Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allcargo Logistics Ltd (BOM:532749, Financial) reported a 30% growth in consolidated revenue for Q2 FY25 compared to the same period last year.
- The company has seen improved volumes in its international supply chain business, with a 4% growth in LCL volume and a 7% increase in FC volume year-on-year.
- Significant strategic initiatives were undertaken in Latin America, including onboarding new teams and finalizing joint ventures in Colombia and Ecuador, which are expected to drive future growth.
- The contract logistics business reported a 45% increase in revenue year-on-year, driven by new client additions and expansion into high-growth sectors like e-commerce.
- The company is making strides in technology and cost reduction initiatives, which have helped maintain and grow market share despite challenging market conditions.
Negative Points
- The international supply chain business faced one of its most challenging periods in recent decades, impacting profitability.
- The European market remains subdued, with economic recovery expected to take another six months, affecting overall performance.
- The company's net debt increased to INR553 crores due to working capital requirements, raising concerns about financial leverage.
- There were significant severance costs and increased staff expenses due to onboarding new teams and restructuring, impacting short-term profitability.
- Despite improved volumes and strategic initiatives, the EBITDA margin has not shown proportional improvement, indicating ongoing cost pressures.
Q & A Highlights
Q: Can you provide the gross profit contribution for the International Supply Chain Business for H2 FY24 and the first half of FY24?
A: We included the geographic split in our disclosures due to requests from shareholders and analysts. We will consider adding trends and contributions of regions in future disclosures. Historically, Europe was a significant contributor, but its contribution has decreased. We expect growth in the Americas, particularly North America, while Europe may remain steady.
Q: Why has the short-term debt increased, and what is the target by year-end?
A: The gross debt is INR1,352 crores, with short-term debt at INR850 crores. The increase is due to higher freight rates affecting working capital. We expect the net debt to decrease by about 20% by year-end as freight rates stabilize and cash from non-core asset disposals comes in.
Q: What is the impact of recent acquisitions on EBITDA, and why has employee cost increased?
A: The increase in staff costs is due to onboarding new employees, bonus payments, and severance costs. Severance costs over the last two quarters have been significant, around $2 million. We aim to offset these costs through outsourcing and tech automation.
Q: How do you plan to achieve operating leverage in terms of EBITDA?
A: Operating leverage will play out more in the international business. In the Express Business, staff and G&A costs are already accounted for, so increased gross margins will lead to operating leverage. We have seen improved EBITDA over the last few quarters, and this trend should continue.
Q: What is the outlook for demand in the third and fourth quarters?
A: We expect strong demand in select countries, although Europe may take more than two quarters to revive. Globally, there is better market momentum.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
