We are seeing strong growth across sectors: Vineet Agarwal, TCIL

      11/27/2018

Second half of the year is usually better for us and we should continue to see growth and exceed the full year EBITDA margin by 25-30 bps, Vineet Agarwal, MD, TCIL, tells. Edited excerpts:

Q) What is your experience at TCIL? Are you completely inelastic to what happens to crude prices or the demand front or the margin front?

A) Last several years we have realised that both GDP growth or such shocks like the fuel prices used to affect our margins. We have been constantly building different businesses which helps us to sustain growth and sustain margins even with these shocks. We have been able to do that in the last decade with the supply chain and the seaways business growing. I would say that we are getting to that stage of being mostly neutral to the movement of fuel prices but of course, sectorally or in certain businesses we do feel some impact typically with a lag but it does play out over a period of 15 to 30 days and we do get back most of those increases. Also things like India being an agrarian economy, in many places, fuel prices also have an impact on the freight rates for agri products. For example, this year, mango season was very good from the south. There was a tremendous increase in freight prices ex-south which typically never happens. These are some vagaries of the Indian conditions that we have to keep working on.

A) We are mostly working on contracts. Typically, when you sign the contract, there is a fuel price and there is a trigger that with the cumulative increase of ay 5%, it will lead to an increase in our rates as well. And if there is accumulative decrease of 5%, then we will have to bring down the rates as well. Since it is mostly contractual, there could be a delay in terms of when we finished the billing and we submitted to the customer and he pays us but otherwise we mostly get back most of the increases.

Q) What kind of improvement can we see in your overall EBITDA performance in the second half because of the way crude has moved?

A) The second half is usually the better half of the year for us historically. The only thing that I would point out is the last quarter -- the July-September quarter -- which has been very unusual in many ways. Last year, during the same quarter, we had the implementation of GST and that is why the business actually came down because there were customers that started to move towards GST. It took them time to get their billings sorted and so on. We had a good growth in Q2. However, we also got hit simultaneously because of the Kerala floods, the truckers strike in July and because of the festival season being slightly delayed. All this did have a negative impact as well as some positive impact because of GST. H2 of the year is usually better for us and on an EBITDA margin, we should continue to see growth and exceed the full year EBITDA margin by 25-30 bps.

Q) About 25% of your truck fleet is owned and in the transport business, its share is 10-15%. The rest is managed through annual rental contracts with vendors or spot hires. This is between an asset light and asset heavy model. Has it helped you manage fuel price fluctuations?

A) This helps us because if you are a complete asset owner like some of our competitors, you incur the cost of fuel right away. You are riding the truck, you have to buy fuel today and so the impact is immediate and you get hit there as well. If you are completely asset light, your vendors tend to dominate where they tell this is the price, take it or leave it.

Being in the middle, we are able to command better pricing. If some vendors insist that they need to increase fuel prices, we can always try to bring in our own trucks. It helps to keep our cost under control. We are a 60-year-old company and customers feel a little bit more secure when they see that we have invested some assets for them and we are able to sustain businesses so we have some skin in the game with them as well. Overall, this has helped us in the long run.

Q) Away from the crude topic, what is your understanding on the freight movement? In a sense, you have the perfect gauge of where the economic activity is. Could you tell us how demand trends and freight trends are looking and which category is witnessing the maximum uptick?

A) In the last quarter as well as going forward, we have seen robust business across all sectors especially in the SME sector. We have seen certain kinds of engineering product companies doing relatively well. We have seen consumption related companies doing good, apparel companies are also doing relatively okay. I am talking about the companies that we typically work with and generally speaking, there is no let up in terms of demand. Our anticipation is that this should continue except for perhaps the last quarter before we hit the national elections when things might cool off a little bit. Overall, we are seeing strong growth across sectors for us.