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Edited Transcript of ALLCARGO.NSE earnings conference call or presentation 11-Nov-19 7:00am GMT

Q2 2020 Allcargo Logistics Ltd Earnings Call

Santacruz E., Mumbai Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Allcargo Logistics Ltd earnings conference call or presentation Monday, November 11, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Deepal Shah

Allcargo Logistics Limited - Chief IR Officer

* Prakash R. Tulsiani

Allcargo Logistics Limited - CEO of CFS-ICD

* Suryanarayanan Sivaramakrishnan

Allcargo Logistics Limited - Chief Transformation Officer

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Conference Call Participants

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* Abhishek Ghosh

DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation

* Ashwini Agarwal

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

* Krupashankar NJ

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

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* 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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Good morning, everyone. I would welcome you all for the Allcargo Logistics Post Results Earnings Call. From the management, we have with us Mr. Prakash Tulsiani, Executive Director and CEO, CFS and ICD; Mr. Suryanarayanan, Executive Director, Strategy and Finance; Mr. Deepal Shah, Chief Financial Officer. We will have an overview from the management on the [gone] by quarter, and then we'll open the floor for Q&A. Yes. Over to you, sir.

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [2]

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This is Deepal Shah. Good afternoon, everyone. Welcome to today's earnings conference call to discuss the performance for the quarter and half year ended September 30, 2019. Along with me, we have Mr. Prakash Tulsiani, Executive Director and CEO of the CFS division; Mr. Suryanarayanan, who has been joined by call who has been also redesignated as a Chief Transformation Officer. We'd like to welcome Mr. Sheetal Gulati, who has been appointed as our new group CFO. He has over 30 years of experience and is a chartered accountant with Masters in Applied Finance from Australia. He has worked in the transport and logistics industry with Toll Global Logistics of Australia and with APL India shipping and logistics group at senior financial roles.

Now moving on to our results. I hope you have had a chance to review our financial statements and the earnings presentations, which have 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. As you may already know, the global environment continued to remain challenging with the world trade growing at a meager pace of around 2%. All the shipping lines are expecting a subdued volume due to world trade slowing down. On the domestic front too, the consumption slowdown has affected the import volumes of all players. The container growth rate at Indian ports during the first 7 months of the fiscal year shrunk to 3% down from 8.5% in the same period a year ago. The overall CapEx cycle in the

(technical difficulty)

has also been dismal with all players deferring their capital expenditures. The prolonged monsoon further disrupted operations for both CFS and also the delaying CapEx cycles, which impacted the P&E business. So let me take you through the key consolidated quarterly financial highlights first.

The total revenue from operations stood at INR 1,873 crores for the quarter ended September '19 as compared to INR 1,738 crores for the corresponding previous period, which is an increase of approximately 8% on account of volume and revenue growth in the MTO and CFS business. EBITDA for the quarter was at INR 130 crores as against INR 126 crores during corresponding previous period, which resembles an increase of 0.2% (sic) [3.2%].

Profit after tax was reported at INR 67 crores for the quarter as against INR 63 crores during the corresponding previous period, which is an increase of 6.3% on a year-on-year basis. As you all know, the group has adopted Ind AS 116 leases with effect from 1st April 2019 using modified retrospective method. Accordingly, previous period information has been -- has not been reinstated. This has primarily been the reason for increasing finance costs and depreciation and amortization expense as against the previous period. The adoption of this standard resulted in a decrease in net profit after tax for the quarter and 6 months ended by INR 1.5 crores -- INR 1.4 crores and INR 2.2 crores, respectively.

EPS for the quarter ended September was at INR 2.61 per share for a face of INR 2 share.

Coming to the consolidated half year highlights. The total revenue from operations stood at INR 3,689 crores for the half year ended September '19 as compared to INR 3,364 crores for the corresponding previous period, which is an increase of approximately 10%. EBITDA for the half year ended was at INR 271 crores as against INR 228 crores during the corresponding previous period, which is an increase of approximately 19%. Profit after tax was reported at INR 131 crores for the half year as against INR 117 crores for the corresponding previous period, which is an increase of 12%

(technical difficulty)

Y-o-Y basis. EPS for the half year ended was at INR 5.17 for a face value of INR 2 share.

A quick highlight on the balance sheet front. As on 30th September 2019, the total equity was at INR 2,144 crores and the net debt was at INR 581 crores. The net debt-equity ratio was at 0.27 as on September '19.

The return on capital employed stood at 12.4% as compared to 30th September -- as on 30th September 2019 on an annualized basis.

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

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [3]

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Thank you, Deepal. Welcome, all of you, and good afternoon. For the second quarter of financial year ended 2019/'20, the business clocked total volumes of 1,84,479 TEUs for the quarter ended September 30, 2019 as against 1,74,268 TEUs for the corresponding previous period, which gives us a growth of nearly 6%. The total revenues for the quarter ended September 2019 was INR 1,697 crores as against INR 1,541 crores for the corresponding previous period, an increase of about 10%.

Our EBIT for the MTO segment was INR 70 crores for the quarter ended September 30 as against INR 67 crores for the corresponding previous period, an increase of 4.5%. The return on capital employed for the MTO business stood at about 27% on an annualized basis. We continued gaining global market share and also continued to grow our volumes from allied and the FCL service. That's all from my side. I will now hand over to Prakash to take us through the India businesses. Over to you, Prakash.

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

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Thank you, Suri, and good afternoon to everyone. First, with our CFS and ICD business segment, the total volumes for the second quarter were at 89,145 versus 88,604 flat versus corresponding previous period. Whatever little growth we had in the volumes was driven mainly by Mundra, Kolkata and Chennai operations. The company continued to grow its share in the CFS addressable market in various segments.

The total revenue for the quarter ended 30th September 2019 stood at INR 119 crores versus INR 120 crores in the corresponding previous period. EBIT was lower at INR 30 crores versus INR 39 crores in the corresponding previous period. This was mainly due to lower dwell time cost by port congestion, lower imports and some shift in volumes between our customer segments. The return on capital employed for the business stood at 30% on an annualized basis.

Coming to our Project and Engineering business. The total revenue was at INR 76 crores for the quarter ended 30th September 2019 as against INR 94 crores for corresponding previous period. The asset utilization in equipment business remained low at around 60%. We call it low because we were at around 70% on account of slow growth in Wind sector, which was -- which has the highest -- largest utilization of our Crane assets. EBIT reported at a loss of INR 5 crores for the second quarter as against a loss of INR 1 crore for the corresponding previous period.

The current executable order book in Project Logistics is approximately INR 90 crores with a strong visible pipeline of INR 486 crores. Volume growth has been impacted this quarter due to slowdown in CapEx cycle, caused by prolonged monsoon season, which impacted our core sectors.

Management continues to remain confident of maintaining high utilization in our Crane segment and close to 65% in coming quarters. Project Logistics has also continued to strengthen its presence in Africa by entering into 3 African countries, namely Tanzania, Kenya and Senegal.

Finally, coming to our Logistics Park business segment. The total revenue was at INR 2 crores for the quarter ended 30th September as against INR 1 crore for the previous corresponding period. The company plans to build a nationwide warehousing footprint of 6 million square feet by 2021 through strong connectivity to industrial hubs and transfer routes. In the first phase, the company would construct state-of-the-art facilities build-to-suit grade A warehouses across Hyderabad, NCR and Bangalore. And we have also executed contracts for preleased close to 4.2 million square feet with various multinational and Indian companies. The total investment under this segment is approximately INR 115 crores in quarter 2 FY '20.

Lastly, the Board has approved the restructuring involving transfer of warehouses and other effects of Logistics Park business to a wholly owned subsidiary subject to necessary consents and approvals. This is a step in the direction as we have communicated in the past that we continue to evaluate options to monetize this vertical.

Also, as an update on our Contract Logistics business, through our joint venture, Avvashya CCI, we are currently operating at 4 million square feet, and the business has performed better than the last year, despite slowdown in automobile and other sectors. The company is targeting to expand its various facilities to achieve 10 million square feet over the next 4 years.

This is from our side. Thank you very much, and we open the floor for 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 Das Sharma from BOB Capital.

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

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Sir, I have 3 questions. So firstly, if you can share the impact of Ind AS 116 adjustments on EBITDA and PBT separately? You mentioned the impact on PAT. It would be helpful to get the data for like-for-like comparisons.

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

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See. So we already mentioned in our speech that the impact has been approximately -- for this quarter has been INR 1.4 crores in the profitability. And for the half year, it has been around INR 2.2 crores.

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

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Right, sir. So you mentioned it is on net profit after tax. I am looking for the EBITDA impact and PBT impact, if you can specify separately, sir?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [5]

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Yes. So okay. So the EBITDA has gone up by approximately INR 34 crores and the adjustment in depreciation and finance cost is equivalent around INR 32 crores.

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

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Okay, okay, that's helpful, sir.

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [7]

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And you are aware, right, the Ind AS, it goes out of the operating profit and it goes below the line?

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [8]

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I understand, sir. Yes, that's why I asked, sir, because it helps in like-for-like comparison because the base quarter does not have this impact. And therefore, to compare EBITDA, this is really helpful, sir.

Sir, coming to my next question. If I look at the CFS business, you mentioned that lower dwell time and lower import has caused lower EBITDA -- sorry, EBIT. So if you can throw some more color on that, particularly on the dwell time aspect, what exactly was the reason and how it impacted?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [9]

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This particular quarter, which is the monsoon season across India, other than probably Chennai, the monsoon this time was severe and obviously, what happened specifically in our main asset location, which is JNPT. Due to heavy rain fall, there were road issues, that is the condition of the roads were very poor. And also they were flooding across around the port area. That meant that the containers, which were to be evacuated from the port took a longer time. So obviously, when the customers come to us, they come at a particular point in time. Let's assume when the vessel is berthing, and they come in, let's say, 8 days after that. So their cycle remained the same of 8 days while the evacuation took time because of the condition of the roads and the congestion, which happened in the port area. So that is the main reason why the dwell time went down.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [10]

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Okay. But I mean, for that, we did not get compensated for the additional time it was lying there, right?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [11]

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It is not staying in our terminal, right? If it is staying in our terminal for a longer period, then only can we charge for it. So that is where we lost out. So it is typical to this monsoon season right now.

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

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Okay. And you don't expect that to continue?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [13]

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Well, there is a ease of doing business also in India, right, so that is definitely making it easier for customs clearances. And that is what we are seeing and we are watching. So can't say at this stage, but we're continuing to monitor that.

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [14]

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Fair enough, sir. Fair enough. And sir, if I look at -- you had mentioned that volume growth was driven by 3 ports, Mundra, Chennai and Kolkata, whereas JNPT does not seem to have grown much. But sir, if I look at the DPD-CFS part, the data that has been released by JNPT, that has gone up this quarter quite substantially. So I mean that is not reflected in order volumes. So is there a change in strategy of not looking at DPD-CFS volume or how is it, sir?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [15]

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No, in our case, we are probably one of those CFSs which cater to all the segments of current

(technical difficulty)

whether it is DPD, DPD-CFS, third-party or en bloc. So we are catering to all the 4 segments, which are present in the market. So typically, we are not focusing only like, mainly do only DPD. Yes, the DPD volumes may have gone up. But if you see

(technical difficulty)

DPD, that volume remains stagnant. That does not change. So the volumes are showing up at the CFS, but the overall volumes in the port have also gone down because of the slight slowdown that we...

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Sayan Das Sharma, BOB Capital Markets Limited, Research Division - Research Analyst [16]

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That is true, sir, that is true. Fair enough, sir. And sir, lastly, again, on the CFS segment. If I look at our revenues from a quarter-to-quarter perspective, sequentially from last quarter to this quarter, it has gone up slightly, flattish to slight growth. But if I look at our EBIT, it has come down significantly. Any particular reason for that happening? I mean...

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [17]

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No, there is clearly that we had lower ground rents to be realized and also, there are some cost elements because of the congestions that we faced. So this was only typical to this monsoon season.

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Operator [18]

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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 [19]

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Just to add on to what Sayan was asking on the profitability on the CFS front. Given that the contribution from other ports have been increasing and even Kolkata also has started contributing positively, is there a mix change, for example, higher contribution of exports which has led to this margin contraction perhaps?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [20]

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No. See, first of all, Nhava Sheva is the most important port in India. It controls approximately 50% to 55% of India's container volumes. Now that being said, if that gets affected, that pushes all the load on the other, I would say, port in terms of performance for our CFS division. So typically, that is the key place where we need the volumes to remain at least stable and continue to grow. Now as you rightly went into the segmentation, you are right that there is a segmentation changing -- change also happening. And that is DC, that en bloc volumes prior to DPD was almost 95% to 98%, which came from the shipping line. We call it as en bloc.

Now these volumes after the DPD has contracted. And typically, there is a shift happening from the en bloc or the shipping line volumes to the third-party and the DPD volumes. So yes, there is a slight change. And typically, our earnings are better as far as we are concerned when it comes from the shipping lines.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [21]

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All right. Okay. So -- and what would be the en bloc volumes currently?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [22]

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I would, frankly, because of our sensitivity on our commericial

(technical difficulty)

reason, I would not like to give you the breakup of the volumes that we handle. I can give you the industry but not our volumes.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [23]

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Okay. So can you just throw some light on the industry volumes?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [24]

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Yes, the industry typically has now been divided approximately 20% to 25% on en bloc and the balance, you can call it third-party and DPD.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [25]

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All right. And this 20% to 25% was earlier upwards about 75%?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [26]

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Upwards of 95% prior to DPD coming in.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [27]

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Okay, okay. And second question is on the Project and Engineering business. So is there any write-back of provision or any one-off items?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [28]

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No, no. So we have a policy for -- we have a policy if there is any outstanding above 1 year, if it hits, we kind of make a provision of it into the books. So this year, we've had reversal from the previous year. And there aren't any other exceptional items in the Projects business. So we've garnered some large projects. So the first quarter, we had some very large movements for some Bangladesh project. So the revenues from the first quarter have been fairly good.

We have an order book of approximately INR 90 crores with us on hand. And we have a pipeline -- we are pursuing a pipeline of around upwards of INR 400 crores. So this is the kind of outlook for Projects.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [29]

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I understand. But during the quarter, was there any reversal of provision?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [30]

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Yes, there was a reversal of provision of around INR 3 crores, which we received from some of our customers during the year.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [31]

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So if I have factored in for that, so the losses should have widened further so it should be up. The margins would be about minus 11%. Is my understanding correct?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [32]

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No, no, no.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [33]

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The EBIT margins would be about -- so if I remove that INR 3 crores of reversal of provision, the EBIT margins would be about 11% -- negative 11%?

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

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No, no, no. See the EBIT margin is around -- currently, the EBIT stands at around INR 24 crores. If you remove INR 3 crores, it's still at INR 21 crores on a top line around INR 54 crores.

Yes. Yes. so we're talking about P&E specifically that the EBIT margins are positive for sure. There are no negative EBIT margins as we stand today.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [35]

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Okay, on a half yearly basis.

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [36]

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On the second quarter, on a half yearly basis, it is positive. So I'll explain further. So in the first quarter, we had the Projects large movement and the utilization for the Cranes were at around 68%.

The second quarter, because of the monsoons, the utilization of the Crane fell off somewhat a little to around 60%, and the large portion of Projects, which still we are working on, which will happen probably in the third quarter or the fourth quarter. So the results will come up in the third and the fourth quarter. So second quarter has been a little somber, that's the reason for the second quarter's results have been slightly lower.

Our utilization currently is also in stock from 60, which was down last quarter to around 64 to 65 in the current month, per month.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [37]

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Got it. And so the run rate going forward, what is the expectation on the Project and Engineering business? Is that with the traction -- what is the outlook, if you can share some insights?

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

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On the?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [39]

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Outlook.

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

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I'll explain the outlook. Utilization, we would have around close to -- for Projects, I've explained we have around INR 90 crores of order book. Utilization, we expect it to be range bound around 60% to 70%. You -- we're aware that the CapEx cycle for India has been slow. We are working with the Wind sector, and we expect utilization to be in the range of 65% to 70% in the coming 2 to 3 quarters.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [41]

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Right. I do understand. But so the visibility of about INR 420-odd crores of order book, which we have stated...

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

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Order book is [INR 90 crores]. INR 400 crores is your pipeline.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [43]

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Yes. So are you expecting some conversion happening over the quarter...

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

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Yes, yes, expecting definitely. So some of them are warm, some of them are hot. We are pursuing them and we expect conversions. We'll keep updating as and when we convert the order books and keep changing. And close to -- we expect around close to 20% to be safely converted, minimum.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [45]

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Understood. One last question. So are we looking at any inorganic growth opportunity, anything on the -- either of the segments?

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

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No, not in -- see in Equipment, we aren't making any further investments at all. In fact, we are trying to see if we can -- if there are not -- Cranes, which are not generating revenues, we're trying to see if we can kind of monetize them or do something about them, but any fresh investments into the P&C sector is not envisaged at all.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [47]

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So inorganic opportunities, I was talking about across all segments, so MTO, perhaps?

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

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Yes. So yes, MTO, if you see the quarter, we've already done some acquisitions overseas. So we've done 2 small acquisitions overseas: one in Hong Kong and at overseas, we will continue to kind of look at opportunities, which strengthen our business, our MTO business globally.

In India, we -- other than the Projects and Equipment, if there are any opportunities, we will continue to pursue. And if there is anything, we will let you know.

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Operator [49]

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(Operator Instructions) 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 [50]

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My first question is -- so we have this in Logistics Park, have this 4 million square feet of already executed space, so that revenue was expected to start from Q3. So it's -- so are we on track around -- I think around INR 8 crores per month, which we are expecting from Q3 onwards?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [51]

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See the total plan was for construction is around 6 million, 4 million under construction. Out of the 4 million, 3.9-odd million is already forward leased. 1.5 million is ready, and the revenues will start kicking in probably in third quarter, end of third quarter and balance in the fourth quarter.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [52]

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So for this quarter, as such, we are not expecting...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [53]

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For 0.5 million worth of space, the revenues will start kicking in, in the third quarter, part of the third quarter. The balance 1.5 probably part of the last -- part of the fourth quarter, the revenues will...

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [54]

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What is this 1.5? 1.5 million?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [55]

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Million square feet.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [56]

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So which implies how much revenue, sir, generally, INR 4 crores per month?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [57]

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INR 8 crores per month. So you can average it out to around INR 6 crores per month at the end of the year we should have. Exit numbers for March should be around INR 6 crores per month with 3 million already constructed and ready.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [58]

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Okay. So 3.9 million, when we say forward leased, out of that, only 3 million will yield revenue initially, which is -- which implies INR 6 crores revenue per month by end of year?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [59]

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Yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [60]

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Understood. And, sir, CapEx, regarding this INR 115 crores, which is roughly the similar number, which we did in the last quarter also, so what is -- like we are expecting INR 400 crores expenditure for full year?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [61]

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Yes, we're expecting. So the total around -- we have around -- total expenditure is INR 900 crores. So for balance of the year, we should have another INR 200 crores to go with.

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

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And remaining INR 400 crores, INR 500 crores for next year?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [63]

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Yes.

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

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Okay. And just on this Project and Equipment segment business. This is related to previous question. You mentioned that there is -- as per press release, there is INR 5 crores loss in PBIT from the press release you mentioned.

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

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For the quarter. For the half yearly, it's EBITDA positive, EBIT positive.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [66]

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Correct. So that INR 3 crores reversal, which you had talked about was in 1Q or 2Q?

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

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It was in -- INR 3 crores is total for the half yearly. So partly on Q1, partly in Q2.

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

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Okay. So because of lower utilization, generally business has turned slightly negative.

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

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Primarily low utilization and the Projects -- here during monsoons, during the rainy season, some of these movements have slowed down, both for the Projects and even for the Crane rentals. So generally, this is a lean period.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [70]

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Correct. And sir, regarding this Logistics Park, we are -- in terms of PBIT, we are reporting a INR 4 crore PBIT loss per quarter. So how would this change once our revenues improve to INR 8 crores per month, INR 6 crores or INR 8 crores per month?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [71]

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So currently, there are a lot of expenses related to -- so we have a team and we have the expenses related to the interest portion of it. And once these -- the forward lease and all works, we will probably be much profitable on that segment. So these are the investment phase basically we are in.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [72]

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So these are like overheads, which is impacting...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [73]

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Sorry?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [74]

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These are fixed overheads, which is impacting...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [75]

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There is a team looking -- overseeing that and there's an interest cost for the funds that's been utilized, plus there are some legal fees and all. So all that, once it will start generating revenue, much of this will kind of recede, the expenses will recede, which are -- many of them are probably onetime and the profits will kick in. We are at the investment phase and it's a preoperating phase. So that's the reason it looks like that.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [76]

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Correct. And just one question on MTO also. For 3 quarters, we have a growth of around 5% to 6%. So versus like last 2 years, I mean, last 3 years of double-digit growth in that segment in terms of volumes, we are now probably looking at single digit because of like general macro -- global macro slowdown or...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [77]

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We had -- so we are still 3x. The global -- see, it's connected to the global growth rate, right? The global growth rate itself has dropped to around 2%, which we said at the -- and we are doing around 6. So we're almost doing 3x. So as far as that is concerned, we are consistent. So it's directly connected to the global growth rate in terms of trade.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [78]

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Correct. And our realizations improved in the segment, so is related to improvement in global freight rates? Quarter-on-quarter and year-on-year both were like [26%] per annum.

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [79]

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Suri, can you [compare]?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [80]

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The way we look at it as we have always maintained in all our previous, what you call, calls, the market is competitive. But in spite of this, we are continuing to grow. It is steady. Quarter-on-quarter, our EBIT and EBITDA is continuing to grow. I think that's the way we should look at it and I would not worry about a quarter here or a quarter there and I think we will be able to maintain the double-digit growth that we are seeing at an EBIT or an EBITDA level.

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Operator [81]

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

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [82]

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This is Ashwini here. Sir, I had a few maintenance questions. First, I was going through the cash flows. And if I try to reconcile the total investments in fixed assets, I see 3 items there: Purchase of property worth INR 243 crores, then there's intangible assets of INR 72.5 crores. And then there is purchase consideration paid, which is another INR 9.5 crores.

Could you help me understand where are these investments going? I mean how much of it has gone into warehousing? And I think MTO, you made 2 acquisitions you mentioned. What was the size of those acquisitions, please?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [83]

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Yes, the size of the acquisitions in the MTO segment are all -- are small numbers, but they are significant for us in some of the markets that we operate in because it strengthens some of our positions. So the intangibles is mainly because it's coming through either the brand or the goodwill that we would have paid for it. So that's the only thing. Sizes are roughly about the 2 acquisitions that we did. They are roughly between USD 2.3 million to USD 2.8 million, so roughly about USD 5 million.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [84]

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But sir, if that's USD 5 million, then the intangibles of INR 72.5 crores, which is USD 10 million...

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [85]

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Yes, out of it -- plus we are also having the warranty components also that we are putting in. So that is also there that is coming into the thing. It's not that everything is coming from MTO segment on the intangibles. A few of them would be coming from other parts also.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [86]

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And largely, that is investments in software and technology that you will amortize over a period of time.

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [87]

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Correct, correct over a period of time.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [88]

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Okay. And how do you -- what do you -- how do you think about capitalizing the software expenses that you make or the investments in IT that you make? I mean can you share...

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [89]

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Generally what we do is, we capitalize all these developed and then write it over a period of 5 years.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [90]

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Okay, okay. And the INR 243 crores of investments in the first half in purchase of property, plant and equipment, that is all related to the warehousing segment? Or is there some part going elsewhere?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [91]

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Yes, most of it, rather 90% plus is directly into the warehousing segment. So we're consolidating the land around the main projects in some cases. In some cases, we're looking at some fresh pieces also where there are opportunities.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [92]

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And the segmental analysis, when I look at the Logistics Park numbers, that doesn't include Avvashya CCI, am I correct?

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

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Yes. No, no, no. So the Logistics Park and the 3PL business that we understood separately, actually. So just for further clarification, the Logistics Park business is more about the logistics -- the ICD, the logistics, the multimodal logistics park business, it's more about constructing and renting them out and creating value around them. It's an asset-heavy business. As far as the ACCI is concerned, it's a subsidiary and where we hold around 62% and the JV partner holds around 38%. There, it's an absolute asset-light model. There, we do not invest into warehouses. We either lease them out or we operate on the client's premises.

And the only CapEx in that goes in terms of the operating assets in case we need to hire a forklift or buy a forklift or any automation machines to run the warehouse optimally, those are the only investments that are going from ACCI.

They're different, these businesses. One, that's a service business and this is more of a lease and estate business.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [94]

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So which line of the segment results would have the ACCI numbers?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [95]

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So it's a share of profit because we -- it's not consolidated line by line.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [96]

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Okay, fine. Okay. Got it. Okay. Another question, the executable order book in the Project Logistics business is INR 90 crores and project pipeline is INR 486 crores. This doesn't include any long-term lease contracts for the Crane. Would that be correct?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [97]

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No, no, no. Yes. No, this is Project Logistics, that is movement of project forwarding, the movement of ODC cargo and all.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [98]

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So any -- the equipment leasing sort of on track, which you might have in force, they are not...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [99]

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We will continue, yes, yes.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [100]

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Okay, okay. And the capital employed in the MTO business has gone up by INR 155 crores. So again, going back to the acquisition amount of $5 million versus this increase in capital employed by INR 155 crores...

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [101]

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No, no, plus there is an expansion in warehouse in one of the, what you call, regions. There is another USD 5 million roughly there. So that's where it takes it to the INR 70 crores, and then normal, what you call, working capital increase of about another $9 million. So roughly, if you add all of this, it gives you this INR 150 crores increase in the capital segment.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [102]

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And Ashwini, just to clarify. This is Prakash. To clarify that warehousing, which we have is specific to our ECU Worldwide. That is related to the business, which they need to capture for their LCL and other businesses.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [103]

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Correct, which is not linked to your domestic warehousing business or your CFS business.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [104]

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Correct.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [105]

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Yes, yes. Okay, okay. And in terms of sort of the seasonality that hit you in Q2, what are you seeing now? I mean there is obviously a slowdown in the economy that's also responsible and there was, of course, the extended monsoons. But how are you seeing the environment at this point in time? And do you think that there might be some recovery that's visible in Q3 or things continue to be quite difficult?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [106]

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No. What we see is that the volumes, which are there from the import side, they continue to be on the same level of increase, which is approximately around 3% to 4%.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [107]

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Okay. So lower dwell time and lower import volumes will continue to be a feature for at least now?

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [108]

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At least, yes. Unless the consumption drive that -- in India, probably, hopefully, we should see that rising again. And during the festive season, we did see some of these automobile companies and others doing better. So let's hope that this consumption drive comes back, and then we see this uptick in terms of our volumes.

But for the last quarter, it is mainly because of the monsoon congestion and also a strike which happened in Chennai on the transport.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [109]

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Okay, okay. And my last question is, the debt has obviously gone up because of all this investment going on in the warehousing business. As you subsidiarize the business and you transfer all these assets into a subsidiary, how much of debt will get transferred to the subsidiary?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [110]

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Yes. So we are working on that. We don't have the correct number as of now. So we won't be able to share. But at the group level, we won't breach around 0.5% of debt equity ratio.

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Operator [111]

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The next question is from the line of Abhishek Ghosh from DSP Mutual Fund.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [112]

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Most of my questions are answered. Just 1 thing, if I look at our working capital for the first half, it seems to have deteriorated sharply, almost about INR 150 crores, INR 160-odd crores of capital has gone into working capital. So what's that related to and which division?

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

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That, I think on a consol level, we already explained that the working capital has gone up because some of these funding at the MTO that has happened plus a little bit of increase of working capital at MTO level and at India level also happened, which should by coming quarters come down to the original level.

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Abhishek Ghosh, DSP Investment Managers Pvt. Ltd. - Assistant VP of Small & Mid Caps and Transportation [114]

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No, so just to understand, MTO, why should the working capital go? That should not be because -- each acquisition is different, but just to understand the working capital for the MTO business, why there is a -- is this a -- why there is a one-off kind of increase, can you just help us with the reason?

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

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See, can you -- Suri, are you there?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [116]

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Yes, yes. I'm there.

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

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Yes, so can you -- for MTO, would you be able to take that, or should I?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [118]

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See at overall level, it has not gone up too much if we think. It is just a little bit of increase in the, what you call, in one of our segments that it has gone up. But if you see the -- as I speak to you today, it would have come back to normal.

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Operator [119]

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(Operator Instructions) 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 [120]

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Just to check on this couple of acquisitions, which you talked about. Sir, where do we find these details on your press release?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [121]

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Yes, we have not given too much of details. I think there is following announcements that will come through. But these are mainly where we are strengthening our position in the Asia Pacific movement, especially from China to the rest of the world both in terms of the FCL, LCL position. So that's how it is. That's where you will get a little more detail on this.

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [122]

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Yes, just to mention that these are very small acquisitions just to strengthen our local kind of strength at those local places. At the consol level, it's not really very material for us to do a press release on that at this point in time.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [123]

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Okay. And they don't -- wouldn't -- I mean these are just technology setups or they are looking to add volume growth also?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [124]

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No, no, no. These are all real businesses that we are buying into. It strengthens certain areas in the Northern China side, it strengthens our aerial movements in the dangerous good movements. So both from China and Asia Pacific into Europe and into the rest of the world.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [125]

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Correct. And just -- this is, I think, related to one of the previous questions. So this is like we've invested around INR 70 crores -- sorry INR 35 crores on acquisitions, implying $5 million.

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [126]

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Correct.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [127]

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So this is part of this INR 240 crores, which we have reported in purchase of property and plant and equipment, and then INR 720 (sic) [72] million the additional intangible asset?

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [128]

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Correct, correct.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [129]

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INR 72 crores, sorry.

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Suryanarayanan Sivaramakrishnan, Allcargo Logistics Limited - Chief Transformation Officer [130]

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Yes, yes.

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Operator [131]

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(Operator Instructions) The next question is from the line of Vaibhav Gogate from Ashmore.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [132]

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This is Ashwini once again. Sir, 2 follow-up questions. If I look at the depreciation and interest costs in the second quarter, should this be the run rate over the next 2 quarters, not taking into account addition of assets in the warehousing business, which I'll come to separately?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [133]

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Yes, that would be correct, yes.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [134]

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Okay. And second thing is that when you say that you will operationalize 1.5 million square feet in Q3 and another 1.5 million square feet in Q4, what kind of asset block would you end up capitalizing?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [135]

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So I think it would be around INR 120 crores. And Q4 could be a little bit larger, it should be upwards of INR 250 crores or something.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [136]

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So INR 120 crores in Q3 and INR 250 crores in Q4?

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

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Yes, these are ballpark numbers, yes.

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

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Yes, yes, yes. And so the depreciation and the interest component for the warehousing business should go up significantly on account of these capitalizations. Am I right?

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

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Yes. Generally, the building and all has a much longer tenure -- these are all 60-year -- depreciated over a 60-year period. So I mean you have to consider the value accordingly. So it's not like a furniture fixture or an IT asset, which will get depreciated very fast.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [140]

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Okay. And so the question that I'm sure everybody has it on their mind, that when you say that you will exit at roughly about INR 6 crores a month of revenue run rate, when does this business become EBIT positive? And what is the medium-term outlook on return on capital employed in this business?

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

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So the outlook on the capital employed is around 14% for '21, next year once everything is up and running. So it's lease rental plus management fee that we will earn out of it. That's how it makes it around 14%. Apart from that, we're also looking at ways and means to probably monetize some of these assets. So that's also -- we are evaluating options, and we will probably come to conclusion over the next couple of months over that, but it will always be at the end of the construction and the end of the investment phase and into an operating phase, it will be profitable with a ROCE of around 15%.

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

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So even in Q3 and Q4, in the initial phases, it will continue to be negative EBIT because you have obviously...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [143]

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I think with INR 6 crores, yes, the -- so if you look month-on-month, maybe slowly, the losses will recede and by the last, we will have -- last 2, 3 months, we will be profitable, I think.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [144]

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And what's the CapEx plan on this for fiscal '21, how much more CapEx do you need to put into this?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [145]

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So we are -- so we will -- we are still working on that, and we will come back to you on that. The current outlay is going to be another INR 200 crores for the year. That is what we have already...

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [146]

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Yes, that you mentioned, yes. And you mentioned that INR 900 crores is the full investment. So I -- so I mean if I want to work backward from there...

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [147]

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Yes, you can. But -- so that's one way of looking at it.

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Ashwini Agarwal, Ashmore Equities Investment Management (US) LLC - Non-Discretionary Strategic Advisor [148]

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Because your current capital employed in the Logistics Park business is roughly, what, INR 765 crores. Correct?

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Deepal Shah, Allcargo Logistics Limited - Chief IR Officer [149]

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Yes.

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Operator [150]

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(Operator Instructions) As there are no further questions, I now hand the conference over to the management of Allcargo Logistics for closing comments.

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Prakash R. Tulsiani, Allcargo Logistics Limited - CEO of CFS-ICD [151]

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Thank you very much, and appreciate it.