Key takeaways of the call

Revenue from operations for Q2FY20 stood at Rs 852 crore, down by 8% YoY, impacted by reduction in volume from Auto customers. Supply Chain Management (SCM) revenue was down by 9% to Rs 755.3 crore and that of People Transportation Solutions (PTS) was down by 1% to Rs 97.14 crore.

M&M revenue in SCM business was down by 19% to Rs 418.5 crore. The company however, sustained growth momentum in its Non-Auto segment driven by Ecommerce, Consumer & Pharma verticals. The Non-M&M revenues in SCM business were higher by 9% to Rs 336.8 crore. Revenue from Top 20 Non M&M SCM contributes 62% of total Non M&M SCM Revenue

Warehouse space under management increased from 15.3 million Sft in FY19 to 16.4 million Sft in H1FY20. The company has added about 0.7 million sft of warehouse space in Q2FY20 and 1.1 million sft in H1FY20. Thus the warehousing income in SCM business was up by 25% to Rs 158.1 crore. Of the total warehousing income about Rs 114.7 crore (up 35%) came from non M&M clients.

Marginal fall in PTS revenue in Q2FY20 is largely due to delay in ramp up in case of new acquisitions even while some old ones have scaled down. Expect normalization to return in coming quarters. There will be initial cost in case of new business acquisitions and that hurt the margin of PTS in Q2FY20.

Expect green shoot to emerge from Q4FY20 onwards in case of automobile business with BSVI shipments start shipped to dealers.

The company adopted reduced corporate tax as per the recent ordinance. But the impact is not reflected/visible in effective tax rate in Q2FY20 due to restatement of Deferred Tax Asset. ETR for H2FY20 will be about 26%.

Warehousing space addition - At the start of current fiscal the initial target was to maintain the FY19 warehouse space addition of 1.3 msft in current fiscal as well. But the company was well ahead and have already added 1.1 million sft in H1FY20 itself. Now the company is looking to add definitely more than 1.4 mln sft of warehouse space addition for FY20.

The transportation business is totally asset light and the Capex is only on warehousing and VAS in automation, mechanization and other equipments. Capex will be in the range of Rs 35-45 crore for FY20. The company has already spent about Rs 30 crore of capex in H1FY20.

Freight forwarding business – this business registered a growth of 16-17% in Q2FY20. There is balanced growth in both air and sea freight cargo. The growth is largely on balancing both air and sea freight forwarding. Drive integration or drive synergy between FF and SCM business of the company.

Once warehousing and value added service business share increase in SCM the margin will get back to earlier lower double digit margin in SCM.

The e-commerce business always has multiple peaks in a year. The festival seasonal demand mostly hit in Q3FY20 and the impact of it was smaller in Q2FY20.

The company picked up new business for managing regional distribution centre for Asian Paints at Dankuni in West Bengal. The company is also to manage 2 laksh sft of warehouse for Volkswagen at both Gurugram and Bangalore. Similarly the company expanded its presence in FMCG by adding several new players including an apparel manufacturer.

The company is increasing digital investment, which will provide long term benefits. If the quarter is good that cost would be easily absorbed but if its weak that adds pressure on margin.

The focus of the company remains on margin improvements through increased operational efficiency and cost optimization. The company has a positive outlook towards the logistics sector due to the underlying growth drivers and government focus on reducing cost of logistics and improving logistics performance index.