On account of GDP revival, freight sector has witnessed growth, while core sectors like engineering goods are yet to see recovery, says Vineet Agarwal, MD, Transport Corporation of India.
Transport Corporation of India (TCI), one of India's leading logistics service provider sees a further significant pick-up in macroeconomic activities in the second half of the current fiscal.
On account of GDP revival, freight sector has witnessed growth, while core sectors like engineering goods are yet to see recovery, says Vineet Agarwal, MD, Transport Corporation of India in an interview with CNBC-TV18.
Onto the logistics space, Agrawal feels inventory build-up helped companies’ Q1 earnings. Going forward, TCI eyes a 10-15 percent topline and bottomline growth along with 25-50 bps margin expansion for FY15.
TCI has capex of Rs 250 crore lined up for warehouse expansion, for which, the company will explore fundraising of USD 10 million.
Below is the verbatim transcript of the interview:
Q: There is so much buzz of a revival on the ground, as someone who is an important spoke in that wheel with an exposure to autos, consumer and even the healthcare sectors – is economic activity really pick up?
A: There has been some inventory build-up that happened in the first quarter and that lead to higher sales for lot of companies and slightly better results but the real ground level economic revival has still not yet started, we have always been saying that there has been some pick up in some sectors because of some pent-up demand because of some other micro factors but engineering goods, capital goods, the things that make the economy run, has not picked up, the core sectors have not picked up too much yet and also the credit cycles are tight, the payment cycles are still not at that same levels as it was earlier. Therefore, given all that it will still take a few more months, most likely after October after around Diwali time we should see some pickup happening then and then towards the yearend in December and then again towards February-March quarter end. I think it will be more driven by the quarter endings rather than a sustained economic recovery month on month.
Q: Transportation segment didn’t do too well, they were flat but you are telling analysts that you are seeing a rebound?
A: If you look at the freight segment, it’s essentially the basic freight that we talk about. However, most of that work used to happen through our trucking mechanism. We are now looking at multi model mechanism where we are using both road as well as rail to do the first mile and last mile by road and middle leg by rail. We are also using the coastal shipping route to ensure that we deliver cargo through a multi model route, because of giving indicated solution, we would see some amount of growth coming up and some amount of ground will also come up from the economic revival. This is a sector, the basic freight sector is linked to GDP growth and as we see that this is growing so will this division and we are confident that we should achieve 5-8 percent target for this segment for this year.
Q: Tell us little more about the margins – Q1 seemed like a turnaround quarter where we saw improvement across all verticals of the business. What is the outlook henceforth and what are the kinds of incremental gains that you can expect on the margins?
A: What we are looking at from years guidance is a 10-15 percent topline growth and about similar growth in the bottomline. We are at a blended EBITDA of about 8 percent and 25 bps or 50 bps improvement is something that we would look at though there are enough cost pressures like diesel price hikes etc and that is a continuous issue beyond that we are also doing a large capex between Rs 200 crore-250 crore, a lot of that is going into building new hub centres, new warehouse facilities and some of that is going into new capacity addition in our shipping business as well as into our trucking business. This Rs 200-250 crore would be funded partially through debt, partially through internal accruals and also we are looking at a small fund raise up to USD 10 million. Our board has given an approval for about Rs 100 crore to raise through QIPs or preferential allotment and that is something that we are going to pursue. Therefore, given this incremental capex and the economic revival, we would think that this is a year that we would be able to create a stronger base and then capitalise on the future growth prospects in the next year onwards.
Q: What is your debt and cash level?
A: At the end of the financial year our debt equity ratio was 0.65:1 and we have very little cash on the books essentially they are all deployed.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.