ETMarkets Management Talk | Recessionary headwinds will impact growth in market: Deepal Shah, Allcargo Logistics

Deepal Shah, Deputy Group CFO, Allcargo Logistics, says recessionary headwinds are likely to continue leading to a lack of growth in the market. “However, we remain confident of increasing our business volumes by expanding our market share despite all adversities,” he says, adding that as economic revival begins, starting next year, volumes will also grow.

Edited excerpts:

Can you explain how your EBITDA went up 24.2% YoY even as revenues grew just 6.5%?
The company has seen robust growth through transformational initiatives over the last couple of years. During this quarter, the volume in the main international supply chain business increased despite headwinds on the back of market share expansion. In addition, the share of incremental value-added services also increased, thereby leading to a revenue expansion despite a decline in ocean freight rates.

Ocean freight is largely a pass-through cost, and hence decline in costs was higher the company improved operating margins and reported the highest ever EBITDA margins facilitating a much higher growth rate in EBITDA as against lower revenue growth. Revenue comprising ocean freight is not the best driver to gauge business performance and hence gross profits, volumes and EBITDA are better indicators of financial performance.

What is the outlook for the remaining two quarters of the financial year?
We foresee recessionary headwinds to continue leading to a lack of growth in the market. However, we remain confident of increasing our business volumes by expanding our market share despite all adversities.

Our digitization driven by Chairman Shetty’s vision uniquely makes us the global market leader as well as the tech disruptor in our industry. This provides us robust growth momentum, which will help us maintain strong performance and as economic revival begins starting next year, we expect to witness growth in volumes.

What's the rationale behind the plan to acquire a 30% stake in GKEPL from the KWE group?
Allcargo acquired Gati in 2020 to participate in the express logistics business, which is part of its core growth strategy and highly synergistic with the contract logistics business. It started with the acquisition of stakes from erstwhile promoters and now the acquisition of KWE’s share is a natural progression of that strategic plan.

This would also help facilitate restructuring plans aimed at simplifying the structure and enabling faster growth for the company. This is a strong vote of confidence on the management team and the potential growth opportunities in express business under Gati, which has been truly turned around and transformed by Allcargo since its acquisition.

What are the key triggers that will drive growth in the company in the next 2-3 years?
The company’s growth shall be driven by continued focus on digitization and market share expansion while keeping underlying costs under tight control, creating strong operating leverage to drive improvement in margins.

All the core businesses have demonstrated strong sales acceleration, which shall continue to drive business growth. Besides, macroeconomic conditions shall also enable the growth of the company in India, both in exim trade-focused businesses as well as express and contract logistics business.