We want to expand footprint and serve customers in multiple geographies: TVS Supply Chain Solutions

Our sweet spot is being customer-focused. If you look at our early journey, we acquired companies in the West so we could have capabilities available in those markets.

We acquired a company in 2008 in the UK which gave us tremendous capability in after-markets. We picked up a company in the US  in 2012, which gave us great capabilities in production supply chain solutions.

What we are today is the coming together of all of these capabilities, the knowledge that we possess of deploying solutions across countries and verticals. That, combined with the scalable technology platform we have built that makes our customer’s businesses more efficient, is really what our global supply chain platform is about. We have been able to successfully add customers on this platform.

What is the competitive intensity like in your business?

We typically operate with large and mid-sized customers, in sectors such as manufacturing, consumer durables, energy, utilities, etc. We have different competitors in different segments. In the US, we typically compete with mid-size players. In India, in some cases we compete with Delhivery and Mahindra Logistics. In other cases, we compete with larger players.

It’s a varied set of competitive forces and a very fragmented market, and the opportunity really is to make sure that the customers that we engage with have the propensity to buy more than one service from us in multiple countries.

Our efforts in these areas have delivered growth over the last three years. To put it in perspective, in FY19-20, our revenues were about Rs 6,600 crore. In FY22-23, that number was Rs 10,230 crore, which was entirely organic, except for a small acquisition we made in FY20-21 of about Rs 171 crore. We want to expand our footprint with our existing customers and serve them in the multiple geographies they operate in. We call it the 3C strategy: Customer, capability, and country.

How capital intensive is your business? On a steady state basis, what kind of return ratios can this business operate at?

We are an asset-light company. The capital that we employ is typically to lease warehouses and trucks. We have low capital intensity, but we have made investments to acquire customers. We made acquisitions in 2008, 2012, and 2018-19, when we built a strong network to support our customers and support the trade that we see between Asia and the Western markets. Post Covid, our ROCE (return on capital employed) has grown from 5.5 to 7.6 percent on the back of strong revenue and EBITDA growth.

Our EBITDA grew from about Rs 243 to 683 crore between FY19-20 and FY22-23. Our net working capital requirement has come down significantly, which helps us manage our ROCE better. We benchmark ourselves with the best in the business in this.

Also Read: TVS Supply Chain Solutions IPO: Can the logistics major tower over peers?

When a company outsources their entire supply chain to you, are you able to really deliver value in a capex-light model?

The investment we make in delivering a custom solution is baked into the contract. For example, if I'm going to build out a warehouse specifically for a customer, I would lease the warehouse and pass the cost to the customer. So, we manage the capex with a fair amount of transparency with the customer. Because these are dedicated solutions for the customer.

How does your business get affected because of dollar billing, and how exposed are you to currency risks?

We spend in the currency that we earn in, so it’s not like an offshore operation. The profit and the revenue that you see is actually in the currency it is shown in. Thus, other than any inter-company loans, there's very little currency risk that we carry. For example, if our Singapore unit parks the surplus cash in another country, that's the only forex risk we carry.

How dependent are you on global growth?

If you look at our portfolio, it is fairly diverse. Because of that, even though we saw significant economic headwinds in the West last year, our business in that market grew almost 8 percent. We typically sign long-term contracts that capture many of our costs. That ensures we manage our commercials vis-a-vis our customers very well. Our after-market business is traditionally resilient, because whenever production is down in the economy, the aftermarket tends to pick up.

What proportion of your business comes from the (TVS) group? Do you have any understanding with the group as to how they can support or drive your growth, going forward?

It is not the philosophy of the group to necessarily prefer in-house companies. We compete very hard to win all the group business. We are upset if we lose any business, whether it's from the group or otherwise.  To answer your question, less than 1 percent of our revenues are from the group.

We have heard from some analysts that a majority of the TVS Motors business goes to Mahindra…

TVS Motors is one of our largest customers in India, and a significant portion of our portfolio. TVS Motors has allowed us to use their logo as part of the RHP (red herring prospectus).

Much of your consignments move by road though there’s a lot of action on the railways front. How are you looking at this, given that our national objective is to reduce logistics costs.

Cost is one of the reasons why there is a focus on the railways and on multi-modal (road/rail/air /water) connectivity. Today, the government is also focused on making sure that the last-mile connectivity between the railways and the roadways is in place. But what matters to us is the solution with respect to the customer. Wherever there's an opportunity to look at a multi-modal solution we will do so.  As an asset-light player, we will not own a railway partner because our solution is based on the customer.