See freight margins rebound to 15% RoCE: Transport Corp

A: Essentially the freight division is directly proportional to gross domestic product (GDP) growth and what we have seen is that as GDP growth is picking up, we would see some volume picking up as well. We saw the HSBC numbers which means that there is some uptick in manufacturing but it is not there yet. We have seen seasonal trends, we have seen quarter-ending trends where there has been push towards inventory build-up. Hence there has been some positive territory.

But generally speaking things are still not there yet. With the impact of crude coming down, diesel prices of course are coming down and there is positivity to a great extent though we will also see volumes coming up now. This is the second half of the year where volumes tend to move up so freight rates are dependent both on volumes as well as fuel prices.

Typically, a truck uses 50-60 percent of its operating cost as fuel so yes there should be some positive impact going forward.

Also read: 'Focus on media, logistics, oil & gas now; like RIL, TCI'Q: Margins for the freight business have been declining over the past couple of years, do you see margin recovery or expansion going ahead?

A: This year we should end in positive growth territory both from a profit and revenue side for this particular division. There has clearly been sentiment change and that is going to affect this business going forward. So the direct answer is yes.

Q: Any numbers, what could be the extent of margin expansion for the freight division?

A: The business typically does about 15 percent ROCE and the five year average has been about 15 percent. The last two years has not been great. I do think that should start coming up. So it might be better to look at ROCE numbers rather than just direct profitability.

Q: Your smaller segments like sea base division, your energy division as well as your supply chain division not that small though, that is where the bulk of your profitability is coming from in terms of EBIT margins, what is your outlook on that going ahead? Can we see this even improve in the second half of the year?

A: Supply Chain business is actually very interesting in a sense that we are adding a lot of new clients there from a retail perspective, from an ecommerce company perspective where we not just do the last mile which is done by our Express business but we also do the backend warehouse management, the supplier coordination. That business the ecommerce fulfilment side we think has a lot more growth than just the last mile. There are just too many players on the last mile side. But on the warehouse management on a national level coordination from suppliers, the complete inventory management picking, packing, order processing, we think that has a huge potential. So going forward supply chain should grow, it has grown at about 25 percent in six months, it should continue that growth.

Q: So what is the current base with regard to the ecommerce, what is the current customer base?

A: Ecommerce has been growing at much faster rates but today the definition of ecommerce has to change, it is not just B to C, it is also B to B. So that if you see from a supplier perspective that has already been changing. So if there was an FMCG supplier that was supplying to a regular retailer versus supplying to an ecommerce retailer, will it classify under ecommerce? So I would say that we have been growing very rapidly in acquiring new clients who are dedicated online retailers whereas the other businesses are continuously growing simultaneously.