ALLCARGO - Allcargo Logistics Ltd Share Price

Management provided an optimistic outlook for the coming quarters, particularly regarding the domestic business. The domestic supply chain operations are performing well, with trade volumes growing and an emphasis on e-commerce and quick commerce sectors leading to opportunities in logistics. Specific highlights from management include:

1. Domestic Business Growth: The contract logistics segment recorded a 50% increase in revenue year-on-year, with EBITDA growing by approximately 30%. The express business turnaround with Gati is also yielding positive results, with improved margins and revenue momentum anticipated in July and August.

2. International Supply Chain Challenges: Although there is an 8-10% increase in seasonal volumes expected during the July-September quarter, management remains cautious due to ongoing geopolitical tensions and tariff changes affecting trade flows. The international segment's revenue for Q1 FY '26 was reported at Rs. 3,330 crores, flat year-on-year.

3. Gross and Net Debt Reduction: Management disclosed that gross debt decreased by Rs. 107 crores to Rs. 1,060 crores, and net debt fell to Rs. 467 crores, a sign of improved cash flow management.

4. Operational Improvements: There are ongoing initiatives to drive cost efficiencies, with a focus on automation and outsourcing. A financial outsourcing initiative is expected to yield annualized savings of approximately $1.5 million.

5. Notional FX Loss: A significant notional foreign exchange loss of Rs. 83 crores was noted, linked to working capital adjustments in intercompany financing due to currency fluctuations, although management indicated this does not reflect operational performance.

6. Future Visibility: Despite the immediate positive trends, management cautions that sustained improvements will depend on stabilizing global trade and macroeconomic conditions. They emphasize that they will provide further updates as the situation evolves.

The overall sentiment is one of cautious optimism, supported by strong domestic performance amid uncertainty in international operations.

Question: Can you provide a bit more granularity on how we should look at the gross profit to EBITDA conversion for the international supply chain business? Also, what about the initiatives for cost reduction measures?

Answer: Our international supply chain's primary operating currency is the U.S. dollar, and we see consistency in yields over the last three quarters. The notional impacts from intercompany advances don't concern me greatly. Approximately 50% of our costs stem from ocean freight, with local costs covered by local revenue. Current fluctuations have resulted in some inflation in SG&A costs, but we maintain a balanced gross profit. Cost reduction initiatives are underway, but operational outsourcing is slightly delayed, while financial outsourcing is on track, with projected savings of $1.5 million annually.

Question: Are you seeing any green shoots in the express distribution side as we head into H2, and what optimism, if any, do you hold regarding recovery?

Answer: We definitely see green shoots in our express business. July volumes are already looking promising, and the overall industry has shown double-digit growth recently. While we had to forfeit some customers to focus on profitability, we are now in a better position with an efficient team and improved cost optimization. This focus has successfully increased our EBITDA despite lower revenues in the last quarter. We're optimistic about continuing this momentum through the upcoming festive season.

Question: How do you see the reorientation of trade due to tariffs impacting volume in specific regions?

Answer: Tariffs create unpredictability, affecting trade lanes differently. While we see some volume instability due to heightened tariffs, there can be spikes as customers rush to ship before new tariffs take effect. Long-term, the expectations are uncertain, and overall global trade volumes are down. Nevertheless, by navigating these dynamics, we're able to maintain yields, allowing us to adapt and grow, even if certain lanes struggle.

Question: Regarding the ECU360 platform, what is its potential role in enhancing our door-to-door services and volume growth?

Answer: ECU360 has proven significant in enhancing our services, allowing customers to get door-to-door pricing easily. We've seen growth not only in our LCL business but are now extending this capability to FCL, which should further enhance our volume. This platform also enables us to capture value from first and last-mile logistics, improving our overall revenue. It's a game changer in simplifying customer interactions and transactions.

Question: Could you update us on the demerger process timeline, and what are the next steps?

Answer: We recently held a crucial hearing regarding the demerger. However, due to the NCLT's busy schedule, we expect to have another hearing next month. We hope to finalize this matter by September or October, which would then lead to the actual listing process. While we anticipate some delays, we remain optimistic about completing this process within the projected timeline.