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Edited Transcript of VRLLOG.NSE earnings conference call or presentation 11-Nov-19 4:30am GMT

Q2 2020 VRL Logistics Ltd Earnings Call

Hubli Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of VRL Logistics Ltd earnings conference call or presentation Monday, November 11, 2019 at 4:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sunil Nalavadi

VRL Logistics Limited - CFO & Investor Relation Officer

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Conference Call Participants

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* Ankit Panchmatia

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

* Depesh Kashyap

Equirus Securities Private Limited, Research Division - Research Analyst

* Krupashankar NJ

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

* Prateek Kumar

Antique Stockbroking Ltd., Research Division - Analyst

* Shrinidhi Karlekar

HSBC, Research Division - Analyst

* Vikram Suryavanshi

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

* Sachin Shah;Emkay Investment Managers;Fund manager

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Presentation

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Operator [1]

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It is a pleasure to welcome you all on behalf of ICICI Securities to VRL Logistics Q2 FY '20 Earnings Conference Call. We have with us today on the call Mr. Sunil Nalavadi, CFO, VRL Logistics. Thank you, and over to you, sir.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [2]

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Thank you, [Mishra]. Good morning to all. I'm Sunil Nalavadi, Chief Financial Officer of VRL Logistics. This is the earnings call of the company for the results of Quarter 2 for the financial year 2020.

Just I'll start with Q2 numbers comparison versus the last year same quarter. The total revenue of the company increased by around 1.3% from INR 516 crores to INR 523 crores. And including other income, the growth rate is around 1.46% from INR 519 crores to INR 527 crores.

The growth in revenue is mainly contributed by Goods Transportation segment, which is increased by around 3% from INR 419 crores to INR 432 crores. And Bus segment contributed the revenue, it has decreased by around 8% from INR 81 crores to INR 75 crores. And sale of power, again, it has decreased by around 18% from INR 11 crores to INR 9 crores and transport of passenger by air is increased by almost double from INR 2.5 crores to INR 5 crores.

And the EBITDA of the company is increased by around 35% from INR 56 crores to INR 76 crores and percentage to total income is increased by around 3.61% from 10.86% to 14.47%. And on account of Ind AS 116 entries, the EBITDA of the company is increased by around INR 20 crores, and in percentage to revenue it is increased by around 3.8%.

The profit before tax of the company is decreased by around 11% from INR 29 crores to INR 26 crores. And percentage to total income is decreased by around 0.7% from 5.63% to 4.94%. And on account of Ind AS 116, the PBT of the company is decreased by around INR 1.82 crores. And in percentage to revenue, it is decreased by around 0.35%.

The PAT of the company has increased by around 68% from INR 20 crores to INR 35 crores. And percentage to total income is increased by around 2.62% from 3.97% to 6.59%. And the company elected to exercise the option permitted under Section 115BAA of the Income Tax Act, 1961 for the current quarter as introduced by the Taxation Laws (Amendment) Ordinance, 2019. Accordingly, the company recognized provision for tax for the quarter and half year ended September 30, 2019, and remeasured its deferred tax liabilities/assets as well as the current taxation.

When we see details as a segment-wise, the Goods Transport segment revenue is increased around 3%. The increase in revenue mainly contributed by increase in tonnage by 9% and decrease in realization by around 5.5% to 6%. And as we noticed from the last few earlier quarters, even from the month of December 2018 onwards, we started reducing the freight rates. And now company is strategically concentrating on increasing tonnage by giving some concession or by competing with some of the competitors, especially from the new routes which are started from Surat also.

The EBITDA of GT segment which has increased by around 17% from INR 49 crores to INR 58 crores. And percentage to total income is increased by around 1.65% from 11.88% to 13.53%. And again, on account of Ind AS increase, the EBITDA is increased by around close to 3%. Other than the impact of Ind AS, the EBITDA of Goods Transport segment is marginally decreased on account of increase in hamali expenses, the loading and unloading expenses, which is almost increased by around 1% to the revenue. And the lorry [hire charges have been] substantially decreased in the current quarter, around 4%. But proportionately, the expenses related to old vehicles like vehicle maintenance expenses, the bridge and toll taxes and tire costs, which have been proportionately increased.

The fuel cost compared to the last year of same quarter, which has decreased by around 0.75% from 26.22% to 25.48%. And compared to the previous year, the diesel prices decreased from INR 75 to INR 69, whereas our procurement cost has decreased from INR 67 to 63%. And again, as we evidenced the quantity of the biodiesel, which has been substantially increased and compared to the same year, it has increased from 27% to 33% of the total quantity of the fuel consumed.

When it comes to the Bus segment, the revenue of the Bus segment, which is increased by around 8% -- sorry, it is decreased by around 8% from INR 81 crores to INR 74 crores. And number of buses decreased by almost 23 numbers compared to the last year of the same quarter.

And in terms of EBITDA of the passenger segment, which has increased tremendously. Last year, same quarter, it was minus of around INR 2 crores, now it is a positive figure of around INR 4 crores. And percentage to the total income is also increased by around 8.77%. The increase in EBITDA again, it is on account of Ind AS adjustment. On account of that, the EBITDA is increased by around 1.3%. And rest of the increase in EBITDA is increased on account of improvement in the realization per passenger as well as occupancy level. And compared to the quarter of the same year, the overall EBITDA of the company, which has decreased by around 16% from INR 91 crores to INR 76 crores. And in terms of Good Transport segment, the revenues increased by around 2%. The revenue -- increase in revenue is contributed by increasing tonnage by 1% and increase in realization by another 1%.

The EBITDA of Good Transport segment is decreased by around 7% from INR 62 crores to INR 58 crores, and percentage to total income is decreased by around 1.32%. The decrease in EBITDA is on account of increase in fuel cost by around 0.75% of the revenue and increase in bridge and toll charges to some extent and tire cost also. And there is a small increase in employee cost here as well.

So on a consolidated basis, half year ended, the total revenue is increased by around 1.78% compared to the last year's half year. And the main, again, revenue is contributed by Goods Transport segment, which is increased by around 3%. And the overall EBITDA of the company for half year is increased by around 40% from INR 119 crores to INR 167 crores. And percentage to the total income is increased by around 4.32% from 11% to 15.67%. And on account of Ind AS 116, the EBITDA of the company is increased almost by around INR 38 crores, and percentage to the revenue is around 3%.

And half year ended the profit before tax is increased by 3.91% from INR 65 crores to INR 68 crores. And percentage to the total income is increased by around 0.13% from 6.27% to 6.4%. And on account of Ind AS 116 profit before tax is decreased by around INR 3 crores and percentage to the revenue is around 0.33%.

The overall half year ended PAT of the company increased by around 38.72% from -- it has increased from INR 44 cores to INR 62 crores and the major increase in the PAT is on account of change in the tax rate.

So this is a brief summary of the financials. Now I request the participants if you have any questions or clarification, please, you can ask.

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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 Prateek Kumar from Antique Stockbroking.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [2]

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My first question is so there's some restatement in numbers for EBITDA margin for Goods Transport segment. Basically, we have -- I think we have removed the unallocable number and it is probably taken in Goods Transport business because like-for-like, I mean, we have restated EBITDA margins for Q1 -- in Q2 presentation by around 2%, 3% downwards. So it was 14.9% earlier, now it is -- 16.2% earlier, now it is 14.9% in Q1, I'm saying. And that's why the margin number in current quarter is looking lower than probably what it should be. And this is probably because...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [3]

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Yes, this is remeasurement of this 116 -- Ind AS 116. So basically what will happen on account of that actual, see again, we negotiated with some of the long-term margin agreements. And in some cases, again, the rentals have been reduced and we have taken some 1 or 2 properties, additional properties on a long-term lease basis. So that's the reason, actually, that is revalidated every quarter.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [4]

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So basically we have restated historical number Q1 based on or some new assumptions which we have taken? Basically what is happening is there's some unallocable number which used to come earlier, this is almost nil in this quarter, which is probably now clubbing with the Goods Transport segment. And that's why the margin is looking depressed versus what earlier was.

Because when we do the analysis on like-to-like, I mean, moving them back of Ind AS from current quarter, there is [half of EBIT] decline year-on-year actually. And that is primarily happening, all of that unallocable number now getting clubbed into Goods Transport segment.

So that Goods Transport segment number is something now we should -- the new number we should now -- sustainable number we should work with going forward?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [5]

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Yes, yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [6]

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Okay. Okay. My second question is on sir this, on this Air. Although this is smaller segment, but now we are seeing a slightly higher number on 2 quarters. Is this something new which we are doing here on Air chattered business in terms of revenue?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [7]

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Basically, it depends on the season. We got one on continued basis one -- we got one good contract. So on that basis, actually, the flying hours are more now compared to earlier.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [8]

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Understood. And sir, just something on CapEx. Now what is -- have we revisited our CapEx number now with some -- I mean, versus what we are thinking...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [9]

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On the half year basis, actually we incurred around INR 29 crores CapEx for the current half year. So in next half year, more or less, it will be similar number. Around INR 32 crores actually we incurred to total CapEx. And for Goods Transport segment, it is around INR 28 crores.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [10]

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So for full year, how much we're estimating now?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [11]

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Full year, around INR 50 crores to INR 60 crores.

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Operator [12]

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The next question is from the line of Vikram Suryavanshi from PhillipCapital.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [13]

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I joined slightly late call. What was the Y-o-Y growth for Goods Transport in terms of tonnage and realization for the quarter?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [14]

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Yes, the tonnage is increased by around 9%, and realization is decreased by around 6% or whenever there is a increase of -- yes, 3% in the revenue.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [15]

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And for this Bus transport passenger growth and realization for the quarter on Y-o-Y basis?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [16]

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Yes.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [17]

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And PLF also, Passenger Load.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [18]

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See the Passenger revenue is decreased by around 8% year-on-year from INR 81 crores to INR 74 crores. This is mainly on account of reduction in number of buses by around 23 numbers. And on account of reduction in number of buses, the number of passengers traveled is reduced by around 15%. And the realization per passenger is increased by around 8% from INR 952 to INR 1,030.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [19]

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Okay. And what was the Passenger load factor?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [20]

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Load factor, again, it is marginally decreased.

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Vikram Suryavanshi, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [21]

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Okay, sir. And last question sir, can I get average age in bus as well as Goods Transport of -- part of our fleet?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [22]

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Yes. Average age in bus is around 5 years. And in case of Goods Transport, it is around 9 years.

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Operator [23]

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The next question is from the line of Sachin Shah from Emkay Investment Managers.

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Sachin Shah;Emkay Investment Managers;Fund manager, [24]

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You did mention that the tonnage growth is 9% for the quarter. Can you give us some sense for the first half, what is the tonnage situation?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [25]

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First half, it is -- the increase in tonnage is by around 6.6% and decrease in realization by around 3%.

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Sachin Shah;Emkay Investment Managers;Fund manager, [26]

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Decrease?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [27]

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Yes.

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Sachin Shah;Emkay Investment Managers;Fund manager, [28]

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Okay. First half, right? Okay.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [29]

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Yes.

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Sachin Shah;Emkay Investment Managers;Fund manager, [30]

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So sir, I just wanted to also understand that in the current environment, where the overall load availability is a bit lower, the 6.6% growth would be in line with the market growth or we would have done a little better?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [31]

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No, this is not a market growth actually. This is, again, on some selective routes, actually, we measure some competitors' rate and we concentrated more on our increase in tonnage. And this happens, especially even in Surat. This has been started in the mid of August. From Surat, especially the new routes, actually, we offered some good rates, at a concessional rates in order to establish the route. So on account of that, the tonnage is -- on year-on-year basis one Surat - in Surat itself the tonnage is increased by around 20%, the Surat quantity.

Whereas realization from Surat, again, it is decreased by around 9%. This is about -- it may be on account of route mix or it may be -- actually, we have given a reduction in the freight rates itself. We offered some good rate on average on market.

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Sachin Shah;Emkay Investment Managers;Fund manager, [32]

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Right. But overall also, I was just thinking from a little more holistic perspective that currently, the freight rates overall are quite subdued, right, across the market, right? And our competitors who are more on the outsourcing side, and we are on our own vehicles, so do you see that they have an advantage in an environment like this?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [33]

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So basically, now after this change in the axle rate, now we can carry more loads. In the sense, the vehicles are more capable to carry more loads compared to the outside vehicles. So that will bring better efficiency in the system.

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Sachin Shah;Emkay Investment Managers;Fund manager, [34]

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But then the axle norms are also for the outside vehicles no?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [35]

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No, the size of the vehicles, which are available in the standard customer vehicles, those are not a length as per our awards -- what we are having in the vehicles. So they used to maintain around, say, 28 feet or something because they carry for multiple loads. But all our vehicles are stretched up to maximum limit permitted under the law. So like [32, 34] feet like that.

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Sachin Shah;Emkay Investment Managers;Fund manager, [36]

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Okay, okay. So that -- we have now been able to -- that is why we have some advantage.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [37]

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Yes.

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Sachin Shah;Emkay Investment Managers;Fund manager, [38]

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Okay. Sir, the other thing is that you did mention that the volume growth for the quarter is 9% and say about 6.5% for the first half. Is it possible for us to have the volume growth ex Surat?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [39]

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Yes. I told you, it's around 20% Y-o-Y increase.

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Sachin Shah;Emkay Investment Managers;Fund manager, [40]

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No. No. That is Surat. I am saying, excluding Surat, what is the volume growth of the entire company?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [41]

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The Surat is again, the overall Surat contribution is not more than around 3% of the total tonnage.

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Sachin Shah;Emkay Investment Managers;Fund manager, [42]

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Okay. Okay fine. Okay, got it. Then that means other volumes have also grown quite well.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [43]

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I gave one example of Surat. Similarly, we did it from Bangalore. Similarly, we did in Delhi. So wherever there's some high-volume routes, high commodities and all, we offer some better rates.

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Sachin Shah;Emkay Investment Managers;Fund manager, [44]

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Okay. Okay. Okay. And how is the -- so this September quarter was still the pre-festival season kind of thing. But how is the festival season and all of that, how is the current ground reality now in terms of the load availability?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [45]

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See normally, after Diwali, there will be slowdown, almost around, say, 10 days -- 10, 12 days. But prior to Diwali, yes, it is a good growth.

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Sachin Shah;Emkay Investment Managers;Fund manager, [46]

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Okay. Right. So this year, we had a decent growth overall as compared to the last festival season?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [47]

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Yes. Tonnage-wise, yes, it is better.

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Sachin Shah;Emkay Investment Managers;Fund manager, [48]

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Okay. That is, again, because of our strategy that we have adopted now?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [49]

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Yes. Yes.

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Sachin Shah;Emkay Investment Managers;Fund manager, [50]

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Okay, okay. And -- but overall economic activity, any particular...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [51]

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No. It is very tough market. Just, I want to highlight about economic activities. The market is overall very tough. And it's very difficult to get the good kind of growth in numbers as easily based on the economic growth or something. Every year, we used to assume certain growth based on the economic development. But that kind of growth is absolutely not there. The market is very tough, and we have to do very tough job.

That's the reason lot of permutation and combinations we are doing. Sometimes it may give better results. Sometime, it may be little bit impact also. Because in this scenario, it is not easy going, right?

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Sachin Shah;Emkay Investment Managers;Fund manager, [52]

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I'm sure, yes. But there is one more thing that we were expecting as a catalyst from unorganized to organized because of the e-way bill enforcement to happen after post elections and all that. So it's almost 3, 4 months since the elections or even little longer. Are you seeing anything because of that?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [53]

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Yes. The -- lot of people, which are in the mid corporate, midsized SMEs and all these people, really, actually the compliance levels are increased now compared to earlier. The people want to have a compliance level at a better controlling aspect -- controlling manner rather than the earlier just they used to do lot of things.

Now that percentage of compliances are increasing. And still about e-way bill even we are giving continuously the representation to the government, how the people are misusing about the e-way bill laws. Specifically about the e-way bill value what -- invoice value what they have put a restriction on the invoice value. Say, for example, for INR 50,000 should be the invoice value to generate a e-way bill. Now most of the customers, they may divide the invoices and to avoid e-way bill and other things.

Just we are highlighting some of the things to the -- bringing to the -- even at a minister level, we don't know. Sometimes they are taking steps wherever it is possible.

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Sachin Shah;Emkay Investment Managers;Fund manager, [54]

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Right. Right. So you did mention that the mid-size companies are having a lot of compliance to do and lot of -- they want to do -- they want to get things organized. But is it helping companies like us because of that? Are they moving their business from one...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [55]

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We want more compliances. So obviously, the organized player like us we will benefit it. Now another thing is, what is happening, again, the people are taking for -- see now the final GST returns and all even for the first year, it is not yet over. First annual return, again, the due date is November 30. Again, we don't know. Again, continuously that due date is extending. Again, government is remodifying in certain returns.

So basically, what will happen -- see we can't say exactly what is going to happen because of the change in policy, because of change in the regulations and all these things. So once it is stabilized, we can say exactly, yes, this is what is going to happen.

Even based on the first year return, even -- there will be some information to the authorities that they can compare what other people have generated the e-way bill. And even first year, there were no e-way bills. They can't compare these returns with the e-way bill data. For second year onwards, the e-way bill has been started then they can compare. After the second year return they can compare versus e-way bill data to return data.

So these are all -- it will take its own time. Till that time, we don't have much confidence that, yes, people are coming, people are shifting. That should happen in a major change, not a small, slow change.

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Sachin Shah;Emkay Investment Managers;Fund manager, [56]

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So right now just at the inquiry level probably there is but they are not yet shifting is what you're saying.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [57]

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Yes, yes.

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Operator [58]

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The next question is from the line of Ankit Panchmatia from B&K Securities.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [59]

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Sir, wanted your view regarding the age of our vehicles and how scrappage policy if at all get implemented or get announced? How would we -- what is our age versus the average industry age and how we would benefit out of it? Any reference would be helpful.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [60]

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Yes. We worked out internally for the qualities adopted, say for 15 years and above. Now in our case, say, around 700 vehicles we are going to scrap. These are all small capacity vehicles. And in terms of total tonnage capacity, it will not be more than around 8% to 10%, the tonnage capacity what we're having today.

And if you see the overall market, minimum around 20%, 25% of the tonnage capacity in the market is more than 15 years. So the moment that policy is adopted, there will be lot of scarcity of the vehicles in the industry. But one good thing those are -- those all older vehicles, have small capacity vehicles because the kind of capacity what the government is permitted, this law was not there 15 years back. So definitely, in our case, since we are having the own vehicles, good tonnage capacity, you can grab more market or if the freight rates increases, then we are the first people to get that advantage.

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

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Right sir. Also sir, wanted your view regarding our strategy now to aggressively approach tonnage growth versus the realization growth. Is it because of the market conditions wherein incrementally tonnage growth remains a challenge, and then maybe we'll shift towards more getting to verticalization? Or the strategy would continue unless we penetrate the market, like in example of Surat, where we are matching competitor rates? Is there a strategy which would continue for a longer period of time? How is thought process at the management level?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [62]

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No. Basically, in our market, environment is very tough. So that's the reason things -- to grow at this stage, definitely, actually, we have to offer something to the customers. And we are doing it on a -- strategically on some selective routes where actually, we want more business, more concentrate wherever the return load is required and all these things.

Not blindly, at a macro level, we are reducing the rates. And this strategy, we started from the last December also. Even during previous calls also we have highlighted we have reduced the rates and all. But recently, if you see again compared to quarter 1 versus the quarter 2, the realization is increased by around 1%. This is not -- except Surat in second quarter, rest of the routes have offered declining freight rates, which is long back and last December onwards we started this.

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

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Right. I wanted your view regarding the average speed of vehicles. So have they started to improve just to get your view that from point A to point B, has there really been any decline in speeds of the vehicle or average turnarounds have been increased? Any improvement on that side and the efficiency levels of a truck?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [64]

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No. The kilometer coverage after GST, the kilometer coverage of the vehicles haven't increased. Now that is the same level. Again after that change there is no major change as of now. But one advantage is because of change in axle load, the overall carrying capacity of the vehicles is increased.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [65]

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Right. But sir, the tools and all those hurdles continue to remain, right, at some places?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [66]

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Yes, even that was there earlier period also. Now actually this is done -- that's the reason we are having all -- our vehicles are having the e-tags, fast tags basically. There also -- there is not much efficiency. The only payment we are making other than cash, but in terms of waiting time and all still that is an issue.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [67]

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Right. Okay. And sir, how has been the express side of our business growing?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [68]

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Yes. About priority, again, yes, it is going better than the general parcel.

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [69]

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Is there any math to it?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [70]

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Sorry?

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Ankit Panchmatia, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [71]

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Any math to it, how has that been...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [72]

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Yes. Basically in priority, the rate comparisons in freight rates will not change much. In terms of growth rate, again, it is around -- 6% to 8% tonnage growth is there even in priority.

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Operator [73]

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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 [74]

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I have a question relating to the festive tonnage. So does the 2Q tonnage growth reflect some part of the festive demand as well?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [75]

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See some part of the festive season is covered in Q2 and more is in the month of October again.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [76]

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All right, okay. So can there be some indication given as to what would be the region-wise contribution, for example, how much would west and south be versus north perhaps?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [77]

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No. Basically, even as I'm sharing earlier also, see region-wise, only book -- on the basis of booking, we can classify, whereas delivery will be in different, different regions.

See, again, region-wise, contribution, again, South is the denominator, which will be just contributing almost around 38% to 40%; whereas, West is contributing almost around 25%; and North, another 25%; and another 10% from other areas, like Northeast and Central India.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [78]

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So -- just so -- given that if you're trying to, let's say, increase share or increase volumes from respective geographies, let's say -- so there will be an aggressive pricing strategy, for example, let's say, Surat, wherein there's an aggressive strategy to -- just to ensure that tonnage growth comes in. So you can expect that tonnage growth will be a higher double-digit while the realizations will keep on coming off. Is that the fair understanding?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [79]

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No. Basically, see, it is a onetime exercise. Again, see, now we do -- did aggressive growth in these areas, especially -- but such kind of strategy we are doing in other routes also. Not only in Surat. Even Delhi -- see, Delhi -- Surat contribution is hardly, overall, around 3% to 4% to their total all -- total tonnage.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [80]

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Agreed.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [81]

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But the rest of the tonnage, say, for example, cities like Bangalore, cities like Chennai, cities like Delhi, the contribution is much higher. There also, we are adopting in some of the routes to match the competitor rate and grow aggressively in the market.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [82]

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Okay. Okay. So in light of this strategy, are you planning to also set up new owned hubs in some of the regions? For example, some CapEx which would be deployed in...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [83]

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No. As of now, no. Because see in rest of the places we got -- we should have shifted to these leased premises. Those kind of facilities were not there in Surat, that's why we invested into our own premises in Surat. But in rest of the places, like, city like Hyderabad, we are having a -- we got a good -- a leased premises. Even Delhi, we got -- recently we shifted to new transhipment hub.

It is on a leased premises, long-term lease, say, around 10 years, 12 years, even 15 years lease period. So we don't have an issues over there, and no need to invest our money to establish hubs in these areas.

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

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So we also hear because that the transit warehousing as a trend is also picking up, and in light of that, there will be more space which will be utilized in, say, some of the hubs. So in light of that, perhaps, no new fees required?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [85]

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No. That's the reason what we do, whether it is a lease or own premises, whenever we shift to new premise, always we will have a additional space of around 30% to 40% additional space, initially.

So until our tonnage will increase in that particular hub that will be given to as a sublease sometime or we can give a transit warehouse to the customers.

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

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And we don't make any money out of this transit warehousing?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [87]

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Yes, definitely. It is for part of the freight revenue. See, we call -- we charge the demurrage to them. And in some of the locations, some short period or depending on the quantity handling also, they will give a warehousing charges to us, like storage and warehousing charges.

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Krupashankar NJ, Spark Capital Advisors (India) Private Limited, Research Division - Analyst [88]

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Understood. Understood. So, sir, one more aspect which I wanted to confirm. Sir, is there an overall reduction in the truck fill factor from a hub-to-hub during this quarter because few sectors would have had lower tonnage?

So in light of that, because of which the margins were impacted is that one of the reasons, possible reasons?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [89]

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No. There will be some delay in vehicle moment. But in terms of carrying, unless the vehicle is loaded fully, that vehicle will not leave. Accordingly, those vehicles will be remodified or route-wise it will be -- get adjusted to some other route.

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

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Got it. Okay. So the -- so last part on the CapEx for fleet addition. So is there any pre [BSX] strategy, anything fleet addition plans in the second half?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [91]

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Some of the business (inaudible) -- but overall, it will not be a major addition. See now we did a total CapEx of around INR 29 crores in first half. So similar level of CapEx will be incurred in the next half now -- next half, yes.

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Operator [92]

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The next question is from the line of Shrinidhi Karlekar from HSBC.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [93]

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Sir, I just -- first question is, I just want clarification on numbers. Sir, if you see finance costs in our P&L and finance costs in segmental reserves, there is this difference. So I just want to understand where this difference goes when we reconcile at the segment? Does it go in the segment profit or it goes into unallocable?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [94]

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No. It will go to unallocable only. See this unallocable is related to the low finance cost, which is not specifically for the segment. Say, like, working capital, we can't divide it based on the segment.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [95]

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Yes. But earlier, if you've seen -- before this Ind AS lease adjustment, our finance cost at the P&L level at the segment level used to be same, right?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [96]

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Yes.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [97]

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Now basically...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [98]

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No. In earlier period, actually, we used to consider totally as unallocable. Now in Ind AS 116, on specified assets actually we are getting these -- that lease liabilities and lease assets. Accordingly, the finance cost also, we are allocating to the segment. Earlier, we used to consider the entire finance cost as unallocable expenses.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [99]

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Right. Now, yes, exactly. So the part of the finance cost is now getting allocated to the segment, right?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [100]

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Yes.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [101]

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Okay. Fair enough. That clarifies my question. And, sir, my second is that we have had floods in the -- your key markets such as Karnataka and western part of Maharashtra. Did this affect some of the growth that you reported in this quarter in terms of volume growth? Or it was -- got covered in, like, September month of the Q2?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [102]

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Yes. Floods are, again, majorly impacted in these states. But subsequently, it's not fully covered in quarter 2. And in the month of October, there is again some recovery. But otherwise, some of the areas, especially in these Karnataka, Maharashtra and some part of Kerala also, it impacted very badly during the floods.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [103]

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Would you say, like, we have had some decent growth in volume, made couple -- say 2%, 3% of additional growth would have been possible?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [104]

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Yes. Another 1% at least we expected, plus 1%.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [105]

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Another 1%. Okay. Fair enough.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [106]

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Concentration on geography is very less in our operation. That's the advantage.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [107]

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Yes. And this was -- but still south is about 40%, right, in terms of...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [108]

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Yes. We would have grown another 1% tonnage, if these disturbance were net, not debt. But we are hoping that subsequently, it may recover. And especially, this belt is mainly concentrated or highly dependent on the agriculture. Even, say, some impact on the consumer, say, luxury items and all these things. Again, instead of that, actually, we can carry the basic needs. But that is happening now, not in -- during that period.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [109]

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Okay. And, sir, our strategy in terms of passenger transportation remains largely unchanged, right? We don't intend to add new buses or add new routes? Is that even unchanged?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [110]

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No. We want to continue, again, the same strategy will continue. We may add some of the vehicles only when -- if we feel shortage of vehicles in the strong routes. Otherwise, we will not establish any additional routes, adding vehicles and establishing new routes that strategy as of now it is not there.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [111]

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Fair enough. And, sir, the last one. Sir, you spoke about, like, at the industry level if you see vehicles which are older than 15 years, in your assessment, it could form something like 20% to 25% of the capacity. Sir, may I ask you, is this capacity more in the interstate market? Or it's more of an intrastate market, which is like much more in terms of smaller vehicles compared to larger vehicles?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [112]

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No. Basically, after certain age, vehicle will operate only in some selective states. The permit will be restricted. So 4 states permit, 5 states permit like this, only in those areas it will impact.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [113]

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Okay. Sir, it would be more of a micro market level?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [114]

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Say, for example, all-India permit will be up to certain age. After that, that all-India permit will not be there. Then those vehicles should operate only in surrounding states where it got registered.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [115]

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Okay. Sir, few markets...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [116]

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Wherever those registrations will be there, only in those area it will impact. But the moment will be not like -- interstate it will be there, but not a long journey, like, 2,000 kilometers, like that.

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Operator [117]

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

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [118]

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Just one thing on this 28% decline in passenger revenues. Passenger segment revenue quarter-on-quarter, what is the split of passenger and realizations there?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [119]

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Yes. The overall revenue, it is around 28%, so, say, INR 104 crores to INR 74 crores. And the number of passenger traveled is, it will be around 21%. And decrease in occupancy level by 9% and decrease in realization is also by 9%.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [120]

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Okay. And, sir, regarding additional segments, like...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [121]

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See, because of -- it is a seasonality. Second quarter always will be weak season for the bus segment.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [122]

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Correct. Regarding -- generally on the segment, as far -- have you not looking out for bus segment fleet growth, generally? So our segment revenue should -- I mean, should be restricted to around INR 350 crore, INR 380 crore kind of number? Or is there significant realization growth we can take -- which can take it higher?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [123]

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How much significant (inaudible)?

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [124]

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Sir, your voice is not audible.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [125]

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Premium in the sense because of a good service.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [126]

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Sir, sorry, your voice got cut in between. Can you repeat again?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [127]

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No. We are already in the premium market, and we are charging the premium rates to the customers because of the good service. So we can't stretch it further.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [128]

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So revenue in the segment should be restricting INR 350 crore, INR 380 crore kind of number, more annually?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [129]

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Yes.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [130]

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Okay. And just one last thing on your freight rate. So, let's say, first quarter and -- as you mentioned that you started cutting freight rates from December onwards. But first quarter, the year-on-year realizing -- I mean, in Q4, where it was realizing year-on-year increase. Q1, it was minus 1%. Q2 is minus 6%. Let's say, now realizing them in same over next 2 quarters from current quarter. So year-on-year, how would it be, like, in second half, let's say, just for a modeling purpose.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [131]

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That's, again, Q3 to Q3 little bit -- it will be declining trend because last December, we started decreasing the rate. And October, November it was higher rates only. So we need, say, some declining trend even in Q3 compared to last year. But Q2 to Q3 there will not be much change. It'll -- more or less, we maintain the rate, unless there will be much change in the fuel rates or something like that.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [132]

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Q4 or -- Q4 would be, like, let's say, if we keep the rate same. So Q4-over-Q4 would be how much?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [133]

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Realization will be more or less same again. The more decline -- little bit it may reduce, but there will not be, like, 6% decline or something like that.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [134]

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So it's seeming like that we took some realization cut in this quarter, which is -- or maybe we took a sharp increase in last year's same quarter Q-on-Q that's why it is looking like decline in the same quarter.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [135]

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Yes. Up to November the rates were very high, last year. From November, December continuously it started declining, even up to January to some extent. That -- after that, actually, there are no major change again. And that's the reason if you compare Q1 versus Q2, the rate is almost -- realization is increased by around 1%.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [136]

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Correct. So if we maintain these prices, we would be like slightly lower on year-on-year basis?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [137]

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Yes. Say, for example, Q2 to Q3, the realization more or less it will be same. But compared to last year, again, it shows a declining trend.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [138]

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Like, by how much quantum roughly? I mean, like -- it's like minus 6%...

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [139]

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Again, according to me around 5% -- 4%, 5% at least.

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Prateek Kumar, Antique Stockbroking Ltd., Research Division - Analyst [140]

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Okay. And then Q4, if we, again, maintain the realization?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [141]

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Yes, yes, it will be maintained. There will be little bit decline. It will be, again, a little bit declining trend, say, around 2% to 3%.

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Operator [142]

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(Operator Instructions) The next question is from the line of Depesh Kashyap from Equirus Securities.

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [143]

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Sir, given the pressure on the freight rates that you're seeing, sir, what kind of EBITDA margins can see in the second half of the year? Because in the first half, we have been around 10%, 11%. So can we see the similar margins in the second half or will there be further pressure? In the GT segment I'm saying, yes.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [144]

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Yes. Yes. Around 11% it will be maintained.

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [145]

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11%?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [146]

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Yes. Unless there will be change in the cost. And there will be some revision in the employee cost in the coming quarters. So...

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [147]

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Review in the sense, upward division you are saying.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [148]

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Yes, upward division.

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [149]

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Understood. And, sir, what kind of revenues are we building from the new Surat Transhipment Hub that you have created?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [150]

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Yes. I told you, year-on-year that overall tonnage is increased by 20% in Surat.

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [151]

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Right. So like going forward, how much incremental revenues do you think the Surat facility can give you?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [152]

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Yes. Definitely, see, we are expecting around INR 100 crores in a year.

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Depesh Kashyap, Equirus Securities Private Limited, Research Division - Research Analyst [153]

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INR 100 crores in a year?

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [154]

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At least to begin with, yes.

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Operator [155]

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(Operator Instructions) As there are no further questions, I now hand the conference over to Mr. Sunil Nalavadi for closing comments.

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Sunil Nalavadi, VRL Logistics Limited - CFO & Investor Relation Officer [156]

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Yes. Thank you all for participating in the call. If you have any additional queries or something, you can contact me directly. Thank you.

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Operator [157]

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Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes this conference call for today. Thank you for joining us. And you may now disconnect your lines.