Allcargo Logistics Q1 FY25 earnings call

Guidance on this call

No quantitative FY25 guidance given. Management stated it expects sequential improvements to continue through Q2–Q4 FY25, will grow faster than the market in both LCL and FCL, and that Argentina/Uruguay/Paraguay volumes could double in 9–12 months. Net debt is expected to decline, not increase. Only maintenance capex in ECU; GATI capex to be funded by QIP proceeds.

The industry, as management sees it

Management sees a sustained trade volume recovery through year-end FY25, with demand holding up despite European economies remaining subdued. Supply-side factors — Red Sea crisis, US port congestion — are currently keeping freight rates range-bound, but Lunar New Year (Feb 2025) typically brings a slack. Europe could see a recovery in 2025, providing additional trade volume support.

Risks management named

• European economy remains subdued and could weigh on outbound Europe trade lanes
• Red Sea crisis and US port congestion artificially tightening container supply
• Lunar New Year (Feb 2025) historically brings a slack in volumes
• Working capital expands with higher ocean freight rates, pressuring Q1 cash flow
• No contractual obligations with customers — 80–90% recurring but not contracted

Not answered directly

• Specific FY25 volume/margin guidance
• Segment-level PAT for Contract Logistics
• Country-specific volumes (Argentina/Uruguay/Paraguay)
• FCL yield — said it would be shared on sequential basis going forward

Every question, with its answer

1. 1. Express business strategy & leadership

   Rushabh, RBSA Investment Manager LLP

   Question. Express business has seen senior management churn. What strategic changes will ensure double-digit volume growth over the next 2–3 years?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. GATI is a separately listed company so management there can answer in detail. The express business has seen an operational turnaround — cost of operations now matches industry best standards, which has been the primary driver of profitability. Sandeep joined as COO last year; Uday Sharma joined as Chief Commercial Officer; Phil has retired and is in transition. New leadership is expected to drive renewed commercial growth on top of the operational turnaround.

   Not answered directly.

2. 2. Contract logistics margins

   Rushabh, RBSA Investment Manager LLP

   Question. On contract logistics, what is the sustainable EBITDA margin and the 2–3 year outlook given a slight dip this quarter?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Current quarter decline is not a trend — small base cost reallocations can cause noise. Margin profile should remain consistent over 2–3 years. We could potentially add revenue from the transport part of contract logistics (where restrictions are now removed) which comes at lower margin but is incremental. Margin % may decline if transport mix grows, but absolute EBITDA should grow.

3. 3. ISC unit economics

   Ravi Singh, Cosmic Horizon Capital

   Question. EBIT per LCL container was ~0.44x pre-COVID and is now ~0.15x. With container shortages and higher freight rates, can EBIT per LCL get back to pre-COVID levels?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Discouraged comparing on EBIT per TEU basis given changed LCL/FCL and trade lane mix. Roughly 70:30 gross profit split between LCL and FCL. Key LCL drivers are utilization and 40-ft container usage (both shared monthly). SG&A is a significant multiplier of bottom line, and automation + outsourcing should keep it well below inflation. Significant operating leverage at play — marginal GP improvements have a much larger impact on bottom line. Expects EBIT per CBM/TEU to move towards 'broadly in the range of, maybe perhaps higher' over next 2–3 quarters.

   Follow-up. On the cost initiatives, is the employee cost piece done or is there more positive impact to flow through next quarter?

   Answer. Largely behind us. Cost has been contained through corporate cost reductions, automation and outsourcing. Reviving volumes are translating into improved profitability. July monthly update should be out in 5–6 days.

   Not answered directly.

4. 4. Global freight rate outlook

   Ravi Singh, Cosmic Horizon Capital

   Question. Global container movement of 74 million TEUs in the first five months of FY has beaten 2021's record. Could this be front-loading for Christmas/New Year and lead to a freight rate cool-off later?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Container stats usually mix laden and empty containers. Demand uptick since April led to a significant freight rate expansion through June/July, then a marginal decline on some trade lanes. Believes freight rates should remain stable or range-bound until year-end. Beyond that, no visibility — Lunar New Year (Feb) typically brings a slight slack. Big challenge is supply side: Red Sea, longer transit times, US port congestion. European economies remain subdued — pickup there could follow in 2025. Combination of factors should sustain demand for the remaining three quarters of the year.

5. 5. One-off items

   Rajesh Agarwal, Moneyore

   Question. Was there any one-off expenditure in this quarter?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Nothing significant to highlight. CFO Deepal Shah confirmed no one-off. Clarified that the Rs 32 cr COVID relief credit was in Q1 FY24 (June '23), not this quarter.

   Follow-up. Have costs been appropriated; any increase or rationalization on the cost side? And is operating leverage the driver from here?

   Answer. Cost reduction initiatives have allowed cost maintenance despite inflation. No significant additions or reductions expected. Focus is on driving gross profits to the bottom line — operating leverage is exactly the strategy and expectation.

6. 6. Business defensibility & sustainability

   Rajesh Agarwal, Moneyore

   Question. Beyond automation and digital, what is the strategy to make the business sustainable — e.g. 6% EBITDA — independent of freight rate cycles?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. The ISC (LCL consolidation) business is unique and non-replicable. We operate 2,500 direct trade lanes globally — bigger network than any shipping line. Largest forwarders (DHL, Kuehne Nagel, DSV) are our customers. Cross-border model requires operational engagement on both origin and destination — high entry barriers. Creating a 'phygital' layer — physical consolidation infrastructure + digital network — for seamless visibility. 70% of export bookings already come through digital channel. This is what creates defensibility and sustainability independent of freight cycles.

   Follow-up. Why didn't Allcargo benefit when freight rates and utilization came down?

   Answer. Dual event — when freight rates collapsed AND utilizations came down, cost of operating the container (largely a pass-through in LCL) didn't help if there wasn't enough cargo. Like an airline — empty seats don't make money, full aircraft does.

7. 7. Shipping line contracts & demand visibility

   Rajesh Agarwal, Moneyore

   Question. Do we have annual contracts with shipping lines for LCL volumes? If geopolitics normalizes and containers are available, will we make money?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Combination of rolling contracts, spot buying, minimum commitments and volume incentive thresholds. Relationships go back 30 years — no contractual obligations but strong comfort; even at peak container shortages (COVID and recent) we always secured space. Bottom line should grow with utilization — as economic growth revives and interest rates come down, consumption should rise. Europe may take longer but enough contributions from other regions to drive trade volumes.

8. 8. Operating cost trajectory

   Radha, B&K Securities

   Question. Sequentially, despite volume rise, operating costs remained elevated. When will the benefits of past cost initiatives flow through?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Significant part of operating costs is ocean freight, which rises in an up-trading environment. Operating costs won't come down with freight rates — they move with them. Strategy: volume up, yield (GP per unit) consistent or improving, higher GP, contain SG&A — flow to bottom line. This is why a 12% sequential revenue increase drove a 34% sequential EBITDA increase.

   Follow-up. What volume growth are you targeting for FY25 in ISC?

   Answer. Not sharing specific guidance, but will continue to expand market share — grow faster than the market in both LCL and FCL for FY25.

   Not answered directly.

9. 9. Contract logistics profitability

   Radha, B&K Securities

   Question. Contract Logistics has seen wallet share gains but EBITDA dropped. What are the reasons and what is the PAT for the segment and full year outlook?

   Answer, Ravi Jakhar, Group Chief Strategy Officer. Contract logistics is contract-driven (1–3 years); quarterly variances happen because of white space movement as new capacity is acquired. Revenue growth looks strong, mix will remain consistent. Margin % should remain consistent and absolute EBITDA should improve. Did not share segment PAT.

   Follow-up. Current volumes from Argentina/Uruguay/Paraguay? Which subsidiary records these?

   Answer. All ISC outside India is under ECU Worldwide NV (Belgian entity). We don't share country-specific volumes.

   Not answered directly.

10. 10. Net debt and capex plan

    Radha, B&K Securities

    Question. Net debt segment-wise and target net debt for this year and next year?

    Answer, Deepal Shah, Group Chief Financial Officer. ECU Worldwide (largest non-India business): net debt Rs 133 cr. Allcargo Logistics standalone (holdco): net debt Rs 524 cr. GATI: net cash of Rs 195 cr (post QIP). ACPL: net debt Rs 24 cr (long-term borrowing for capex). Other subsidiaries: cash of ~Rs 52 cr. Total: Rs 434 cr net debt. Capex plans: GATI capex (hubs + tech) to come from QIP proceeds; ECU only has maintenance capex. Expects debt to go down, not up. Working capital debt may rise with higher freight rates but DSOs are range-bound.

11. 11. LCL vs FCL unit economics basics

    Dheeresh K Pathak, WhiteOak

    Question. Why are LCL volumes measured in CBM and FCL in TEUs? Is it fair that in LCL revenue is on CBM and cost on TEU basis, while FCL is TEU on both sides?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. FCL measured in TEUs because customers book 1, 2, 5 or 10 full containers (20-ft or 40-ft) — that's how global container business is measured. LCL measured in CBM because customers bring in partial cargo (1 CBM, 2 CBM etc.) and consolidation fills the container. Confirmed: yes, in LCL revenue is on CBM but cost is on TEU — which is why utilization (CBM per TEU) drives profitability.

    Follow-up. What is the difference between the container utilization index and 40-ft container usage index on slide 14?

    Answer. Utilization is how many CBM we put inside each container. 40-ft usage index is share of 40-ft containers in overall mix. 40-ft has twice the volume of 20-ft but cost is only 1.6–1.7x. So 40-ft is operationally more efficient. Both charts are LCL-only.

12. 12. ISC cost structure & operating leverage

    Dheeresh K Pathak, WhiteOak

    Question. The gap between Q1 FY25 gross profit of ~647 and EBITDA of 81 — is all of that fixed overhead? Is it semi-fixed or fully fixed?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. Yes — gap between GP and EBITDA is admin and staff cost. There is some variability based on performance, but to a large extent these are staff costs, warehouse leases, office rentals — largely fixed. This is why SG&A is a significant multiplier of bottom line — gross profit improvements have a far more profound impact. People-driven business with high costs — large operating leverage when volumes revive.

13. 13. Cash flow & working capital

    Sukant Garg, Equible Research Private Limited

    Question. Cash flow situation has been slightly worse than Q1 FY24 — operating margins came down a bit YoY. Can we recover this in Q2 or Q3 onwards?

    Answer, Deepal Shah, Group Chief Financial Officer. EBITDA change has impacted cash flow to that extent. Ocean freight rates in Q1 FY24 vs Q1 FY25 have gone up a bit, leading to additional working capital investment. Sufficient cash and lines available to cater. Working capital expands when freight rates go up and contracts when they come down; cash is then replenished. Higher freight rates leave behind better business opportunity and better margins. DSOs have remained range-bound — no other issue.

14. 14. SG&A cost structure

    Dheeresh K Pathak, WhiteOak

    Question. Fixed cost is around Rs 2,200 cr on a run rate basis. What are the broad buckets — rental, employee, other?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. Don't share detailed SG&A breakup. Staff cost is the single biggest contributor. Second is warehouse and office rentals/lease rentals. Third is general administrative costs (utilities, travel). Part of this is variable pay/bonus linked to performance. Use slide 14 (LCL & FCL yield index) for forecasting — LCL yield is more range-bound; gross profit is volume × yield. Enough has been done on cost reduction, outsourcing and automation to keep SG&A in check.

    Follow-up. FCL yield is more volatile than LCL — are we taking market price risk in FCL?

    Answer. LCL has many activities (pickup, consolidation, ocean leg, deconsolidation, delivery) — ocean freight is one component (linked to TEU), other costs more consistent and linked to CBM. LCL is more driven by utilization than by ocean freight. FCL has little origin/destination activity — most revenue and cost linked to ocean freight, so freight rate volatility flows through directly. In FCL, when freight moves from $1,000 to $5,000, we don't maintain the same $200 margin — yield moves with freight.

15. 15. FCL vs LCL yield volatility

    Dheeresh K Pathak, WhiteOak

    Question. Is it fair that ocean freight is 30–40% of LCL invoice but 90–100% of FCL invoice? And is FCL yield hurt by short volatility from sharp freight moves?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. On the cost side, ocean freight component is lower in LCL and is a pass-through — volatility largely passes through. In FCL, volatility is more directly reflected. ECU 360 platform gives instant integrated quotes. Yield typically plays in sync with freight rates — improves at highest freight rate, reduces with lower freight rate. Sequential picture is different; we don't currently share FCL yield but will see if more can be shared.

    Follow-up. Why has FCL yield reduced in this period when rates have gone up?

    Answer. Comparing with same quarter last year, there is a lag effect. Sequentially it's a different picture — we don't share FCL yield but will try to share more data sequentially.

    Not answered directly.

16. 16. Customer stickiness & lag effect

    Radha, B&K Securities

    Question. What percentage of ISC customers are recurring? Despite 80–90% recurring, is there no contractual agreement?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. ~40% of business comes from large customers — almost all recurring. 60% comes from small customers (forwarders), most of whom are also recurring. New business share comes from new trade lanes, new services and new products. Overall ~80–90% of business is recurring. No contractual obligations on either side, but reasonable understanding with volume incentives for largest customers/vendors. Average 40-day sailing means a 4–6 week lag effect in quarter financials.

17. 17. FY25 outlook & trade lane mix

    Dhruv Shah, Ambika Fincap

    Question. With freight rates going up and volume increasing, can we in a few quarters touch the run rate of 2021–22? Are rates already at 2021 levels? What % of revenue is from Europe exports?

    Answer, Ravi Jakhar, Group Chief Strategy Officer. Refrained from specific guidance, but at least for the four quarters of FY25 starting with Q1, sequential improvements have been seen and expected to continue. Rate picture is not secular — Europe-to-Asia rates extremely weak while Asia-to-Europe rates much higher; some Asia-to-Latin America rates have touched COVID-era highs. Business is largely a representation of global trade with strong presence in most regions, pretty distributed.

    Not answered directly.

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