Allcargo Global Limited (AGL) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to All Cargo Global Ltd. Q1 FY27 Onyx Conference Call. We have with us the Senior Management Team of All Cargo Global Ltd., Mr. Ravi Jhakar, Director, Strategy and Group CFO, All Cargo Group, Mr. Stephen Dunn, Global CFO, All Cargo Global, Mr. Sanjay Punjabi, Investor Relations, All Cargo Group, Please note, this call may contain some of the forward-looking statements which are completely based upon company's beliefs, opinions, and expectations as of today. These statements are not the guarantees of the company's future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect the developments that occur after a statement is made. As a reminder, all participant lines will be in the lesson-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-to-own phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Jakar for his opening remarks. Thank you, and over to you, sir.

Yeah, hi. Thank you. Good afternoon, everyone, and thank you for joining us on All Cargo Global Limited's first quarterly earnings call, subsequent to our listing as an independent entity. We appreciate your interest in our company and business and look forward to discussing our performance for the quarter as we progress through this call. I'll talk about a few macro headlines and give you a bit of a perspective on how business is trending before handing over to my colleague, Stephen Dunn, for more financial highlights. Speaking of the macroeconomic environment, we are all aware that there's a crisis going on in the Middle East, which is impacting trade and is naturally impacting our volumes also negatively, And that has remained so for the last five to six months. At the same time, we have seen corrections in inventory levels, and that has led to some momentum in freight flowing through the other freight lanes. And as an outcome of that, we have seen sequential improvement in most freight lanes for our business, whether it's transatlantic, trans-Pacific, or some of the inflation freight lanes as well. As an outcome of that, we have seen incremental volumes in both LCL and AIR of the magnitude of about 5%, while on the FCL, we have seen a quarter-on-quarter growth rate of about 1%. Marginally lower growth rate on FCL is also coming from the fact that FCL business has higher contribution of the Middle East Africa region, which is impacted by the war, and therefore the negative pull of the Middle East region has a slightly more bearing. Otherwise, broadly, the trend is similar in terms of seeing volume expansions sequentially across all the trade lanes, across all the products. The other element which has now remained as a constant in the background is the Russia-Ukraine war and some of the other minor geopolitical disturbances, which have ensured that the global economic environment has remained more flattish, and it hasn't changed much over the last 12 to 18 months. However, we do see that over the last three, four months, there has been marginal improvement in the trade environment, with volumes picking up for some of these key trade lanes. And then, like I mentioned, perhaps half of our growth is contributed by market And half of our growth in this quarter is contributed by market outperformance. The other aspect that I would like to highlight is that the capacity on the carrier side has been somewhat more constrained with all these disruptions. And as an outcome of that, the freight rates prevailing over the last few months have been on the higher side, which This is what reflects in our revenues as well as freight being passed through in some of our operating costs as well. What we have been able to do besides marginally benefiting from these tailwinds over the last few months, we have also focused a lot on company-specific initiatives on how we could keep our costs under control and not just mitigate the inflationary But also, perhaps, bring down the costs using opportunities on both techniques and improvement strategies. Some of these geopolitical events are completely unpredictable, and rather than pivoting any of our plans to be driven by an end to the Middle East conflict or end to some of the other conflicts, our focus entirely remains on operating in the environment as the business opportunity presents, and then trying to stay focused on improving our efficiency. We have brought down our loss-making trade lanes, focused on container utilization, and all of these factors contribute to improve combined with our admin costs. I shall be on the operating environment and some of our core business strategies. And before we come back to my colleague, Stephen Dunn, the CFO for the company, to take us through some of the financial highlights.

As highlighted, improving trade conditions at 20.9%.

Thank you very much, sir. Now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles.

Participants, if you wish to ask a question, you may press star and 1.

Ladies and gentlemen, if you wish to ask a question, you may press star and 1 on your touchstone telephone. First question is from the line of Kiran from Tabletree. Please go ahead.

Thank you so much for the opportunity. I have two, three questions given this is the first call. Sir, I know it seems very familiar in terms of talking LCL and all the industry terms. If you could just explain, given this is the first con call exclusively focused on all cargo global, if you could just explain the business model in simple terms for everybody to understand because this gets recorded, it's in transcripts so people can read about the business model. If you could just explain for the next two, three minutes of how the business economics and the business model work, that would be really helpful. I know we've read through the presentation in terms of end-to-end from shipping to air freight, But just in your own words, you can just explain that we really answered.

Sure. If you can add your other questions as well so that we can respond together.

Sir, the second question depends on the answer on the first question, so please go ahead.

Yeah, so primarily, you know, we operate in the international shipping and air transport business. As you can see, the mainstay of our business is L3L consolidation, which is less than container load consolidation. What we do is the cargo either moves by air, which is what is captured in the air freight part of our business, but it's a small segment in our business. The ocean freight gets carried in containers, as you would know. There are two kinds of businesses in there. One is full container load, wherein a customer is booking the entire container for moving from point A to point B. And the second part is LCL, or Less Than Container Load Cargo, which means that somebody might be booking one cubic meters or five cubic meters or two cubic meters of cargo. And we receive these cargos across, you know, a global network of 2,400 direct trade lanes that we operate and, you know, many more indirect trade lanes that we operate. So think of it as a somewhat like, you know, how you are on an airline, you're booking a seat and not charging the entire aircraft. So LCL is more like charging the entire aircraft, which is like charging the entire container, saying that, okay, I want to move my cargo. And LCL is like you're just buying a seat on the plane. And with, of course, it's not being one standard seat, but you're almost like filling up different cargoes into the box. What we do is we run committed services, which means that, let's say, every Friday, there would be something going from port A to port B, or every 15 days, or sometimes daily, we would have something going from, you know, Shanghai into Tokyo. So these are like regular salings that we operate across different port pairs, and customers, which in case of LCL business are largely forwarders, book this through us. So that's the core business model in terms of what we do. The biggest advantage here is that for running these services, you need to have enough load to provide regular services, which becomes a huge entry barrier. And therefore, across these markets, there are only a handful of global players, and we are the market leaders globally, holding about 14.5% market share in this business. Over the last about seven, eight years, we have focused a lot on technology. We are perhaps the only company in this domain operating with our own in-house operating system, our own digital platform, which now accounts for 70% of our export bookings, and our own in-house teams on data science, AI, and other tech initiatives. So an unmatched global scale market leadership in volumes that we carry And the leadership in tech and digital aspects is what puts us ahead of the competition in an environment which also brings in challenges in terms of anti-various industry and network. Perfect.

Now, this is really helpful. Thanks for that. Sir, the second question that I had was given, and this is probably a recurring question to you in private conversations, but given the large shipping lines and a very heavy, busy shipping line, there is what you call insourcing. So the Merck of the world insource a lot of heavy-duty shipping lines, leaving third-party shipping lines like ours into lower-volume traffic is what I basically understand. Again, this is my very rudimentary fundamental understanding on the business. If you could help correct the notion or maybe throw a nuance on the notion about these large shippers themselves insourcing a lot of very high-volume, high-margin business, leaving only the sort of crumbs, so to speak, on the shipping lines for people like us. Is that the wrong understanding? Help me correct that, please.

Yeah, I would comment on that, that that is not the correct understanding. And not just this business, I think, you know, any business in the world across manufacturing or services will always have a high-volume, low-margin or a low-volume, high-margin business. You know, you tend to operate on thinner margins when it comes to, you know, customers who buy at scale from you. And typically what tends to happen is that some of the biggest accounts which run into possibly several hundred thousand TUs of requirements would engage increasingly more and more with direct shipping lines, but those are high-volume FCL business that is conducted. Our mainstay is LCL. We are talking about moving cubic meters of cargo, and this is the highest profit margin business in the entire ocean freight segment. And shipping lines carry a very small, tiny fraction of this business.

Got it, sir. Understood, understood, understood. Then the easier and more local question, sir, how confident are we to kind of do a gross margin of 22%, 23% in this business? Do you see a large section of business still continuing to gain share on LCL or other modes of transport that we have found, the niches where there's a high margin, which helps us push the gross margin to 22-23%. Because our cost base right now roughly is 2,800 crores per year, sir. I'm analyzing Q1. Maybe there will be some efficiency of 100-150 crores because of AI and all the optimization that you're seeing. So, just could you paint a picture around the gross margins and the cost base as well? That's my final question. I'll give you back in the queue.

Yeah, so in our business, gross margin honestly does not hold any significant value because gross margin means your profit in percentage terms. In our business, a significant amount of our cost is ocean freight, which is extremely volatile and can vary significantly, and this largely serves as a pass-through cost. And therefore, you know, typically in the higher freight environments, you would tend to see that margins would come down, while in reality that's a better situation for us because we are making, you know, higher returns on capital employed and we are generating higher profits as well. While on the contrary, when freight rates tend to go down in, you know, subdued economic environment, our gross margin could expand in percentage terms. But in reality, that means that we are operating on, you know, lower gross profit and the profit also goes down. So the way we have always explained this business over the last 20 years earlier as part of Alcaba Logistics and now as a new company is that you have to look at gross profit per cubic meter or gross profit per TU. That is how we even do our operational budgeting. So revenue is not a relevant line item, interestingly, in this business, and what we look at is we try to maintain a gross profit per cubic meter on the LCL business, We have gross profit per TU on the FCL business, and that is what we call the yield, and that yield is what is the driver. So we typically, even when, let's say, any particular country or branch is making a budget, they would say, this is the volume which I want to do, and that's this yield, which means that this is the gross profit I want to achieve. Revenue is often an implied number because the ocean plate rates can fluctuate, so that is how we look at it. So that's how one should read through the numbers as well, looking at gross profit relative to...

So, you're talking about yields then. So, essentially, the yields normalizing is when we'll actually see the numbers. Got it. From a cost-based perspective, are we at 2,800 crores per year? Is that the rough number that we should model in?

So, I would say that, you know, 15% of our business sits in India, approximately. 80% to 85% business sits outside India. Now, the biggest cost contribution comes in from ocean freight, which largely operates in U.S. dollar terms. And the local stock and admin costs operate in local currencies. A significant part of that would be in euros in European countries. And USD is the second most important currency in the global basket, driven by U.S. as well as many other countries which have their currencies back to USD or are range-bound. So the cost in rupee terms can tend to vary depending on where rupee is. Usually, internally, we use a dollar because that's the more dominant currency in both cost and revenue sides. So typically, when analyzing trends, a dollar could be a better currency to look at for, you know, comparing, you know, past year versus this year as compared to rupee Because rupee would tend to be more volatile in context of the global P&L.

Got it, got it, got it. So you would much rather say cost terms than dollar terms. I'm just trying to understand, sir, in terms of, I mean, outside of the rupee duplication angle, I'm just trying to understand, will we be roughly here in terms of cost? Because your presentation talks a lot about cost-cutting measures in AI and everything else. So I'm just trying to understand what the percentage shares that you're looking at.

Yeah, so one line response to that would be that our intent is to keep the costs flat in dollar terms, and so therefore only increase that you would see would be on account of, you know, translation of the global costs from U.S. dollars into rupees as we report in Indian rupees, but then there will also be corresponding benefit on the revenue side because they are also cost as a line item, you know, take off the rupee depreciation.

Thank you.

Before we move to the next question, a reminder to the participants to ask a question, you may press star and 1. Next question is from the line of Chaitanya from Amaltas. Please go ahead.

Hi, good afternoon, and thank you for this opportunity. This is in continuance with the question that the last participant asked. This is regarding the gross profit per TEU that you discussed. I just wanted to understand that from the numbers, if I look at your historical numbers, it seems like after the boom of COVID cycle, these yields have fallen quite significantly starting FI24, and I think in FI26, I think you made a loss. So, I just want to understand what are the cycles and is this industry cyclical? Because if I look at the longer history, it doesn't seem to be, but after COVID, the numbers seem to suggest that it's cyclical. So, if you could just talk about it.

Yeah. So, a few comments in response to that question. First, as you could see from the most recently reported numbers, the volumes have been down across products. As we reported, we have seen approximately 4% decline in LCL volumes and a double-digit decline in the AR and FCL volumes, which means that volumes came down across the board, and despite that on an year-on-year basis, the gross profit has moved upwards. So, you know, that kind of speaks about the direction in which yield has moved. There were a couple of years when the yields were, you know, significantly high due to post the COVID period. So, those, you know, about 21 to 24 months, you could, to a certain extent, call out as an exception because the trade rates had significantly increased and that led to higher margins in FCL as well. But on an overall basis, if you look at, you know, leaving those two years out, the yield has continuously improved over a period of time. It's largely the volumes that have remained subdued in the last, you know, I would say almost now a couple of years on the back of the economic environment and further caused by geopolitical disruptions. But on the yield side, we have actually moved upwards. And like I said, even in the most recent quarter, if you look at the volume in the gross profit, then the yields would point towards a positive number. And the second thing, you spoke about the cyclicality. So I would say that, you know, it does not follow any cyclicality as such, but it closely shadows the economic and the trade environment. And therefore, any disruptions could come into play, you know, such as those caused by tariff barriers last year, you know, war in the Middle East this year, some of these would have a bearing on the global economic and trade performance, and that would reflect in the, you know, in the performance of the business as well. Now, naturally, over the longer history, such events have been, you know, less frequent. And what we have seen both on the positive side on economic boom driven by economic stimulus during the COVID or, you know, the downward trends on account of geopolitical crisis, both negative and positive events have become far too frequent over the last five years. And therefore, there seems to be higher volatility in the global economic and trade environment. But I would say that now, at least over the last couple of years, we have seen the industry bottoming out in a way on the volume side. And I would say that our base case is that we assume that nothing much changes for the next 12 months, and which is why we try to increase volumes primarily by chipping in a So our focus is more inwards because the excellent environment is not in our control, but it's rather than a cyclical, it's more of, you know, significant Again, disruptions and positive and negative volatility that we have seen, which hopefully should be lesser, but, you know, I mean, I could not really comment on that, and there's no, you know, certainty on how the geopolitical environment shapes up. Regarding the last point, I would like to highlight that, you know, acquisition in our business is largely on account of, if you go back into the history, the way the company has grown. We have also grown on the back of various acquisitions, and therefore, you know, there's goodwill on the books. There are a lot of other non-cash assets which also depreciate. As a business, it's an extremely asset-like business with hardly any capital assets owned, or even the CapEx investments are a tiny fraction of the company's P&L, and therefore, most of the depreciation would be non-cash in nature. And in fact, over the coming quarters, we intend to provide a bit more perspective on that, which is why while one could look at negative numbers, the business has actually generated cash in the recent times. And even on an overall basis, if you look at the last couple of years, we have sequentially brought down the debt on our books, which has been an outcome of a cash generation with both operating business initiatives and plus some of the asset divestment initiatives as well. Yeah, so I hope I was able to give you some perspective on your question.

Yes, very helpful. Also, I wanted to understand the difference in the unit economics between the LCL and the FCL and the air cargo business. And you may correct me if I'm wrong, because I don't have the entire data set with me. It seems like since quite a bit of years, I would say since 2016 or 2017, the LCL volume seemed to be flat, and all the growth has come from LCL and Air Cargo. And I may be wrong, because I don't have the actual numbers with me, but this is what I could deduce from the annual reports. So, A, what is the difference in unit economics between these businesses, and has LCL stagnated, or has that also been growing? Is there a structural issue over there or not?

Yeah. So, one, you know, naturally, LCL being the most niche business would tend to be having highest profitability as compared to FCL, which would be lowest of the three products, and A, it would sit somewhere in the middle. In terms of the growth rates, you would find FCL business having higher compounded growth rates primarily on the account of coming on a low base, but like I mentioned, in the addressable market globally, we hold about 14.5% market share in LCL. In FCL, that number is not even 1%, so it's a highly fragmented market, and our contribution or share is much smaller. In terms of the growth, actually, if you would observe, you would find that the business had steadily grown on the LPL business as well, but over the last two years, there's been a contraction of volumes, and now in the most recent period, like I mentioned, over the last six months, the Middle East crisis further had a negative impact on the volumes, and which This is what has led to, so if you see where we stand today, we are almost 10% below on the LCL volumes to where we were a couple of years back. In the last two years, the environment has been quite worse. The actual volumes possibly for the industry have come down by almost 13% to 14% because we will be outperforming about 3% to 4% roughly or maybe slightly more than that on the overall volume side. So, I would say that the decline in the volumes is across both LCL and FCL over the recent couple of years, but because we were a dominant market position in LCL, that impact becomes immediately visible in our P&L, while FCL, because we were expanding into new countries, we were opening new markets, we were growing at a much higher growth rate of, you know, say, 18-20% over a period of almost 7-8 years continued. So now when you reduce 14-15% from 20, you still get to 4-5, but on the LCL side, you would typically tend to see a negative impact. So I would say it's not a stagnation, but it is growth in different dimensions and then offset by the subdued economy. So, for example, the decline in volumes would have come from some of our most mature markets in Europe, in the recent times even US, compared to volumes which we were handling. But at the same time, we have seen growth in emerging markets in Latin America, Southeast Asia, India as well. But the two have been kind of offset in a certain way, and as the economic situation rebounds, you should see the growth come back in. In general, the thumb rule is that the LCL business tends to grow, which has been true for the last 10 or years and is likely to be true for the next 5-10 years as well. The LCL business tends to grow roughly at about 2x the FCL growth rate. Now, that is the opportunity for us that in LCL, because we already have a dominant position in some other markets, if the industry is growing at 2x of the FCL growth rate, maybe we can grow at 2.5x or 3x, somewhere broadly in that range. But in the FCL, even if the industry is growing at x%, we can even grow at 3x, 4x, or 5x, purely because we are still not present in many markets and many opportunities are there. So, in terms of growth rates, FCL potentially can be higher growth rates, but then LCL is what is the most niche business, highest profit margins, lowest working capital, and therefore the most profitable business, and hence the mainstream and also the most important strategic focus for us.

Okay. So, if I understand it correctly, LCL would be the trigger for the profit numbers to start showing up, right? The growth in LCL volume.

Absolutely.

I have one more question if you don't mind me asking or I can join back the queue as well.

Sure, you can go ahead. I'll try to be brief so that we can have other questions also come in.

Again, this is a question you mentioned. It's an asset-led business, but you have quite a bit of debt on your books. So, A, is that against any assets or acquisitions or is that working capital debt? And in terms of return on capital, what is your internal target for return on capital in this business? What do you think can be generated from the operations that you run compared to? Because your historical numbers have been quite good. So, just trying to understand what we should expect going in the future.

Yeah. So, as far as the debt is concerned, you know, it has primarily been one towards the working capital. And secondly, it also pertains to some of the acquisitions historically, as the business historically did acquisitions and also expanded the business and the working capital while continuing to pay out dividends to the shareholders. So those are the two factors contributing in there. In terms of return on capital employed, I would refer to any immediate guidance, but if you would look at the historical numbers on this business, the return on capital employed has been always north of 20%, and definitely we need to be, you know, heading back to that zone broadly. Exact guidance I would refer to, maybe we'll try to, you know, provide in the coming quarters as we put across projections for the future years.

Okay. Thank you so much.

Thank you. Next question is from the line of Dhruv S from Leo Capital. Please go ahead.

Thank you for the opportunity. So my first question is, sir, could you help us understand the sustainable margin profile of the business? Historically, margins have been like we have seen volatility with trade rates and trade cycles. As the business normalizes, what do you see as a sustainable long-term EBITDA margin and what are the key factors that could drive if it's higher or lower from here?

Like I mentioned, the gross profit margins in terms of the percentage terms and by the same logic, EBITDA margins in percentage terms are not very relevant to the BNL in this business. In terms of the gross profit per unit of volume, we believe that the current levels can be sustained. So any incremental growth that you would see in volumes would be direct multiplier on the gross profit. And on the cost side, the intent is to keep it flat in dollar terms. And therefore, that should create an operating leverage and an impact on the EBITDA. That's the way to look at this business, I would say.

Okay, sir. Thank you. My second question is, given the ongoing geopolitical disruptions, changes in trade routes and increasing supply chain diversification, how are you thinking about the medium to long-term growth opportunity for the business? And do you see this disruption as a structural opportunity for volumes and market share, or are they likely to remain near-term headwind for growth?

Yeah, so I would say that, you know, like I said earlier, geopolitical conflicts cannot be predicted, at least by us on the business side, and therefore we go in with the assumption of no significant growth over the next 12 months, and we plan our strategy based on that to chip in at the market share and control more on the cost side. From medium to long term, personally, I would say one would tend to, reading on various expert, you know, commentary, one would expect the Middle East crisis to end at some point in time, whether it's three months or 12 months. No one knows, but since you talk about mid to long term, which is by minus three to five years, I would think that this crisis would be behind us. And hopefully there should be some revival in the economic environment, And that should mean that, you know, the trade flows can possibly regularize. From our business perspective, at this point in time, we are focused on cost. And currently, with all the acquisitions and organic initiatives, we are well-present across all the key markets globally. And therefore, any tailwind that comes in by way of economic growth, we should be well-positioned to capture that.

Okay, sir. Thank you so much.

Thank you. Participants, to ask a question, you may press star and 1. Next question is from the line of Ahmed Madha from Unify Capital. Please go ahead.

Yeah, thanks for the opportunity. I hope I am audible. First of all, understand the business as a whole in terms of volume set. If you look at global trade, though there have been deception, but the volumes have been broadly steady if we read from the top shipping companies globally. But for us, the volumes have declined. If I look at year-on-year basis, LCL about 4%, XL around 13%. So what explains the volume degrowth compared to the broad-based global trade, which has been more or less flat? How should one understand this volume degrowth?

Yeah, so when you're looking at the global trade, you know, often the commentary includes both the loaded and the empty repositioning containers as well. As far as the LCL business is concerned, it has de-grown by a higher number than what we have de-grown by, if you look at a near-end region at a global level. On the FCL side, the de-growth on our numbers for this quarter would be higher because we have a significant contribution coming in on the FCL business from Middle East. And that's one region which has been worst impacted by the current disruption. So that is why I would say the overall global decline in FCL business would have been lower than us. But on the LCL, on a year-on-year basis, the industry has declined more than our decline on the year-on-year basis.

And how should we categorize the LCL business volume growth fundamentally over medium to long term? There have been a lot of views in terms of getting disrupted because a shipper will want to integrate their service also into their business. And then there are other arguments that you provide a lot of services, a lot of operational intensity which goes into your business. So how will you categorize the volume growth of your LCL business fundamentally over medium to long term? And how do you see the normalization of volume growth happening in the current fiscal year as well?

Yeah, so as far as the LCL business is concerned, there is absolutely no alternative except air freight, which is a much more expensive alternate. Somebody who is wanting to ship one, two, or five cubic meters of cargo, and to give you a perspective, an average shipment size is roughly somewhere in the range of three to four cubic meters in our global business. Somebody wanting to ship one, two, or five cubic meters of cargo has only two options, to ship it by LCL or to ship it by air, when you're talking about the cross-country trade. So there are no alternatives for shippers in terms of the mode of transport. In terms of, you know, who they could use, like I mentioned, it requires, think of it as, you know, running an airline network. Now, if you only have demand for 10 passengers every day from, you know, city A to city B, you cannot run a flight. So, for an airline to operate, you need to have enough demand to be able to deploy an aircraft. Similarly, for a shipping company, it needs to have enough demand on that particular trade lane to be able to deploy a daily, you know, once in three days or a weekly or a fortnightly sailing. And that requires a tremendous scale of operations because having that consistent demand is not something which can be replicated in short time and which is why if you see the global networks, All the key global players are the ones which you can date back to the last century. So, that's how I would put it across, that there are no alternatives per se. Within these set of LCL players such as us and others, those who can continue to drive operational efficiencies, reduce costs of service, and embed technology to integrate well with the shippers, those would tend to win in the long term.

For FCL, XOF, Middle East, what will be our volume degrowth? You mentioned that Middle East had an impact for our overall FCL volume growth. XOF, Middle East, can you give a range? What will the number be?

So, barring the Middle East, I would say, you know, we have grown across our transatlantic trade. We have grown into Latin America. Those are the two key markets which are on the positive side of the FCL business. Middle East is what has been low, which means that both volumes in and out of Middle East have de-grown significantly, and also that has an impact on the other regions to some extent. For example, North Asia, which includes China for us, is the biggest contributor to FCL volumes into Middle East, so they would also have seen a negative impact on that. But some of the other markets like, you know, transatlantic and business into Latin America has seen growth for us over the last year on a year.

And can you comment on how do you see the near-term volume growth? Should it improve from the Q1 base or the current volume should more or less sustain?

So, like I mentioned earlier, the base case that we are running is a continued marginal uptick in volumes for the next few months, which is a typical trend in the industry. You tend to see marginal uptick, you know, up to a couple of months prior to Christmas, and then the volumes tend to get flatter or, you know, be a little subdued around the Chinese year, and they tend to pick up after that. Now, we expect the similar trajectory to be followed this year, but no substantial growth, given that some of the challenges on the economic side still persist as an overhang. So I would say marginal incremental volumes is what we are forecasting. And on the back of other initiatives, you know, slightly more compounded positive impact on the profitability side would be our anticipation.

In terms of the freight cycle, if I go through the company's comment on earlier, the group was fully consolidated, that it is a pass-through in terms of freight rates. And we have seen freight rates materially growing somewhere between 30% and maybe it will be different based on geography. How should one look at our gross margins in terms, in context of the global freight cyclists? Should we try to correlate? Should we not correlate? And if not the case, then what can enable us to improve our absolute gross profits, which will eventually mean that overall bottom line is healthy? So how should one think about it?

Yeah, so I think, you know, like you rightly pointed out, the gross, absolute gross profit is what we focus on rather than the percentage margins. Now, what happens is two things here. One, on the revenue, while it's a pass-through cost, you know, it tends to, does have a close resemblance to the P&L. I'll explain to you why. On the LCL business, if the freight rates are high, you would tend to have more demand because a higher freight rate means it's a higher demand. Now, higher demand and less supply means that we are in a situation to improve our container utilization. Now, you know, our cost per container, what we pay for to the shipping line is the container. What we charge for is the cubic meter inside the container. So, typically, what we tend to observe is in higher freight rate environments, we tend to see marginal improvements in our utilization, which leads to improved profitability. On the FCL side, that, to some extent, has a profitability bearing not exactly proportional, But it has some bearing, as we try to factor in the working capital cost and, you know, take the quotations up or down. So in a typically higher freight environment, EPSIL margins also will tend to expand. So on the back of increased utilization and on the back of slightly improved margins, you would find a correlation between the profitability and the freight rates. Though in theory, we are moving the freight rates as a path-through cost. But like I explained, these are the factors. In terms of the absolute gross profit, you know, if you observe over the last seven, eight years, we have improved our yield considerably, which is the gross profit per unit of volume that we handle. And how we have done that is a multitude of factors. You know, earlier, 10 years ago, we were largely doing ocean port-to-port. We have gone into much more road deliveries. We are offering first mile, last mile connectivity on many of these cargos that we handle. Then we have created scale at which we are able to negotiate better terms with the warehouse contractors where we operate for consolidating and deconsolidating the stuff in the boxes. We have done a lot of network optimization. Significant percentage of business historically could be sitting in the loss-making trade lanes because of utilization not being better. A lot of technology, process, practices have been used to significantly improve the gross profit per unit of cargo that we handle. And that is something which we believe would continue at the same level. And the expansion in absolute gross profits in the months, quarters, or years to come would be primarily driven by volume. So our intent is to maintain the yield that we have currently and grow volumes, and which leads to the gross profit expansion, and while maintaining the cost to create an operating leverage on the profit. That's the outcome of strategies that we are working on. So, like I mentioned, if you see Q on Q, our volumes moved by about 4.5% to 5% in LCL and A, and the FCL moved by about 1%. As we have historically stated, you know, the LCL and the LCL breakup is about two-thirds, one-third, which means that on a compounded basis, the direct correlation GP should have grown somewhere in the range of about 4.1%, 4.2%. And compared to that, the gross profit has grown about 6.6%. That extra 2.5% is largely coming from slightly, you know, a marginal impact of the freighted environment and some of the efficiencies brought in as well.

And lastly, on cost structures, I mean, we had about $705,000 SG&A if I combined the OPEX and employee cost. That run rate should remain the same. It shouldn't go up. Is that a fair assumption to consider?

So, I think I responded on the same question a while back. So, just to reiterate, our intent is to keep the cost, you know, flat in dollar terms. Dollar is the more standard operating currency, both for our revenue and operating costs, with, you know, on the employee side, some costs sitting in European Union, which have been appreciating, and then some sitting in India, and some other markets have been appreciating. On a holistic basis, dollar X is a single most relevant currency on our basket of, you know, revenue and cost. So in dollar terms, our intent would be to keep the employee expenses, you know, and the admin expenses flat over the coming, you know, couple of years. That would be the intent.

Just last question. If I look at the historical profitability, even pre-COVID, there were a couple of years during COVID which were phenomenal for us, But pre-COVID for this business was more or less stable in terms of what EBITDA you are generating. And even you mentioned about 20% ROC profile of the business steady state. But to achieve those historical metrics you had in terms of EBITDA and what ROC profile you mentioned, the delta that needs to come into P&L is like significant. So how should one imagine that should be coming? Will that take a long journey in terms of improving volumes, rising costs, etc., or the normalization can be relatively quick?

That across, you know, on the trade normalization, in terms of the absolute quantum, you know, we should be in the right range, provided we see another, you know, I would say just a ballpark, maybe faster, because market share expansion only happened at a certain location of those two were defined, you know, where, so if the economic environment changes favorably, we could reach there much quicker. If it remains like this, it may take, but there's a broad ballpark target at which, you know, things would start looking very different.

Got it. Thank you so much.

Thank you. Participants, if you wish to join the question queue, you may press star and 1. Next question is from the line of Kiran from Tabletree. Please go ahead.

Yeah, thank you so much for the follow-up. We keep talking about gross profit per yield and EBITDA, sorry, gross profit per turn and yield. Is there any particular yield number that we look at? I mean, from what I can read, we have 14,700 TUs in FCL. LCL, if I divide by roughly 30, we have 68,000. So just trying to understand, are you looking at any particular yield number that you should, you know, kind of model in, in terms of a range?

So, you know, so I would say that the CBM and TU yields are very different because LCA and SKL business are fundamentally different. And what we do offer, you know, for better insights to our investors and, you know, analysts is we provide a monthly update, which would, you know, come in since the company has now got listed earlier. We used to provide it as a business update. Now it will come in for the company update starting this month, wherein we provide, so while we cannot provide absolute numbers, we provide a scale, which means that if the yield was 100 one year ago, how has that progressed over the last 12 months? So that can give you a good directional trend on the yield across LCL and the FCL business, which we should be providing in our monthly update that we shall release from the company's side.

Got it. Got it. Understood. Then the second follow-up, sir, I mean, we spoke about being asset liais, but we have a short-term debt of about 900 crores as of March 26th. Actually, 1,300 crores. I'm not considering the lease liabilities bit of it. So we have short-term borrowings about 918 crores. So just to understand, when we say asset life, this doesn't include working capital because 1000 crore debt, approximately 1000 crore debt is quite a huge number. So that is one part of the question. The second part of the question is, given we've done a lot of acquisitions, amortizations and everything else, how does management think about acquisitions going forward? Are we saying, look, let's integrate and grow the business first for the next 18 months, and then look for acquisitions, or will you continue to acquire business when you come across? So, those are the two parts of the question.

Yeah, so to respond on the first part, the debt is largely working capital debt, and, you know, we've also historically invested in acquiring different businesses, And capital has been deployed towards that, while profits have, you know, to a large extent also been distributed and paid out as dividend to shareholders. In terms of the acquisitions, we have done strategic acquisitions over the years to enter into new products or new markets. At this point in time, we do not foresee any need for any further markets. We are present in all the relevant markets. We are present in all the products that we want to be. And with the network strength that we have over the last couple of years, we have grown more organically. So even in new markets, we have entered by hiring new teams for new products as well as for entering into new markets. So at least in the near term, the strategy is to grow by investing in people and not buying businesses.

Perfect. Thank you so much. And this 900 crore of working capital debt, are you looking to reduce it or will it be steady state here?

So, you know, some part of this is also not, you know, interest-bearing as it gets offset by the cash sitting on books as well. And being a global company, you know, sometimes moving cash across borders may not be most efficient. So we do work with a single global bank in many countries, wherein cash sitting on the books also acts as a cover against this. So, you can also look at the cash balance against this debt, and therefore, the net debt is, you know, almost – so, almost 40% of this or slightly more would also be the cash sitting on books. So, therefore, the net debt is effectively 60% of the number that you mentioned. Further, we intend to increase that, you know, significantly over the next two, three quarters itself by, one, focus on reducing the working capital on the balance sheet. Secondly, some non-core asset divestments, you know, some of the real estate that we may still own, which we don't need to own, and a few other measures on the working capital improvement. See, the net debt number, which I would say call out as the more relevant number looking at debt net of cash, should come down, you know, significantly over the next two to three quarters. And we'll provide an update in the coming quarter and subsequently on how the net debt has trended for this business over the last trading four quarters.

Thank you so much, all of us.

Thank you. Participants, to ask a question, you may press star and 1.

Next question is from the line of Ahmad Madha from UniPi Capital. Please go ahead.

Yeah, two, three follow-ups. Firstly, debt number. In the presentation, you have disclosed standalone net debt number as of June end. Can you give what is the console gross debt and net debt as of June end? Secondly, you spoke about selling some of the known core assets. I mean, since the listing, there was one such transaction which we saw with your group company. Can you elaborate a little bit more? What sort of assets, what sort of size one can consider those assets to be?

I would say these would be some of the, you know, warehousing and office assets that we own, which combined could be, you know, just a very ballpark number would be somewhere around $10 to $15 million all combined.

Okay, $10 to $15 million. Sure, yeah, that's it from my side. Thank you.

Thank you. Ladies and gentlemen, we will take this as the last question for the day. I now hand the conference over to Mr. Ravi Chakar for closing comments.

Thank you, everyone, for joining on the call. We remain excited talking about our business and providing more perspective to our shareholders and analysts. I would strongly recommend that you be in touch with our investor relations team. Sanjay Punjabi is the person to reach out to. If you have any, you know, insights on the business in terms of, you know, we'll be always happy to hear from you and take your feedback. And also, any questions that you have, we tend to not, you know, provide any selective information, but always open to understanding what questions come more often to investors and analysts' minds. And based on that, continue to update our quarterly presentations to include more and more insights as we can help you to understand the business. So please feel free to reach out to Sanjay and the team, and we'll be happy to provide more details. Yeah, thank you all.

Thank you so much, sir. On behalf of All Cargo Global Limited, that concludes this conference. Thank you all for joining us, and you will now disconnect your lines.