ALLCARGO - Allcargo Logistics Ltd Share Price

The management highlighted a focus on cost optimization through technology and restructuring, alongside strategic initiatives to navigate global trade challenges. Key points include:

International Business Outlook:

• Geopolitical tensions and tariffs (e.g., U.S. tariffs on Canada/China) may impact short-term trade volumes but are expected to have limited medium-term effects due to Allcargo's diversified global presence.
• Growth is driven by LCL/FCL volumes (2% and 11% YoY growth, respectively) and air freight (5% YoY). Centralizing operations in lower-cost hubs (Philippines, Turkey, Mexico) aims to reduce costs, though restructuring expenses (~Rs.22"“23 crore in Q3) may weigh on near-term margins.

Domestic Business Performance:

• Contract Logistics revenue surged 62% YoY due to new clients in auto, e-commerce, and quick commerce. Profitability is expected to improve as operational efficiencies offset initial "white space" costs.
• Express Distribution (Gati) achieved EBITDA of Rs.22 crore (vs. Rs.7 crore YoY) via cost optimization and volume growth (3% YoY). Net cash position improved to over Rs.100 crore.

Financials & Restructuring:

• Consolidated revenue grew 28% YoY to Rs.4,106 crore, EBITDA rose 24% to Rs.138 crore, but PAT declined to Rs.10 crore (vs. Rs.17 crore YoY) due to restructuring costs. Net debt reduced to Rs.614 crore.
• Demerger Plan: The international business (ECU) will be listed separately, while Contract Logistics merges with Gati. Approval is targeted by April 2025.

Challenges:

• Global trade recovery remains uncertain (e.g., Europe's weak demand, delayed rate cuts). Focus remains on cost rationalization and market-share gains in key regions.

Overall, management prioritizes operational efficiency, restructuring, and leveraging India's growth while navigating global headwinds.

1. Question: "So my first question is in regards with the FCL business, we have seen a good growth there. So which particular regions or which particular sectors are we seeing this growth coming in from?"

   • Answer: FCL growth is driven by Asia, India, and Latin America. Commodities vary by region (e.g., minerals in Latin America, consumer electronics in India). Europe remains stagnant due to weak trade and economic conditions.

2. Question: "Also, are we seeing a shift from LCL to FCL?"

   • Answer: No significant shift observed. Freight rates have stabilized, minimizing cost-driven shifts. LCL and FCL volumes remain steady, with growth tied to market demand rather than rate fluctuations.

3. Question: "And what would be the specific sectors or commodities we would see in FCL business?"

   • Answer: Commodities vary regionally: minerals/agri-products in Latin America, consumer electronics/auto in India, and textiles in Turkey. The company is commodity-agnostic, focusing on trade lane diversity.

4. Question: "Have you witnessed something? An increase in inquiries or something coming from Europe?"

   • Answer: No material improvement in European volumes. Recovery hinges on geopolitical stability (e.g., end of Ukraine war) and lower interest rates, which remain uncertain.

5. Question: "When do we see this culminating into operating leverage and increasing in our margins?"

   • Answer: Gross profit per unit remains stable. Margin improvement relies on cost optimization (e.g., outsourcing, restructuring) rather than volume-driven operating leverage in the current flat market.

6. Question: "Do we see any further scope of reduction in cost?"

   • Answer: Yes. Outsourcing operational/financial functions to low-cost centers (Philippines, Turkey, Mexico) and redundancies will drive savings. Severance costs (~Rs.22"“23 crore in Q3) will taper by late 2025.

7. Question: "What was your current restructuring cost? Or in this current quarter the severance cost?"

   • Answer: Severance costs for Q3 FY25 were Rs.22"“23 crore. Restructuring will continue over the next 2"“3 quarters, with full benefits expected by late 2025.

8. Question: "How long you keep on telling this, even loss making company TVS Supply Chain market capital is more than Rs. 5,000 crores above..."

   • Answer: Management focuses on profitability and disclosures, not share price. Gati's debt reduced from Rs.400+ crore to net cash, and EBITDA tripled YoY, reflecting operational turnaround.

9. Question: "What is the outlook on Contract Logistics? Have you signed any major customers recently?"

   • Answer: Contract Logistics revenue grew 62% YoY due to new clients. Profitability improvement hinges on reducing "white space" (unutilized leased capacity) as business scales.

10. Question: "How is the timeline for restructuring and merger?"

    • Answer: Shareholder approval awaited; NCLT filing expected by April 2025. Post-approval, Allcargo ECU (international business) will list separately, while Gati merges into Allcargo Logistics.

11. Question: "What is the consolidated net debt?"

    • Answer: Consolidated net debt stood at Rs.614 crore (December 2024), down from Rs.651 crore post-dividend payout. Gross debt is Rs.1,233 crore, mostly short-term working capital.

12. Question: "How does Forex rate impact the business?"

    • Answer: Minimal impact due to revenue/expense alignment in USD. INR reporting benefits from rupee depreciation, but hedging and local cost structures mitigate volatility.

13. Question: "Why increase Gati's share capital before merger?"

    • Answer: Technical requirement for restructuring. Ensures compliance with scheme approvals and facilitates seamless merger post-NCLT clearance.