Our expectation is that volumes in the first two quarters will be subdued, says V Kalyana Rama.
How did the last quarter transpire for you? You have had a muted show. There was some revenue pressure but margins were still at a very healthy level of 30%. What helped you offset the pressure on the margins? Can we expect it to sustain at those levels in Q1 and beyond?
The last quarter volumes were low mainly because of the virus effects. There is already a slowdown in the Exim traffic in India. But yes, we were able to maintain the margins. Even though the going gets tough, we maintain our margins. We slightly lost some volumes but we want to pick up with improvement in our service levels. We do a complete end to end transportation. Now we are going to add some more value added services in this end to end transportation, making things more convenient for the customer.
We are creating a customer friendly atmosphere through digitisation which is in line with the new trend due to the coronavirus. There is lot of fear or concern about mobility. So we can now do all our operations online. We are taking a lot of steps in that direction. We will have a lot of issues in terms of volumes due to the lockdown but I am sure we will be able to maintain margins at 32-33% on operating levels.
What is the outlook on volumes? When do you see it stabilising? Are there any triggers that you are betting on over the medium term?
Our expectation is that volumes in the first two quarters will be subdued. In Q3, we are expecting something to start picking up and the expectation is that Q4 will be normal. Right now it is very difficult to predict because of coronavirus and it will depend on how long we have the partial lockdowns or restrictions. The industry has not yet started and a lot of labour has gone back. So there are many things that we are trying to understand. So the prediction is that we will have a better Q4 this year.
You recently let everybody know that you are closing down 15 terminals that are on the railway land. What is the rationale here and what is the impact of the rising diesel prices on the same segment?
The rationale behind closing down these 15 depos is because of certain change in the policy by Indian railways on charting the land licence fee which we were using. Presently we are still using 29 depos; earlier we were using 44 places. We were earlier paying a licence fee based on the volumes handled at these terminals but from April 1 there were some changes in this policy. Of course we made our appeals to the railway ministry as we come under the same ministry. So there is a change in the land licensing policy and based on that we did business reengineering and we found that the business of these 15 terminals can be shifted to the nearby terminals.
We have communicated this very clearly to the exchanges and to all the investors. Only at one terminal we were not having any alternative but there is no other way but to close it down. Now we are finding an alternative there also. We are finding an alternative at that location. So for all other 14 locations, we shifted our business to the other terminals which are nearby. So we have not lost any business due to this entire issue. In fact we are saving our administrative costs and our input costs are coming down.
How is the increase in diesel prices going to impact that segment and your competitive ability because I am assuming other operators will struggle during this time?
I do not want to make any guess on the diesel price escalation and how it is going to get the volumes to us. Yes, there will definitely be pressure on the road sector because diesel prices will increase the input cost on the road sector but let us keep in mind that at this moment, the assets are idling and when the assets are idling, people would like to go for a marginal costing. So that pressure will always be there. So if demand picks up in Q3 or Q4 and if the diesel prices continue to be at this level, there will be a good chance of increasing the model share of the rail.
If you look at the line items for Q4 FY20, the employee cost looks significantly lower. We understand there was a one-off impact last year, which is why it is looking a bit lower but has there also been a layoff of certain staff during this time because of reduced demand and digitisation? How much really was that impact?
There is absolutely no layoff. We are a very lean and thin organisation and my total employees are only 1,421 where we almost do a turnover of Rs 6,500-7,000 crore. So the digitisation is not going to affect any of the employees. We are now starting new areas; so one is the cost of shipping. We already did one last year and we are going into the distribution logistics business. We made a beginning in the coal agencies. So we are doing a coal agency for Karnataka Power. So all these new areas that we are bringing in will be used to adjust our staff. So there will be no layoff and we are not recruiting any new staff. Natural attrition is happening because of superannuation and that count is coming down. So that is how it has come down from 1,435 to 1,421.
And this one-off is basically because of the Pay Commission implementation last year. We have given a one-time leave encashment for all our employees and a lot of people have encashed their leave balances. So that has come in the last year’s balance sheet in Q4; so total it will be around 30 Rs crore and this year it will be on the normal levels.