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Edited Transcript of ALLCARGO.NSE earnings conference call or presentation 24-May-19 5:30am GMT

Q4 2019 Allcargo Logistics Ltd Earnings Call

Santacruz E., Mumbai Jul 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Allcargo Logistics Ltd earnings conference call or presentation Friday, May 24, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adarsh Sudhakar Hegde

Allcargo Logistics Limited - Joint MD & Executive Director

* Deepal Shah

Allcargo Logistics Limited - CFO & Chief IR Officer

* Prakash R. Tulsiani

Allcargo Logistics Limited - CEO of CFS-ICD

* Sivaramakrishnan Suryanarayanan

Allcargo Logistics Limited - Executive Director of Strategy & Finance

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Conference Call Participants

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* Abhijit Mitra

ICICI Securities Limited, Research Division - Analyst

* Ankur Periwal

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

* Ashwini Agarwal

Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor

* Dikshit Mittal

Subhkam Ventures - Equity Research Analyst

* Giriraj Daga

Visaria Securities Private Limited - Investment Manager

* Krupashankar NJ

Spark Capital Advisors (India) Private Limited, Research Division - Analyst

* Lokesh Kashikar

Yes Securities (India) Limited, Research Division - Senior Manager of Research

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Sayan Das Sharma

BOB Capital Markets Limited, Research Division - Research Analyst

* Vikram Suryavanshi

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Q4 and FY '19 Earnings Conference Call of Allcargo Logistics Limited hosted by YES SECURITIES.

This conference may contain forward-looking statements about the company which are based on the belief, opinion and expectation of the company as on the date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Lokesh Kashikar from YES SECURITIES. Thank you. And over to you, sir.

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Lokesh Kashikar, Yes Securities (India) Limited, Research Division - Senior Manager of Research [2]

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Thank you, Bharat, and good morning, everyone. On behalf of YES SECURITIES, I would like to thank the management of Allcargo Logistics for giving us this opportunity to host this results conference call.

From the management, we have Mr. Adarsh Hegde, Joint Managing Director; Mr. Prakash Tulsiani, Executive Director and CEO, CFS-ICD; Mr. Suryanarayanan Sivaramakrishnan, Executive Director, Strategy and Finance; Mr. Deepal Shah, Chief Financial Officer. We will begin this call with the opening remarks from the management. Following this, we will open the floor for interactive Q&A session.

I will now hand over the floor to the management. Thank you, and over to you, sir.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [3]

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Good morning. Good morning, everyone, and welcome to today's earning conference call to discuss the fourth quarter performance for the financial year 2019 and also the financial year ended 2018/'19. Along with me, we have Prakash Tulsiani, Executive Director and CEO of the CFS and ICD Division; Mr. Suryanarayanan, Executive Director, Strategy and Finance; Mr. Deepal Shah, Chief Financial Officer; and Mr. Jatin Chokshi, Chief Investment Officer.

I hope you had a chance to review our financial statements and the earnings presentation which have been made available on the exchanges and on our website.

I would like to summarize our performance for the financial year ended 2018/'19, after which we will highlight the quarterly performance. In our MTO business, I am happy to share that the company continues to remain a market leader in the LCL segment and we have leveraged our networks to grow our volumes in both LCL and FCL segment. This is clearly demonstrated in our volume growth of 15.7% compared to the last financial year.

This is despite a slow growth in the global macroeconomic environment. While global trade grew a mere 3% over the last decade. Allcargo has added more direct links to its wide network -- worldwide network and perceive strong growth as far as the Intra-Asia trades are concerned.

The company's strategy has been to expand its market share through organic and inorganic opportunities and provide on-time, seamless delivery of consignments while focusing on reducing cost.

The investment in our technology platform, ECU 360, which provides online quotes, immediate booking, online tracking, documents in digitalized form, reports and additional online services are resulting in improving efficiencies and enhancing our customer experiences.

Coming to the India business, Allcargo maintains its leadership position in the CFS-ICD vertical with a strong presence at 4 major ports at JNPT, Mundra, Chennai and Kolkata. As you all know, these ports control 80% of the container traffic in India. With a strategy of catering to all segments of customers and customized services, volumes have been growing in high double digits. And return on capital employed continues to be in the 30% range for the last many years.

The company has been able to demonstrate resilience in such testing times due to its long-lasting relationship with the leading global carriers and freight forwarders. The company's allied services like documentation, transportation from port to CFS, warehousing and supply chain management services to its clients have further aided our leadership position.

Key reforms like GST, Make in India initiative and the last FDI norms in the various sectors has enabled growth in the warehousing and Logistics Park business. The company's foray into the Logistics Park has seen increasing response from large multinational clients. As part of the Logistics Park offerings, the company is targeting a nationwide warehousing footprint of around 5 million square feet by 2021, with strong connectivity to industrial hub and transport routes.

In the first phase, the company would construct build-to-suit centralized Grade A warehouses across Hyderabad and Bangalore and has already executed contracts for PES of about 3.5 million square feet with various multinational companies.

Coming to the project transportation business, this year saw a revival in many of the service sectors, which resulted in a turnaround of financials. And I'm happy to report that we have closed the financial year with healthy profits as well. We have a strong current order book of over INR 150 crores in this division which would be executed over a period of 10 to 15 months. To add onto this, the company has recently secured an order in Africa and Bangladesh as well in this segment.

In the equipment leasing business, asset utilization has increased to 65% to 70% from a mere 40% to 50% in the previous year. The company has sold many of its underutilized equipment at higher than their present book values. As far as shipping business is concerned, the company will be completely phasing out this vertical by the first half of this financial year. This is to ensure focus on our core business segments.

Lastly, an update on our Contract Logistics business. Through our joint venture, Avvashya CCI, we continue to be one of the leading players in the sectors of chemical, pharma, food, retail and e-commerce verticals. And we are managing -- presently managing over 3 million square feet of warehousing space. We have an asset-light model in the business and plan to grow organically and inorganically across a wide spectrum of business sectors all over India over the next 3 to 5 years.

Now moving on to financials, I would request Deepal Shah, our CFO, to take us through the financial highlights. Over to you, Deepal.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [4]

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Thank you, Mr. Adarsh, and good morning, everyone. Let me take you through the key consolidated quarterly financial highlights. The total revenue from operations stood at INR 1,727 crores for the quarter ended March '19 as compared to INR 1,537 crores for the corresponding previous year, which was an increase of 12.4% mainly on account of volumes and revenue in the MTO business and the CFS business.

Please note that the new Logistics Park business has become a reportable segment as per Ind AS consequent to which the company has reclassified the amounts reported in the earlier periods. The total revenue in this segment was at INR 2 crores for the quarter ended March '19 as compared to INR 0.8 crores for the corresponding previous period.

EBITDA for the quarter was INR 107 crores as against INR 75 crores for the corresponding previous period, which resembles an increase of 42.7%. Profit after tax was reported at INR 80 crores for the quarter as against INR 13 crores for the previous corresponding period. EPS for the quarter ended was INR 3.23 per share, as compared to 4 -- INR 0.47 per share for the corresponding previous period.

Now coming to the financial year ended 2018/'19, the total revenue for the operations stood at INR 6,895 crores as compared to INR 6,049 crores for FY '18, which was a 14% increase over the last year.

EBITDA for the financial year ended at INR 449 crores as compared to INR 377 crores for the financial year which resembles an increase of 18.9%. Profit after tax grew by 42% which stood at INR 248 crores as against INR 174 crores in financial year '18. EPS for the financial year ended 2019 was INR 9.85 per share as against a INR 6.97 per share for financial year '18.

A quick highlight on the balance sheet front. As compared to March '19, the total equity -- as of March '19, the total equity was INR 2,019 crores and the net debt was INR 332 crores. The net debt to equity was at 0.16 as on March 2019. The return on capital employed for the financial year stood at 12.7%.

Now I request Mr. Suri to take us through the key operational highlights of the global MTO business for the fourth quarter. Over to you, Mr. Suri.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [5]

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Thank you, Deepal. Good morning, everybody. The MTO business clocked total volumes of 1,67,949 TEUs as against 1,59,951 TEUs for the corresponding previous period which grew by about 5%.

The total revenue for the quarter was INR 1,539 crores as against INR 1,370 crores for the corresponding previous period, which is an increase of about 12.3%.

EBIT was INR 57 for the quarter as against INR 56 crores for the corresponding previous period. The return on capital employed for the MTO business continues to be around 30% on an annualized basis.

I now hand over to Prakash to take us through the India businesses.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [6]

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Thanks, Suri, and good morning, everyone.

First, let's start with our CFS and ICD segment. The total volumes for the fourth quarter were at 80,882 TEUs compared to 76,300 for the corresponding previous period. This is an increase of 6% mainly driven by our Kolkata CFS and also increased operations at Chennai.

The total revenue for the segment in this fourth quarter was INR 112 crores against INR 106 crores. This is a corresponding increase of almost 6%. EBIT was at INR 31 crores and the return on capital for the business stood close to 30% on an annualized basis.

Coming to the Project & Engineering business, the total revenue was reported at INR 92 crores for this quarter against INR 74 crores in the previous quarter -- sorry, in the corresponding previous year, an increase of almost 24%, driven by the increased focus of the company in the segment and yielding positive results.

EBIT was at INR 9 versus a loss of INR 37 crores for the corresponding previous period. The current executable order in project logistics, as mentioned earlier, is upwards of INR 150 crores.

That is from our side. And thank you very much, we open the floor for any questions.

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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 Sayan Sharma from Bank of Baroda Capital Markets.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [2]

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So my first question is in the MTO segment. If I look at the past 2 financial year, we have been growing at a pretty healthy rate of about 15% on volume terms, while the global trade growth, like you mentioned in the opening remarks, is about 3%. So do you believe this market share-led growth can continue in the next 2 years? And especially in the LCL segment where we -- you all do have a sizable market share, sir.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [3]

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Yes. I think that is still sustainable. The first month of the current financial year, the growth is continuing to be sustained at this level.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [4]

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Okay. And we -- this quarter you're seeing growth tapering up to 5%, so any particular reason for that? And how do you see -- I mean if you can quantify the expectation for FY '20 and FY '21.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [5]

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It'll be around about the same type of -- in the double digits that we are growing. We share about 15%, I think we will continue to hold at that level on an annualized basis. Don't look at it at quarter-to-quarter because it has seasonalities that are coming in, Chinese New Year and all of that. So I think you just look at it on an annualized basis. I think we will sustain that type of volume growth.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [6]

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Sure, sir. Sure. And the second question is on the P&E business. So profitability has improved this quarter quite significantly. So in that EBIT that we are posting, of a 36 lakhs, is there any provision write-back that you have done?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [7]

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Yes, the provisional write-back on the...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [8]

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For this quarter, it's around INR 6 crores...

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [9]

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The -- in the Project, yes.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [10]

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Project & Engineering.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [11]

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It's about INR 6 crores, has been the right path.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [12]

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Okay. And if I'm not mistaken, so the base quarter had about INR 15 crores of provision that -- Q4 FY '18. If you can just confirm that number.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [13]

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For the quarter -- for the entire period or you want for quarter -- for the quarter? Quarter is around -- close to INR 15 crores.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [14]

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Yes, it was INR 15 crores.

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Operator [15]

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We go to the next question which is from the line of Vikram Suryavanshi from PhillipCapital.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [16]

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Yes. Sir, basically just to carry on the same question in terms of MTO. For LCL cargo, what kind of growth are we looking? Will it be in line with the industry or what kind of outperformance we are looking in LCL for MTO?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [17]

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I think it will be ahead of the market growth in the LCL business.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [18]

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Okay. So around like 4%, 5%?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [19]

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Yes, it should be around that -- it would be around like that.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [20]

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Okay. So my second question is this Logistics Park business that we are targeting. So what kind of revenue potential we are looking from that? And I think we already almost turning INR 500 crores on that segment. So what will be the CapEx for FY 20 and '21 for that?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [21]

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Okay. In the current financial year, our estimated CapEx for this vertical is around INR 450 crores for the current financial year. And the revenue expected when all the facilities become operational will be in the region of around INR 8 crores to INR 10 crores per month.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [22]

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And how is the development at Jhajjar?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [23]

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No, it is going as per the plan should go.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [24]

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So when can we start commissioning of that into our [operational utilization] in terms of PES?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [25]

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No, basically I mean as and when the boats get completed, we hand over to the respective clients. And we expect the first boats to be handed over somewhere in the -- 2 to 3 months.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [26]

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Okay. And last question regarding this coastal shipping business, at one time, if I remember it, we had like almost 7 ships. So what was the thought process in cutting down or -- basically, what really changed in that segment that we are trying to exit now?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [27]

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As far as shipping is concerned, you see, as an overall company policy and how we measure ourselves is ROCE. So the ROCE in the shipping division was not coming up because of the shipping market, where we are in bulk business. So it was decided by the Board and by the team over here that it is better that we phase ourselves out of the shipping business and focus to the core business that we are in and ensure that we improve our ROCE.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [28]

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But if I understand properly, the shipping business, actually we are not into like a global shipping or like what we are really looking at are the coastal movement of bulk and project cargo. So -- which I think will not have material impact on what's happening in the global shipping market.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [29]

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No. But also, the bulk business is also under pressure right now and the rates are falling. So it was not delivering the right ROCE and we decided that we should phase out. So we will be selling assets in the coming few months.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [30]

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So currently how many are left now?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [31]

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We have 2.

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Operator [32]

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We move to the next question, which is from the line of Prateek Kumar from Antique Stockbroking Ltd.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [33]

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Sir, my first question is -- so in our CFS business, have we also received the SEIS income? Because this was highlighted by one of the competition that they're getting around INR 10 crores to INR 15 crores for -- I mean, for every year.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [34]

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What's SIES?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [35]

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SIES.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [36]

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That's SEIS, the export incentive income.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [37]

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Yes, yes, yes.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [38]

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Yes. We are -- we've applied.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [39]

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We are already in the process of getting those approvals. We have not...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [40]

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No, in the current profitability. It is [not profitable yet].

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [41]

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It is not yet. That's right.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [42]

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But we have applied for it, and as and when it comes, we will let you know.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [43]

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So we are also expecting for period of '16, '17, '18, '19 will come together some time in -- I mean, '20?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [44]

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Yes. We're going to apply.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [45]

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So it's a work in progress.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [46]

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Yes, work in progress.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [47]

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So how much will be a per year kind of number? Similar, INR 15 crore kind of number?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [48]

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Let us realize and we'll let you know. Because it is in the hands of the government, right? So we will have to wait. And once we have, we'll let you know.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [49]

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Okay. And sir, regarding these projects in Africa or the project logistics business which we have run there. So what are the kind of sizes there in terms of revenue?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [50]

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It's anywhere between -- it depends on project-to-project basis. So basically, it would be anywhere between INR 20 points to INR 25 crores for the project on each segment. But the fact that you have to remember is that we have gone and based ourselves out of Bangladesh and Africa, that's our focus area because that's one of the developing areas and we have huge opportunities out there. So this has kick-started our plans in those 2 countries.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [51]

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So this is part of that INR 150 crores number which you said -- INR 150 crores plus number, 10 to 20 -- 10 to 15 months?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [52]

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You're right.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [53]

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And then just, again, a question on this CapEx. So you did around INR 400 crores, INR 450-odd crores CapEx last year. So I mean in the...

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [54]

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Go ahead. Sorry, you complete your question.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [55]

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So I mean in terms of where we were looking at various strategies in terms of Logistics Park or warehouse in terms of leasing to some other companies or running it as sales or, I mean, running ICDs, et cetera. So I mean how should we -- I mean, is there something more concretized now in terms of what are we looking at and which segment can contribute how much -- which subsegment can contribute how much, I should say.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [56]

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So basically, we are setting up the Multimodal Logistics Park, so depending on -- we're open for any kind of structure. Currently, we are building and running on our own. But yes, depending on what the opportunity, the new investments and the new opportunities require, we are open for all kinds of structures in terms of infusing more equity or going in an expansion mode. So we are open for everything. And depending on the business plan, what percentage could be of the warehouse, what should be the building ICDs in another segment but which [transitions] the Multimodal Logistics Park. So revenue is very often -- we can't visualize all the revenue at the moment.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [57]

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And the revenue of INR 2 crores that have come in this quarter, that is related to what segment?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [58]

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That pertains to the warehousing we already have since we have reclassified the segment. So Goa and (inaudible) which is a warehousing facility which is operational since few years. So since we have reclassified and introduced the segment first time, so income pattern into those 2 warehouses is recorded here.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [59]

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Will we run our own warehouses or -- I mean is this part of contract logistics? Or is this being given to someone else, who'll be giving us regular income like rental income or something?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [60]

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This is run by ourselves.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [61]

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No, this is -- also interesting, we have given to the third party. And they are running typically the lease.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [62]

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Lease. So that's what kind of business you have also given some of the larger e-commerce companies where we can realize some revenue in second half of '20.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [63]

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Correct.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [64]

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Okay. And then what is our current gross debt, including current maturities of long-term debt? And what is the peak debt which we are expecting over maybe, let's say, FY '20, FY '21?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [65]

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Well, the -- at the consolidated level, the net debt is around INR 332 crores and we'll invest another INR 250 crores in the coming year on the projects -- on the Logistics Parks.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [66]

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INR 400 crores, yes.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [67]

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Yes. INR 400 crores. So that will lead us to INR 700 crores, I think, as the overall debt that will close at the end of the year.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [68]

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So we should work with around -- so this INR 400 crores is the CapEx number for FY '20.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [69]

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Yes. And let me add there. Okay. I mean the debt is required during the transaction period. When the facility becomes operational and we hand over to the clients, then we can always knock off that debt by going into the LRD. So the debt will be reduced to that extent and the additional facility will be available for the company for any further expansions or development.

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Operator [70]

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We move to the next question, which is from the line of Krupashankar NJ from Spark Capital.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [71]

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I just had a question on Avvashya CCI. What would be the performance for the year and what is the -- what sort of (inaudible) are you expecting to add over the course of next year? Can you just throw some light on that, please? Hello?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [72]

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Yes, we are here. I'm just having a look at it.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [73]

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Sure.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [74]

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Yes, we are presently handling about 3-odd million and we will be adding another 1 million square feet during the coming year in Avvashya CCI.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [75]

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Okay. And in terms of financial performance for the year, what would be the -- can you throw some light on what would be the revenues and EBITDA? What the continuous (inaudible)?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [76]

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So on a net consolidated level, our EBITDA -- you see, on Avvashya CCI, we include all our numbers because it's a JV. So we include it after the PAT associated income. We typically are not revealing the numbers on this because of confidentiality reasons and competition. So please, we would not like to reveal details on the financial numbers of this because we are consolidating any which way in our bottom line.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [77]

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Well, no -- understood. On second part is on the CFS business. So given the DPD testing done now, I think in the month of March and April, we have seen that number going up to about 51% of total input. So what is the outlook on -- so overall impact of DPD on the CFS business?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [78]

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On the CFS -- in the CFS business, the DPD has actually come to a stability. When I say we are in a stable environment right now, the number which you are saying is increasing at approximately half of 1%. Frankly, all those volumes are still showing up at the CFS. So you are seeing a number where we have a growth in the current year of almost 14% in terms of our volume, and in terms of our EBITDA, almost 16%. So I believe the DPD environment is stabilized and we are in a steady state.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [79]

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Sure. So in fact if I look at the realization on a quarter-on-quarter basis for the CFS business, there's a slight decline of about 3%. Is this more to do with the import/export mix during the year? Or is it to do more with the dwell time reduced?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [80]

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It's a combination of all what you just mentioned, the import/export, as well as the storage. And that is why the realization is increasing in that particular order. What is essential is to look at how we are performing on our EBITDA and our ROCE, which we have maintained despite the changed scenario and the environment which is -- fortunately, the volumes are increasing because of the consumption drive in India.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [81]

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Sure. And one last question on the MTO business, in terms of market growth for the year, which has gone by FY '19, what will be the LCL growth and what will have been overall, perhaps, LCL growth if there's a number which can be quantified?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [82]

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Every quarter in our investor call, we are saying that we are not able to -- for competitive reasons, we are not giving the breakup between FCL and LCL. That's why we're giving overall growth numbers. I've already given you the percentage at which we are expecting to grow on an annualized basis. I think that would be sufficient enough for you to work on.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [83]

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And we have a blended number and I think we should focus on that basis. That is the number where we are increasing higher than the market or growing higher than the market.

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Operator [84]

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(Operator Instructions) The next question is 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 [85]

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So first question on the Logistics Park business. As you mentioned, we already have around 3 million square feet largely across the warehouses which we have at Hyderabad and Bangalore. Are these at the company-owned land which we had earlier in the books? And which other locations are we looking at to add further?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [86]

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Yes. Hyderabad, Bangalore both is part of the land bank which the company is owning since few years; and Bharat Nagar, the land company bought a couple years back in 2017.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [87]

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Sure. So sir, incrementally, we have already invested around 460-odd crores business and we are seeing 450 crores further into this business in terms of expansion. So what is the business model here? Are we acquiring land and building a warehouse customized as per the customer requirement and hand it over to them and they will manage it? And how do we earn a revenue out of it?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [88]

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No. So the revenue would be predominantly from the leasing and the management of those assets. That is a standard industry practice. So that would be the revenue. If we can, we think of any other options or opportunities.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [89]

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Because in, I think, one of the earlier questions, we did mention this debt when handed over to the other facilities done to the client, the debt gets reduced. So if you can please substantiate that, I'm not too clear on it.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [90]

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See, what I meant is that there is a transaction period of we are availing debt from the lenders. And once the assets become operative, when -- as and when we hand over our operational assets to the client, our lease rents started coming in. So that lease rent we'll be discounting with the lenders and whatever the money we get, we pay the transaction loan.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [91]

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Okay. But over the medium term, what sort of ROCEs are you looking at generating from this business? Because focusing only on lease rentals are probably enhancing some...

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [92]

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It is a mix of everything because as I mentioned here, currently it is the lease rental. And once we get a proper valuation, we may think of after few years they exist. So the overall ROCE and ROI will be in line with the company's philosophy.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [93]

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Okay. Fair enough. The MMLPs that we were mentioning earlier, so the size of these warehouses or projects that we are doing will be how big or it will be a wide range?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [94]

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It's a wide range and it depends on the customer requirement, I mean, ranging from 100,000 square feet to close to 1 million square feet. So there are different location, different customer requirements based on that.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [95]

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And I will presume that we will be having some business or contract also of commitment on the customer and hence going ahead and buying the land or we are prebuying land and then selling it out or leasing it out to the customers?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [96]

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No. Basically, I mean, based on the potential of the business, we buy the land wherever there is a potential. However, before we start the construction, a lot of the demand is there currently for the Grade A warehouses. So we get tie-up with a customer before we start the construction because if someone require a build-to-suit, [subsequently] we can take our plan to construction kind of thing.

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Operator [97]

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We move to the next question from Dikshit Mittal from Subhkam Ventures.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [98]

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Sir, my question is on like ongoing CapEx. So one is we are investing in Jhajjar and secondly we are investing in the warehousing. So the INR 460 crores that you expect last year went into which segment? And this year, around INR 400 crores that you mentioned, so that will go into which segment?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [99]

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Same segment.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [100]

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Same segment. So it is the Logistics Park segment.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [101]

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Logistics Park segment.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [102]

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So in warehousing that you mentioned, you're like targeting 3.5 million square feet. So how much is on that CapEx?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [103]

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It's a Logistic Park, so you will have warehouses, you will have other facilities also. So you cannot just say that it's just warehouses.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [104]

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So sir, 3.5 million includes Jhajjar as well as the new warehousing parks, right?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [105]

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Are you talking about ACCI or are you talking about...

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [106]

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No, no. Not Avvashya CCI, but you mentioned that you're adding 3.5 million square feet of warehousing. So I just wanted to know what is the CapEx involved in that which you'll be renting it out? Yes.

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [107]

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Okay. Let me clarify that we are adding close to 5 million as mentioned in the opening speech by the Joint Managing Director, of which we already committed to various clients about 3.5 million of square feet.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [108]

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Okay. So basically per square feet, what should I take the CapEx, the INR 2,500 per square feet should be the CapEx?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [109]

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No, no, no. It's too high. But anyway, it depends on the build to suit, the client requirement kind of thing. But for the normal standard warehouses, the market thumb rule is around INR 1,500 per square feet.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [110]

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Okay. So on that, you will be getting INR 8 crore to INR 10 crores per month kind of revenues, right?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [111]

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Yes. Again, it varies. And as we mentioned earlier, this is only the warehouse but the Multimodal Logistics Parks consist warehouse and other facilities. So the revenue could be warehouse plus...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [112]

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It's a blend of warehousing and also logistics activities, value-added services that we will give to the clients who will take our services in those places.

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Dikshit Mittal, Subhkam Ventures - Equity Research Analyst [113]

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Okay. So by which year, sir, do we expect it to ramp up, at least the rental part and then maybe the value-added parts?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [114]

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No. The Phase 1, as I mentioned, we'll be handing over the boxes as and when this gets operational or completed. So we expect the revenue to start from the second half of this financial year.

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Operator [115]

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The next question is from the line of Giriraj Daga from KM Visaria Family Trust.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [116]

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What was it like last year in MTO, what was the FCL and LCL growth or the LCL growth path there?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [117]

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We have given a blended growth all along and we do not distinguish between the 2 because of our reasons which are very much commercial to us. So let us stick to the blended one.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [118]

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Sure. Okay. Let's put it this way, at the EBITDA growth, you mentioned that your LCL growth guidance will be in line with market, slightly ahead of 4%, 5%.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [119]

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Yes. We are ahead of the market both in LCL as well as FCL.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [120]

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Okay. So should it be fair to assume that the EBITDA part, you will still keep on declining because FCL might be growing faster for our mix?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [121]

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As we have discussed this in the past also, I would like that we all focus on the EBITDA growth, the real EBITDA number which continues to grow year-on-year.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [122]

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Okay. My second question is on the Logistics Park CapEx. So what is the total CapEx you have committed so far, INR 900 crore, right?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [123]

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INR 450 already done and another INR 450 in the current year starting, maybe up to 15 months from now.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [124]

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Okay. So post that, there are no other plans as of now.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [125]

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No. That we will continue to explore. If there is something, we will announce.

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Giriraj Daga, Visaria Securities Private Limited - Investment Manager [126]

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Okay, okay. Just a small clarification on the CFS side, side, what is the volume, what should we build in for next year?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [127]

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We are growing higher than the market. Of course, we are -- what we are dependent on is the growth in the port volume, the imports specifically, coming into India. We see that the growth in the market is in the range of 6%. As far as the port volumes are concerned, we will grow higher than that. We have grown in the past approximately around 14% because of Kolkata also opening up. But we continue that we will grow higher than the market.

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Operator [128]

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We move to the next question which is from the line of Abhijit Mitra from ICICI Securities.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [129]

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First is on the provision of impairment that you have taken in the current quarter of around INR 28.5 crores in Allcargo Shipping, which is a wholly owned subsidiary. So if you can just explain the reason for this impairment and how does it impact gross flow of the consolidated entity? I mean you just take out the INR 28.5 crores from which segment, actually?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [130]

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Yes. See, at the consolidated level, over the period of time, this INR 28 crores has already been absorbed at the consolidated level because shipping company was a subsidiary. So at the consolidated level, it was already there. The investments standing in the standalone has been impaired. So at the consolidated level, it doesn't impact the numbers at all. And as we've said earlier that we are winding up the shipping division, so we -- this is kind of an impairment which was necessary to clean up the books.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [131]

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Yes. So this -- every year, we are seeing these impairments happening. So the cycle has ended or is it -- I mean, there is something else that we should be knowing.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [132]

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Yes, so we are moving from an asset heavy to an asset light. So wherever we feel that we want to get rid of assets like shipping or anything. We are trying to give up that and impair with whatever assets are not used by us anymore. So we don't foresee large, but this is where we are at the moment.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [133]

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Okay. So yes. So the second question is on the CapEx size for the Logistics Park. I think initially you were guiding for around 10 million to 12 million square feet of total portfolio and a total CapEx of, say, around INR 1,500 crores. That plan stands, right?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [134]

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Yes, yes. That stands. But yes, as visibility -- we have clear visibility of around 5 million by 2021. And we continue to look for more opportunities. And our plan to expand at multiple locations [stands at] on which we are working. So clearly, that's a long-term vision and we'll do it in a phased manner.

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Abhijit Mitra, ICICI Securities Limited, Research Division - Analyst [135]

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Okay. And last question if I may, out of the total CapEx of INR 358 crores that you have done in this year, what would be the amount that you spend on land acquisition?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [136]

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In this year, we will not spend any money on the land acquisition because (inaudible) in 2017. So current financial year, we will not spend any money on the land acquisition.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [137]

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Only on transactions.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [138]

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Only transactions.

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Operator [139]

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(Operator Instructions) The next question is 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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So in the project equipment business, what is the current asset utilization and the capital employed which stand in the books now? Hello?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [141]

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One sec, one sec, one sec.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [142]

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Yes. Okay. Sure.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [143]

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The utilization stands at around 70% to 75% and the CapEx is about roughly -- not the CapEx, so it's about INR 350 crores. Yes, INR 350 crores.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [144]

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Capital employed.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [145]

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Capital employed.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [146]

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Capital employed is INR 350 crores.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [147]

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Yes.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [148]

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Sure. Any thoughts on the margin improvement here and what is the average lease tenure that we are having when it is coming for renewal?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [149]

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It's not just lease, it's the project equipment. So project to project [resource], right? Lease tenure can be anywhere between long term to probably up to 2 years, some could be 6 months, depending on what size of the equipment is being deployed.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [150]

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Sure. But any time line wherein probably the pricing will get revised or any renewals that are coming in over the next (inaudible)?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [151]

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It's improving. It's improving. That's the reason if you look at INR 40 crores last year and if you look at what the corresponding financial year it has improved, right? So it's (inaudible). So it's changing.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [152]

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And any medium-term thoughts wherein -- probably on the margin trend, what one should look at as a steady-state stable margin.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [153]

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At this level, it is much better, I would say. So rather than putting a figure, forward-looking is not the right one I would put it.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [154]

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So then what we believe is that we are in a steady state right now in terms of our margins, what we have declared isn't.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [155]

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Fair enough. On the couple of -- on the finance-related questions, what was the operating cash flow and the free cash flow that we generated in this year?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [156]

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One second.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [157]

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Yes.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [158]

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Around 330 crores.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [159]

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330 crores at standalone.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [160]

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Consolidated.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [161]

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Consolidated. 330 crores at consolidated.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [162]

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This will be the operating cash flow?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [163]

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Yes.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [164]

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Free cash. Free cash.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [165]

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Free cash flow.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [166]

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Free cash flow, 330 crores. Okay. So the incremental CapEx which we are putting in, most of the CapEx will be taken care from the DC cash flows only? Because you did mention that gross debt will further increase because of the CapEx.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [167]

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Sorry, can you repeat that?

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [168]

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Okay. So in one of the earlier questions, you did mention that debt may increase further because of the CapEx that we have for the gross, around 450-odd crores CapEx for this year, while we are still generating 300 -- INR 330 crores and probably this number will improve further in FY '20. So the incremental debt should come -- should not be as high, is that understanding right?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [169]

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Yes. So we will deploy our cash, so primarily first one in the -- we'll fund the Logistics Parks through internal accruals first. And if there are cash flow timing differences, we'll take loans again on that.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [170]

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See, basically, we'll -- our strategy varies because it is not that all the time debt is not good. Of course, we have our own cash generation, which we will put to use or deploy gainfully in the business itself first. And for the transaction, if we're getting a better finance, which will improve my overall projected ROA or ROCE, definitely I will go for the loan because, as we've mentioned earlier, the borrowings for construction of PFT or Multimodal Logistics Park is really short term to the extent of, say, 1 year or 15 months which we can convert once it -- as it becomes operational to the LRD. So we'll review the situation, what is best for the company in terms of cost of finance and overall return on investments. That is all we leverage.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [171]

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Sure. That's helpful. So if I look at, as a company as a whole, MTO business does not require any free -- any CapEx per se. CFS, actually, I don't think so, we have any existing plans over the year. So most of the CapEx or the CapEx which will be required in the business will be for the terminal business, for the Logistics Park business. Or do we have plans to add more equipment into the P&E business as well?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [172]

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No, no, no. On the equipment, there is no -- we've decided nothing to do more on that. It's only going to be on the terminal business. We are focused on our core business. That's important.

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Operator [173]

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(Operator Instructions) We move to the next question which is from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [174]

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I have a few follow-up questions. Firstly, on -- in the CFS business, so there's some seasonality in the margins this quarter. Specifically, there was this decline in EBIT margins, EBIT per TEU. Versus like past 2 quarters, we are doing like 4,000 plus. So specific -- and even how it's related to some losses and some of the -- maybe Kolkata or I don't know (inaudible)?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [175]

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There is no losses in Kolkata or elsewhere. It is purely cyclical. We -- in the month of February, we typically have the Chinese New Year, and that is why you see that. But there is no decline. We remain, I would say, stable in terms of our margins and the overall volumes in the business.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [176]

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Then if you look at it on a year-on-year basis, you will find the same cycling year-on-year basis. There are a lot of blank fillings that come with vessels coming empty and all that because of the Chinese New Year.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [177]

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Understood. And sir, any guidance for tax rate for next year? So the -- I mean, there were impact of tax credit and deferred tax credit this year, last year as well. So any consolidated tax rate guidance for next year?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [178]

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So we are currently in the MAT regime, so our average tax rate, effective tax rate is around -- mix of the taxable business and nontaxable business comes around 16%. This year has been in -- this quarter has been an aberration because there was an [ID] GST guidance from [institute] for taking the dividend tax into the assets so that we've reversed in the current quarter. That's a reason you see a 24-point-some crores credit in the P&L and it's leading to an aberration in the current quarter. But all in average, our effective tax rate will be in the range of 16% to 17%.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [179]

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Okay. And just last question on the MTO business. So I mean in terms of growth in network -- and the network expansion. So how are we looking at, I mean, like in terms of -- I mean are we now fully into all the markets? So I mean we have not done an acquisition in a while. So we are looking at anything on that front in terms of expanding network for us?

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Sivaramakrishnan Suryanarayanan, Allcargo Logistics Limited - Executive Director of Strategy & Finance [180]

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The network is there. We are only looking at how to increase the market share in some of the markets that we are in. With the same network, we can increase more direct services. So it's all a combination of all of this is what this strategy going forward.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [181]

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And sir, how is that, I mean, impacted or not impacted by a global trade scenario -- or trade patterns or this trade war, if I can say that.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [182]

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But you feel a little bit -- but if you look at it in one sense over the last 10 years in spite of multiple cycles of lows, highs, we will continue to be steady and continuing to grow quarter-on-quarter, year-on-year. So I think, to some extent, the LCL business itself is a little bit recession proof. And even if there are downturn in the global economy. Unless it really, really drops like the way it dropped in 2009, we don't see an issue here.

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Operator [183]

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We move to the next question which is from the line of Ashwini Agarwal from Ashmore Investment Management.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [184]

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A good set of numbers. A couple of things. One, just looking through the balance sheet, we saw these contract liabilities and other current assets, these numbers have jumped up by INR 200 crores each during the -- I'm assuming this is an AS 18 issue where these are contracts remaining to be executed on the warehouses or is there something else. What are these things? Are there current assets and contract liabilities in particular?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [185]

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Yes, this is under the AS 115. Under the AS 115, all the [projects] that we do at the last -- some of these have been deferred to the following year. Because earlier, we were booking our revenues based on the dispatch. Now as per AS 115, only when the shipment is delivered at the destination is when we actually account for it. So there has been a change in accounting policy as per the guidance of the accounting standard. That is applied from this year onwards. So the AS 115 [discipline] has moved the current effects and the current liabilities have ballooned accordingly.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [186]

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So the other current assets effectively includes INR 200 crores of revenues where the shipment has not been delivered and it is being carried as an asset.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [187]

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Correct. This would be reversed in the next quarter.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [188]

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Correct. And the contract liabilities relate to expenses on the same account?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [189]

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Yes, yes. So basically you have a revenue of INR 200 crores then you may have a certain amount, say, INR 190 crores or something of expense against that. So both of them have been put into the balance sheet and moved to the next year.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [190]

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Okay. Okay. Got it. Got it. Got it. I was wondering if it had something to do with the construction of the warehouses and interim payments made. It doesn't have anything to do with that, this is essentially deferment of revenues?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [191]

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Correct. Correct. As per AS 115. Yes.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [192]

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AS 115. Okay. And on the Projects & Engineering side, I mean, we've come out of the very trying period that we had over 2 years where we were struggling to make money. But adjusted of write-backs, et cetera, and I know what Suri will say, he'll say that this is all part of the business, we are now at a breakeven sort of level. On the reduced capital employed number that you have now, roughly INR 350 crores, by when do you think we can get to a normalized ROCE of 17%, 18% which used to be there in the heydays in fiscal '14, '15, those years.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [193]

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2 years plus.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [194]

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2 years plus. But are you happy with the asset base that you have now or you still have underutilized assets there or assets that you are waiting to sell off apart from the 2 ships that are there?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [195]

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No, it all depends. As of now, as I've said, it is about 70% to 75% utilization. From where it was 40% to 50%, we have moved up to 70%, 75%. As of now, it looks good. But having said that, we would not be investing anything on this segment. We would like to concentrate on our core business. So I hope that answers your question.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [196]

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Okay. All right. And on the Logistics Parks, I mean, again, carrying on from the question that one of the earlier participants asked. If I look at your free cash and I look at your CapEx plans, I mean logically, net debt shouldn't increase by more than INR 100 crores despite the CapEx plans that you have because you will be doing some asset disposals as well. So gross debt, I know you spoke about gross debt and those financing options and so on and so forth, but would that be correct, that net debt shouldn't go up by more than 100-odd crores?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [197]

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Possibly it shouldn't go up more than 100 crores, 200 crores. It also depends on the timing of the investment and the requirement of the funds and the LRDs, et cetera. So depending upon the timing. But I mean next year at the end, if everything goes well over timing of the cash flow, we should be in the range that you have in mind.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [198]

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Okay. All right. And is there any -- I mean now that you are in a -- your balance sheet is looking good, CapEx is largely internally financed, what's -- how are you looking at dividends or share buybacks going ahead in order to lever up the balance sheet, if that's one of the ways to improve the ROCE?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [199]

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We have the dividend policy in place and we will follow that. And as and when there is an opportunity, we will review it.

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Operator [200]

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We move to the next question from the line of [Prashant Hazariwala], an individual investor.

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Unidentified Participant, [201]

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I have a question regarding this Project & Engineering business, right? How is the scenario out there? Is it improving or deteriorating or what kind of scene?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [202]

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We can't hear you clearly. Can you repeat the question, please?

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Unidentified Participant, [203]

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Yes. The question is regarding Project & Engineering business, right? How is the scenario out there? Is there -- is that improving or it's just like what it was last year kind of thing?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [204]

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It's improved. It's improved. You would see that's one of the reasons our performance has been much better than the corresponding financial year. While you look at the utilization, the utilization has gone up from 40%, 50% to 70-odd percent. And it's only looking up.

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Operator [205]

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As there are no further questions, I would like to hand the conference over to the line of management for closing comments.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [206]

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No, thank you very much. We really appreciate you all joining the call.

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Operator [207]

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Thank you.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [208]

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Thanks. Bye-bye.

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Operator [209]

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On behalf of YES SECURITIES, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.