Key takeaways of the call

The company continues to be asset light. Warehousing space under management stood at 16.5 million sft as end of Dec 2019 up from 15.3 million sft as end of March 2019. The company looks at addition of about 1.5-2 million sft warehousing space a year.

The company continues to deliver strong growth in E-comm and consumer businesses while efforts of it to grow its business in the Auto vertical remain on track. The company is increasing its capabilities and remain focused on expanding its value added services and solution offerings to its customers.

Revenue from operations for Q3FY20 was down by 7% impacted by reduction in volume from auto customers.

The segment revenue of passenger transportation (PTS) was down by 9% to Rs 91.07 crore. Lower PTS revenue is largely as several of large customers experience contraction in their business operations. Significant reduction in scale of operations from two accounts of the company in South India and this has hurt the revenue. The company has won some new accounts and they are in ramp up phase. By Q1FY21 the company expect PTS business to come back to normal levels.

The segment revenue of supply chain management (SCM) was down by 7% to Rs 816.86 crore hit largely by lower volume on account of slowdown in automotive sector.

In SCM while the M&M business registered a fall of 18% (to Rs 424.3 crore) that of non M&M revenue was up by 8% to Rs 392.6 crore. The rise in non M&M business is largely due to 12% growth (to Rs 312.5 crore) in non-auto sector revenue of non M&M business. However the auto sector revenue of non M&M business too was down by 7% to Rs 80.1 crore. Further in non M&M SCM revenue while the transportation segment register a flat growth (up 0% to Rs 270.7 crore) the warehousing business grew by sharp 30% to Rs 121.9 crore.

Share of M&M business stood declined to 51% for 9mfy against 56.5% for same period last year.

About 63% of non M&M SCM revenue was accounted by top 20 non M&M SCM customers. The company is the number one or number two service providers for them. There was change in top twenty, but that is largely due to some players dropping volume due to slowdown in their business and not because they left the company.

The company is logistics partner to large e-commerce players in the country. In FMCG, the expected consolidation of supply chain post GST has become a realty now.

E-commerce, Consumer, Retail and Pharma has sustained a growth rate of about 35%yoy in Q3FY20. Growth in Ecommerce and Consumer verticals for the company is largely as its efforts of deeper penetration of existing customer and providing more services. The company has also won newer clients apart from increase in share of business with existing clients. The company believes the growth can be maintained in this vertical.

In case of E-commerce, Pharma and consumer vertical growth about 50% came from existing clients and 50% from new customers.

The company has made some strategic win in retail segment. In retail, the company added two apparel players for whom the company is offering warehousing and distribution services. In auto the company has added two accounts both of them are tier I auto component manufacturers. In pharma the company has increased its share with more services.

The margin is expected to see an uptick as with the rise in the share of warehousing and VAS in SCM revenue as well as continued focus on productivity.

Freight forwarding – overall contribution is in single digit. The growth is also non-auto driven. Increasing synergy between rest of SCM business and freight forwarding.

In auto space, the largest customers of the company are PV, followed by farm and followed by CV.

Auto industry is expected to close FY20 with a record fall. Q3FY20 saw some demand recovery in end market. Expect automarket to have a slower recovery with some positive outlook for PV. Things are bottoming out for PV. In Q4FY20m the PV is expected to have BSIV pre buy and BSVI channel sales. Meanwhile the market for CV is lot more challenging. CV is expected to have the burden of supply overhang.

Some positives in case of farm equipment. The growth may be marginal or early single digit in Q4FY20 but the company is not having optimism for higher growth rate for farm equipment. The company is working with customers for their plans.

The non M&M SCM business growth in current year is mainly impacted and there is a reduction in volume from one customer for bulk commodity business. This will play out for another few quarters.

Within M&M there are some more opportunities for growth. These opportunities are of 3 pies/buckets i.e. project based business solar or defence; retail based first try; and two wheelers business. Project business is up and down. Retail as well as 2-w business there is continuous growth and expect that to continue. The company is having 100% of supply chain service for Java offering integrated SCM services.

Combination of inbound and outbound. Reducing purchases with transition to BSVI. Longer distance outbound was shifted to rail to balance. On quarter on quarter the modal mix will change.

The revenue dip for the quarter is due to change in inbound mix rather than change in outbound. On sequential basis there is growth.

There is no white spaces in the warehouses of the company. Capex spent will be about Rs 45 crore for current fiscal.

In Q3FY20 the company continue to see benefits from cost reduction and productivity improvement initiatives.

Gross margin adjusted for Ind AS 116 for Q3FY20 stood at 10.3% vs 7.9%, an increase of 241 bps.