligible. Why?
A: Yes, the country has faced major ups & downs in the economy during the period 2007 – 2012 till now. Various macro & micro factors have been responsible for the same. Our company is no exception and the market cap has more or less remained stationary though in between, the same had significantly gone upwards.
With signs of improvement in the economy in sight, Euro zone crisis resolving, things are expected to improve in coming future. TCI Developers will gain momentum once its project(s) start coming up for development into Residential, Commercial, and Warehousing etc. Such projects take time in implementation process keeping in view number of clearances involved.
Q: On the one hand the economic growth is decelerating, and on the other the Just in time concept is gaining popularity amongst industry. How such factors are shaping up and evolving the Indian logistics sector.
A: Just in time (JIT) is a production strategy that can improve a manufacturing organization's return on investment, quality, and efficiency.
Even though the deceleration in the economic growth has affected the economy of the country it still has not been able to haphazard the market growth for logistics. Along with the just-in-time services this sector has proved to add varied advantages for global companies. With globalization, companies have started focusing more on their core manufacturing processes, outsourcing the logistics requirements to logistics service providers, which are definitely taking the sector to the strong growth curve.
Q: Warehousing sector is dominated by unorganized sector in India now. What are the dynamic changes in this sector, and the investment happening? What kind of growth do you see for this segment? Do you think consolidation is overdue? What is your view and outlook on Free Trade Warehousing zones?
A: Conventional godowns have to be differentiated with Logistics Warehousing. The unorganized sector is mostly into conventional godowns. With Industry getting tuned to supply chain dynamics, Logistics Warehousing is bound to see upside momentum. Govt. has to take serious initiatives on the development of the FTWZs in order to ensure availability of warehousing space of all kinds and within reasonable reach.
The warehousing sector has consistently seen good demand & rentals too have been holding well even in the difficult market conditions, indicating the robustness in this sector. TCI is equipped with a managed warehouse space of 9.25 million sq ft.
TCI Developers Ltd is a separate listed company; its ultimate objective is to start creating logistics infrastructure for the company. TCI Developers has identified areas, where we can build large-scale warehousing parks, truck terminals and multi-modal parks. Our management has several years of rich experience in logistics business and we are continuously striving to take our core business to new heights. The proposed demerger will help the company in the management and operations of the real estate and warehousing division and create a focused team to achieve its objectives.
Q: What are the opportunities and challenges for Over dimensional / project cargo. We have seen some heavy cargo's especially in engineering sector, falling into waters. We also hear from user industries about inadequate availability of articulated MAV (multi axle vehicles) or specialized vehicles as stipulated by Government of India for heavy payloads and special project cargoes. Your comments?
A: Infrastructure sector development will ultimately push over dimensional/ project cargo movement.
There is a huge potential for the ODC sector. With the improvements and developments in sectors as infrastructure, telecom etc, trends indicate that the Project cargo segment should grow at a CAGR of 18-20%.
Some major impediments to the sector are:
1. Vehicles: Due to non-availability of suitable technology to carry ODC, service providers mostly use existing flats and low loaders or custom built vehicles.
Road Infrastructure: The current state of road infrastructure needs to be improved to sustain the growth of the sector. Another issue is the numerous check posts & tolling points.
Regulations: Currently these vehicles need notifications mentioning the need and also specific approvals for each load and route. The approval and regulation process is very cumbersome.
TCI has a dedicated ODC vertical, which is well equipped with state of the art vehicles like Volvo and Goldhofer. Our services include:
- Comprehensive network and infrastructure to manage bulk cargo of any size.
- Single Window Service for Over-Dimensional Bulk cargo of any size.
- A highly sophisticated and efficient fleet strength such as High Bed Trailers, Semi Low Bed Trailers and low Bed Trailers
- Point to point management with planning of routes, services and transfers points to ensure prompt on time delivery of your product.
- Safe, Secure and Damage Free Transportation.
Q: What is your company's share in India's express cargo, warehousing, 3PL, air cargo, ocean cargo, railways and roadways? Going forward, which of these segments can grow at accelerated pace, and what are your initiatives to optimally capitalize on the same?
A: The Indian Logistics industry has gained immense significance over the years owing to increased industrial activities. Indian logistics industry is expected to grow at 15% to 20% per annum, reaching its revenues of $385 billion by 2015, according to a Cushman and Wakefield report. TCI will grow in the range of 15-20% compounded annual growth rate for the next four to five years.
In order to achieve this growth, we plan to invest along similar lines in the next 2-3 years.
For the FY 12 we planned a capex of Rs.110 million in the area of trucks, warehouses, ships etc. TCI is dedicated to adopting global best practices and focusing on value added products and services to offer better and more innovative solutions and add value to our customers business and continue to be their preferred logistics partner.
Q: The Indian railways is grossly under prepared for the rising logistics demand, despite being one of the cheapest mode, especially for transporting over 1000 kilometers. What can be done by the Railways to incentivise private players to effectively utilize railway network for the benefit of all–Railways, Industry, logistics provider and the Government of India.
A: On longer hauls Rail movement is cheaper than the Road movement. Govt. has to push projects like Dedicated Freight Corridors (DFCs) in a time bound manner so as to bring in overall efficiency. The current railway budget has announced private investment schemes for Wagon leasing, Sidings, Private Freight Terminals, Container train operations, Rail connectivity projects (R3i and R2C-i) being made more attractive to PPP partners.
The railways have been making efforts to attract funding in rail projects through PPP initiatives. In the light of limitations of funding support from the government and constraints in regard to internal generation and market borrowing, the 12th Plan projections of Indian Railways seek to rely on PPP route in a significant manner.
Q: What ails the development of well-networked effective inland water transport / coastal shipping in India. Do you advocate change in cabotage laws to allow foreign ships also to be allowed to move coastal cargo within the country? Do you suggest any other measures that can considerably bring down the cost of inland transport, and improve its viability in select destinations?
A: Inland Water Transport/ Coastal Shipping can be improved to have better & cheaper connectivity all over. Projects relating to Sethu Samudram and linking of Inland Rivers will go a long way to achieve the desired objective.
The Government is likely to relax the cabotage laws or coastal shipping regulations to enable it to attract towards the Indian trans-shipment cargo. Relaxing the cabotage law and making the port tariff competitive with nearby foreign ports would assist in getting more mainline vessels calling India, as it will provide better parcel sizes and economies of scale. It would help not only the International Container Transshipment Terminal (ICTT) but would also help other ports with the potential to develop into maritime cargo hubs in the country that has not revised the pricing for this service since last six-seven years.
Q: What is the nation wide network of the company in terms of branches, no of vehicles including trucks, ships, etc? Are there any plans to further extend the network in terms of branches/ owned vehicles?
A: TCI has Pan India branch network with 1000+ offices across the country, managing over 7000 trucks and five ships engaged in coastal shipping. We are continuously making up gradation of fleet capacity and branch network and these will continue as per the needs and requirements.
TCI is equipped with an extensive set up of 1000 plus branch offices in India and 7 international offices with agent tie-ups in more than 150 countries. It has a large workforce and huge fleet of customized vehicles of 7000 managed trucks and 5 cargo ships and a managed warehouse space of 9.25 million sq ft.
The Indian Logistics industry has gained immense significance over the years owing to increased industrial activities. The industry is expected to grow at 15% to 20% per annum, reaching its revenues of $385 billion by 2015, according to a Cushman and Wakefield report. TCI will grow in the range of 15-20% compounded annual growth rate for the next four to five years.
In order to achieve this growth, we plan to invest along similar lines in the next 2-3 years. For the FY 12 we expect to incur Rs.100 cr. on Capex against the planned a Capex of Rs.110 million in the area of trucks, warehouses, ships etc. TCI is dedicated to adopting global best practices and focusing on value added products and services to offer better and more innovative solutions and add value to our customers business and continue to be their preferred logistics partner.
Q: There are strong expectations that the government is set to hike diesel prices, factoring in the rising crude oil prices and, considering over shooting fiscal deficit, sluggish revenues and the need to scale down fuel subsidies. What will be the impact of the same on the Indian logistics sector in general, and how your company will protect its revenues and margins in such scenario, considering rising crude oil prices due to geo-political adversity, which may not calm down till Iran issue is resolved.
A: We feel that impending fuel hike shall be absorbed in the system as a whole. Fuel is the most basic commodity in the logistics business constituting around 60% of the total logistics cost. The price hike will definitely have an impact on the freight cost. Besides the fuel costs, increase in inputs and operational costs such as tyres and spares, insurance premium and toll rates can push up the freight rates by another 3-4 per cent.
Logistics companies generally have back-to-back contracts with their clients, and a certain amount of the hike percentage is passed on. Since fuel is the major component in the distribution of the material from shipper premises to consignee, any increase in transportation cost will have a cascading effect on other items.
As a company we are hedged against the rise in freight with back-to-back contracts with our customers. But the rising cost is a concern. It is not always possible to raise the cost in proportion to the increase in freight and in such cases the company has to bear the burden of the increase.
Q: The company has divided its business into Transport, XPS cargo, Wind Power, Supply Chain solution, Shipping and global. Kindly share the business dynamics in each of these reportable segments, and what kind of growth in revenues and margins do you expect in each of these segments in FY 2011-12 and FY 2012-13.
A: The major divisions viz. TCI Freight is primarily engaged in commoditized cargo movement which is subject to intense competition from unorganized sector. TCI XPS offers express & time bound delivery through surface & air modes. TCI SCS offers customized solutions for inbound & outbound logistics along with warehousing solutions. Shipping caters to coastal shipping primarily between Vizag –Chennai to Andamans.
Overall revenue growth during FY 2011-12 is expected to be around 7%. The company will shortly finalize its strategic plans for FY 2012-13 once FY 2011-12 actual performances is in place coupled with other macro and micro factors.
Q: We find that the supply chain division in PBIT of the company zoomed from mere 8% in FY 2007-08 to 29% by FY 2010-11, during which period the share of transport division eased from 34% to 31%. Considering the pace of growth of the reporting segments, what kind of revenue and profit (PBIT) mix do you expect in the medium term.
A: TCI SCS is in being for the last five years, thereby showing quantum jump in its PBIT. TCI Freight share in PBIT has eased as its Top line contribution to the total revenues has come also down from 56% in 2007-08 to 46% in FY 2010-11. Down the line, after three years, we expect these three divisions i.e. TCI Freight, TCI XPS and TCI SCS to contribute equally say @ 30% each in Top line.
Q: Do you feel that India should regulate its aged commercial vehicles, and put off the road commercial vehicles of 15 / 20 years old? Will this improve the overall efficiency of the Indian road transport sector?
A: India's current vehicle population is more than 3.4 million, which stood at 1.9 million in 1991 registering a growth rate of 7% per annum. Currently, there are no regulations for governing design and manufacturing vehicles or standards regulating the operations of units engaged in breaking up old vehicles in India.
Yes, the removal of the old machineries can improve the efficiency of the Indian road transport sector as far more technologically advanced machineries have been already introduced in the market. We at TCI have a policy of phasing out vehicles, which are more than 7-10 years old. We have a dedicated fleet of ODC vehicles and all our vehicles are GPS enabled.
Q: Kindly share the operational and financial performance of Transystem Logistics International, which is a JV with Mitsui & Co. Has the company formed similar JVs with other global domestic auto / other industry players?
A: The Financials of TLI, which is a JV with Mitsui & Co for handling Toyota Kirloskar Motors Ltd logistics in India - in which TCI has 49% equity stake with 51% of Mitsui, gets reflected in Consolidated Financials of TCI. Two years back, the company entered into another JV with CONCOR with 51:49 equity participation to handle containerized Road/Rail movement.
Q: What factors are hindering the otherwise expected spike in demand for integrated logistics solutions? What needs to be done to attain the full potential of 3PL in India, which has proved enormous benefits in Japan?
A: The Indian logistics sector has been growing phenomenally at an annual rate of about 15-20%. The sector is poised for a significant growth as companies across sectors, such as FMCG, Retail, Pharma and Automotive, are increasingly outsourcing their logistics requirement to third party and fourth party service-providers.
The concept of Third Party Logistics has swept through the logistics industry and transformed the way companies do business. 3PLs offer an integrated solution and various value added services.
The biggest factor which is impairing the growth of the sector poor infrastructure. Infrastructure has a crucial role to play in speeding up the existing processes and in creating new processes for cost organization. The continued investment in infrastructure projects through PPP will help in the sustained development.
Also, the need of the hour is the right integration of IT enabled technology to streamline the business processes. With the adoption of the latest technology logistics service providers are no longer restricted to the geographical boundaries and they can expand their business to any location across the globe and maintain visibility and control. IT solutions are currently being used for all supply chain management functions.
Q: Despite immense potential, the logistics sector is viewed with disdain, considering potential spike in fuel (read Diesel) prices, escalating cost of spares, manpower etc on the one hand, and relatively lower increase in freight rates on the other. Your comments.
A: Awareness on the sector and the benefits thereof needs to be increased. People are still not aware about the needs of the logistics sector.
As discussed earlier, the government should look at according industry status to the logistics sector, which will help the transporters to avail the benefits of being part of an industry. A centralized toll mechanism is needed to ensure uniformity in the toll charges paid by trucker drivers at various checkpoints. This would lead to reduction in stoppage time and will create greater efficiency.
There is also a need for long-term investment commitments from public and private players alike for developing warehousing facilities. There is a requirement of specific development control rules (DCRs) for warehousing which are very unique structures built for specific purposes.
Documentation has to be computerized and minimized so that less number of forms is needed to be filled at check-posts / offices. The government should also implement the much awaited Goods and Service Tax in the budget.
The recent budget announcement on GST incorporation by August 2102 is a welcome move.
Q: What are the recent initiatives of the company to enrich its product and geographical mix, so that despite adverse environment (pressure on margins due to slower rise in freight costs than rise in input / operating costs), the company is able to scale up its revenues, improve its margins and the quality of earnings.
A: TCI has always maintained its leadership position through customer centric initiatives and excellent services. Through our various divisions and services we are servicing more than 200,000 customers and still counting numbers.
Some of our recent initiatives included:
- A rail cargo express service from Bangalore to Guwahati. Under the service, TCI Freight, the surface transport division of TCI will run a weekly cargo train thereby reducing the transit time from 10-12 days to 5-6 days thus offering customers a time bound, cost effective multimodal transport option.
- Under the TCI XPS service, a Money Back guarantee scheme was also introduced to make customers feel assured. The MBG (Money Back Guarantee)" where we promised for a complete refund of the freight amount if we fail to deliver the goods according to the committed time
The customer care centres were decentralized making it easier and faster to resolve for customers queries and also overcoming the language barriers.
- TCI Developers Ltd (TDL), the newly created real estate entity of Group TCI, was recently listed on the country's premier exchanges i.e. NSE and BSE, post the requisite approvals from SEBI & Stock Exchanges. TDL has taken over all the specified and allocated assets, both movable & immovable and liabilities from erstwhile "Real Estate & Warehousing Division" of Transport Corporation of India Ltd. (TCI). With the newly formed company TDL, they aim to develop the company's existing real estate properties into commercial ventures.
- IT up gradation and development
- TCI was the first Logistics company in India to release a standalone report on Sustainability & CSR in 2010
Q: What is the total capacity of the company's windmills? Kindly share the details of PPA signed for the same, and at what rate, and with whom. The revenue from this segment fell from Rs 9.24 crore in FY 2007-08 to Rs 6.38 crore by FY 2010-11, with PBIT tumbling down from Rs 6.31 crore to Rs 2.41 crore. Why? Are there plans to step up investments in green power, including windmills?
A: The company went for windmills primarily to Tax shield. Company's windmills have installed capacity of 11.50 MW – 6.50 MW in Maharashtra and 5.00 MW in Rajasthan. It has signed PPA for 20 years with respective DISCOMS. At the moment there are no plans to step up investments in green power including windmills, as it is not part of our core competency.
Q: Kindly share the operational and financial performance of various domestic and overseas subsidiaries of the company, and investment plans thereof.
A: TCI overseas expansion is taking place through the Global division. We have offices in several countries in South East Asia, such as Hong Kong, Indonesia, Singapore, etc.
Q: Of late, many logistics firms have indicated that there is general delay in payments by customers. Your comment?
A: Longer credit cycles do affect all business and we too face such challenges. However we have improved our internal systems and have a centralized collection and payment system, a sweep in facility that has helped increase the cash flow.
Q: What was the Capex made in nine months ended December 2011 and expected in the quarter ending March 2012, and for FY 2012-13. Which are the specific segments where these investments are made.
A: The company spent about Rs.91 cr. capex during nine months ended 31st December 2011 and expects another Rs.20 cr. in Q4. Annual capex for FY 2012-13 would continue on the same trend at around Rs.80 -100 cr. per annum as in the past 4-5 years. Primarily, the capex is made for truck replacements, trailers acquisition, ship acquisition, IT initiatives, Logistics warehouses and misc. assets etc.
Q: What are the company's initiatives to bring down its debt and interest costs.
A: Current debt equity ratio of the company is 0.90:1.00 which is quite reasonable keeping in view the nature of its business needs. By virtue of enjoying Top Credit Ratings – A1+ for short term from ICRA and AA-/Stable for long term from CRISIL, the company has been able to keep its overall interest cost under control at around 10.70% p.a.
Q: Kindly give a SWOT analysis of TCI developers, which was hived off from your company. What are the various projects under execution by this company.
A: Erstwhile "Real Estate & Warehousing" division of TCI has been transferred to "TCI Developers Ltd - TDL" under High Court of Andhra Pradesh, Hyderabad Demerger Order. The said TDL has been vested with 15 properties, which shall be developed into Residential, Commercial and Warehousing projects in due course.
Two projects – one each for Residential and Warehousing are due to take off during the next fiscal 2012-13.
Q: What is the estimated turnover and net profit of your company for FY 2011-12 and FY 2012-13.
A: Transport Corporation of India (TCI) reported its Q3FY12 numbers with net sales at Rs 4.64 billion and PAT at Rs 135 million, a YoY growth of 4.5% and 14%, respectively. TCI business is growing, and looking at the present scenario we are expecting about 5-10% growth in revenue in fiscal year (FY) 12. The company is also looking at similar growth in bottom line in this fiscal year. TCI's consolidated net profit for 2010-11 stood at INR 50.12 crore on a revenue of INR 1,851.26 crore.
Q: Any other message to your shareholders / our readers?
A: TCI stands for integrated solutions and combines the best of family driven solidity and insight with managerial professionalism through individual CEOs managing each business segment. At TCI we expect to capitalize on the growing national opportunities by venturing into new business segments. Going ahead we believe that industrial productivity, investments and GDP growth will increase catalyzing TCI's growth.
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