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Edited Transcript of ALLCARGO.NSE earnings conference call or presentation 14-Feb-20 6:30am GMT

Q3 2020 Allcargo Logistics Ltd Earnings Call

Santacruz E., Mumbai Feb 25, 2020 (Thomson StreetEvents) -- Edited Transcript of Allcargo Logistics Ltd earnings conference call or presentation Friday, February 14, 2020 at 6:30:00am 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

* Jatin J. Chokshi

Allcargo Logistics Limited - CIO

* Prakash R. Tulsiani

Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD

* Rohan Mittal

Allcargo Logistics Limited - VP of Strategy and Mergers & Acquisition

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Conference Call Participants

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* Anuj Sonpal;Valorem Advisors;CEO

* Ashwini Agarwal

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

* Bhavesh Jain;Envision Capital Advisors Pvt Ltd;Senior Investment Analyst

* Jigar Shah

Maybank Investment Bank Berhad, Research Division - Research Analyst

* Krupashankar NJ

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

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Prit Nagersheth;Wealth Financial Advisors;Partner

* Sayan Das Sharma

BOB Capital Markets Limited, Research Division - Research 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 Q3 FY '20 Earnings Conference Call of Allcargo Logistics Limited, hosted by PhillipCapital India Private Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

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Anuj Sonpal;Valorem Advisors;CEO, [2]

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Thank you, Margaret. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Allcargo Logistics Limited.

On behalf of the company and on behalf of PhillipCapital hosting the con-call, I thank you all for participating in the company's earnings call for the 9 months ended and third quarter of financial year 2020 under review.

Before we begin, I would like to mention a short cautionary statement as always. Some of the statements made in today's earnings con-call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.

I would now like to introduce you to the management participating with us in the earnings call. We have with us Mr. Adarsh Hegde, Joint Managing Director; Mr. Jatin Chokshi, Chief Investment Officer; Mr. Deepal Shah, Chief Financial Officer; Mr. Prakash Tulsiani, CEO of CFS and ICD Division. Without much delay, I request Mr. Deepal Shah to give his opening remarks. Thank you.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [3]

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Hello, good afternoon, everyone, and welcome to today's earnings conference call to discuss the performance for the quarter ended December 31, 2019.

Now moving on to our results. I hope you all have had a chance to review our financial statements and the earnings presentation, which has been made available on the exchanges and our website. Before we start with the financials, let me take you through some highlights on the industry and the third quarter. As you may already know, the global environment continued to remain challenging with the world trade growing at a meager pace of less than 2%. On the domestic front, too, the consumption slowdown significantly affected the import volumes in the third quarter. The continued growth rate at the Indian ports during the 9 months of the fiscal year shrunk.

Let me now take you through the consolidated financial highlights for the third quarter of the financial year 2020. The total revenue from operations were reported at INR 1,787 crores, a marginal decline of 0.9% year-on-year. EBITDA was at INR 126 crores, an increase of 11.5% year-on-year, PAT was at INR 49 crores, a marginal decrease of 2% year-on-year.

Coming to the consolidated year-to-date financial highlights. The total revenue from operations stood at INR 5,475 crores, an increase of 5.9% year-on-year. EBITDA was at INR 397 crores, an increase of 16.4% year-on-year. PAT was at INR 180 crores, an increase of 7.1% year-on-year.

A quick highlight on the balance sheet front as on December 31, 2019, the equity total was at INR 2,182 crores and the net debt was at INR 759 crores. The net debt-to-equity was 0.35 as on December 31, 2019. The return on capital employed stood at 10.71% as on December 2019 on an annualized basis.

The key operational highlights of the global MTO business for the third quarter of the financial year ended 2020. Our Multimodal Transport Operations segment clocked total volumes of 185,408 TEUs, an increase of 10.4% year-on-year. This segment continued gaining global market share. The total revenue for the quarter was INR 1,616 crores, which was more or less flat year-on-year. EBIT was INR 57 crores, which decreased by 3% year-on-year. The total capital employed stands -- the ROCE stands at approximately 26% on an annualized basis. That's for -- all from my side. I request Mr. Prakash to take through -- take us through the India businesses.

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [4]

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Good afternoon, everyone, and thank you, Deepal, for taking us through in the initial details. Coming to our CFS and ICD segment for the third quarter, the total volumes were at 75,900, which compared to the previous period was at 82,319. And overall, EXIM volumes have actually impacted us and that's why the demand has contracted. We continue to maintain our market share despite the reduction. In CFS addressable market, quarterly volumes surged, especially in Mundra and Kolkata. The total revenue was at INR 111 crores versus INR 118 crores in the corresponding quarter in the previous year. EBIT was at INR 28 crores as against INR 35 crores in the corresponding quarter in the previous year. The return on capital employed, that's ROCE, for the business stands at approximately 28.5% on an annualized basis.

Coming to our Project and Engineering solutions business. The total revenue was at INR 70 crores against INR 80 crores in the previous year. There was an overall improved utilization of equipment in this quarter versus last year, but there was decline in revenues, which was due to lower utilization of high-yielding assets or equipment. There was an EBIT loss of INR 8.6 crores. This is primarily due to application of accelerated depreciation. There is continued effort to free up the capital from equipment segment. And as stated by our Chairman also previously, we are looking at sale of underutilized assets.

The order book of the Project Logistics continues to be strong. And right now, it is at INR 166 crore, along with a very visible pipeline of INR 526 crores. Now at this stage, I request Mr. Jatin (foreign language) to come in and talk to us about the other 2 segments.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [5]

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Good afternoon, everyone. Coming to our Logistics Park business segment. The total revenue was at INR 12 crores as against INR 1 crores for the corresponding previous period. Investment in Q3 FY '20 was at INR 115 crores. Also, as already announced on January 13, 2020, our company entered into a definitive transaction with the Blackstone Group, wherein Blackstone would acquire Allcargo's warehousing subsidiaries at Telangana, Tamil Nadu, Karnataka, Gujarat, Goa and Maharashtra for a consideration of INR 300 crores through a combination of debt and equity.

Allcargo would remain a minority stakeholder in these warehousing subsidiaries at 10% post the transfer. The time line of the deal would be around 12 months, subject to satisfaction of customary closing conditions and achievement of certain milestones as prescribed in this transaction's document. Post the completion of the deal, the company endeavors to reduce the debt on consolidated books considerably by the end of FY '21.

Finally, to update you on the Gati deal. Since the announcement of the deal on 5th of December 2019, we have acquired around 20.83% stake through a combination of promoter stake purchase, preferential allotment and open-market purchases in Gati Limited, thus, making us the largest shareholder in this company. But in terms of the open offer, the transaction is pending, currently waits for SEBI approval. Post the approval, our company will acquire the remaining shares from open market and take our stake close to approximately 45% as initially planned.

Furthermore, in the last board meeting of Gati, our Chairman, Mr. Shashi Kiran Shetty and Mr. Kaiwan D. Kalyaniwalla were nominated from Allcargo and appointed as additional Non-Executive Director and Non-Independent Director, respectively, in Gati with effect from February 4, 2020. That's it from our side. Thank you very much, and we now open the floor to any questions you may have. Thanks.

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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 [H. R. Gala] from [Finvest Advisors].

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Unidentified Analyst, [2]

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Congratulations for a reasonably good set of numbers in view of the current turmoil, which is going on in the world. Sir, I would just like to know that what is going to be the likely impact of coronavirus on the overall world trade and on our numbers. My second question is, what do you see about the prospects of global and Indian economic recovery? And third question is, that how much revenue profit will be -- of subsidiaries will be impacted once our logistic warehousing business gets transferred and in all those subsidiaries, we will have now a minority stake. So we will not be consolidating those? So if you can just throw some light on that, sir?

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

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Well, let me partially answer the first question, that is the coronavirus part of it. We are also equally not very clear about what the impact is going to be. But yes, it is still undecided. We do get some news from our quarters -- from our offices that partial industries have opened up. There are partial which have started and has also closed. So it's absolutely not clear. Yes, there is going to be an impact across the globe because China is a big foray for all the logistics players, I would put it. Having said that, it is going to be more on the imports part of it. On the exports, I think we still have the global to play around. So that's part of it from the coronavirus. And we expect in the next 15 days that something would open up. Just this morning, I've got a message from our country manager in China, saying that we have partially opened. So hopefully, there's going to be more good news coming going forward in the next few weeks.

Second one was on the...

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [4]

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Indian economy.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [5]

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Same one as Indian economy.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [6]

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Yes. On a -- yes, go ahead.

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [7]

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See with this virus, which has affected and overall also, prior to the virus, there was the trade disputes between the 2 large countries in the world, now which being said, while that was happening, there was this virus, which has affected us with the Chinese New Year effect. So definitely, the global economy will see a small dent, if not a big one, as we go along.

And as our Joint Managing Director mentioned earlier, that the good news has started flowing in that specifically the south of China, which is Guangzhou and Shenzhen, there the production has started and the shipments also will start shortly. What we hear also from the shipping lines is that they are getting inquiries for loads starting shortly. And that is what the economy -- the global economy will be affected, but only for this 1, 2 weeks effect provided everything starts as we have heard recently.

Coming to the Indian economy, frankly, we have not seen the volumes going down, other than that of the Chinese New Year effect, that will be there. We got to wait to see the coronavirus effect on us. So as far as -- I'm talking about logistics only, and typically, in that, the volumes are still holding up. But we'll have to wait for another 1 or 2 weeks to understand the impact of the coronavirus on India.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [8]

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Okay. Coming back to the Logistics Park-related clarification. Please note that till the last financial year and beginning of the current financial year, we were just incurring all the CapEx for construction of the warehouses. And there was hardly any revenue from this segment prior to that. We just catered commission of boxes from August onwards in a phased manner at different locations. And the rent from these locations has started coming or flowing into the revenue from August onwards. So again, there was no earlier revenue impact and even currently also, there is not much revenue impact. As we did mention earlier, the last years in corresponding period, the revenue from the rental was close to INR 1 crore, which is now currently INR 12 crores because all the boxes have been started yielding the rent on completion from financial year.

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Unidentified Analyst, [9]

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Okay, okay. And sir, how much CapEx we have incurred on this construction of warehouse so far?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [10]

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So far, approximately INR 650 crores, we have already incurred for putting all the locations.

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Unidentified Analyst, [11]

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Okay. And sir, in our press release, we had said that Blackstone will be putting in INR 380 crore by way of debentures and equity. And in this initial remark, you said it will be INR 300 crore. So is there any changes in that -- just comparison?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [12]

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No, no, definitely, there is no change. We abide by the transaction documents. However, as per the documents and agreed conditions, money is flowing in a phased manner. So out of the total INR 380 crores of the deal value, we received the first tranche recently. And on completion of certain milestones and other things, further we are going to receive the money. So there are no change in agreement.

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Unidentified Analyst, [13]

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The value part of it, okay.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [14]

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Yes.

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Unidentified Analyst, [15]

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Yes. And sir, after this deal is concerned, how much equity we will be holding in all these wholly owned subsidiaries?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [16]

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It will be 10%, sir.

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Unidentified Analyst, [17]

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Only 10%. So we are giving 90% stake to Blackstone?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [18]

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Correct.

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Operator [19]

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The next question is from the line of Jigar Shah from Maybank.

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Jigar Shah, Maybank Investment Bank Berhad, Research Division - Research Analyst [20]

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My first question is on the ROCE. So as you have already given in the presentation, the MTO and CFS business continue to have fairly good ROCE even in the current challenging business condition. P&E continues with its restructuring. But obviously, the company is making good amount of investment in warehousing and there is investment now that is going into Gati as well. And then, of course, you have the CCI, Avvashya Logistics business as well. So what happens is that it becomes a bit difficult to look at the blended ROCE and understand the exact situation.

So if you can provide, even for the investments, which are more in an incubation phase and they have not yet started reflecting properly on the return side, but at least if you separate out and provide a blended ROCE, then it gives a proper idea as to where you stand? And also want to know what's the philosophy, I mean, what is the targeted ROCE in these other businesses, which are currently having very low ROCE or no ROCE?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [21]

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I think, Jigar (foreign language), thank you very much, and we agree with you. Certainly, that is how we will proceed. But right now because these investments are at an initial stage, and that's how we were able to give it to you. Let it be in steady state, we will be out there with all the numbers.

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Jigar Shah, Maybank Investment Bank Berhad, Research Division - Research Analyst [22]

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So what I want to understand what kind of aspiration you have for these businesses in terms of ROCE?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [23]

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So Mr. Jigar, one is coming to the current ROCE that we have reflected, the 10.71% is the blended one with all the incubated items inside that. So -- and individual, we've already given a breakup, 26% and 29% for MTO and CFS, respectively. So the Logistics Park, obviously, once the large amount of capital employed, which is in the Logistics Park gets unwinded by end of the year, the overall Allcargo ROCE will go up significantly because that's the major chunk, which is currently in the incubation stage, the constructions are going on. And it is not generating any revenue, very -- rather very insignificant revenue as of now. So that's one case.

Second is as far as Gati is concerned, we have to look at it very kind of -- as a standard-alone, a separate entity. Gati or likes of Gati business generally have a higher of 30% kind of ROCE, if you look at the peers in the market, and it will be our endeavor to reach that kind of an ROCE in couple of years once we're able to stabilize and strategize the way forward in the Gati business.

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Jigar Shah, Maybank Investment Bank Berhad, Research Division - Research Analyst [24]

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The next question that I have is on the current year's CapEx and -- sorry, FY '21 CapEx and margin outlook, if you have any color to offer?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [25]

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So I mean, the quarter is -- so we expect it to be range-bound considering the coronavirus and all the issues around this and the global trade and the domestic situation as well. So we expect Q4 to also be range-bound. So we can expect the margin percentages to be range-bound around this, what we're currently clocking.

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Jigar Shah, Maybank Investment Bank Berhad, Research Division - Research Analyst [26]

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No, FY '21 CapEx and...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [27]

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FY '21 CapEx, we'll come back to you. We'll -- we are still working on it with Blackstone as well. And as of now, from the P&E business, we are not going to invest anything else. So that clarity, we wanted to give everyone, that we are trying to unwind whatever we are already holding. We are trying to diffuse our capital employed there. And as far as construction is concerned, whatever is additional required to complete the box or to complete the conditions to get the deal completed is what we will spend. We expect to spend around -- close to around INR 200 crores to INR 300 crores in the coming FY '21 on the boxes.

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Operator [28]

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The next question is from the line of Prit Nagersheth from Wealth Financial Advisors.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [29]

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Two questions here. One is on the Gati acquisition that is being undertaken, how do you envisage the landscape ahead? I'm saying from the point of view that established players have started losing market share to start-ups and to PE-backed players. So how would you see that panning forward? And how would you compete with that?

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Rohan Mittal, Allcargo Logistics Limited - VP of Strategy and Mergers & Acquisition [30]

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My name is Rohan, happy to take this question. See if you consider the market scape, landscape, it's divided broadly into 2 parts. One is the traditional established players, who are not doing incremental CapEx on -- much incremental CapEx on expanding the network. They are more now investing in people capabilities and tech capabilities and continue to grow margins, continue to grow revenue, right? I'm talking about the likes of Safexpress, TCIEXPRESS and Amazon. There's a second category of players, which is delivery, et cetera, who have now recently come in.

See with respect to modus operandi for delivery and revival, they've basically been discounting the rate deeply to get volume, they have been following a mix strategy of B2B and B2C, trying to use -- leverage the same network, at least the line haul capabilities to ensure utilization. However, if you take customer feedback, the service quality for the B2B specifically is still not where a Gati or a Safex can offer, okay? And therefore, they're able to corner market for, let's say, a month, 2 months, 3 months. But if you look at the churn, the churn is exceptionally high. That's part one.

Part two is, if you consider the genesis of where this money is coming from to afford deep discounts, right, even now VCs are pushing for profitability. If you look at the recent statements from SoftBank and the likes of them, right? While they've been looking at market dominance, but now they are also chasing profitability because of what has happened at other investments like WeWork and all. So we are seeing a change in how delivery and revival is also approaching clients as we speak, okay? Gati obviously has to compete with both. There is no 2 ways around it. The only point here is that Gait's network is where it has to be already, okay? They are servicing 19,000-plus pin codes, almost 99% of the districts in India have a Gati coverage.

The brand recall with the customers is exceptionally high, exceptionally favorable. What Gati has to work on is improving profitability, okay? And that is where Allcargo comes in. Allcargo has a 100% successful track record of turning around acquisitions and successful integration in the past. So we are reasonably confident that we'll be able to replicate that success with the Gati transformation also. In addition, I'll just point out one more thing that, at the end of the day, it's a combination of service offerings across different parts of the value chain to the same customer. And that is where, again, Allcargo will have an exceptional advantage or differentiation with respect to the other players in the market. If you consider the trade today, players have EXIM and domestic requirements both.

Increasingly, customers, like if you talk about a big customer like Maruti, Cadillac, you talk about a medium customer, they don't want a huge vendor base because the cost of managing a huge vendor base is taking a toll on their respective costs. If a single vendor can offer good services at the right price points for EXIM and domestic both, they are more than willing to consolidate the supply chain under one run. And that is a unique offering, which in the country today only Allcargo can give.

There's nobody else in the market whether the traditional express players or the new-age express players who can offer this rate. So all in all, I think we have to compete with the new-age guys. There's no 2 ways around it. And we are looking at it as an opportunity to imbibe the best technology into Gati, but I think we are in a reasonably strong footing here in terms of gathering market share. Anything you would like to add? Any follow-up questions you have on this, I'm happy to answer.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [31]

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Or is it still in the process of being acquired?

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Rohan Mittal, Allcargo Logistics Limited - VP of Strategy and Mergers & Acquisition [32]

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Sorry, could you please repeat that?

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Prit Nagersheth;Wealth Financial Advisors;Partner, [33]

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Sir, have you taken over the management of Gati? Or is it still in the process of being acquired?

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Rohan Mittal, Allcargo Logistics Limited - VP of Strategy and Mergers & Acquisition [34]

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See, the phase 1 of the transaction -- and we kind of explained this on the last call as well. The phase 1 of the transaction started on 5th of December. And we had given an outlook of close to 3 months, 3 to 4 months to complete the transaction. Phase 1 is over. Today, we are the largest -- single largest shareholder in Gati, with 20.83% stake, okay? The promoter shares have been acquired. The preferential issue has gone through. We've pumped in fresh INR 100 crore growth capital into Gati already. What is still open is the open offer, right? And 2 nominee directors have been appointed from Allcargo to Gati.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [35]

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Correct. I saw that.

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Rohan Mittal, Allcargo Logistics Limited - VP of Strategy and Mergers & Acquisition [36]

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We are in the midst of looking at the team below as to how to strengthen that team, right? So those discussions are still on, and they will continue on the -- in parallel to this whole transaction. The original time lines remain intact as far as the overall transaction is concerned.

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Operator [37]

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The next question is from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [38]

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My first question is on this warehousing piece. Sir, just wanted to understand this INR 380 crore payment slightly better. So is this an equity? Or is this a payment against the -- like the land, which we used to own at several locations? Or is it a EV for the total capital employed which we have in -- like for the warehousing segment, including the CapEx, which we have done? I just wanted to understand the INR 380 crore better. And then like, let's say, what are the kind of rentals on per square feet per month basis we are looking at in this business?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [39]

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Okay. Just to answer you, now see, I mean, as a part of the structure, we have already transferred the land and construction either to -- which was in the books of Allcargo to the various SPVs. And Blackstone has taken the stakes into various SPVs. So -- and the INR 380 crore is a combination of various parameters like equity, land value because some of the boxes already completed, fetching the rental, some of the boxes are yet to be completed.

So it is a commercial understanding between both the parties. And that is how the INR 380 crores we are getting for 90% straight to Blackstone. And the debt equities are nothing but a pure function of the structure depending on the outstanding loan and how easy to upstream the money to the parent company. So -- but yes, rental per square foot from the leasee is a function again of the location, size and kind of thing and it's a commercial decision. So definitely, I mean, per square foot rental, we can't disclose from the commercial perspective. But yes, I can assure you, these are all of the grade A warehouses.

And with the marquee customers like Flipkart and Crown and SSCI and Decathlon in the construction pipeline, so the rental will be best in line with the market kind of thing. And as far as revenue is concerned, so far, box completed and handed over for the operation is close to 7 to 8 boxes, of which 4 boxes to the Flipkart and few to other small customers at Hyderabad. And as for the current completed boxes, annual rental would be in the region of INR 30 crores plus in this SPVs based on the current completed boxes. Few more boxes are due for completion in next couple of months or March in a staggered manner, which we'll start getting the rental as and when it is handed over as per the terms of agreement between us and leasee.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [40]

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So if we're looking to -- I mean I understand 6 million square feet of warehouse, so 6 -- once 6 million gets converted -- gets constructed, we are -- I think we are looking at INR 100 crore kind of rental.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [41]

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Yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [42]

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So that gets accounted in incomes from associate as 10% of INR 100 crores. That's how we should model it? Or how we should model this number?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [43]

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Yes, that is the correct way, what you have mentioned, that we will be treating as an associates.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [44]

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Which is only associates by profit share.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [45]

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By profit share, yes.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [46]

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So the associate is 20%. So 10% is profit...

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [47]

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10% is the profit sharing and we'll be adding to the numbers.

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

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Revenue for 4 million, it will be around INR 100 crores, not for 6 million. 6 million is slightly more than INR 100 crores or INR 115-odd crores we...

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [49]

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INR 117 crores.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [50]

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INR 117 crores.

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

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And once we get this INR 380 crores, there is some land bank, which was there in our -- like, let's say, last year's -- till the point, we had not transferred land to the subsidiaries, how much of that land was there in terms of books -- book value?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [52]

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Sorry, what was the question?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [53]

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What was the book value of the land transferred to the subsidiaries? These are all historical costs.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [54]

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The historical cost will be in the range of INR 180 crores, INR 185 crores.

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

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So 1 -- on INR 180 crores, INR 185 crores, we are getting INR 380 crores on -- yes, so basically, we are booking gain on sale of assets of around INR 200 crores, simplistically?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [56]

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That is not the right way because there's some construction also done over there. So there's a -- cost of construction is also transferred. So it cannot be related in that particular fashion, that INR 380 crores minus the cost of land is what your profit would be. That's not the correct calculation. It's more -- much more complex than that.

Yes. And some assets have not been moved, so it's a little complex.

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

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Right, sir. And just something on -- our tax rate in this quarter is very high, any specific reason? So we were doing like INR 60 crore plus kind of a PAT number. Excluding exceptional item in this quarter, our PAT number looks up INR 20 crores, although EBITDA numbers look almost similar?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [58]

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Okay. The effective tax rate is very high or higher than the previous period, predominantly because of 2 or 3 reasons. One is, we are out of the MAT regime due to some extraordinary income we received as well as when we moved the assets from Allcargo to the SPVs, definitely, as per the current practices, standards, the length has to be moved at a ready reckoner value, though customer it was lying in the historical cost value. So that is a book profit in the books of Allcargo. So because of this extraordinary profit, which has already been explained, so we are out of the MAT regime. However, as you know, that for the cash outflow purpose, we still pay the MAT and utilize the MAT credit for the balance amount. However, for the books provision, the taxation has gone up predominantly because of these reasons.

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

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And our depreciation has also gone up sequentially and interest expense also. There's a capitalization of warehousing?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [60]

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Yes, predominately the capitalization of warehouses, that is main reason.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [61]

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But once we transfer all these assets to expiatory...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [62]

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So the depreciation has gone up for 3, 4 reasons. One is, in the consolidated level at EQ, there is some additional software, which we had bought earlier. We have provided accelerated depreciation for it. That is one. Two is, there is this impact of 116. Three is, yes, whatever boxes are completed and we've capitalized some depreciation gone out of that. Also, for some of the cranes, we have accelerated some of the depreciation based on the useful life of the asset. So the combination of all this added up depreciation to a higher amount than the previous quarters.

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Operator [63]

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The next question is from the line of Krupashankar from Spark Capital.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [64]

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My first question is on the MTO, NCR operations. Can you highlight what will be the market share in the MTO, NCR operation?

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

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About 11%.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [66]

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I'm sorry?

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

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About 11%.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [68]

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About 11%.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [69]

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Yes.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [70]

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So given that we have been outpacing the market overall. The growth -- can it be expected that predominant growth is coming from the FCL market. Is my understanding correct?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [71]

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Yes, you're right. It's coming from the FCL market. I wouldn't say that the LCL market is also okay, but it's a bit flattened because we already have a -- if you look at our global market share as well, we have -- we are pretty well placed in our market share. So then it becomes a little difficulty to grow further from there, right? But FCL, we are still scratching the base, so we have enough of room to grow. So that's how the growth is.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [72]

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Right. Okay. And also on the CFS business, you were highlighting that the market share has been sustained, what would be the percentage of the market share over there?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [73]

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9%?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [74]

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10%,

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [75]

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10% again there on the CFS.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [76]

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But again, location-wise, will be different, but overall, take it as 10%.

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

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Exactly. Right, right. So again -- so we would have perhaps a commanding position in the JNPT area, whereas Mundra and Kolkata would be just growing at this pace because of regions we are hoping. Is that correct understanding?

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

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Come again? Sorry.

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

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So given that we have been -- we are an established player in JNPT, the market share over there would be relatively higher and places like Mundra and Kolkata, it would be still at a growing phase?

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

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Yes, Mundra is pretty -- I think we have grown well. Kolkata, yes, we have still room to grow.

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

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Okay. And so in light of that, again, coming to the Jhajjar ICD. Is there any progress on Jhajjar?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [82]

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In terms of Jhajjar, as we had mentioned earlier, that there is this new company called HRIDC, which is Haryana Rail Infrastructure Development Corporation, which is starting a rail connectivity to the DFC. So we have to just get those approvals from the government that is basically the Indian Railways. And once we have that in place, we will construct the rail link. While other approvals are in place, it is only this last point of HRIDC connecting into the land because this is a new development, which has come from the Haryana Government and the Indian Railways.

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [83]

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But it's progressing, that's what -- in short, we are progressing towards that.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [84]

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Okay. So we've got in approvals from the Indian Railways for rail specifics because that's what takes...

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [85]

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Yes, yes. We already have. That earlier approval with the traditional route, that is already there, which is via Haridasaru. That is already there. Now there is a new link which is coming up, which is along with HRIDC and that's why railways are working on that along with HRIDC to conclude that. For us, we are in place.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [86]

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Sure. But there was also a warehouse development which was happening at Jhajjar. So that is operational and is it -- so those revenues are -- is it recorded in the CFS operations?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [87]

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No, no. It's all part of the Logistics Park or the warehouse revenue. And already, they are sitting in a separate SPVs right from the day 1. But yes, at consol level, whatever the revenues is there, already recorded in the Allcargo's books.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [88]

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It's not in the CFS.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [89]

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Not in the CFS.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [90]

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Okay. So in the Logistics Park business, after the Blackstone deal, what will be the quantum of assets which will be revenue generating and would be part of your consolidated revenues and not part of share of profits from associates?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [91]

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No. Basically, we have agreed to sell the state in all locations, like in the state of Telangana, as we mentioned, Telangana, Tamil Nadu, Karnataka, Gujarat, Goa and Maharashtra. So that is a part of the Blackstone deal. No Jhajjar is -- Jhajjar is separate.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [92]

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I understand. So apart from Jhajjar, what are the other -- is there any other Logistics Park, which we are missing out is what I was asking?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [93]

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I think...

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [94]

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No, I think everything is included.

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Unidentified Company Representative, [95]

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There are some in -- they are still in discussions.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [96]

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But in different location, different length, nothing to be mixed up with these locations, these particular sites.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [97]

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Right. Last question on the share of profits from associates and JV, there is a loss number reported over there. May I know which entity -- or is it pertaining Avvashya CCI or is there any other entity, which...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [98]

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Yes, yes. So it's Avvashya CCI, we -- the loss is because of the goodwill impairment that we are looking at.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [99]

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Understood. Understood. Okay. And what is the outlook over there, if you can share? Because contract logistics is something which we are focused on as a new growth engine for our overall business.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [100]

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So yes, we are very bullish about that business, but we are in -- again, we are in the investment phase. So we're expanding the warehouses. We moved from 1 million to 3.5 million, now almost 4 million square feet of warehousing space. So because of that, a lot of investments are done, a lot of start-up costs in terms of building up the team and all is happening. That's the reason we believe that it will take time for it to generate the ROCE that one would expect from that business. But we are very bullish, and we expect to be, at least in chemical space, we are market leaders in other space also, we expect to be market leaders or at least among the top 3 in that space. Also, it complements our Gati business. So we are very bullish in terms of how this all is going to pan out in the future. And we'll continue to hold our investments in ACCI and invest further if required in the warehousing business -- the contract logistics business rather, more specifically.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [101]

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Understood. Just one last thing I wanted to check if you can highlight the impact of amortization, how long is it expected to continue?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [102]

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Which amortization you are talking about?

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [103]

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In Avvashya CCI, the...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [104]

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So it is -- see, the amortization -- see the goodwill -- yes, it's approximately -- our policy is around 6 years is what we amortize the goodwill over.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [105]

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Right. So we already have done it for over 4 years. So we can expect additional another 2 years?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [106]

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2 or 3 years, I'll have to look at the number, yes.

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Operator [107]

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The next question is from the line of Sayan Das Sharma from Bank of Baroda Capital Markets.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [108]

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First, a housekeeping question to Mr. Deepal. Sir, if you can share the exact changes due to Ind AS 116, first on the operating expense, how much it has decreased? Then how much finance and depreciation has increased?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [109]

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Yes. So at the consolidated level, the admin expenses has gone down by approximately INR 51 crores.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [110]

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Sorry, sir, this is for Q3 or 9 month, if you could specify?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [111]

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9 month, 9 month, 9 month ended. It is INR 51 crores for the consol, the admin costs have gone down. The interest has gone up by INR 8.3 crores, and the depreciation has gone up by INR 47 crores.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [112]

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Sir, if you can share it for the third quarter also?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [113]

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Yes. Just -- around third quarter, it's around -- interest and depreciation has gone up by approximately INR 4 crores. Yes, INR 4 crores. And admin will be a similar number, around INR 3.5 crores it has gone down.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [114]

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Okay. Okay, fair enough, sir. And sir, just an extension of what the earlier 2 participants asked on the Logistics Park business, would it be possible to share the investment that we have today on these? So I understand that once these SPVs are created, there will be an investment on the holding company, which I'm assuming to be the stand-alone business. So if you can quantify how much is the investment on our books right now?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [115]

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The total investment for the Logistics Park is around close to INR 872 crores.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [116]

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So that is the total asset, sir. What I'm get...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [117]

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Correct. Correct. Total investment, total capital employed for the Logistics Park will be INR 872 crores.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [118]

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No, no, that I saw in the release that you have given. What I'm trying to get at is, at the SPV level, there'll be some debt that would have been raised, even if you have raised at the SPV level, which would have gone towards the construction. And there will be an equity investment that would have come from ACL, from Allcargo, which is basically the stand-alone entity, the holding entity. So if you can quantify how much is that amount?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [119]

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No. So it's -- since we have funded the entire INR 872 crores through various means. So it's partly funded through debt at Allcargo level, partly funded through debt at the SPV level. Approximately, debt at SPV level is around INR 200 crores, and balance around -- some around close to 400 crores -- INR 400 crores is approximately of debt at Allcargo level. And balance whatever INR 200-odd crore is our equity in that business.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [120]

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So is it fair to assume that the INR 380 crores that you are getting is for the 90% of the INR 400 crore debt that you would have invested because the debt at the SPV level stays at the SPV irrespective of who is the owner. Is that understanding correct?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [121]

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No, I mean, see -- no, no, no.

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [122]

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No, no. See, basically, when Allcargo transferred all the assets to SPV, the Allcargo transferred the debt also to the extent possible on the value of the asset transferred. So apart from the SPV-raised debt for construction, the Allcargo part debt have already been transferred to the various SPVs.

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Operator [123]

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The next question is from the line of Bhavesh Jain from Envision Capital.

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Bhavesh Jain;Envision Capital Advisors Pvt Ltd;Senior Investment Analyst, [124]

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Sir, can you quantify gross debt and net debt end of December?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [125]

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Yes. So gross debt at consol level is around INR 1,011 crores, and the net debt is INR 759 crores.

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Bhavesh Jain;Envision Capital Advisors Pvt Ltd;Senior Investment Analyst, [126]

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Okay. And sir, how do we see this Project and Engineering division going ahead?

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

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Well, as of now, if you look at it, it's been doing well. For the last 2 years, it has done extremely well, and we have a solid order book of about INR 166 crores, with the visibility of close to about INR 500-odd crores as well. And we've also banked ourselves out of India as well. So that's keeping us afloat.

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Bhavesh Jain;Envision Capital Advisors Pvt Ltd;Senior Investment Analyst, [128]

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Okay. And whether we will be EBIT positive for FY '21?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [129]

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Yes, yes, yes, we will.

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Bhavesh Jain;Envision Capital Advisors Pvt Ltd;Senior Investment Analyst, [130]

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Okay. And sir, the CFS division per TEU margins have expanded. So what have led to that both realization as well as EBIT per TEU have expanded for the CFS division for this quarter?

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [131]

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Yes. Typically, what has happened, we have done very well in Mundra and also in JNP -- sorry in Kolkata. And overall, as we always discuss that lowest cost proposition win, so our focus is also on how we can take cost out.

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Operator [132]

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The next question is from the line of Vaibhav Gogate from Ashmore India.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [133]

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This is Ashwini here. See, this is the transaction with Blackstone. I think there are a lot of questions around that, and there's some lack of clarity. I think what everybody is trying to understand is how much of the investment that you have at the consolidated level in the warehousing business, the INR 800-odd crores, how much of that goes away once the CCPS is converted? Let's assume that the conditions precedent to the deal are satisfactorily met over the next few months. As we look at March 21, how much of the capital employed in this division will go away with Blackstone owning 90%?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [134]

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See, basically, the current spend of INR 872 crores, Ashwini, of which the Jhajjar is excluded from the Blackstone part of the deal. So approximately, INR 450 crores to INR 500 crores other than Jhajjar, debt will get transferred or already has been transferred to SPV, wherein the Blackstone will be participating. So the entire INR 500 crores will be going away from the Allcargo books and all future constructions at these locations will be undertaken by SPV itself.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [135]

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Correct. But the consolidation stops when the CCPS gets converted into equity?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [136]

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Correct.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [137]

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Correct.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [138]

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Okay. So when we look at March 21, out of this INR 870 crores, we need to back out roughly INR 500 crores and add to it whatever incremental investments you make at Jhajjar.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [139]

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Correct.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [140]

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Correct.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [141]

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Absolutely correct.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [142]

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And you will get a 10% pickup of the net income of these subsidiaries, which will be 90% owned by Blackstone?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [143]

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That's right.

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

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Plus, we'll also get the AMC income. So 1 of -- there are 2 reasons, basically, we have earlier mentioned, for us, staying in that businesses is, one is that the Avvashya CCI business, we require warehouses over there. So it's a business where we are connected to the market, and we are growing and we need space as well, these A grade warehouses, that is one of the reasons. The second reason is that we are also, since we've constructed them, we also have a company where we can manage the AMC. So AMC income is an asset-light business, and it's a fairly good income. So we'll get a combination of the AMC income and the 10% in terms of the lease business as well. So that's one of the reasons why we are there in that -- with Blackstone as 10% equity partner.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [145]

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And how much would be the AMC typically?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [146]

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No, AMC, is too early to say because AMC depends on all the locations, specifically when it gets operated. But yes, I mean, based on the current 6 million square foot, the AMCs are basically whatever the facility management and the cost thereof, including uptick of the government facilities, which we are charging to the various leasee in terms of this thing and any additional new land purchase, new construction because we have got expertise in terms of our EPC. So they also get the fees for every construction, whether it's a current pending construction or the new, future construction.

And I mean, we don't know because of the Blackstone being a global giant and one of the largest real estate players, they have lots of properties in India also. So depending on the expertise, we might get opportunity to bring those assets. Also, Blackstone may decide to bring under the AMC because AMC has nothing to do only with the current facilities because of the expertise. So we don't know, but these are all future things. Too early to comment or too early to say on that.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [147]

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Okay, let me flip the question around. Let's say, you rent out a particular warehouse and rental could be anywhere between INR 15 to INR 20 a square foot per month, I'm given to understand for a grade A warehouse, depending on the location and the kind of facilities you offer at each location. Typically, when a client pays you that INR 15-odd, that includes the maintenance charge. Am I right?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [148]

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No, no. There is a pure rental. All CAM is an additional cost for the client.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [149]

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And typically, how much is it? Is it like...

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [150]

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No, no, it's ranging from INR 1 to INR 1.5 per square feet depending on the location and depending on the facility what we provided or if the client needs any additional services.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [151]

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So that would be the range of the per square foot AMC on a per month basis?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [152]

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Correct, correct.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [153]

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And what would be a margin on that, I mean, EBIT margin or EBITDA margin on that?

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

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No, no, no. I mean very difficult to estimate, Ashwini, because we have got our internal S&GA (sic) [SG&A] cost and all this thing, and we are just building. So I can't -- I mean, I don't have a plan currently, what would be the manpower requirement or outsourced securities and housekeeping kind of thing. So we have just completed few boxes. So we are just learning and getting into the business model for the AMC. So probably we will be able to comment more in future.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [155]

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Sorry for insisting on this because we can compare it to, let's say, facility management service offered by, let's say, a third party, right? So typically, facility management contracts in a hotel or in a housing society are all variable cost plus a markup of 20% or 25%. That's typically how they work. So this should be something similar, right?

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [156]

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Yes. I mean we aim to working on a similar model, but again, the hotel and -- is not comparable because the real estate has got the residential, commercial, warehousing, industrial. So it is a complete different gamut and different parameters for each of the facilities. So we can't apply general standardized 20%, 25% kind of thing. So I mean, we have still not figured out what it could be or finally, it will be.

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Operator [157]

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The next question is from the line of Jigar Shah from Maybank.

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Jigar Shah, Maybank Investment Bank Berhad, Research Division - Research Analyst [158]

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My question is to Deepal. Just on the depreciation, amortization, you have given the breakdown for the third quarter and 9 months. So will this kind of trajectory continue going forward? Or there will be some variation?

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

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Yes. So we expect it to be continuing around this range because we applied excluding depreciation. And in case we sell some of our cranes, depreciation on that also will kind of go off. So we expect approximately this kind of depreciation to continue. The main reason -- if you look at the whole depreciation, the main reason of increase is because of the 116. The impact on 9-month period is INR 47 crore. So that itself is very large. So -- but it will go reducing over the next few months, but not at a very high pace. It will slowly unwind.

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Operator [160]

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The next question is from the line of Prit Nagersheth from Wealth Financial Advisors.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [161]

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Right. My question is, you mentioned about contract logistics and how that ties up with your Gati strategy. So can you elaborate on that?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [162]

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Sorry, can you -- we're not very clear about the question, can we request you to elaborate the question?

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Prit Nagersheth;Wealth Financial Advisors;Partner, [163]

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Yes, sure. So you mentioned that contract logistics, to one of the participant's question, is an area that you see contributing towards your Gati strategy as well. So can you elaborate to that? Because contract logistics here would be, what, your supply chain solutions? Or...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [164]

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Yes. So currently, in Avvashya CCI, the subsidiary which we have, we are currently doing the Contract Logistics business, we are doing the warehousing, the last mile and the distribution is outsourced. With Gati in partnership, that will be in-house to some extent. And it will be a complementing business to each other. Our warehousing business will enable growth at Gati and vice versa also. So as a proposition, we'll be able to sell both of them jointly in a much better way.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [165]

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Okay. I see. And who is your current vendor? To whom -- is it 1 vendor or is it multiple?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [166]

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We have multiple vendors across all locations.

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Prit Nagersheth;Wealth Financial Advisors;Partner, [167]

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Okay. So people who Gati competes with, like, say, it's like TCI?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [168]

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Yes, yes, yes. Anybody who Gati competes with and it could be Gati also, at some places, yes.

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Operator [169]

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The next question is from the line of [H. R. Gala] from [Finvest Advisors].

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Unidentified Analyst, [170]

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Yes. Sir, I just wanted to understand this INR 380 crore basically it will be SPVs directly, right? It's -- nothing is going to come into the books of Allcargo?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [171]

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It will come, no, because...

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [172]

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No, no, no, the equity part, because 100% is the SPV of Allcargo, so whatever the equity part will directly come to the Allcargo. And Allcargo has already transferred the debt to the various SPVs, wherein the Blackstone is investing. So whatever the balance money other than equity, which come into the SPVs will be upstream to Allcargo, our repayment of debt.

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Unidentified Analyst, [173]

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Okay. But the equity part will be very less and the debentures will be higher, is it not?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [174]

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Correct.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [175]

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As reported.

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Unidentified Analyst, [176]

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So how much will be the breakup between INR 380 million between equity and debentures?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [177]

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No. No. Right now, we can't because I think still the Malur and other customary conditions are pending. So depending on how that will shape up and what further cost we are going to incur for the construction and whether it is a further debt or equity or internal accrual, so depending on that, we'll structure the full transaction.

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Unidentified Analyst, [178]

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Okay. Sir, my second question is, in FY '20, what will be our total CapEx and investment plan?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [179]

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We've mentioned earlier that -- so for the current businesses, we are not expecting to raise any further CapEx expenses for the year, except for maintenance CapEx or similar. For the completion of the warehouses and for Jhajjar and all, we may end up with the amounts close to INR 250 crores to INR 300 crores of additional construction cost in the coming FY '21.

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Unidentified Analyst, [180]

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No, in FY '20, the year?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [181]

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FY '20, we are almost close. So we will spend another maybe INR 60 crores, INR 70 crores in the next -- in this quarter, last quarter, we should have spent around INR 80 crores, INR 80 crores to INR 90 crores, we should be able to spend.

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Unidentified Analyst, [182]

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Yes. So totally for the year as a whole, how much we would have spent FY '20?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [183]

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So around INR 400 crores is what we would have spent for the year.

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Unidentified Analyst, [184]

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Total INR 400 crores? Hello? Total INR 400 crores?

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

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Yes, yes. That's correct.

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Unidentified Analyst, [186]

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Consolidated debt, how much will go out of the books once this deal is over?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [187]

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Consolidated...

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [188]

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So we mentioned that at the year-end, once -- if all the conditions are met and the debentures are converted into equity, around INR 450 crores or close to INR 500 crores, we mentioned earlier in the call, close to INR 500 crores of debt will be shaved off from Allcargo.

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Operator [189]

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The next question is from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [190]

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Sir, firstly, on crane business, is there any development on the sale of the crane business? I think it was indicated it was expected soon.

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [191]

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30% of the identified cranes are sold, and there are more in line. Hopefully, in the next 3 to 5 months, we should be able to close everything.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [192]

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So in Q4 -- Q3, also, some of it got sold?

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Jatin J. Chokshi, Allcargo Logistics Limited - CIO [193]

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Yes, that's right. That's right.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [194]

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Right. And this is question related to one of the previous participants that realization in the CFS business in this quarter has like jumped by around 10% quarter-on-quarter. What is this related to?

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

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Again, as we mentioned about, we have done very well in 2 specific locations and those are Mundra as well as Kolkata. And also, there are some ground rent realization, plus take cost out and lowest cost proposition that wins in the market. That's what we have focused on. So it's a combination of various things.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [196]

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Okay. And just one thing on this -- again, it might sound like we're always on that Logistic Park thing only. So our depreciation and interest number would also come down when this INR 500 crore gets knocked off from our...

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

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Yes, yes, of course. Both will come down. Interest will come down significantly. See, depreciation is for the warehouses, which are unconstructed now the depreciation portion would not be very large. A majority of the depreciation is pertaining from 116. So that probably will -- the number will change, but it won't be massive. But on the interest portion, the number will change pretty significantly.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [198]

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And this INR 1,000 crore -- this INR 800 crore number, which you said in terms of debt, the INR 759 crore. So including CapEx in FY '21 and '20 and knocking off INR 500 crore, this number could be what number by end of FY '21?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [199]

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So we also pick up some debt in the last quarter to acquire Gati, so we will have to add a portion of debt there. And there will be a reduction of the thing. So a ballpark number, we expect to be range-bound around close to INR 500-odd crores by end of FY '21. This is our estimate as of now. It depends on how things pan out.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [200]

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Including INR 400 crores related to Gati?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [201]

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We won't be able to give you a very accurate guidance on that.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [202]

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Right, INR 400 crore is related to Gati?

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [203]

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Correct, correct, correct.

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Operator [204]

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As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

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Adarsh Sudhakar Hegde, Allcargo Logistics Limited - Joint MD & Executive Director [205]

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Thank you.

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Deepal Shah, Allcargo Logistics Limited - CFO & Chief IR Officer [206]

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Thank you very much.

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Prakash R. Tulsiani, Allcargo Logistics Limited - Executive Director & CEO of CFS-ICD [207]

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Thank you very much for the participation and showing interest in our company's results and businesses. Thanks, everyone on behalf of management.

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Operator [208]

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Thank you. On behalf of PhillipCapital India Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.