- Automobiles & Ancillaries
Mr. Vineet Agarwal, Joint MD, Transport Corporation of India
“India currently spends 12-13% of its GDP on logistics. TCI is aiming at a 15% compounded annual growth rate for the next four to five years. The major growth has come from the supply chain division and express division.”
Mr. Vineet Agarwal, Joint Managing Director, Transport Corporation of India (TCI) is one of India’s youngest leaders. He has been instrumental in transforming the group into India’s leading & integrated logistics and supply chain solutions provider with a global footprint. A prominent spokesperson of the logistics sector, Mr. Agarwal has been regularly sharing his knowledge and experience at events nationally and globally and writing for leading financial publications. Vineet is an avid writer and speaker and regularly contributes articles on topical issues in leading publications. As an active member of prominent industry chambers such as CII, FICCI and Assocham, he has chaired several discussions including Working Group on Logistics, Planning Commission of India: New Delhi, CII Logistics Conference and Exhibition: Mumbai – India, CLM Annual Conference: Philadelphia – USA, Council of Logistics Management: India. A proactive philanthropist, he is devoted to the cause of HIV/AIDS prevention amongst the trucking community and primary education in the rural areas.
TCI group is India's leading integrated supply chain and logistics solutions provider. TCI Group with expertise developed over 5 decades has an extensive network of over 1000+ company owned offices, 9.25 mn sq ft of warehousing space and a team of 5000+ trained employees. With its customer-centric approach, world class resources, State-of-Art technology and professional management, the group follows strong corporate governance and is committed to value creation for its stakeholders and social responsibilities. TCI is also a part of World Economic Forum’s Community of Global Growth Companies (GGC).GGC is a platform to engage dynamic high growth companies with the potential to be tomorrow’s leader and become a driving force of economic and social change. TCI’s membership at GCC is a reflection of its consistent growth, its potential and its initiative to build global business and exemplary executive leadership.
Replying to Anil Mascarenhas of IIFL, Vineet Agarwal says, “India currently spends 12-13% of its GDP on logistics. TCI is aiming at a 15% compounded annual growth rate for the next four to five years. The major growth has come from the supply chain division and express division.”
What is the ground reality you are seeing as far as movement of goods is concerned.
Many logistics companies we speak with say the large infra companies themselves have cut down movement. There has been an overall decline this year in movement of goods. With the slowdown in the economy affecting manufacturing, there was a decline in the movements of goods across sectors like Auto, Commercial Vehicles and Heavy Engineering and capital goods sector. However some sectors have been doing relatively well like Pharma, FMCG, Retail etc.
As a company, since we have specialized verticals catering to the needs of various sectors, we were able to maintain a balance and protect our share of the business.
What is your view on the current state of the logistics sector?
The Indian logistics sector has been growing at an annual rate of about 10-12% to reach revenues of $385 billion by 2015, according to a Cushman and Wakefield report. The Indian Logistics industry has gained immense significance over the years owing to increased industrial activities. The sector is poised for a significant growth as companies across sectors, such as FMCG, Retail, Pharma and Automotive, are increasingly outsourcing their logistics requirement to third party and fourth party service-providers.
As the sector becomes competitive, companies would have to adopt innovative mechanisms in order to ensure optimum utilization of fleet and a faster turnaround time. One of the key elements for the growth of the sector is the usage of IT Systems, which TCI believes is ultimately going to emerge as the backbone of all logistics operations. LSPs will have to integrate their operations with the latest technology to improve the quality of service and offer competitive advantage. The concept of Third Party Logistics has swept through the logistics industry and transformed the way companies do business. 3PLs offer an integrated solution and various value added services.
However the sector faces several challenges due to poor conditions of storage infrastructure, inefficiencies in transportation, poor roads, a complex tax structure and a low rate of technology adoption. Pending issues with GST has also hampered growth. While logistics cost in India is about 13-14% of the GDP, it is 7-8% in developed countries.
What are some of the changing trends especially in the business module of your freight division?
TCI Freight is our largest and oldest division & India’s leading surface transport provider. It has an extensive and strategically located branch network, specialized fleet of vehicles and the latest technical and functional infrastructure. TCI Freight offers total multimodal solutions ranging from Full Truck Load (FTL) / Less than Truck Load (LTL) / Small Packages and Over Dimensional Cargoes through Road & Rail .The rail transportation services use bulk rakes, containers, wagons etc.
Over the years, TCI Freight has become more specialized and apart from conventional surface transport offers ODC and Rail movements. We have an impressive fleet of hydraulic axles and hi capacity pullers.
We are also focusing on offering customized primary distribution for various verticals like FMCG, Auto, Retail, Heavy Engineering with centralized operations so that our field offices can focus on business and customers. Other initiatives include KAMs (Key Account Management) structure for major customers to offer single window solutions and centralized customer care centre.
How has the company evolved over the years? Explain to us your business model and how do you see it changing?
TCI was incorporated in 1958, by the late Mr. P. D. Agarwal. The vision of Mr. PD Agarwal was then to integrate, unite and consolidate India through an efficient road transportation system across states and regions and makes goods accessible to most remote areas.
TCI today is a Rs 22 bn (Approx. $ 440 Million USD) company The company progressed from being a “One Man, One Truck, One Office” set up to becoming India’s leading integrated logistics solutions provider with a global presence and an extensive set up of 1000 plus branch offices, 7000 trucks and customized vehicles, 5000 + employees, offices in 6 countries, managed warehouse space of 9.5 million sq ft., and the ability to make deliveries in 200 countries. Today, TCI moves 2.5% of India’s GDP by value and is also a part of the World Economic Forum’s Community of Global Growth Companies.
TCI has evolved to offering the complete service bouquet right from supply chain consultancy, inbound logistics, warehousing/distribution to outbound logistics. Moreover dedicated verticals have been set up for rail, ODC and high priority verticals like auto, retail and consumer products, hi-tech, health care and cold chain.
Going forward, TCI will always be responsive to customer needs .Our future outlook will be to incubate new business segments and provide End to End Solutions where value adds can be bundled, as well as to develop customized product.
A high GDP growth, implementation of GST and infrastructure investment is expected to bring in a positive impact in the logistics sector. Further. A strong growth in the Supply Chain Solutions (SCS), Express (XPS) and core freight transportation divisions will drive the revenue for the next year as well.
What impact will GST Implementation have on your business?
With the introduction of GST, trade boundaries between states in theory will cease to exist and Companies can consolidate their supply chains which will result in seamless supply across the country. GST will also catalyze investments in Information Technology to help in avoiding delay & detention of trucks, which in turn will not only ensure fast delivery of goods, but will also catalyze the industry towards better fleet utilization - modern fleet where the optimum performance of the machine translates into revenue and not overheads. This will significantly reduce the vertical imbalance between the Central and the States by enhancing the tax base of the states. Also, implementation of GST in conjunction with state promoted development of logistics parks and free trade warehousing zones will speed up formation of regional hub-based infrastructure and an environment conducive for rationalization of the logistics network. This in turn will incentivize logistics companies to invest in assets and technology to align their service offering to complement the supply chains of their customers.
If documentation becomes simpler with the introduction of GST, it will lead to faster movement of cargo, since there will be lesser stoppages and lesser damages. Also, there will be an increase in productivity and less corruption. According to a study conducted by TCI and IIM – Calcutta, trucks in India move very slowly at about 20-25 kmph on an average. There are too many check-posts and screenings, which hinder movement.
With fuel prices swinging on the higher side mostly, how do you manage these in the freight charges?
Fuel is the most essential commodity in the logistics business constituting around 60% of the total logistics cost. Logistics companies generally have back to back contracts with their clients, and a certain amount of the hike percentage is passed on. Since fuel is the major component any increase in transportation cost will have a cascading effect on other items such as inputs and operational costs like tyres and spares, insurance premium and toll rates which can push up the freight rates further.
As a company we are somewhat hedged against the rise in freight with back to back contracts with our customers. But the rising cost is a concern. It is not always possible to raise the cost in proportion to the increase in freight and in such cases the company has to bear the burden of the increase.
The railways too have seen a hike in service tax. Are customers accepting without much resistance?
The hike is really not too much – in the range of 3% which will not have a major impact. However, any new taxes or a further rise in the existing service tax may lead to dissonance among customers.
What are you expecting in multi-brand retail in terms of refinement of supply chain processes in the country?
FDI in single-brand retail will have a significant impact on the economy as well as the Indian logistics industry. The investment will result in a pan-India expansion of organized retail and the country's geographical diversity will require supply chain networks to not only improve accessibility but also offer multi-modal solutions and value-added services at par with global standards. Suppliers too will benefit and the Indian SME sector will be assured of markets for their products and provide them an opportunity to scale up. The multi-store formats will take control of inventory, warehousing and distribution activities resulting in consolidation of services. International retailers would also replicate their global supply chain best practices including improved storage and handling activities from the pre-harvest stage to store shelf. This will have the added benefit of reducing the currently estimated 30 per cent wastage in the country.
Give us a segment wise break up of your revenues? Comment on your financials. What is the outlook?
The segment wise break up of revenues is freight contributes 43%, XPS contributes 27%, SCS contributes 24%, Seaways contributes 5% and other business contributes toward 1% in the revenue.
TCI is aiming at a 15% compounded annual growth rate for the next four to five years. The major growth has come from the supply chain division and express division.
The overall growth in each of TCI’s division has been promising and the business volumes and profitability have been in sync with the expectations of the company.
Tell us more about your joint ventures.
TCI has two Joint Ventures (JVs)
Transystem International Pvt. Ltd. (TLI): TLI is a joint venture between TCI and Mitsui & Co. Ltd. Japan which is the logistics partner for Toyota Kirloskar Motors Ltd. in India. TLI has been providing complete logistics solutions, from in-bound transportation from suppliers across India and other countries to outbound transportation of Complete Built Units (CBU) & spare.
Infinite Logistics Solutions Private Ltd.: A Joint Venture Company with Container Corporation of India Ltd (CONCOR ) for bulk multi-modal logistics solutions by rail and road.
What are your expansion plans? How would it be funded?
TCI projects a growth at 10-15% with improvement in yields through optimization and new segments. The organization maintains it margins by efficiencies, cost control and competitiveness and will continue to do so as part of its growth. We had earmarked a capex since the last 5 years and have spent around Rs 340 crore till 2012. We have a budget of about Rs 150 crore from the Board for 2012-13. This will be utilized in purchase of new vehicles/ship as well as development of hub centre and small warehouses and technology. About Rs 40 crore is for purchase of trucks, Rs 60-70 crore is to build new hub centers and warehouses, Rs 20-25 crore for buying vessels and other miscellaneous IT systems, among others. Effective use of IT is a very important aspect and TCI is investing to make the best use of IT to make the process more effective and efficient. The Company can smoothly fund the Capex with internal generations and by raising debt. The current leverage of the Company is quite comfortable at 0.90 : 1 to meet the Capex needs during the year.
What are the opportunities and challenges in this business today?
Companies have now become more aware of the benefits of outsourcing their logistics needs to specialized providers so that they can focus on their core competencies.
FDI in multi-brand retail has opened up exciting opportunities for this sector. With companies increasingly asking for end to end solutions from logistics providers, end to end supply chain management solutions assumes significance. Logistics providers will have to ramp up their capabilities in all areas of operations to meet or exceed customer requirements to stay competitive in the business. With international companies likely to get their existing logistics partners to India, domestic logistics companies will have to work hard to upgrade their existing infrastructure and also invest in skills upgradation of their employees.
Give us an idea of the size of the industry. How much is controlled by the top 5-10 players?
India currently spends 12-13% of its GDP on logistics. Road transportation accounts for the largest portion (65%); 10-15% of operators own a single vehicle while 70% of operators own 5-20 trucks; in outsourced warehousing 92% of the players are unorganized. Major categories of the Indian Logistics sector include:
Trucking: The Indian Trucking sector contributes about 4.5-5 % of the GDP. (TCI IIMC Jt Study 2009 & 2012). Only 20% of this is in the hands of organized players. Since the sector in India is highly fragmented with a non-industry status leaving it to fight all odds. On the one hand there are diseconomies of scale due to the small size of operators. On the other hand, these small operators are prone to flouting rules to ensure margins. Organized players have to compete with small operators putting an immense downward pressure on pricing. India also has one of the lowest freight rates indicating very low margins leaving transporters with few options to invest in assets and technology. Since the sector is yet to receive an industry status, it makes it difficult for transporters to raise capital and debt through organized banking and financial channels. Lack of skilled manpower is another concern for transporters.
3PL: A single logistics service provider manages the entire logistics function for a company. Third party logistics (3PL) is a business dynamic of growing importance all over the world. Global sourcing and growing competition among manufacturers have made the material movement complex, giving rise to third party logistics players. India’s 3PL market is estimated to reach revenues of USD 4.6 bn by 2013.
Express: Cost and time efficiency combined with expected growth in document shipments and high value products have created the need for a high speed express segment using road and air network. This segment is growing at 15-20%.
Rail: With a total track length of more than 64000 km rail transportation accounts for around 35% of freight volumes. The trend is different in US and China where railways carry about 48% of the total freight volumes. We at TCI opine that multimodal transportation should be encouraged where long distance transportation services may be provided by railways and the last mile connectivity may be provided by roads. However multimodal transportations need the coordination among different ministries i.e Ministry of Road Transport & Highways, Ministry of Railways, Ministry of Shipping and Ministry of Civil Aviation. Ideally an apex body should be set up with representations to different ministries to coordinate and facilitate the use of multimodal transportation.
What are the factors, which will drive growth for the industry?
The Indian logistics sector has now become a high-activity segment with considerable buzz around it especially as product life cycles have shortened and supple chains have got longer. Several factors have helped the growth of the logistics industry in India over the decade that includes a changing tax system, rapid growth in emerging industries such as automobile, pharmaceuticals, FMCG and retail and an increasing focus on outsourcing to a single vendor. This focus helps companies to react faster to market demands, keep a clear focus on core competencies and achieve economies of scale.
With impending change to move towards a national and uniform Goods and Service tax (GST) from the current state level value added tax (VAT), there would be increased demand for hub and spoke movements, large scale warehousing and specialized logistics services.
However, for the sector to flourish many changes are required. Some of the important areas include:
- Need for a comprehensive National Logistics Policy
- Focused investment into logistics infrastructure
- People skill development
There are several other areas like technology adoption, policy simplification for trade facilitation amongst others that require constant attention and focus. Several institutions are engaged with key representatives of the bureaucracy to push this agenda. It is important that all key stakeholders realize that the future growth of this industry will directly impact the growth and development of India.
Which are the growth segments for your company?
Value added and niche segments like Mutlimodal solutions offer the best avenues for growth. The company has specialized verticals that handle all aspects of logistics requirements. We can seamlessly integrate across verticals and offer multi-modal solutions across Air, Surface and Rail through our companies like TCI XPS and TCI SCS.
Does Inventory management bring in any savings? Which are the areas where cost compression is possible in the supply chain?
Inventory management is a very critical part of a supply chain of a company. Unutilized inventories often result in increased inventory handling, storage and infrastructure cost. They also affect working capital and increase susceptibility to damages, pilferages and wastage thereby increasing manpower costs. Absence of a system of planned inventory leads to low credit utilization.
There are a lot of areas where cost compression is possible in the supply chain. It is in effectively managing in-bound and out-bound logistics; ownership of the logistics chain, for example. Today, the ownership of the logistics chain does not lie with the manufacturer. It is actually with the supplier.
Has the issue of pilferage been more or less sorted for the industry?
The instances of pilferage are relatively less nowadays. Better roads, highways, technology, and instant communication have helped curb it.
What is your dividend policy?
TCI has been a regular dividend paying Company since inception. The annual dividend payout to PAT ratio ranges between 14 –18%.
What is your message to shareholders?
TCI respects its shareholders/ investors as one of the key stakeholders. It values their trust, confidence & commitment in the Company. It has been the endeavour of TCI to always reward its shareholders not only by way of regular dividend payment but also through wealth creation.
Are you planning any fresh fund raising for your expansion?
TCI already has its Board approved fresh equity infusion plans of about Rs.75 cr. The said funds are supposed to be used for any major Capex and/or M&A initiatives. However, in view of subdued economic & stock market scenario, the said equity raising plans have been kept in abeyance for the time being till the market scenario improves.
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India Infoline Research Team / 10:47, Aug 24, 2015
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