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Edited Transcript of TCI.NSE earnings conference call or presentation 6-Nov-19 10:30am GMT

Q2 2020 Transport Corporation of India Ltd Earnings Call

Nov 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Transport Corporation of India Ltd earnings conference call or presentation Wednesday, November 6, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashish Kumar Tiwari

Transport Corporation of India Limited - Group CFO

* Vineet Agarwal

Transport Corporation of India Limited - MD & Executive Director

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Conference Call Participants

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* Krupashankar NJ

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

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer

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Presentation

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [1]

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Thank you, Dineth. Good afternoon, all of you. I again welcome you to TCI's Half Yearly Earnings Call. And I have with me Mr. Vineet Agarwal, Managing Director, TCI Limited. And I will request Mr. Agarwal to give an overview of half yearly performance. Now over to Agarwal.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [2]

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Thank you, Ashish, and good afternoon, and good evening to everyone. Thank you for joining in today's analyst and investor call. Let me start by giving you a short group overview of the company. Company is operating into 3 main areas. TCI Freight, TCI Supply Chain Solutions and TCI Seaways, and we have several joint ventures and subsidies that are [weighting] in the similar space. A joint venture with TCI CONCOR, a joint venture with Mitsui, and a Cold Chain subsidiary. We also have operations in Bangladesh and Nepal. Our group companies also include TCI Express and TCI Developers.

In the last quarter as well as in the last full 6 months, we have seen that overall economic conditions have been quite subdued, and that has affected not only business growth, but also, in some ways, the overall scenario for the full year. Currently, as you do understand there are several logistics key growth drivers. Of course, highest being economic growth. Economic growth affected the logistics industry in the positive way. It also with increasing consumption trends also helped the growth of logistics sector, since we're now moving more and more into omni-channel kind of consumption. Other than that, the whole advent of GST has also helped the logistics sector. There is an increased spending in infrastructure, which, again, has helped sector as well as also creating opportunities for us from a multi-modal perspective. The emergence of more and more outsourcing to companies like us, is also helping logistics sector. So these are certain broad areas of where the logistics sector are seeing growth opportunities.

TCI has always been in several segments to cover the entire spectrum of services. Almost all our business is from domestic logistics and is present in India itself. We operate to 3 main areas of business, which is TCI Freight, TCI Seaways and TCI Supply Chain Solutions. So a quick overview of each of the divisions.

TCI Freight in the last quarter has grown marginally over the last year with -- over the full 6 months. And so with that growth of approximately 4.3% on the quarter. We have seen that the margins are slightly better between this year and the last year. This is attributed to 2 reasons. One is the ship team that goes [steady] ship towards less than truckload, which continues to remain at about 2/3 of our -- 1/3 of our business. We also have the growth of -- the benign growth in the fuel prices. So that has also helped the trade business. And some amount of cost-cutting has also helped the freight business. So margin is slightly better and the forecast for this division is that this 5.8% growth that we've seen over the 6 months we should continue this trend and possibly head towards, closer towards 10% for the full year also, between 8% to 10% for the full year. We do expect the margin also to improve in the 6 months -- in the next forthcoming 6 months as well.

The second division is the Supply Chain Solutions division. In this business, we've seen a slightly negative growth in the quarter of about 5% all. In the full 6 months, you've seen 2.5% negative growth. This is essentially because of the de-growth in the auto sector. As everyone is aware that the auto sector has gone through a lot of challenges in the last few months. And notwithstanding, this is also affected our company, able to offset some of these through new contracts as well as through the diversification in the automotive segment, where we are present in multi areas of autos, for example, two wheelers, four wheelers, earthmoving equipment and commercial vehicles, tractors and so on. The margin over [year] -- margin structure over year is also slightly subdued, overdue. Over the last 3 months, it has come down slightly. And in the 6 months it is more or less on the flat level as the previous year. So this is again attributed to the fact that certain volume de-growth led to some loss in economies of scale as well. The bright lining here is that all the warehousing contracts that we have and the ones that we do for the e-commerce company has certainly helped us in terms of growth, and we've been able to capture some of that market share.

The third division is the Seaways business. The Seaways business has grown by about 8.3% in the quarter and approximately by 9%, 9.5% for the 6 months. The margins are also stable and slightly better than the -- in the 6 months over than the previous year. As you're aware, that we have -- we had 6 ships till September. In October this year, we've added a fourth ship as well -- seventh ship as well, I'm sorry. This is a 28,000 deadweight ton cargo vessel operating on the west coast of India.

So looking at all these 3 divisions. The overall business for us has been muted, with a 1.3% top line growth, but the bottom line is slightly better. There are a few external circumstances, exceptional items in our balance sheet for this quarter, which I would just ask Ashish to explain right now before we get into questions. Thank you.

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Operator [3]

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Thank you. So can we open the call for the Q&A?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [4]

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No. I request Ashish to give some [updates for], two items, please.

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Operator [5]

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Mr. Ashish, you may please go ahead.

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [6]

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Yes, so...

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Operator [7]

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Mr. Ashish, we are unable to hear you.

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [8]

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Yes, actually, I'm sorry, this call was disconnected just now, and I could not listen to Mr. Agarwal. So ...

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [9]

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Yes, Ashish, can you give that 2 updates related to the deferred tax and the impairment of [assets].

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [10]

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Okay, okay. Yes. So there are 2 items. One is the lower tax rate. So basically, TCI offset for a lower tax regime, and our December tax rate, which is 35% is now reduced to 25%. And accordingly, our marginal tax rate which is the average tax rate is -- which was earlier 22% is now reduced to close to 16.5% or 17% on the overall numbers. Due to this, we have also a deferred tax liability credit because earlier we used to calculate liability on the standard rate, which is 35%, and now this is reduced to that 25%. So corresponding to this adjustment around INR 10 crores of credit, actually came to the P&L account, which is there in the half yearly. And another item is showing in the results is the impairment losses, which is basically of the wind assets. So TCI has erected the machines 15 years back. And now the PPA has been now expired and come to an end. And accordingly the rate for the energy sale actually reduced by almost half. So that actually amount to impairment because the book value of asset is still lower than what the amount, which can be recovered from the future cash flow. So that's now the [account] auditors recommendation, we have provided the (inaudible). So these are the 2 major items, which is one-off items in the -- this half year P&L account.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [11]

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We can open up for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Hearing the first question from the line of (inaudible) from (inaudible) Financial.

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Unidentified Analyst, [2]

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Congratulations, guys, on a very stable set of numbers considering the environment. I'm sorry, I couldn't hear the first part of your commentary, Vineet, the audio dropped off. Could you give me a sense on how the supply chain division is doing because it's showing a drop in profitability by about 40%. While I think top line is down by 3%. So could you share some color there?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [3]

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Yes, sure. So the supply chain division, 80% of our business is the automotive sector. And clearly, that has been impacted because of the slowdown there. Though the impact for us is not that high and it's marginal overall because we have diversified our automotive [cost] portfolio as well into many areas, including tractors and earthmoving equipment. And we also acquired a few new contracts. The second area that we've -- also helped us in this -- the growth in online sales as well as in a warehousing business. These has also helped us to keep the growth levels almost flat to slightly negative.

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Unidentified Analyst, [4]

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Okay. So what are the margins? Why are they showing down much more?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [5]

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Typically, what happens is that they are affected by the marginal costing in some cases where the -- that is the volumes come down in certain areas, certain types of movements, and we are -- we get affected as well.

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Unidentified Analyst, [6]

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Okay. And how do you see the outlook going here for the next 6 months?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [7]

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Our outlook is better. We think that the full year, we should look at a flat to plus 5% top line growth and the bottom line also should improve. We are seeing that there is some improvement in sales in the automotive sector, though it's seasonal and some sectors, but we think that there could be some prebuying that might happen for BS-VI, pre BS-VI in the next quarter, in Q4, so that should help overall push. Also a lot of the companies in the automotive sector are essentially slowing down the production of BS-IV vehicles. And they will ultimately stop all these production. So there could be some effect in December, but January onwards, they will start remanufacturing or start manufacturing of the new vehicles. So overall, for the full year, we think that things should be better.

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Unidentified Analyst, [8]

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And do we continue the overall guidance for the full year of 11%, 12%, considering all the divisions or that will now be drawn down?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [9]

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So for the full year, we are looking at, I think, now closer to perhaps 8% to 10% top line.

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Unidentified Analyst, [10]

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Okay. One comment I would like to understand. You keep on reading reports about truck freight rates coming down. So how does this affect the company?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [11]

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Downward freight rates helped us to acquire freight costs in our -- in the FTL business and maybe higher freight from the spot market helps us in those areas. (inaudible) and then there is an extra load somewhere you need to hire from the spot market. Sometimes we're able to also use that rate structure to the vendor market and it able to reduce it to some extent there. But mostly it helps us in the spot market overall.

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Operator [12]

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We take the next question from the line of Krupashankar from Spark Capital.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [13]

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I want to inquire more on the supply chain segment. While the auto production cuts have been massive, in fact, a higher double-digit number the decline in growth was hardly been over 2% in the first half. So -- if you Vineet can throw some light on what would be the decline in the auto segment and what has been the growth in other segments, perhaps in e-commerce and chemicals, et cetera?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [14]

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So the overall decline in the automotive businesses. As I said, some of it got offset because of the acquisition of new contracts that we got in the automotive space as well. So it is difficult to give you an exact number, but I would say, at least a 4%, 5% decline in the automotive sector, but at least a 15%, 20% uptick on the other sectors, including the housing sector.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [15]

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Sure. And this 15% to 20% has been predominantly driven by e-commerce and any other sectors?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [16]

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All sectors, I would say. E-commerce, of course, being predominant, but all sectors.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [17]

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Right. Any contract wins you can perhaps share if possible?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [18]

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We've expanded in e-commerce itself, we've taken -- given more space to as well as our -- acquire more fulfillment centers in e-commerce. And apart from that, some new capacity in the existing itself, we've added some more capacity -- and then there are few FMCG companies that we've added on, smaller ones though. And a few large ones are underway. So we'll see some of those pipeline growth in Q3, Q4.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [19]

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Sure. So just to add on top of that. So if we are seeing better growth in warehousing, then the margin in the transportation due to reduction in economies of scale will be much higher because warehousing would have a higher margin rate?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [20]

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Yes. But sometimes, what happens is the warehousing also takes a few quarters to completely get the benefit. So you start off with a minimum order. And then once we start over 1 or 2, 3 quarters, you'll start getting benefit. So some of it is initially establishment costs also. So that also has an impact.

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

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My second question was on the CapEx front. So there are somewhere about INR 108 crores have been spent in the first half, of which INR 49 crores is towards additional ship. And there's an additional INR 30 crores, which is expected to be spent on ship again. So is it a new ship which you want to add in the second half?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [22]

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No, I'm sorry that we had anticipated to spend that much in the new ship as a whole in one ship only, but we were able to negotiate a better rate and better substantial discount on the acquisition of this ship. And hence, we -- the budget is there, but we're not good to proceed.

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

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Okay. So the net CapEx number would come down by about INR 30 crores.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [24]

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Absolutely. In fact, it would come down by even more. So the budget is 275 is, we think we should probably get to about 125, 130, it's roughly about half of the proposed budget.

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

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And the other cut would come in the truck addition.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [26]

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Yes, some in the truck addition, of course, and some in the [hub] center sector.

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

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Right. So we have spent about INR 18 crores on trucks so far. And so we can expect another INR 10 crores to INR 15 crores?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [28]

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We cannot say, because we're going to keep a watch on how the market is moving. Also, it's a good time to buy the trucks also since the capacity is addition that we can do right now will be at a good price, a heavy discount for BS-IV vehicles. So we would take that opportunistic all perhaps closer to the end of the year.

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

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Got it. Got it. And one question on the financials. I could see that the right of use after IFRS 16 was close to about INR 21 crores, while the lease liability is close to about INR 2.7 crores. Can you explain a little bit more on that?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [30]

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Sure. I can ask Ashish to explain that.

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [31]

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Yes, Krupa. So can you again come back to which question?

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [32]

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Yes, sir, on the right of use, it's close to about INR 21 crores, while the lease liability is roughly about INR 2.7 crores. Can you just -- well, last time when we had discussed the right of use was expected to be very negligible. Can you just explain what are the components involved in this INR 21 crores number. Is that also (inaudible)

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [33]

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Okay. So there are 2 components. One is the application of the [IFRS] 16 assets and the lease liability of INR 2.7 crores is there. And along the 3, the lease asset would also be close to INR 2.8 crores. So those will be matching. Now the difference of INR 21 crores and this INR 3 crores of right to use is basically more of that long-term leases on the land. So basically, we have few cases where we have longer lease terms, which is close to 99 years or 50 years. And this amount, actually more of a prepayment of lease rentals. So that has been now capitalized.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [34]

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Right. So the subsequent increase in the depreciation should also be reflected. Right? So -- but that's not visible?

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [35]

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Yes. So that portion would not be on the lease -- this land lease portion. It would be on a building portion. So in the end, when there is something which is on a building part is going to impact the depreciation, not all the items. So land cases would not impact depreciations.

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Operator [36]

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Next question is from the line of [Ankit Gupta] from Bamboo Capital.

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Unidentified Analyst, [37]

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Sir, can you elaborate a bit on the new contracts on the auto side, and which area are they?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [38]

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So in the auto side, doing work in some of the four wheeler side, where we've been able to add contracts for more of the FG movement. These are some companies that have added new models, I would say. And some of the new start-up that have come up in the automotive space. Again, not the start-up means, I would say they are greenfield companies that have come out.

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Unidentified Analyst, [39]

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So Kia and MG Hector. The companies I choose.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [40]

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We cannot share any name specifically, but yes some of those names.

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Unidentified Analyst, [41]

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And sir, secondly, I know one thing we have been noticing is that continuously over the past few years and even in H1, there has been a improvement in performance of the JVs. If you can talk about which JVs are contributing to this? And what has led to the improvement in the performance.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [42]

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Well, of course, in the first 6 months, the JV performance has been very muted with both the divisions. Both the companies actually having a negative 7% growth because essentially one is related to the auto sector, and predominantly Toyota, and the second is with the rail sector, which got impacted also because the road rates had been lower, that had some impact. And generally, volumes are down. So overall, that is the scenario for the first 6 months. But overall, the -- both the businesses have traction in their own space. So in the joint venture with Mitsui, that Transystem we see that we've been able to acquire new contracts, and the growth is there, they're diversifying from Toyota Motors. And the joint venture with CONCOR. What we are seeing is that the acceptability of a multi-modal kind of a business is growing more and more with clients. Clients are being more diagnostics. So they're saying that, just move my cargo at this price by this much time. Now the mode can be anything. It could be road plus rail, road plus sea or road, rail, sea, all combined. So those things are starting to happen. And it also is in some ways lower, lower emission for moving things by rail. So companies also like that. So that's where we see good traction for these businesses in the long term.

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Unidentified Analyst, [43]

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Sure, sure. And just a -- I know we had projected a CapEx of around INR 275 crore to INR 300 crores, and now we are reducing it to almost half, INR 135 crores. So any specific reporting because as you were saying, because of the BS-VI implementation that truck rates had fallen quite a bit. So any specific reason we are cutting down on the CapEx?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [44]

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No -- well, some of it. But see ultimately, CapEx is also driven by demand. So our projection, and I think almost all companies have been taken an average in terms of the demand projections. So I think the volume being slightly lower, things have not -- are not the most fruitful for acquiring more and more assets. However, we are saving some capital because of the acquisition of ships at a lower price or even slightly lesser number of container vans. Even in the land building side, we had some areas there we've been able to -- we've been able to get some facilities that -- yes, can you hear me? Hello?

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Operator [45]

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Yes, sir, we can hear you.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [46]

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(inaudible) have been disconnected.

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Operator [47]

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Mr. Ankit Gupta. Hello? Sir, you may please go ahead. Sir, we all can hear you. Please go ahead. Mr. Gupta, please go ahead with your question.

As there is no response from the current participant, we take the next question from the line of Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [48]

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Sir, my first question is on receivables. So there amount -- some improvement in receivables or [renewal] payments during first half. So any specific reason there?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [49]

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Sure. Maybe I can ask Ashish to answer that.

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [50]

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Yes. So Prateek, basically, there are 2 reasons. One is like -- there is -- the revenue growth was lower as compared to the last year. And we -- and the second one is basically, we had a tight control over there and receivable, basically, if you look at the balance sheet, they have been reduced by 16% from INR 476 crores, now INR 432 crores now. And this is more of a great control. And we also -- I can -- the business, in fact, where we found that there might be some chances of (inaudible) as well. So these are 2, 3 things, which actually help us in getting the receivables down.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [51]

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Just to add to what Ashish was saying, I think our receivables in the supply chain division, which we do not share specifically, but generally, is actually best-in-class compared to some of the other companies. I think what typically happens is that many of your other logistics companies also work for their own parent companies, where they are unable to sometimes control the receivables and given the cost of borrowing such to go up. So we have had a strict control where we do not want to do business also. If the receivable quality is poor.

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

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It was -- and we mentioned about bad receivables. So we recovered some of the bad receivables in this quarter?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [53]

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Some of it, slightly, yes.

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

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Okay. And on the shipping segment, so we couldn't understand like the specific reduction margins, I mean, so are we I mean, like to 17% PBIT margins. Sequentially, they are lower, but revenues, I mean, almost similar. There's no increase in cost generally, bunker fuel costs. So why this dip in margins generally?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [55]

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So at the segment is more or less the same. I'm not sure how -- where you're seeing it to be lower. At the quarter level, last year was 1,162, you're talking about from some previous quarter.

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

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Yes. Correct for the previous quarter. Q2 and Q1 and Q4. So Q4, we had fantastic margins, then Q1 was slightly lower then Q2 is again lower. So basically, it's -- so now a new trend line margin should be around 20%. We used to do higher margins earlier?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [57]

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Well, actually, what tends to happen with shipping is that there is some seasonal movement that keeps happening. So products keep moving and we get better realization on containers also, plus some in the West Coast, some rates have also come down with competition intensifying there as well. So that has affected, to some extent, not too much. I think there was a dry dock. I'm not so sure, but some of that costs could also be there in the quarter. But the trend, we've always maintained the trend of 20, 25 is perhaps the most reasonable for the shipping business. And I think we'll probably get there in terms of trend margins.

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

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And Q3 margins would get there -- I mean, impacted to new ship ramp-up cost and (inaudible).

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [59]

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Yes. Maybe slightly, but I don't think it should be that bad. So overall, I think it should be still stable at that level.

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

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We used to do the INR 100 crores revenue in this segment. It has dipped to like 2 quarters to INR 80, INR 85 crores odd. So sir, we can -- I mean, with third ship, which should I believe bulk up over INR 100 crores revenue, where absolute revenues have come down only in the segment. So they should have double effect of -- I mean, this seventh ship?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [61]

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But I think -- I don't remember the Q4 number, but we've not crossed a INR 100 crores in the quarter in the shipping business.

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

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Yes. So Q4, it was just about there, INR 100 crores. So it fell to around INR 75 crores and INR 80 crores in the first 2 quarters respectively.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [63]

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So typically, Q1, and Q2, Q3 are typically the weakest and progressively, they start improving. So Q4 is usually the best time. So I would think that in the next -- in Q3, also, we should cross INR 100 crore and so, of course, Q4 will be much better with the ship also stabilizing.

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

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Okay. One last question on this, regarding preparedness for this IMO regulations in shipping. So is there any update there? Because I think it kicks in from January?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [65]

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For us, the impact is very minimal because those (inaudible) are typically needed for much larger ships. We don't have that much impact. It's a very minor impact to us.

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Operator [66]

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Next question is from the line of [Srinivas] from (inaudible).

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Unidentified Analyst, [67]

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Yes. Sir, just continuing on Prateek's...?

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Operator [68]

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I'm sorry to interrupt, sir. Requesting you to please speak a bit louder. Your audio is not very audible.

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Unidentified Analyst, [69]

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Is this better.

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Operator [70]

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Thank you.

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Unidentified Analyst, [71]

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Yes, so just continuing on Prateek's questions on the shipping. So again, I mean, what we have seen in the last 2 quarters is a bit lower than the first 2 quarters. So though you added around, say, 60%, 70% DWD capacity on a year-on-year basis the revenue growth is like much more subdued relatively. So how much would you attribute to volumes versus, say, pricing in this segment? I mean, since you're carrying a lot of capacity, but that doesn't show up in the numbers to that extent?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [72]

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So the capacity addition of the previous ship ends up -- ship happened only in July 2018 because the [boat] came March '18, but it came on stream only in July '18. So last financial year, we got 9 months out of it, this financial we've got 6 months out of it of the new ship and the older ship and the latest ship has only come in October. So the capacity augmentation actually happened from about 40-odd thousand to 60-odd thousand with the new ship in July '18. So certainly, volume expansion did happen. There was pressure on price, so that price has, so the realization has not been that high competitively for the first 6 months. We also had dry docks in this interim. So given all of that, the margins are slightly lower, but it is not something that is exceptional. It is just -- just, I think, the quarterly figures. So overall, volumes for the 6 months has also increased by 9.3%. And so capacity utilization of a ship is 100%. I will -- of course, there's no return cargo. So if you take that out, then it's 50%, but we don't have any ships that run empty or we do not have cargo for any ships. In fact, on the West Coast, we have extra cargo always. So there -- actually had sometimes to use some of our competitors' to use -- to move the cargo. But essentially speaking, I think this is just a[normal amount] of seasonality, but it should catch up in the next 6 months.

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Unidentified Analyst, [73]

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Okay, okay. And sir, the new ship, which you ran, like what drives the visibility for incremental volumes. I remember you're talking about tiles and cement and some other bulk items as the key cargo, which is carried on these things. So which specific industries are driving you to get confident on earning new capacity? And also, like in what time frame can the new ship get fully loaded from the, say, the month of operation?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [74]

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The similar industries, we foresee that in the next few months also saw some improvement in, let's say, the building sector or even in cargo, general cargo movement towards the Port Blair and other on the East Coast. This should all help the growth of the Seaways business. And that's also prompting us to use the new ship. What is happening is that this capacity is -- or the demand is growing on both sides. We need to keep swapping the ships from west to east and east to west sometimes based on the needs as well as sometimes, then there is some amount of the dry docks. So in that sense, we think it's a good timing. The ship pricing is also at the lowest possible rate right now. We were able to get similar kind of ship that we bought in March '18 at perhaps a 20% lower price, and at least 7, 8 years younger. So the pricing results will be pretty good. In terms of utilization, the first, the ship that comes on typically takes between 1 month to 1.5 months. So maybe 3 voyages for 4, 5 origins by when it is fully utilized. We anticipate the same for this also. I think the first voyage happened only on October 21 once it came into India. And so you had very few voyages since then. So I would probably take latter half of this quarter, Q3 to for it to stabilize.

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Operator [75]

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We read the next question from the line of (inaudible) from (inaudible)

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Unidentified Analyst, [76]

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Just a couple of other things to add. Vineet, you had mentioned about getting into the spare parts side as well. Is there more traction on that on the supply chain?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [77]

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Yes. I mean, we've been constantly doing work in that area. So we do that -- there are several companies in the spare parts, automotive spare parts. And I think we have bid for a few more.

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Unidentified Analyst, [78]

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Got you. The tax outgo is much lower in the short. So what should we read in as your regular tax rate here?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [79]

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Ashish?

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [80]

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So earlier the regular tax rate was around 21% to 22%. When the extended rate was 35%. Now this rate has been reduced. So on an average, now the average tax rate could be hovering between 16% to 17%.

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Unidentified Analyst, [81]

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Okay. Particularly, if we think about CONCOR divestment in this market ...I know (inaudible) just potential stand-alone maybe. How do you read that? And what kind do you foresee impact on the business because of that, if that were to happen?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [82]

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Well, we do not know anything. I think it's not sure as to what will be the impact on the JV and so on. I would think from a strategic perspective, any buyer would also want first mile and last mile like we provide CONCOR as a strategic service. So I really think that the value is still there in maintaining the joint venture for any company that acquires it, if and when. So we are not really have a specific opinion on it yet.

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Operator [83]

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We take the next question from the line of Saurabh Jain from Astute Investment.

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [84]

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Just a few questions from my side. So I was just trying to reconcile for the joint ventures. In our presentation, we've shown a 7% de-growth in TCI CONCOR and Transystem but the profitability in the quarter and the half year has improved drastically. It's INR 9 crores in quarter versus INR 6 crores and INR 17.5 crores versus INR 11 crores for the half year. So what is exactly happening?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [85]

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Some of the profitability, again, maybe some cases were rate improvements or in some cases, prices being a little lower. But I think it's just not, sort of flat, to some extent, temporary. And then things should probably come back to the regular.

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [86]

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Okay. So you're saying that most of this increase in profit actually is temporary and it will normalize?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [87]

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Yes, yes. It's not unusually, very -- there's not an unusual discipline, a little bit of disturbance in terms of positive side, I think it should normalize to some extent in the next few quarters.

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [88]

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Okay. Because the profitability is about 50%, and the revenue growth -- revenue is de-grown by 7%.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [89]

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I don't have a specific number here, but I can check that and get back to you, Saurabh.

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [90]

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I can take it off-line. The second thing is that when would our next ship acquisition be? I mean, anything in the pipeline, say, after 12 months or ...?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [91]

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So after this acquisition, that we typically tend to look at a ship between 12 to 18 months. So I think, let's give it some time, perhaps we will take a call only next year?

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [92]

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Sure, sure, sure. And this CapEx number that you've reduced it. If things get better, you may actually go back to doing the INR 200 crores, INR 250 crores kind of CapEx also or not for the future.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [93]

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Not in this year. Because if we're looking at half number of INR 130 crores, INR 140 maybe crores. But next financial year, we should revert to -- depending upon market situations, INR 140 crores to INR 150 crores will be needed every year for the next few years because that's the kind of growth that we need to even just basically maintain our growth rate. That kind of CapEx. So I think INR 150 crores, we can easily take us over the next year, every year.

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Saurabh Jain;Astute Investment Management Pvt Ltd;Director & Chief Investment Officer, [94]

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Okay. And just the last question, what would be a utilization across our businesses as of now? Any rough number you can give us?

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [95]

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Utilization is a very difficult parameter metric for us because it varies since I own trucks are there, in our own trucks, which are typically in the supply chain business, utilization is high because if we don't have orders, we typically first remove the vendor trucks from the system. In terms of the warehousing, typically, these are contracts, which are back to back. So we don't have extra space, maybe there could be a timing issue where some spaces are vacant for maybe a few months, but otherwise utilization is high. Seaways, Seaways I just talked about, the ships are 50% utilized capacitization, return cargo is not there. So -- yes.

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Operator [96]

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Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Vineet Agarwal, Managing Director, TCI for closing comments. Over to you, sir.

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Ashish Kumar Tiwari, Transport Corporation of India Limited - Group CFO [97]

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Thank you.

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Vineet Agarwal, Transport Corporation of India Limited - MD & Executive Director [98]

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Thank you. Thank you for joining today. I think the environment is very challenging right now. And as a company, we've always been focused on the long-term, so we've been constantly reviewing and monitoring the business that we have with all the divisions, including making sure that we're not doing business with companies where we sense the credit is not good. I think these are some of the proven measures that we took in the past also to help us protect our margins. And that would be our first priority. Certain amount of growth will automatically come, we believe, because of the quality of our services. We have several businesses now are amongst the best-in-class in the industry, be it in the freight business, be it in the supply chain business and even the Seaways. So we think that with any upturn, we should be able to get more benefits. We have enough capacity available. And as you can add vendor capacity or any other capacity quite fast, since we have a lot of trust in the system, our payment to our vendors or to our creditors is on time and in full. And there's a high reputation there as well. Our technology investment is continuing even now in this circumstances. Also, we are adding -- we're doing more work on the digital transformation side. And on the people side, training and retraining is continuous. We have a large safety initiative as well. So we believe that these are time during a slowdown is when we want to invest more into people.

So given all of these circumstances, one of the others -- just to add, our credit rating has also changed. This is the long-term rating from CRISIL has improved AA minus to AA. In these trying circumstances, we are among the very, very few companies that have had an upgrade in their ratings. And we are in the 1% or 2% of the companies in India, who have this kind of a rating. So overall, the scenario is quite positive. And any uptick that happens, we will be the first beneficiary of. So thank you so much for joining. And we -- I look forward to meeting all of you whenever possible.