MC Interview | TCI confident of double-digit growth in FY24 despite slow year: MD Agarwal

MD Vineet Agarwal said the company is aiming for 10-15% growth in FY25

Transport Corporation of India is confident of meeting its guidance of double-digit growth in topline and bottom line in this financial year despite a slower performance in the first nine months.

Managing director Vineet Agarwal told Moneycontrol that the logistics and supply chain solutions provider does not foresee any major impact from headwinds in India’s exports and e-commerce segments.

The company reported a 5.4 percent growth in consolidated revenue to Rs 2,974.6 crore in the first nine months of FY24 and 5.5 percent growth in consolidated net profit to Rs 251.3 crore.

Agarwal said January-March is the best quarter for the company. He added that TCI is aiming for a 10-15 percent topline growth in FY25. Edited excerpts:

Q. What has been the biggest impact of the Red Sea disruptions on your business and how do you expect that to change in the next quarter or so?

A. There hasn't been a direct impact of the Red Sea disruptions on our business as we don't operate on those waters.

However, the rise in bunker fuel prices, coupled with the slowdown in import-export traffic, and the rise in insurance costs have had a trickle-down on the domestic economy as a whole, which has impacted our operations as well.

Q. In Q3, TCI’s revenue from its freight division and operating margins fell below 4 percent. What were the biggest reasons for the fall?

A. Our freight business was affected to some extent by the slowdown in the economy where the core sector, which we've seen, has been slowing.

So we do a lot of work on the engineering, electricals and those kinds of industries and we've seen that to be a little slower in the last two quarters and that has had an impact on the business.

Secondly, the margin structure also got affected because we weren't able to grow the business as much, and then you have some amount of cost structure that kicks in. So that also had a little bit of a negative impact.

But Q4 is typically the best quarter for us, and we are anticipating good growth in this period. And then that should continue on… Some amount of inflationary pressure on the consumer side was also seen and that also had a little bit of a negative impact.

Q. Do you expect the slowdown in the core sector to continue for the next quarter or two, until after the general elections in India?

A. There is some amount of slowdown because of the elections, but there's also some amount of business that tends to increase with elections. We'll have to wait and see. I don't expect the slowdown to continue for much longer.

Q. The government recently said logistics costs in the country ranged from 7.8 percent to 8.9 percent of GDP for FY22. How accurate are the government's estimates?

A. I'm not going to counter what the government has done in terms of saying that I have a specific framework to evaluate the logistics cost in India. We will have to go by what the government is saying. And I think that's fair in terms of the cost structure.

However, as a country, we need to now start thinking more of productivity versus the cost structure. How can we enhance productivity for the logistics sector by looking at improvements in the way that we operate, standardisation of trucks, for example, or utilising our processes as much as possible. All of these things are very critical to now look at the next stage of managing this logistics cost, whatever be the number.

Q. At the start of the year you estimated double-digit topline and bottom line growth in FY24. Are you confident of meeting your guidance?

A. Q4 is typically the best quarter for us and I think we will get to—our guidance is now between 8 percent and 10 percent for the full year. So I think we are looking at that for the time being.

Q. What are your top line and EBITDA margin targets for FY25? And what are your capital expenditure plans?

A. 10-15 percent, which we think will start with the new government coming in and the new budget. We think the traction to growth will be quite high in the next quarter.

As far as capex goes, we have spent Rs 150 crore so far in nine months. Our capex budget – we reduced it in quarter two from Rs 375 crore to Rs 275 crore because the ship purchase is not happening in one shot, but we have to give timely payments every year. So, instead of one block payment, it is divided into instalments.

That should bring our total capex closer to Rs 250-260 crore from a budget of Rs 275 crore. Next year also we are looking at Rs 250 crore.

We have spent most of our capex this year on acquiring 500 containers.

Q. Is TCI looking to move away from fossil fuel-run trucks? What is the fleet size that you operate at the moment?

A. We have converted some of our fleet already into CNG trucks. We have close to 200 CNG trucks that we are operating out of our fleet of 1,000 trucks.

Some of our clients are also asking for last-mile to be electric vehicles. We are talking to a few vendors to incorporate those EV trucks.