Allcargo Gati — Q3 FY25 earnings call

Call held 10 Feb 2025

Management summary

Allcargo Gati reported a strong Q3 FY25, driven by significant margin expansion and volume growth in its Express Business. The company achieved its highest ever quarterly volume and improved its DSO, reflecting operational efficiencies and effective collection. Strategic initiatives like GPI implementation and infrastructure upgrades are expected to further boost performance, despite a cautious approach to the MSME segment due to prevailing economic stress.

Highlights

  • Consolidated Revenue for Q3 FY25 was INR 441 crores, a 4% increase from INR 424 crores in Q3 FY24.

  • Consolidated EBITDA margin expanded to 4.8% in Q3 FY25, up from 1.6% in Q3 FY24.

  • Express Business EBITDA for Q3 FY25 was INR 22 crores, showing a 215% growth compared to the same period last year.

  • Average Days Sales Outstanding (DSO) improved to 68 days in Q3 FY25, the lowest since Q1 FY24, down from 74 days in the prior year.

  • The company achieved its highest ever volume in the quarter ended December 2024.

  • Net cash position stood at over INR 100 crore as of December 31, 2024.

Concerns

  • IMF predicted global economic growth of about 3.3% in CY 2025 and CY 2026, falling below the historic averages of 3.7% from 2000-2019.

  • MSMEs are currently under stress, leading to a cautious approach in targeting this segment, which could impact near-term growth acceleration in this area.

Key financials

  1. Consolidated Revenue ₹441 Cr +4%YoY
  2. Consolidated Gross Profit ₹99 Cr +22%YoY
  3. Consolidated EBITDA Margin 4.8%
  4. Express Business Revenue ₹392 Cr +5.6%YoY
  5. Express Business Gross Margin 25%
  6. Express Business EBITDA ₹22 Cr +215%YoY

What they filed

Q1 FY26: revenue down 0.2%, net profit up 156.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY24Q3 FY24Q4 FY24Q1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26
Revenue442 424 355 358 426 −3%392 −8%385 +9%357 −0%
EBITDA15 7 13 19 18 +20%21 +211%10 −28%13 −30%
Net profit-4 19 -6 -2 -1 +66%1 −97%15 +340%1 +156%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

SegmentGross MarginEBITDA
Express Business25%₹22 Cr
Consultative Logistics——

Capital allocation

high confidence
  • Capex ₹15 Cr
    • Modernization and other initiatives ₹20 Cr
    So, we had done a CAPEX of 11 crores so far. There is small CAPEX which could complete the 15 crore budget for the current year. Next year also we are keeping a budget of 20 crore CAPEX, which would be mainly on modernization and other initiatives. Hope that clarifies your answer.
  • Debt Gross ₹19 Cr
    We are, a thing on debt, we have only 19 crore debt as of now, which we would not like to expand on an aggressive manner. 20 to 30 crores is a debt level which we see to continue over a period of next year or so.
  • M&A One fuel pump in Belagavi Divestment · Closed · Consideration ₹[object Object] (cash)

    Exit non-core businesses

    In line with our strategy to exit non-core businesses during the quarter, we have announced the sale of one of our fuel pumps in Belagavi for a realization of 3 crores.
  • Liquidity Cash ₹100 Cr
    As on 31st December 2024, Allcargo Gati has a net cash position of over 100 crore.

Guidance & targets

Profitability

  • Express Business EBITDA Margin Profitability · FY25 · High confidence >6%
    We see from this year, as we begin the quarter Q4, Jan to March, the impact of GPI which will start coming in, which is already rolled out, and we see the EBITDA margin ending in the year over 6%.

    — Deepak Pareek

  • Express Business EBITDA Margin Profitability · Next year · High confidence 7-8%
    I think 7-8 is a realistic estimate for next year which we are looking at the target and we would see that.

    — Deepak Pareek

  • Gross Margins (Express Business) Profitability · FY27 · High confidence 29%
    Yes, very much intact. So, we are right now at 26.2 for 9 months. So, we, for the current year itself, we are looking at 27. So, as you said, 29% for '27 is very much in sight and very much doable.

    — Deepak Pareek

Revenue

  • Express Business Revenue Growth Revenue · FY25 onwards (next 2-3 years) · High confidence 8-10%
    We see ourselves growing it in the range of 8 to 10% from this year onwards. If you see FY '25 onwards, we see ourselves growing at 8-10%.

    — Deepak Pareek

Market Share

  • Market Share Improvement Market Share · Ongoing · High confidence 10% points above market growth
    Our growth will always be higher than the growth of the market. So, we will continue improving our market share. The 8 to 10% growth was an indicative number basis the market growing at about 7%. And if you recall from the last call, we had given an indication that we will grow at a 10% point above the market, which means if the market grows at 10%, we will grow at 11%, if the market grows at 8%, we will grow at 9%.

    — Ketan Kulkarni

Capacity

  • New Hubs Capacity · By end of Financial Year 2026 · High confidence 8 new hubs
    On the infrastructure front, I am pleased to share that during the quarter, we have opened our new surface transshipment center in Vijaywada, and we plan to open eight new hubs by the end of Financial Year 2026, details of which are shared in the Investor Presentation.

    — Ketan Kulkarni

Pricing

  • GPI Realization Pricing · By end of June · Medium confidence single-digit
    As of today, we have realized a single-digit GPI realization, and that will improve month-on-month into March, and as I said, month-on-month into June. The response that we are getting from customers on the GPI is also very, very positive.

    — Ketan Kulkarni

Debt

  • Debt Level Debt · Next year or so · High confidence 20-30 crores
    20 to 30 crores is a debt level which we see to continue over a period of next year or so.

    — Deepak Pareek

What to watch in Q4 FY25

Express Business EBITDA Margin

Q4 FY25 (year-end)
Current 5.4% (9M FY25)
Target >6%

Why it matters

This is a key profitability metric, indicating the success of GPI implementation and operational efficiencies.

We see from this year, as we begin the quarter Q4, Jan to March, the impact of GPI which will start coming in, which is already rolled out, and we see the EBITDA margin ending in the year over 6%.

Risks & concerns

  • Global Economic Slowdown

    medium

    IMF predicted global economic growth of 3.3% in CY 2025 and 2026, below historic averages.

    Management acknowledged

  • MSME Sector Stress

    medium

    MSMEs are under stress, leading to a cautious approach in targeting this segment.

    Management acknowledged

  • Fuel Station Business Margin Drag

    low

    The fuel station business, with a 200 crore top line, is currently a drag on margins, and the company is divesting these assets.

    Management addressed with action

Q&A highlights

7 direct
EBITDA Margin trajectory and future outlook Direct
We see from this year, as we begin the quarter Q4, Jan to March, the impact of GPI which will start coming in, which is already rolled out, and we see the EBITDA margin ending in the year over 6%. And sequentially as we move ahead, steps are done. I think from the cost front, we have operating efficiency is very much on the plate. On the revenue side we would get a benefit of the GPI increase as we go into the next year, and we expect EBITDA margin improving significantly in the next year. I think 7-8 is a realistic estimate for next year which we are looking at the target and we would see that.

Analyst questioned the historical margin decline and sought clarity on future targets, which management provided with specific numbers for year-end and next year.

Asked by Amit from RoboCapital

Revenue growth outlook for the next 2-3 years Direct
So, 2-3 years, the market is expected, this Express business market I think is slated to grow at 11% from current year onwards to, let's say, 2029, if you see. We see ourselves growing it in the range of 8 to 10% from this year onwards. If you see FY '25 onwards, we see ourselves growing at 8-10%.

Analyst sought long-term revenue growth guidance, and management provided specific growth rates relative to market growth.

Asked by Amit from RoboCapital

Resistance to General Price Increase (GPI) Direct
We are going to focus on the pricing and yield improvement, which is based on the improving service quality that we are delivering, which is essentially a lot of value for the customers that work with us. We are not seeing at all very strong pushback on the GPI.

Analyst inquired about customer and competitor resistance to price hikes, a critical factor for margin improvement, and management confirmed minimal pushback.

Asked by Krupashankar NJ from Avendus Spark

Pace of infrastructure expansion (hubs) given market slowdown Direct
Yes, thanks, Ketan. Just to add to your question and further to what Ketan mentioned, so we had QIP allocation, which is only for hub modernization. So, though you are saying the external market forces, so we are not, that has no holding us back. We are, as mentioned, eight of the modernizations already done and the balance we are achieving in this calendar year, we will complete as per the plan. So, it's moving as per the plan. There is no fallback on that process.

Analyst questioned if the market slowdown would impact the planned hub expansion, and management confirmed that plans are on track and not affected.

Asked by Krupashankar NJ from Avendus Spark

Gross profit margin for Express business Direct
Yes, so gross profit margin for the nine months of the Express business is 26.2%, which is a substantial growth over the similar period of 9 months of last year. It was 24%. Quarter-on-quarter also if we see, there is an improvement. For current Q3, we are at 25.1% as compared to the last corresponding quarter, 21.7%.

Analyst sought specific gross margin figures for the Express business, which management provided for both 9M and Q3, highlighting significant improvement.

Asked by Vikram V. Suryavanshi from PhillipCapital (India)

Competition from unorganized sector and compliance benefits Direct
So, we are seeing that swing happening from unorganized to the organized market. So, we are very happy that that is the situation we are currently in. So, no real competition or impact or dent from the unorganized sector on the organized. I hope I have answered your question.

Analyst inquired about competitive pressure from the unorganized sector, and management indicated a positive shift towards organized players due to regulatory compliance.

Asked by Vikram V. Suryavanshi from PhillipCapital (India)

Market share and goal to reach 50% growth Partial
The goal for all companies, ma'am, is to become the market leader. The market leader in terms of revenue, in terms of volume, in terms of cost leadership, in terms of being a great place to work for people. So, all those goals will remain. How the numbers will stack up is the indication I have given you in terms of how we will grow higher than the market. But on the historic numbers, I will not be able to comment it.

Analyst pressed on historical market share goals and whether a 50% growth target was still valid, to which management gave a directional answer about growing faster than the market but avoided specific historical numbers.

Asked by Shikha Mehta from Time & Tide Advisors

Impact of FMCG companies changing distribution models Direct
So, let me tell you the large ones are Auto, which is about 20 plus percent of my business, then there is consumer electronics, there is fashion lifestyle, there is healthcare and pharma. So, FMCG as a percentage of contribution to our business is just in single digit. So, that is point number one. So, we will focus on the B2B movements of all industries including FMCG. Lastly, that model is still evolving in the FMCG industry. It's difficult to change models which are been engraved into the supply chain ecosystem, especially into tier 2, tier 3 and rural India where FMCG growths are really coming from. But as and when the model evolves and becomes substantial, we will be closely watching it. But as of today, FMCG is a single-digit contributor to our business. We will focus on the B2B businesses of the other industry verticals.

Analyst raised a relevant industry trend (FMCG distribution changes), and management clarified that FMCG is a single-digit contributor and they are monitoring the evolving model.

Asked by Chirag

3 min read 7 chapters

Detailed narrative

Q3 FY25 Performance Highlights

Allcargo Gati reported a robust Q3 FY25, with consolidated revenue reaching INR 441 crores, a 4% increase year-on-year from INR 424 crores. The Express Business segment was a key driver, with revenue at INR 392 crores, up from INR 371 crores in Q3 FY24. Consolidated gross profit grew by 22% year-on-year to INR 99 crores, and the consolidated EBITDA margin significantly improved to 4.8% from 1.6% in the prior year. The Express Business alone saw its EBITDA surge by 215% to INR 22 crores.

Operational Efficiency and Working Capital Management

The company demonstrated strong operational improvements, achieving its highest ever volume in the quarter ended December 2024. Days Sales Outstanding (DSO) was significantly reduced to 68 days in Q3 FY25, marking the lowest level since Q1 FY24, compared to 74 days in the corresponding period last year. This improvement reflects enhanced collection efficiency. As of December 31, 2024, Allcargo Gati maintained a net cash position exceeding INR 100 crore.

Economic and Industry Outlook

While the IMF projects global economic growth at 3.3% for CY 2025 and 2026, below historical averages, India's growth story remains strong with projected 7% growth in FY25 and 6.5% in FY26. The logistics sector, particularly express delivery, is expected to play a crucial role, supported by government initiatives like the 1.5 trillion infrastructure allocation in the 2025 budget. India has surpassed China to become the world's second-largest holder of road networks, and its LPI ranking improved to 38 from 44 in 2018.

Pricing Strategy and Margin Improvement

Allcargo Gati has initiated a General Price Increase (GPI) at the ground level, with initial single-digit realization expected to improve month-on-month into June. Management anticipates the Express Business EBITDA margin to exceed 6% by year-end FY25 and reach 7-8% next year. The gross margin for the Express Business improved by over 340 basis points year-on-year to 25% in Q3 FY25, with a target to achieve 29% by FY27.

Infrastructure Development and Modernization

The company opened a new surface transshipment center in Vijaywada during the quarter and plans to open eight more new hubs by the end of Financial Year 2026. Twenty-one large Surface Transshipment Centers have been renovated, with 8 already upgraded and 6-7 more identified for upgrade in the next 12 months. These investments are aimed at enhancing service quality, automation, and overall operational efficiency, ensuring capacity for future growth.

MSME and Retail Strategy

The company acknowledges that MSMEs are currently under stress, leading to a cautious and sensitive approach in this segment. However, management expects to accelerate engagement with MSMEs as macroeconomic indicators improve and inflation stabilizes. They also noted a positive trend of volumes shifting from the unorganized to the organized sector due to regulatory compliance and formalization.

Capital Allocation and Debt Management

The company's capital expenditure for FY25 is projected to be around INR 15 crores, with INR 20 crores budgeted for FY26, primarily for modernization and other initiatives. Allcargo Gati maintains a lean debt profile, with only INR 19 crore debt as of now, and aims to keep debt levels between INR 20-30 crores for the next year. In line with its strategy to exit non-core businesses, the company sold one fuel pump in Belagavi for INR 3 crores and is in the process of selling two more.

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