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Edited Transcript of ADANIPORTS.NSE earnings conference call or presentation 6-May-20 10:59am GMT

Q4 2020 Adani Ports and Special Economic Zone Ltd Earnings Call

Ahmedabad Jun 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Adani Ports and Special Economic Zone Ltd earnings conference call or presentation Wednesday, May 6, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Deepak Maheshwari

Adani Ports and Special Economic Zone Limited - CFO

* Jeet Adani

Adani Ports and Special Economic Zone Limited - VP Finance of Adani Group

* Karan G. Adani

Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director

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Conference Call Participants

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* Abhinav Bhandari;Nippon Life India Asset Management Limited;Research Analyst

* Achal Lohade

JM Financial Institutional Securities Limited, Research Division - VP

* Ajinkya Dilip Bhat

Macquarie Research - Analyst

* Amish Shah

BofA Merrill Lynch, Research Division - Director

* Ankur Periwal

Axis Capital Limited, Research Division - VP of Media and Logistics

* Ashish Shah

Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines

* Bharti Sawant

Mirae Asset Global Investments (India) Pvt. Ltd - Investment Analyst

* Bhavin Gandhi

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Girish Achhipalia

Morgan Stanley, Research Division - VP

* Mohit Kumar

IDFC Securities Limited, Research Division - Analyst

* Nishant Chandra

Temasek Holdings (Private) Limited - Associate Director, India

* Parash Jain

HSBC, Research Division - Head of Transport Research, Asia-Pacific

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Priyankar Biswas

Nomura Securities Co. Ltd., Research Division - VP

* Pulkit Patni

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Sanjay H. Parekh

Nippon Life India Asset Management Limited - Senior Fund Manager of Equity Investments

* Sumit Kishore

JP Morgan Chase & Co, Research Division - Research Analyst

* Varun Ahuja

JP Morgan Chase & Co, Research Division - Analyst

* Venugopal Garre

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Vibhor Singhal

PhillipCapital (India) Pvt. Ltd., Research Division - VP & Lead Analyst of Infrastructure and IT Services

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Presentation

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [1]

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container at 41% and crude at 11% and other bulk commodity at 14%.

In terms of container volume, APSEZ registered an all-time high volume of 6.25 million TEUs, a growth of 8% against 3% container growth by All India ports. Container volumes at Mundra Port grew by 6%, Hazira port by 8%, Kattupalli by 17% and Ennore at 129%.

During the year, we have commenced both our LNG and LPG business at Mundra and were able to handle substantial quantity in a short period.

In FY '20, we added 300,000 tonnes of LNG and 400,000 tonnes of LPG into our cargo portfolio.

In terms of additional capacity, we added 56,000 KL capacity of liquid handling at Hazira port and created a new facility with 60,000 KL capacity at Kattupalli port. The consistent outperformance reflects our resilience and ability to grow across all our operating ports.

Our results, both in terms of operational and financials, are within the guided range. The share of our Southern and Eastern ports continue to increase while Western ports continue to grow. Southern and Eastern ports grew 40% and 44%, respectively. This enables us to achieve East-West Coast parity and not depend on a single port for growth.

Our efforts to address evacuation issues resulted in a record 44% cargo throughput growth at Dhamra port. Average rake availability has now increased from 15 rakes in FY '19 to 20 rakes in FY '20. This is through our strategy laid out at the start of the year.

In our Logistics business, rail volumes handled by Adani Logistics Limited in FY '20 registered a year-on-year growth of 115%. The total rail volume handled by Adani Logistics Limited is for FY '20 is 325,000 TEUs. This is against 150,000 TEUs handled in FY '19. This was due to additional rail capacity, new routes and acquisition of innovative B2B logistics.

ALL is currently operating 60 rakes. This includes 43 container rakes, 9 rakes under General Purpose Wagon Investment Scheme, 7 grain rakes and 1 auto freight train rake handled under the JV of Adani NYK Logistics.

ALL is currently operating 5 inventory freight terminal with a capacity of 500,000 TEUs per annum and is developing a logistics park in Nagpur and warehouses at Kattupalli, Taloja and Mundra, which will be operational in FY '21. Currently, we have a warehousing capacity of 400,000 square feet.

Adani Logistics is thus on track towards its strategy of expanding logistics footprint across India, building multimodal logistics park, warehousing, rail network and distribution in order to be the leading integrated logistics service provider in India, moving from port gate to customer gate. The company continues to explore opportunities for acquisition of similar nature in India.

Presently, although India is in a state of lockdown, Adani Logistics has been managing operations with the essential staff, taking all necessary safety precautions to keep the supply chain running.

Now just a brief overview on the -- of the financials for FY '20. The operating revenue grew by 9% to INR 11,873 crores. Consolidated EBITDA grew by 7% to INR 7,565 crores. Port revenue and EBITDA during the same period grew by 8% and 9%, respectively.

Port EBITDA margin expanded by 100 basis points. Logistics revenue grew by 65% to INR 964 crores, and EBITDA grew by 159% to INR 234 crores. And EBITDA margin in Logistics business improved to 24% in FY '20 from 16% in FY '19.

We have been able to manage growth without compromising our credit quality. All our key ratios continue to be healthy. Our net debt-to-EBITDA of 2.9x is below our desired range of 3 to 3.5x. The return on capital employed at consolidated level is among the best in the industry. We expect the return on capital employed to continue to improve due to increased contribution of maturing ports like Kattupalli and Dhamra, which we acquired a few years back.

During the period, APSEZ has declared a dividend of 160% amounting to INR 650 crores. Deepak will share more financial details later on.

Now just to give you an update in terms of COVID-19 and our preparedness. As you are aware, ports fall under essential services. And as such, all our ports are operational. We have announced force majeure in order to mitigate the risk associated with inability to meet the operating standards expected from our ports. We are implementing Government of India operating procedure at all our ports with safety of the workforce as a top priority. Operational staff is quarantined at ports with necessary arrangements in place for safe work environment. Hygiene and sanitation of workplace at site are our top priority and has enabled 100% thermal scanning. Majority of our administrative staff is working from home. Cargo volume is impacted due to logistics bottlenecks and constraint in supply chain. With the proactive steps taken by Government of India to run empty container rakes without surcharge, we have been able to divert some of the road traffic through rail.

To conclude, I would like to say that considering uncertain times in FY '21, our focus will be to maintain adequate liquidity and conserve cash. We are reorganizing our operational contracts to optimize cost and boost our margins. We are realigning the assets to be deployed optimally to avoid further expenditure. Discretionary CapEx will be curtailed from an original CapEx outlay of INR 4,000 crores to INR 2,000 crores. This includes maintenance and necessary capacity expansion at Myanmar and Vizhinjam port. This can -- this outlay can be further reduced looking at the situation going forward. Projects under port development are on and expecting same amount in FY '21, which is in the range of INR 800 crores to INR 1,000 crores. As far as ongoing acquisitions are concerned, KPCL and Dighi Port acquisitions are in various stages of approval and are expected to be completed in quarter 3 of FY '21.

Now I request Deepak to take you through the financial numbers.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [2]

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Thank you, Karan, and good day to everybody, to all our participants.

Brief highlights on the financial side. Our operating revenues grew by 9% to INR 11,873 crores on the back of 8% growth in Port revenue and 65% growth in the Logistics revenue.

Consolidated EBITDA grew by 7% to INR 7,565 crores on the back of 9% growth in Ports EBITDA and 159% growth in the Logistics EBITDA. Port EBITDA margin expanded by 100 basis points to 69% in FY '20 versus 68% in FY '19 because of increased operational efficiency and change in cargo mix.

Depreciation in FY '20 has increased by INR 307 crores due to capitalization of assets at Mundra, Dhamra and Kattupalli in addition to the acquisitions in the Logistics business. During FY '20, the interest cost increased because of the increase in the gross debt from INR 27,188 crores to INR 29,463 crores. The increase in gross debt is mainly on account of restatement of foreign currency debt by INR 1,768 crores and additional debt on B2B logistics to the extent of INR 285 crores.

The depreciation of the rupee against the dollar from INR 69.15 to INR 75.67 by March '20 has an impact of INR 1,626 crores and has resulted correspondingly in lower PBT and PAT. However, as you are aware, this does not result in any incremental cash outflow as the business has a natural hedge.

Capital expenditure as guided during FY '19 was under a guidance number of INR 4,000 crores, we came in at INR 3,615 crores. The CapEx includes Terminal 2 at Mundra, which includes the cranes as well as cross-country pipeline for the LPG business. Liquid tank farms at Hazira, the liquid tank farm at Kattupalli, Dhamra birth 3 and 3A, purchase of rakes for GPWIS and Myanmar container Terminal.

During the year, we have generated free cash flow after adjusting for working capital changes and after investment activity of INR 6,650 crores. The free cash flow includes increased cash flow from operating activities, including lower tax outflows, reduction in the CapEx and capital management program, reduced equity contributions for acquisitions and reduction in financial assets.

Coming to our balance sheet, we were able to maintain the net debt to EBITDA at last year's level of 2.9%, which continues to be within our target -- lower than our target range of 3 to 3.5x. We have been able to elongate our debt maturity to 5.2 years in March '20 as against 4.1 in March '19. Currently, 95% of the debt that we have is long term in nature.

We continue to maintain a healthy mix of ForEx to INR debt in our portfolio, which is guided by our dollar-denominated revenue every year. In FY '20, we have earned USD 430 million denominated revenue. All our key rating related ratios continue to be within the specified range for an IG rating.

The total amount of debt repayments in FY '20 are approximately INR 3,300 crores, and this is adequately covered within our cash balances.

In summary, FY '20 has been a transformational year for APSEZ, as Karan mentioned, where we have taken the steps to achieve our strategy of becoming the largest integrated logistics service provider in India, and we enter FY '21 with a very strong balance sheet. And considering the uncertain times where the full impact of COVID-19 is still to be completely understood, we have redrawn our entire CapEx program to conserve capital and implement even tighter cost control measures.

With these opening remarks, we can now open the line for question and answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [2]

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Congratulation on a decent quarter in a tough environment. I believe that you're not guiding for FY '21. And I do understand that it's very, very challenging right now to forecast the -- any sort of numbers for FY '21. But having said that, sir, is it possible for you to touch upon, give some broad outlook on cargo wise or port wise, some kind of commentary for FY '21 and the quarter?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [3]

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Thanks, Mohit. To be honest, it's very difficult and -- to give any sort of commentary on it because every day is a changing situation and evolving situation. I think what we can say is that we are not letting go of any cargo. We are not letting of -- no, we are not -- we -- whatever ships and whatever cargo is coming, we are handling. The bottleneck does remain in terms of the supply chain. That's mainly because the factories are shut. So the cargoes are coming, but the cargo evacuation is becoming an issue. But at the same time, we are not pushing -- we are not letting go of any cargo. It's -- I think it could all be a factor of when the lockdown gets lifted in the country, then it will give us a good idea in terms of when -- what kind of cargo projections and what kind of volumes we can expect this year.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [4]

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Okay. Understood, sir. And sir, is it possible to touch on the progress on DFC? When it's expected to get commissioned?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [5]

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All right. So originally, DFC, before the lockdown, the expectation of DFC to connect to Mundra port was in June of this year. I think this will definitely get pushed down to maybe 2 or 3 months. But I would expect DFC to be commissioned by end of this calendar year at least to Mundra port.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [6]

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Okay. Understood. Sir, last question. Is there any offtake agreement for our LPG terminal except for IOC?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [7]

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Sorry, LPG terminal?

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [8]

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Yes. Yes.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [9]

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So LPG terminal, we have 3 offtake agreements. We have one with IOC, one with HPCL and one with BPCL. So all 3 has an offtake agreement of 5 years on a take or pay basis.

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Operator [10]

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We take the next question from the line of Venugopal Garre from Bernstein.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [11]

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Firstly, Karan, if you could give us some perspective on product volumes as to how they're shaping up -- what you have seen in April. And I understand probably that the peak of the lockdown period may not necessarily be representative, but probably more around coal liquid versus container as to how resilient one is versus the other. And also I wanted to understand if you could elaborate the evacuation challenges a bit more and particularly around which ports that is being witnessed?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [12]

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Sure. Let me answer the evacuation issue first and then maybe Deepak can answer the volume on the April, what is the sort of the mix looking like. So on the evacuation, the biggest challenge is on the road part, it is not under the railway side. So rail side, we are getting enough rakes in terms of evacuation as much as the customers want and as much as we want. Also we have seen is on -- because of the empty -- the surcharge on empty rakes being removed at this period, we saw a lot of diversion of the road cargo moving to rail, especially on the container side. So just to give you an example, we've seen Reliance Jamnagar refinery, which was running. The evacuation was 80% on road and 20% on rail. There, we have seen in this period a complete opposite shift. We saw 80% moving by rail and 20% by road. So those are the kind of effects we are seeing.

In terms of evacuation, the major challenge, as I said, was on the road, and that's mainly because of the interstate borders and the sort of stigma around people working during COVID-19 and then ability to go back to homes and to villages. So that's one of the reasons why -- there is enough trucks available, but the issue is that there are not enough drivers available to move the cargo. I think that is one.

And second is, the cargo is getting evacuated to ICDs or to the plants. But then over there also, we've seen that after 15, 20 days, those are also getting chocked because there's not enough storage space available. So it's a combination of both the things that our operation of the plants as well as evacuation being quite slow on the road front.

The place is -- this is a challenge where we have faced across all the ports. It's not just in -- not that this is limited to one port. And let me put it this way, this is also not a challenge which is only faced by us. This is a sort of an industry challenge that all the ports, including major ports, are facing right now.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [13]

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Got it. On the...

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [14]

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Yes. Venu, I'll take the question on volume, this is Deepak here. So overall, if you look at the month of April, the cargo volumes as compared to what we would have anticipated are in the range of now 20% to 25% lower. The drop is across the various cargo types. But having said that, the drop -- one can see that the drop in coal and crude is more as compared to that on container and liquid and other bulk. So it's a broad-based drop. At this point of time, there is 2 point differentiating between what is 20% and what is 25%. And we expect that with the economic recovery coming through, the volumes will rebound across all the different types of cargo categories that we have.

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Venugopal Garre, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [15]

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If I may ask another. This last question from me is on the margin front. Port margins are flat, I would say, broadly Y-o-Y, but normally lower than your 68%, 70% trend. So what is the driver for that? And do you expect to normalize back to that typical target of yours?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [16]

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Sure. Sure. So I think a lot of it is a function, of course, of the cargo mix, and I can give you further details about it. But our typical approach has been that our overall target for the port EBITDA continues to be in the 69% to 70% area. And we are -- we continue to target that. And that is the kind of number that we expect to achieve in any particular year, though you might find that certain quarters could have a slightly lower or a higher EBITDA margin as compared to the average. But it's the full year number that we typically drive the business on. And we are on the same ballpark or the benchmark that we have set ourselves for it on the overall EBITDA margin for the year.

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Operator [17]

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We take the next question from the line of Nishant Chandra from Temasek.

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Nishant Chandra, Temasek Holdings (Private) Limited - Associate Director, India [18]

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Deepak, just a quick clarification on the cash flow from operations. So in the net cash generated from operating activities of INR 7,402 crores, what is the cash tax paid?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [19]

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What is the cash? INR 850 crores is the tax paid.

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Nishant Chandra, Temasek Holdings (Private) Limited - Associate Director, India [20]

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Got it. And the second one is that the INR 3,600 crores roughly of CapEx needs to be -- so this negative INR 750 crores of cash outflow, it subsumes INR 3,625 crores of CapEx, right?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [21]

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Yes. Yes. Correct.

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Nishant Chandra, Temasek Holdings (Private) Limited - Associate Director, India [22]

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Okay. Understood. So the residual is basically divestment of monetizable assets that you have on your balance sheet, like financial instruments to generate the cash. That's the way to think about it, right?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [23]

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Yes.

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Operator [24]

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Next question is from the line of Parash Jain from HSBC.

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Parash Jain, HSBC, Research Division - Head of Transport Research, Asia-Pacific [25]

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I have a few questions. Maybe first for Deepak. Deepak, for the last 2 years, we've seen volatility in the EBITDA margin, especially in the fourth quarter. But before that, it was not the case. Is there anything like some sort of discount being clubbed towards the end of the year? What -- if you can throw some color on why the variance in EBITDA margin on a quarterly basis.

And the second question is with respect to what's going on, are you seeing a lot of your customers are asking for a longer credit period? And what does it do to your working capital cycle?

And finally, on the overall business, I mean I understand nobody knows how things would shape up, but as we have seen that a few countries have gradually started to open up and particularly in China where India trades quite a lot. On a sequential basis, like are we seeing any signs of stability, let's say, in India-China cargo, I don't know, on a fortnight basis or on a monthly basis? And between the 3 key commodities, like do you have any sort of conviction on one way or the other, which could do better compared to any other cargo?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [26]

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Deepak, do you want to answer the first one?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [27]

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Three different questions there. Karan, do you want to take the last question about the cargo and while I will address both the margins as well as working capital.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [28]

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Okay. Fine. So Parash, on cargo, right now, it is quite balanced what we are seeing in terms of the volumes. I think if you ask me from our point of view, we are -- as you know, that 60% of our volume is tied up on long-term nature, so which is either for -- which is 100% of the crude is tied up on long-term nature. So even though the volumes might not be there in, let's say, first quarter because of the lockdown, we do expect the volumes to pick up and those volumes to be fulfilled by the end of the year.

The same is on the coal front. There are certain contracts that we have which are on take-or-pay nature. So we do expect at least the coal, which is linked to, let's say, Adani Power, Tata Power or to -- or Tata Steel and Dhamra or Steel Authority of India or Reliance in Hazira and Dahej, we do expect those numbers to be there. So I think if you see between crude and coal, the volatility, it could be a quarter -- now more of a timing related. But at the end of the year, we do expect the similar volumes to be there as what we did last year.

Container is something, to be honest, we -- it's very hard to predict right now because it all depends on -- it's all a subject of when the lockdown is lifted in the country. And what I can tell you is that during the lockdown, the imports have still continued to come, what has been affected is the exports. So I think that is one thing we'll have to see when the lockdown gets lifted. And based on that, the export pickup which will happen is something that we have to keep a track on.

I just want to answer on your customer for longer credit. So we -- actually, we are moving in the other direction. Actually, most of the places, we are tightening our credit instead of customers asking for a longer credit, we are actually reducing that. And we are taking that as a priority over the cargo volume. So we are okay to lose 1% or 2% of the cargo if it means that -- if we have to ask for a tighter credits. So that's where we are focused on and that's where we are working. And we have implemented some measures in terms of to control our credit, so measures like bill discounting and -- has been put in effect too in order to make sure that our credit is under control.

Deepak, do you want to answer on the EBITDA?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [29]

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Yes. Parash, Deepak here. So just looking at it, as I said earlier in the previous question as well, (inaudible) that focus is on the full year EBITDA. But there are certain items, which if I look at this particular quarter, which are more relating to Dhamra because of certain increase in admin expenses or certain impairment of assets because of the work which has been continuing out there. So that -- all of that comes to around INR 20-odd crores. So some of these items can be there. Typically, we look at -- as I mentioned earlier, we do look at the full year. And over the full year, this is the target that we have. And it is -- I think it's only by chance or anything that happens 2 quarters is not by any intent, our 2 fourth quarters.

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Operator [30]

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We take the next question from the line of Pulkit Patni from Goldman Sachs.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [31]

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Actually, sorry to harp again on the margin bit. But what I'm trying to understand, Deepak and Karan, is that typically, when we look at these businesses, there is an element of high operating leverage. Now what we've seen in our case is that margins have pretty much been stable in a 3% to 4% range for the longest period ever. But now as we head into a year where there's going to be uncertainty and we do not know what volumes we might actually do, can you just talk about how the margin profile would look like? And what are the key measures where we can actually cut costs in the interim in order to protect those margins? That would be my first question.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [32]

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Sure. So Deepak, I'll answer, then you can add on to this. So Pulkit, if you see from our total cost structure, 30% of our cost is fixed in nature, 70% is variable in nature. So 70% is where we keep -- we will -- we have the opportunity to keep reworking them looking at the volume and the volume forecast that we have. I think the margins, we don't see -- we will see margins to play anything between 68% to 70% even during the uncertain times because looking at our cost structure and looking at some of the volumes which are coming in at the cargo mix that we have. So we don't expect margins to drop drastically because of uncertainty. It will be in the range of 68% to 70% is what we would expect.

Deepak, do you want to add on to this?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [33]

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Yes. I think just to add on to what you mentioned, Karan, of course, we have -- having the mix between fixed as well as variable. So we are seeing a number of changes which are taking place clearly. And within our variable cost as well, we have electricity and fuel as important consequence of the cost structure. So we see here as -- considering where we are right now and as to how the cost of electricity as well as steel is changing or reducing over the last, I would say, 6 weeks, we do stand to get the benefit of reduced electricity costs as well as reduced fuel charges and fuel cost.

Also separately, on the fixed cost, we are in the process of relooking at all our operating contracts, whether they are for equipment or for manpower, those constitute a significant portion of the fixed costs. And within that also, we are looking at flexibility either on the hiring and rehiring of equipments as well as seeing as to how the manpower can be optimized. As you can see, we are running the ports even with reduced manpower at this point of time. Maybe this will have new learnings for us as to how further costs can be controlled. We're using increasing technology to see as to how processes can be optimized. That's an ongoing exercise. There's more focus on it at any point of time and more so in this year. So these are various streams of activities that we have already identified in order to be able to control the costs and to maintain the margins.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [34]

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Understood. So we should assume the 67%, 68% to 70% kind of a range even for next year.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [35]

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Absolutely. Absolutely. Absolutely.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [36]

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Okay. My second question is while I totally appreciate you can give no guidance on volume right now, any guidance you'll have for how should one look at the APSEZ income for the next couple of years?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [37]

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So Pulkit, as said earlier also, we have certain projects which are -- which are ongoing, which are linked to port development and port development income. And as guided, INR 800 crores to INR 1,000 crores, we will still expect this year from the port development income. And apart from that, the lease income that we typically get, that will continue to be there.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [38]

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Okay. Okay. Understood. And just last question from my side. What is the status of the Snowman deal right now, if you could talk about that?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [39]

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So status of Snowman deal is we have acquired 26% from the market as part of open offer. We have kept on hold the stake of 40% that we have to buy from promoter. We are reevaluating the deal, looking at the current situation. And we want to just reassess -- we just want to reassess what is the impact on cold storage business because of COVID-19. I think looking at it, the possibility of deal happening would be in October -- between October and December of this year.

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Operator [40]

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Next question is from Nishant Chandra from Temasek.

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Nishant Chandra, Temasek Holdings (Private) Limited - Associate Director, India [41]

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Sir, a couple of questions. So one is on -- there was a recent news article on pricing increases for railway handling. Can you provide some color on that? And the second one is, how is the evacuation bottleneck for, let's say, Mundra versus JNPT? On a relative basis, is Mundra better off given all of the benefits it has? That's it from my side.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [42]

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Sure. Nishant, on -- as part of -- we keep evaluating various measures in terms of -- to look at ancillary revenues. So part of that, we have introduced a new charge, which is towards rail handling. And basically, it is to further optimize our railway assets and our railway cost over there. So it's a charge to CTO operators looking at the kind of productivity they have and the kind of volumes that they can bring and based on that, the charges are decided. And it's an individual charge, it's not a charge across all -- it's a charge which is negotiated one-on-one between individual CTOs.

In terms of evacuation, it is -- we are -- if you see our rail evacuation is much better off than what JNPT's. And if you see the pendency -- volume pendency that we have versus JNPT, we are -- our pendency is much lower. And we continue to focus on evacuation more through rail as much as possible.

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Nishant Chandra, Temasek Holdings (Private) Limited - Associate Director, India [43]

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And has that led to any market share increase for us versus JNPT during this period?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [44]

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It's very hard to say because we are still awaiting data of JNPT for the month of April. But I do believe -- if I'm not wrong, I do believe the gap has narrowed between JNPT and Mundra.

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Operator [45]

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Next question is from the line of Priyankar Biswas from Nomura.

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Priyankar Biswas, Nomura Securities Co. Ltd., Research Division - VP [46]

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So I have two questions. So one of the thing is that -- what I observe is that your free cash flows have increased from roughly INR 1,600 crores in FY '19 to almost INR 6,500 crores. So what my first question on this is, what were the drivers that led to this massive jump? And which of these factors do you think are sustainable factors that should continue into the coming year? So that's one.

And the second is, it seems that post the fourth quarter, there has been a substantial reduction in the promoter share pledges, I mean, in the last month. So has there been a big debt repayment by the promoters? And if so, if you can quantify that, how much debt would have been repaid?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [47]

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Okay. Let me answer the first one and then Jeet will answer the second one.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [48]

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Yes. Yes. Yes.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [49]

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So during the introduction, I mentioned the 4 factors which have led to the increase in the FCI. And it's a very well-rounded aspect about how different parts of the capital structure in the business has contributed to it. The changes that we have seen and the sustainability arises because it has improved cash flow because of operating activities. And the LPG and the LNG businesses that we have set up have contributed to that. There has been lower tax rate. So all of that is a consistent element because we will keep having cargo flows as well as developing newer projects at our site.

The reduction in CapEx and capital commitment is also something that we are very careful looking at. And you can see for this particular year also that we have changed our overall guidance from INR 4,000 crores to INR 2,000 crores. There is -- in the last year, there was a reduced equity contribution for acquisitions. Clearly, that's a function of what we aspire. And in the years that we have larger acquisitions coming up, this number can be different.

However, it's important, and I know you realize it, that all the acquisitions that we make, we do make them in order to have an IRR of more than 16%. And hence, that's a number which can change depending upon the acquisition strategy at that particular period. And there is reduction in financial assets, which is also an ongoing exercise in order to monetize these assets. So all over different parts of the balance sheet, not one specific thing, but all steps in the right direction and with a focus to keep converting what has happened this year into a sustainable number. That's for Jeet to talk about the founder pledge.

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Jeet Adani, Adani Ports and Special Economic Zone Limited - VP Finance of Adani Group [50]

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So I think over the last 3, 4 months, there's been a significant repayment of the share backed loans that we had at the promoter level. I think as a figure, we've repaid about INR 4,500 crores of share backed loans, which has caused, as you see, a drastic reduction in the share prices. I think going forward, our aim at the promoter level is to take this number to 0. We view this as a type of financing strategy that we do not want to continue going forward in the future. You can expect in the next 12 to 18 months for this entire promoter pledge saga to get over.

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Operator [51]

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Next question is from the line of Ajinkya Bhat from Macquarie.

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Ajinkya Dilip Bhat, Macquarie Research - Analyst [52]

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Sir, I just have one question on the sticky cargo. In your presentation, there is a chart with the breakup of sticky cargo, and it looks like nearly half of the sticky cargo is coming through [containers]. So my first question is, when you say sticky cargo, is it all take-or-pay contract? Or does it also include, say, your customers like manufacturing plants in your natural catchment area and so would be importing and exporting through you? And secondly, could you just tell us which are the key industries or key customers who are included in this sticky cargo for containers?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [53]

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Sure. Ajinkya, two things. If you see 60% of our cargo is sticky in nature, I would not say that it's mainly dominated by containers. Actually, I would say a majority of it would be between bulk and crude business. So if you see our sticky cargoes are -- when we classify it is in take-or-pay in nature on places where we have a long-term contract, so anything above 5 years is what we classify as sticky cargo. So just to give you an example, the way we classify it is like people like Tata Power, Adani Power, Reliance Industry for their coal handling; or IOCL or HMEL for their crude handling; HPCL for their fuel handling; Tata Steel and SAIL in Dhamra for the cooking coal handling. So all of them, we would classify as sticky cargo.

On container, the way we classify sticky cargo is basically shipping lines where we have more than 5-year contract at any particular location or we would look at shipping lines who have taken an equity stake into the container terminal because they are bound to come through the -- they are bound to -- those shipping lines are bound to come through that.

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Ajinkya Dilip Bhat, Macquarie Research - Analyst [54]

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Okay. But that essentially means that there is no volume guarantee because there is no take-or-pay. You're actually saying there could be a long-term contract with a shipping line. And if they have a JV stake, you're saying whenever they bring volumes, they are likely to bring it through your ports. But let's say, if the economic growth is down and the volumes themselves are going down, then that carries a risk. Would that be a fair assessment?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [55]

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Yes. That is true for containers. But as I said that a container -- from a basket of sticky cargo containers, our share is quite low. I would say from the 60%, our container would contribute, let's say, maybe 15% to 20%, not more than that.

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Ajinkya Dilip Bhat, Macquarie Research - Analyst [56]

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Okay. Okay. Fine. I think that there was a chart in the presentation where containers was actually 49% of sticky cargo. Maybe I will recheck.

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Operator [57]

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Next question is from the line of Bhavin Gandhi from B&K Securities.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [58]

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Firstly, on the acquisitions. So I believe when you had announced the acquisition of Krishnapatnam, you had given a guideline of about 120 days. So if you can elaborate a little more as to what is the confidence around this third quarter number? And also, is there -- is the acquisition price kind of freezed or there is any room for negotiation there as well?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [59]

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So I'll answer the confidence on Q3 and then Deepak can answer on the price and the -- how we are working between now and the closing. So if you see -- originally, we had 120 days, but this has pushed out because there are 51 CPs that the sellers have to complete between state approvals to share -- to lender approvals to various other approvals which are pending. From the 51, we have only completed 8 as of now. And we do expect that with the lockdown, a lot of these approvals will take time to come.

From a buyer side, our major approval for us is the CCI approval. CCI, we have already finished 2 rounds of discussions with them and queries. And we do expect the CCI approval to come in place in next -- anything between a month or 2. But till the time seller CPs are not completed, we will not be in a position to complete the transaction. So we are very confident that the transaction will not be done before October, November of this calendar year.

Deepak, you want to answer on the price and...

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [60]

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Yes, I'll do that. So as we have mentioned earlier as well, we see that the Krishnapatnam acquisition is quite transformational for APSEZ as a company, and it helps us achieve our stated objectives around parity of cargo, both on the East Coast as well on the West Coast and to service a much larger economic hinterland in the country.

Clearly, there has been a significant change at least in the medium -- in the very short term on the economic conditions and the cargo flows across all ports and across all businesses in India because of the lockdown situation. I think we have to wait for a bit to see as to how this takes shape. And whether we renegotiate the acquisition price or not, that's to be seen in the future. And at this point of time, there is a SPA which we have signed and that's the price what it is. And if there are significant changes in the market, of course, one can look at it. But till the time that we don't decide that we cannot be talking about it as well.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [61]

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Sir, my second question is relating to evacuation. And given that we've seen significant constraints on road and driver availability, which might not kind of correct itself in a short term, are we seeing a mindset change from the customer to move -- to switch to rail? That is one. And if you can highlight what is within containers, what is the rail evacuated component for us?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [62]

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So as you know, in Mundra, our rail component for container is almost 30%. 30% of the volumes moves by rail. I think mindset change, it's also a combination of pricing. It's not just a mindset. I think what we have seen, in certain critical parts of supply chain, people are rethinking in terms of moving them by rail, but which are more in commodity in nature, I think it is all a subject of economics. I think it all depends on how railway is going to form its policy post lockdown, that will determine how much further shift can happen from road to rail. As of now, we are seeing 30% of the volumes moving by rail.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [63]

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And just one last thing, sir. Your container corporation has announced letting go or relinquishing of 15 ICDs and there can be more in the pipeline. So are we kind of looking at any of those for Adani Logistics?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [64]

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As of now, not really, because if you see the ICDs which they have let go, these are all in the heart of the city, where they have already created an alternative within the city. So -- I mean within the limits. So for us, it really doesn't make sense to take those assets.

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Operator [65]

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Our next question is from the line of Amish Shah from Bank of America.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [66]

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Karan, Deepak, I know you guys did answer about the road to rail mix. But could you give some numbers on what were the earlier versus in the COVID area, both for Mundra port and the other ports where it's relevant?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [67]

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The rail volume is more relevant towards Mundra only because on Dhamra, it's 100% rail movement which is happening. On -- and Hazira and Kattupalli does not have rail connectivity as of now. So if you see Mundra in the month of April, we saw a jump of around 5% to 6% on rail cargo evacuation than what it was -- what it historically does.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [68]

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So Karan, just to understand the cargo that is road bound. Is it just creating pendency at ports? Or is it getting evacuated but at a very slow pace?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [69]

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It is getting evacuated but at a slow pace. What is happening is, at least, it is getting -- it is creating pendency at the CFSs, not at the port. So it is getting evacuated out of the port, but it is getting stuck at the CFS.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [70]

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And for the bulk cargo, I mean in the Mundra port, I know that for Tata Power and Adani Power, you have a conveyor belt to evacuate that kind of a cargo. But generally, how is the bulk getting evacuated that does not normally go to the CFS again?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [71]

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Bulk cargo, if you see, fertilizer is 100% by rail. So that is continuing by rail. There is no issue over there. Coal, we have a very small amount of coal volumes which is moving by road. So it's around 1 million, 1.5 million at Mundra port. So that is -- there is no issue as of now. And otherwise, on the bulk side, we are not seeing too much of an issue because it is not an interstate movement. It is basically within the state movement. Where we are seeing issues happening on road movement is basically any cargo which is moving interstate.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [72]

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Makes sense. And you did speak about imports getting impacted more than the exports. So generally...

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [73]

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No, exports are -- sorry, I just want to correct. Exports are the ones which are more impacted than imports right now.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [74]

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Okay. Okay. So -- I mean prior to COVID, are you saying that the import/export mix was 60-40. What would it be now?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [75]

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Right now, it's like, I would say, it's 80-20. 80% import, 20% export.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [76]

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Okay. And on the CapEx curtailments that you guys spoke about, is the CapEx curtailment predominantly towards maintenance? And I mean, obviously, during the COVID period, one cannot construct anything. But once the lockdowns are over, is that understanding right that you said that we will continue to incur CapEx at Vizhinjam, Myanmar, all of the proper CapEx that we were planning to do, so only maintenance goes down, is that right?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [77]

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No. So basically, where we will be doing CapEx is in Myanmar and Vizhinjam. Any further capacity enhancement this year, we are keeping on hold, and we are looking to squeeze more volumes out of our existing capacity. And maintenance CapEx still, it has come down, but it is not the one which is moving the needle. What is moving the needle is basically curtailment of CapEx on part of growth.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [78]

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So specifically, the gas CapEx, the gas terminals relative CapEx at Dhamra goes on hold for the moment, is that how we should think about it?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [79]

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No, no. Gas terminal is on a take-or-pay basis. So that continues. Basically, if any capacity enhancements -- so there were capacity enhancement at Hazira and Kattupalli, in Dhamra for further capacity enhancement, all of that is kept on hold for time being. And we would relook at that in next year.

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Amish Shah, BofA Merrill Lynch, Research Division - Director [80]

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And last question. You did review your tax policies, and there is a write-back this quarter as well, for this year as well. But is it possible to give some color on what -- whether the new or the old policies you are following it across with subsidiary?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [81]

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Deepak, do you want to answer this one?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [82]

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I think we'll get (inaudible) to send a response to that. I can see that there is a long list of questions. This is something that we'll take offline.

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Operator [83]

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Next question is from the line of Ashish Shah from Centrum Broking.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [84]

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Quickly, I know you've touched on the margin a few times in this call. But I just want to check if there is any one-off or any exercise maybe of a CSR nature which has come in the quarter? Because I'm just saying on our quarterly run rate of about 55 million, 56 million tonne of cargo, we were doing an EBITDA of roughly to INR 1,650 crores to INR 1,700 crores. Our EBITDA for a 58 million tonne is about INR 1,550 crores. So I mean, apart from the mix issue, I just wanted to check that is there anything else that we need to take note of in terms of one-off or maybe this is just some sort of an aberration in the quarter?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [85]

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Deepak, do you want to answer this one?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [86]

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So there is -- as we have mentioned, and we'll just give you any further details if you want, but if -- the annual number still continues to be in the same range of anywhere between 68 to 70. And there can be quarters in which because of certain mix issues or certain other cost items it can be different. But overall, the run rate should be similar.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [87]

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Sure. Sir, also on the balance sheet, under the current assets, we have a loan component, which has gone from INR 1,278 crores last year to INR 1,785 crores this year. Typically under this item last year in the annual report, we have ICDs of about INR 1,100 crores odd. So I just want to check if that has increased or something else has increased here?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [88]

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So there's also this increase of specific secured loans, which is through the promoters of Navayuga Group.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [89]

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Okay. So it kind of could be an advance for the asset? Can it be taken that way? An advanced consideration for APSEZ asset?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [90]

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It's just the support that we have given to the group.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [91]

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Fine. Okay. So on what terms is that, if I may ask? In terms of the rate of interest?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [92]

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No, no, it's secured, and rate of interest is in the low -- around 10% or something in that range. So it's a commercial flex in that way.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [93]

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Okay. And the consideration should be about INR 500-odd crores. I mean the loan should be about?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [94]

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INR 650 crores.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [95]

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INR 650 crores. Okay. Fine. So sir, lastly, you did touch upon the realization part, but I just want to check if the INR depreciation which has happened, are we in a position to retain that entire benefit through FY '21? Or you think we could be making some changes and be passing on part of the benefit to the customer given that the cargo overall remains weak?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [96]

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So not really. I think we are very clear about our pricing. And in fact, as Karan mentioned that we're already taking steps in order to ensure that we're in a position to increase the pricing in the right time. There will be a benefit to us because of the rupee depreciation. But also at the same time, those contracts are all negotiated in dollars. And so we'll continue to have them in dollars. There is no specific plan to provide any discounts or any rebates on the pricing that we have agreed with various customers. So there is a natural benefit of the real estate or the location of the ports that we have. And that there are inherent advantages on the overall logistics chain. So we captured that and we'll continue to do the same.

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Ashish Shah, Centrum Broking Limited, Research Division - Analyst of Infrastructure and Airlines [97]

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Sure. So basically, we'll retain the INR depreciation benefit and that should cushion the realizations and margins to that extent?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [98]

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Surely.

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Operator [99]

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We take the next question from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [100]

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My first question is regarding SEZ revenues. So sir, this -- it's been mentioned that because of difference in timing of bookings, we couldn't book higher revenues in this quarter. So does that mean, next year, SEZ revenue could be INR 800 crores to INR 1,000-plus, INR 200 additional crores for SEZ segment?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [101]

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I would not say that, but I think you can take INR 800 crores to INR 1,000 crores at least for this year. It's all a timing issue. So it's very hard for us to say that it will be INR 1,200 crores this year.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [102]

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Right. And margins also, although this overall number is very small, but the margins also were very less or around 17% this quarter in SEZ segment. Any specific reason there?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [103]

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That's largely because there is not that much SEZ income this year. So -- I mean, in this particular quarter. So resultingly, obviously, the margins are a little low.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [104]

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Okay. And my second question is on Logistics segment. So Logistics segment, despite adding like Adani Agri, which is a very, very high-margin warehousing business, so margins in this segment has also, again, come back to like what you were doing like last year, around 17% range in current quarter. So is there any one-off there? Or how should we see that? The segment margin is very volatile. It used to be like 28% -- 28%, 29% first half, came to 24% and now 17%.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [105]

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Karan, do you want to take that or do you want me to take that?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [106]

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You answer this one, Deepak.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [107]

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Yes. So I think on the Logistics group, we should assume that overall margins that we will be targeting will be an EBITDA margin in the range of 20% to 22%. And that's what typically we will keep. And I think this also, we can see that the AALL margins are likely to be higher because that's a business which has a 70% EBITDA margin. And so now that we have had a full year of AALL as well as nearly a full year of B2B, you will see that the Logistics margin will be that much more easier to predict as compared to previous years where because of that, it's not exactly being incorporated into our business, there would have been a difference.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [108]

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Right. A couple of questions more. On CapEx, when you say that we have curtailed the CapEx, so what is the -- like in INR 2,000 crores, what is the maintenance CapEx for the year?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [109]

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Should I take that, Karan?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [110]

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Yes, sure.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [111]

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Yes. So the overall composition of the CapEx is around INR 850-odd crores for our existing ports, which includes maintenance CapEx plus completing any of the projects which are smaller projects which are already ongoing. So we'll just complete those. Then we have a similar amount that is required for Myanmar as well as for Vizhinjam. And a number in the region of INR 500-odd crores, which is -- INR 600-odd crores, which is for SEZ as well as any logistics acquisitions and things in that order. So as we have always maintained that we have a number of projects which are discrete and discretionary and growth-oriented projects. So at this point of time, when growth to a large extent is questioned, then we're going to stop or take a pause for all of -- for that time and focus on completing what we have, what I just discussed and described and use any CapEx requirement only after growth is more certain.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [112]

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Right. And just last question on receivables. So your -- we can see the total receivable number is around INR 2,600 crores for the quarter. What was the receivable related to related party which was INR 950 crores last year?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [113]

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So typically, the question that we have typically been asked is what is the receivable from Adani Power. So Adani Power numbers used to be around INR 425 crores, that's down to around INR 390-odd crores.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [114]

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Okay. But overall number would have been roughly similar...

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [115]

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Similar, similar. Yes, similar.

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Operator [116]

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We take the next question from the line of Sumit Kishore from JPMorgan.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [117]

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My questions have been answered. Thank you.

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Operator [118]

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We take the next question from the line of the Vibhor Singhal from PhillipCapital.

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Vibhor Singhal, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Lead Analyst of Infrastructure and IT Services [119]

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So just two questions from my side. One is, Karan, just wanted to understand on the basic premise of the take-or-pay contract that we have. So I am assuming that the take-or-pay contracts that we have with various clients, they would also have something like a force majeure clause, which we are looking to basically implement with our clients which are as per our state rules and other government authorities.

So what I wanted to understand was how enforceable are these take-or-pay clauses of the contract? So even in an environment like this in which there is an external event which is now kind of impacting their ability to take that cargos, would they still be liable to pay? Or is there some clause in those arguments which can help them mitigate that thing and work around that and not pay up for that? And do you believe that we will be enforcing that take-or-pay contracts in this times and they would all be paying up, even if they are not taking up the cargo?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [120]

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So there are force majeure clauses in take-or-pay contracts, but so far, none of the clients have invoked force majeure on account of volume uptake. End of the year, we will be expecting to enforce these take-or-pay contracts because we have created the infrastructure based on the requirements. So we don't see in terms of not enforcing these [contracts].

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Vibhor Singhal, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Lead Analyst of Infrastructure and IT Services [121]

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You don't see any risk of these clients resorting to the force majeure clause and hence not paying up?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [122]

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No, we don't foresee that as a risk right now.

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Vibhor Singhal, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Lead Analyst of Infrastructure and IT Services [123]

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Sure. Just my second question is on the pricing front. I understand, Deepak just mentioned that we will probably keep the benefit of USD INR depreciation along with us. But given the current environment in which shipping volumes are low and, as you mentioned, in April itself we ourselves were down around [20%, 25%]. So is there kind of negotiations or talks happening with various clients in which they are asking for some kind of a lower realization of pricing cut or some of that sort? And what is your view on the overall pricing that might evolve over the next 8 to 10 months? Do you foresee maybe some relaxation that we might have to give, not on the rupees depreciation part but as an ongoing business practice because of this entire corona pandemic, do you foresee some realization hit that we might have to take at some part of our portfolio?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [124]

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Okay. So let me just answer that. First of all, all the take-or-pay contracts that we have, there the escalation is already built in. That is being enforced and as a matter fact, we are very confident of achieving. Places where we don't have take-or-pay contracts, in regards, there are continuous discussions which happen with clients or in terms of rate reduction and to look at ways of reducing rates. So far we have not reduced any rates across the board. We are looking at increasing rates, we are looking at the range of anything between 2% to 3% on a per tonne basis to increase our rate over the course of next 8 to 10 months. And we will do it gradually looking at plant to plant. So plants were they fall under our hinterland and they have no option but to come to us, there we will definitely be targeting increase. And places where customers have an option, then we will take a call based on the situation at that time. But overall, I think you should take that 2% to 3% rate hike is doable this year.

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Vibhor Singhal, PhillipCapital (India) Pvt. Ltd., Research Division - VP & Lead Analyst of Infrastructure and IT Services [125]

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Sure. Okay. And just a small bookkeeping question for Deepak. So Deepak, just 2 questions. One is on the right of use asset that we have basically introduced in the balance sheet. This is just the IndAS accounting or is there some other connotation to it?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [126]

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We can take it offline. I am just mindful of the time.

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Operator [127]

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We take the next question from the line of Sanjay Parekh from Nippon Mutual Fund.

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Sanjay H. Parekh, Nippon Life India Asset Management Limited - Senior Fund Manager of Equity Investments [128]

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Firstly, clearly this reduction of pledge and planning to take it to 0 is a very big positive. Second question I have is on the debt-to-EBITDA which you have said it will remain in the band of 3 to 3.5. And we have an acquisition that we need to complete. So clearly for a FY '21 I appreciate that. But if we take FY '22 to '25, given that you've almost got most of the acquisitions that we could have done, can we say that directionally it will get lower and lower without committing a number?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [129]

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Yes, you are right. Once the acquisition is done, directionally the net debt-to-EBITDA would be coming down. And actually, you will see that immediately in 6 months' time that it will come down after the acquisition. And over the course of year, I think for a couple of years it would be keep coming down and it would remain stable in the range of 2.8x to 3.5x, it will stay in that range.

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Sanjay H. Parekh, Nippon Life India Asset Management Limited - Senior Fund Manager of Equity Investments [130]

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Okay. Fine. Other question I had was on the container side, where you said the hit is more, if you can give us some more granular details in terms of essentials in container versus non-essentials? And now that we have green zone in certain aspects, how do we see what part of a container revenue will start? Or they have been normalized? And what part -- which sectors or which part you think, as things open up, will get the benefit (inaudible) granularity around container will help.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [131]

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Can I take that offline (inaudible)? It would be a little longer.

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Operator [132]

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We take the next question from the line of Girish Achhipalia from Morgan Stanley.

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Girish Achhipalia, Morgan Stanley, Research Division - VP [133]

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Just a couple of questions. On the import and [export] side, (inaudible) FY '20, which would be the larger countries and what percentage of the total cargo mix would they be contributing to? And just a second question around containers. What would be the largest sectors that would be driving these volumes? Those are the questions.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [134]

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Can you repeat the first question?

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Girish Achhipalia, Morgan Stanley, Research Division - VP [135]

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(inaudible) country-wise breakup, some color.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [136]

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So as a country and especially for us, the major imports happened from Far East. So basically it comes from, mainly it's from Japan, Korea and China, that's where the majority of our imports come in. And they are mainly in terms of finished goods, white goods and, if I may say so, the components basically which then gets assembled and gets converted into finished goods in the country. The major exports for us is U.S. -- Europe, U.S. and Middle East, those are the major exports, they are basically food products, pharma, finished goods like textiles and auto, these are some of the larger industries which contribute to the exports.

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Girish Achhipalia, Morgan Stanley, Research Division - VP [137]

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And just anything on the container side, specifically what could be the key sectors here?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [138]

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So container, as I said, the majority of these imports is in terms of priced goods, which are basically consumables in nature. You have component which you would just assemble, which will be for auto components. It could be electronic components, which gets assembled in the country and it is consumed in the country or exported. On the exports side, it is mainly textiles, pharma, auto, which are the large -- and agriculture, which are the large drivers.

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Operator [139]

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We take the next question from the line of Ankur Periwal from Axis capital.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [140]

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Most of the questions have been answered. Just one question on our CapEx. And now you did mention preference for Myanmar and Vizhinjam and sort of some bit of capacity expansion across the other ports wherever required. We do have plans to expand the logistics space as well in terms of new logistics park or terminals. Does that stand deferred? That is one. And secondly, your thoughts on CONCOR, given we had expressed our interest earlier to look at that asset, but given the current scenario as well as the overall liquidity focus, give me your revised thoughts on that, if at all.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [141]

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Yes, you go ahead and answer the CapEx question.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [142]

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So the CapEx plan that we have includes our plans for investment in warehouses and rakes as per the business equipment. For CONCOR, yes.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [143]

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On CONCOR, I think it's too early to say anything. We will keep evaluating the opportunity. And we will look at it more from a return perspective. And we have always said in our capital allocation policy, that anything above [16%] if we were able to generate an IRR of [16% plus], those are the investments we would look at. So I think it's too early to say whether CONCOR will happen or not, but I think we will keep our interest on as of now.

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Operator [144]

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Next question is from the line of Varun Ahuja from JPMorgan.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [145]

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Most of my questions are answered, so just a couple of things. Firstly, if you could comment on potential market share improvement, like do you see low hanging fruits in this environment that would be able to increase market share? And from (inaudible) volume will not see the same level of trough as what it could be for the industry. So anything you can guide on that? And secondly, just on this FX hedging, I understand that you do have some natural hedges in place, but with almost like [65%, 70%] of your debt in FX, I am thinking about your hedging strategy, whether it makes sense to actually take explicit FX hedges there? That will be my 2 questions.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [146]

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Deepak, you want to answer both?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [147]

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Yes. So I think -- let me answer the FX question first. It's always the wrong time to change the hedging strategy when things go adverse and it's a strategy we have been following for the last many years, more like 5 to 7 years now, since the time that the company did its first bond issuance. And if you look at it over a period of time, it has paid dividends to the company. And so the strategy does work.

And if you look at going forward as to what is really required both from what are the inflows and what are the outflows. But even if you were to look at this particular year, the total inflows that we had was around INR 430 million as compared to the total outflows that we had, which was in the range of around INR 300-odd million. So even if you look at FY '20, there has been a benefit of this particular strategy from a cash flow point of view. Of course, there is an impact on the P&L because of mark-to-market. But over a period of time, it averages out because of the natural hedge that we have.

So we continue to believe in the strategy. And if you look at the total amount of inflows that we have to the total amount of debt, that also falls -- the total amount of dollar debt, that also falls within the similar guidelines of what we have (inaudible) to gross debt. So with that overall metric as a consideration, we continue to believe that this strategy still works for us.

On the market share, I think your question is (inaudible) we have our marketing teams as well as our operational teams, we think that we have more operating efficiency and our marketing teams are more focused. So yes, there is an ability for us to increase our market share. But achievements of one month cannot be used by us to predict as to what the overall outcome will be. And so yes, we are more focused possibly as compared to other players and that should really help us.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [148]

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Okay. Just a couple of follow-ups, and quick ones there. I missed the part on the shareholder pledge, like what did you guide in terms of the absolute loan level? How much it came down and by when are you targeting to take the share price to 0? And secondly, one housekeeping thing. In terms of unutilized revolving credit or bank lines, in fact, if you could give that number as well.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [149]

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Yes. So in terms of the share pledge, we were in December -- at September of 2019, around INR 13,000 crores of underlying loans based on the share pledges. We have reduced that to around INR 8,000 crores. So almost INR 5,000 crore reduction in the underlying loans. Now given that the average coverage on these loan average 2x to 3x, that has resulted in that much release of share pledges. So if you see -- because of the market volatility, the share pledges had peaked in March to almost about 50%, 55%. We have brought that down to a current level to about 33%.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [150]

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That is LTV, right, you're saying?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [151]

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Yes.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [152]

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Right. So INR 8,000 crores gross outstanding versus the LTV currently is 33%, right?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [153]

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Correct. Correct. Correct. And going forward, our plan is that in the next 12 to 18 months, we want to take this number to 0.

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Varun Ahuja, JP Morgan Chase & Co, Research Division - Analyst [154]

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Okay. Got it. The unused banking lines?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [155]

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Yes. So from a company perspective, we don't -- unlike -- we don't use banking lines, and we don't end up paying commitment fees. We carry significant amount of cash liquidity in our business in any case. Plus we have strong banking relationships because of which we are in a position to raise short-term capital or long-term capital if we needed to.

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Operator [156]

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We take the next question from Abhinav Bhandari from Nippon India Mutual Fund.

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Abhinav Bhandari;Nippon Life India Asset Management Limited;Research Analyst, [157]

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Just one quick one. On the notes to accounts, there is an ongoing arbitration at the Mundra project for the LNG project that we have. Just to understand the nature of dispute here. And secondly, there is some INR 670-odd crores of income which has not been recognized. Does that form part of that INR 800 crores to INR 1,000 crores development income this year that you're guiding? Or it could be over and above that number?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [158]

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Sure. So as you know that Mundra LNG terminal is developed by GSPC. And part of that, we -- part of that, the jetty dredging and the land lease is to be given by APSEZ to GSPC LNG. And there is a dispute over there in terms of the -- what should be the amount. And that's why the arbitration has been invoked. The part of the arbitration is advocation. They paid a onetime fee of INR 666 crores so that the terminal can be operationalized, meantime the arbitration can continue. So the -- actually, yes, you're right, the INR 666 crores is part of the port development income, but we cannot recognize till the time the arbitration is not over because there is a dispute amount which is much larger than what is -- what has been paid.

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Operator [159]

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Next question is from the line of Bharti Sawant from Mirae Asset.

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Bharti Sawant, Mirae Asset Global Investments (India) Pvt. Ltd - Investment Analyst [160]

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Just wanted to check, though you have answered this, but then I just had some confusion. The CapEx does not include any payout related to the acquisitions, right?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [161]

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Say that again. Yes, that's right. Yes, INR 2,000 crores does not include the acquisitions.

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Bharti Sawant, Mirae Asset Global Investments (India) Pvt. Ltd - Investment Analyst [162]

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And also wanted to check on the Snowman part where you said that you are evaluating the deal again. So -- but you have already acquired, you've already done the offer -- sorry, the open offer, and you've already acquired 26% stake. So is there a probability of cancellation of the stake buy from GDL? Or it will be just renegotiated?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [163]

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I think it's a mix of both. We are really looking at the fundamental -- we're really looking at the industries there, whether the cold chain business makes sense in this current environment. If it does make sense, then we won't be relooking at renegotiating the prices there.

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Bharti Sawant, Mirae Asset Global Investments (India) Pvt. Ltd - Investment Analyst [164]

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Okay. Okay. But if it doesn't make sense, as in, if you come to the conclusion that it doesn't make sense, so you will not go ahead with the deal?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [165]

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That's right.

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Bharti Sawant, Mirae Asset Global Investments (India) Pvt. Ltd - Investment Analyst [166]

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Okay. And by when should we get clarity on this part?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [167]

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It won't be before October.

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Operator [168]

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We take the next question from the line of Achal Lohade from JM Financial.

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [169]

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Just a couple of quick questions. One is with respect to realization, would it be possible for you to share, for FY '20, what would have been the realization for container and the bulk at blended level?

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [170]

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Deepak, you want to answer this one?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [171]

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Okay. What are your other questions?

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [172]

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Sir, the second is, given when now we're looking at commissioning of the DFC by end of December, is there any more clarity with respect to what tariff we would have which the DFC will do?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [173]

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Sure. On the DFC, it is -- we do expect the tariff to be -- will be in the line of what railway is charging right now. We don't expect it to be higher than that. We are working with the railway to see if that the tariff can be brought down, keeping in mind the efficiencies that the DFC would be having and because of the fact that the turnaround -- because of the turnaround time reduction which can happen due to DFC, we are working with the railways to see if the tariffs can come down a bit. But on a worst-case scenario, it will be in the same lines as what they have been charging currently.

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [174]

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Great. But just a clarification, with respect to the container outlook. Given the dependence of exports on the developed market and the imports with respect to the domestic economic consumption, is it fair to say that the container volumes could see a decline for the industry as well as for us for FY '21? And given the current situation, would that be a possibility?

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [175]

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I think it would be too early to say that, to make that statement. I think because we've just been in the first month of lockdown, I think it all depends on when the lockdown is being lifted and how fast it's being lifted. I think if the lockdown is lifted by end of first quarter, we would see -- if the lockdown is lifted in the end of first quarter, then we would see a recovery which will be much faster.

So it's all a function of when the lockdown is lifted.

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Operator [176]

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Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

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Karan G. Adani, Adani Ports and Special Economic Zone Limited - CEO & Whole Time Director [177]

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Thanks, everybody, for coming on to the call. And if there's any other further questions, more detailing, our team is available to answer any questions. Thank you so much.

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Deepak Maheshwari, Adani Ports and Special Economic Zone Limited - CFO [178]

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Thank you very much. Bye now.

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Operator [179]

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Thank you very much. On behalf of Kotak Securities Limited, we conclude today's conference. Thank you all for joining us. You may now disconnect your lines.