Agarwal believes the July Budget needs to focus significantly on infrastructure.
“The need for infrastructure for logistics is imperative. That’s the only way we can reduce the logistics cost by moving towards more multimodal logistics. And hence, infrastructure is very important,” he said.
This is the verbatim transcript of the interview.
Q: What’s the outlook for FY25. In FY24, you grew at around 6.4%, which was slightly lower than your range of around 8 to 10%. Do you see that going back to those levels in FY25? What’s your view there?
A: Last year was expected to be a little slow because of the impending elections and just the global market also slowed down, which had some impact on India. And of course, consumer sentiments in India were slightly weaker as well. Our trajectory of about 10 to 15% on the topline should continue this year, as well as 10 to 15% on the bottomline as well. So, yes, the margin was slightly compressed last year, but overall, we still did reasonably well. And businesses all grew and we had a very strong position to take this forward.
Q: Let’s talk about the seaways division though. There has been a lot of international uncertainty. People are talking about geopolitics, etc. What routes do you operate? And was there any impact of the crisis on your performance? How have freight rates fanned out in the seaways business?
A: Our seaways business operates domestically. We operate on the West Coast with ships operating from Kandla to Cochin and on the East Coast from Visakhapatnam, Chennai to Port Blair. So the international rates don’t directly affect us but indirectly they do.
We know that the crisis is happening right now in the Middle East. The Panama Canal recently had a crisis where they were struggling to have enough water for their ships to pass through, which is now resolved. But all of these have led to an increase in prices globally for ships as well, not just container aids. And that has an impact when we are trying to acquire ships. The impact is also there indirectly on fuel because fuel is a direct correlation to what is happening in the Middle East, for example. And that has an impact on India as well, where the bunker prices have gone up. So the fuel prices on our pumps have gone up. But on the bunker level, the prices have gone up as well. So there has been a slight increase in freight rates in the domestic sector, but not that impactful.
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However, the acquisition of ships has been very difficult. We’ve been looking to buy ships for a long time now, and we just have not found the right ship or the right quality. We’ve also looked at buying new ships, and giving orders, and we are in the process of discussing and trying to finalize some of that.
Q: What could be the reason behind the struggle behind the lack of ships for acquisitions? You’ve been placing new orders as well. But when do you expect that to fructify?
A: The new order that we had in place had got cancelled by the shipyard, because they had some issues with their banks. However, we’re in the process of looking at new orders, which should start happening and should be delivered if everything goes through by the middle of FY26. However, second-hand ships, which is typically what we tend to buy, are not available because they have been plying on several trade sectors, which are short trade sectors. We don’t buy very large ships, we buy little mid-sized container ships. So it’s the international crisis that has really driven these prices up quite substantially.
Q: So 26-27% margin in the shipping business is likely this year?
A: That’s right. I think that should continue. The business is stable, the capacity is, we don’t have extra capacity, but the rates are also stable, so I think this margin structure should continue.
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Q: I just wanted your thoughts on two verticals which you, recently entered into, the potential, the rate at which they are growing and the targets that you have for the next couple of years for this one. You did almost, Rs 90 crore in the coal chain business in FY24. That is a fast-growing business. What are your targets for this business over the next two to three years? And also chemical logistics, you entered that business last quarter as well. So what are your targets here in terms of revenue contribution?
A: The cold chain business is very exciting. I think in the next few years, we are going to see a dramatic shift of consumer trends towards more and more processed foods, as well as the fact that there are QSRs that are growing. Chemicals are requiring, themselves require a certain kind of cold chain, as well as even semiconductors might require a cold chain in the future. So the potential is massive, and we are looking to grow at about 20-25% compounded annual growth rate (CAGR) for the next two to three years. We made a substantial investment last year by investing 75 new trucks in this space. We’re adding cold storage capacity as well. And this augurs very well for the business in terms of the next 5-10 years. It’s a high-growth business.
The second is chemical logistics. Again, chemicals in India have been very much fragmented in terms of logistics. There have been more unorganized players that have been there. With China plus one strategy, we are seeing chemical companies also adding capacity in India, as well as Indian chemical companies going and wanting world-class transportation and logistics best practices. We are providing those now. We’ve been doing this for some years, but now we’ve structured this into a more definitive entity to grow this business forward. It is, again, an extremely exciting space as well.
Q: 10 to 11% margins is sustainable, is a reasonable target to achieve for FY25?
A: Yes, it is. That’s the short answer. However, being here, I would definitely like to take the opportunity to tell you that the budget needs to have a lot more focus on infrastructure. The need for infrastructure for logistics is imperative. That’s the only way we can reduce the logistics cost by moving towards more multimodal logistics. Hence, infrastructure is very important.
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