Delhivery Limited (DELHIVERY) Q1 2027 Earnings Call Transcript

Thank you, Dhruv. Thank you, Ambit team, for hosting us. And thank you all who've joined today on a Saturday evening. We'll make a slight change from our usual sort of practice so far. I'll just start with a quick summary of the quarter. Our investor presentation and analyst presentation is already uploaded. So instead of going through that, after a short summary, we'll just jump directly into questions and answers. So, very quickly, I think looking at Q1, it's been a pretty solid start to the year. Overall revenues for quarter one came in at nearly 3,000 crores, up about 28% year-on-year compared to Q1 FY26, and EBITDA came in at Rs. 156 crores, which is about a 5% growth year-on-year. Q1 was an interesting quarter because we faced several new challenges as a business. I think there have been chronic labor shortages across the industry throughout the period of April, May, and June. We also had significant disruptions due to both elections as well as weather in this quarter, some of which, especially weather-related challenges, have continued a little bit into Q2. There's also the overhang of the geopolitical uncertainty leading to inflation and input costs and fuel and changes to the statutory labor codes. What I'm particularly proud of is that despite a fairly challenging external environment, we delivered record volumes in quarter one. Our express business or e-commerce express business delivered 322 million packages in Q1, which which represents a growth of 55% year-on-year and sort of continues to reflect the sustained trust that tens of thousands of e-commerce shippers and clients across the country continue to place in the delivery network. Our PTL network also continued its growth trajectory. We delivered close to about 542,000 tons of freight in quarter one, which represents a We have a growth of 18% year-on-year. More importantly, yield continued to improve in the PTL business and has risen to close to nearly about 12 rupees for Q1, fiscal 27, leading to a revenue growth of over 20% YOI. Supply chain services business came in at nearly 200 crores of revenue for Q1. Profitability was affected by the start of two new large contracts, which we expect will stabilize over a combination of Q2 and early Q3. The pipeline in this business continues to remain strong with new client starts expected in, obviously, e-commerce, which is one of our core sectors, but also in automotives and consumer durables. New initiatives also continue to grow pretty rapidly. I think Delivery Direct, which we've spoken about before, is growing faster than initially expected. Our original plan was to reach a GMV of close to about 250 crores in fiscal 27. As things stand, we are currently at a GMV ahead of plan at close to about 150 crores nearly, and expect that we will close the year higher than originally planned. Contribution margins have also expanded compared to where we originally thought we would be, and our anticipated investments in this year therefore will be somewhat lower. From a technology standpoint, we launched Delivery Maps, which is based on our proprietary GIS information. Obviously, we've been deploying Delivery Maps across internal operations for a while now, but intend to also make this available to external customers going forward. Our investments in automation and engineering have also continued. We continue to bring in new industrial automation systems across both our key transportation facilities In terms of in-facility movement and automated storage and retrieval systems across our fulfillment centers, as the external environment continues to remain challenging, especially from a labor availability standpoint, these automation investments we expect will be key to sustaining market share growth over the next couple of years. Net-net, I think looking back at Q1, it's a very good start to the financial year. Record volumes in Q1 especially are particularly heartening given that Q1 is usually the slowest quarter of the year in logistics, and we're well positioned for the year ahead. We anticipate the overall environment to be more benign going forward and see no major changes to either our fiscal 27 or medium or long-term growth and profitability targets. So, it's a short summary. With that, I think what I'll do is just wait for the queue to form and happy to take questions as they come up.

Sure. Thanks, Ayal. We'll wait for the queue to form. Anyone who wishes to ask a question may just use the raise hand button and, you know, we'll let you in then.

Dhruv, I think we've got a couple of people in the queue, so we can start whenever you're good. Sure.

Okay. The first question is from Sachin Salgankar. Sachin, please go ahead with your question.

Thanks, Dhru. Good day, man. Okay. Hey, hi, Dhru. Thanks. Hi, management. Three questions. First question, Sahil, is on the express volume growth or guidance of 20 to 30%. Clearly, it's a wide range, you know, when we look at 20% at the low end to 30% at the high end. Can you help us understand how we should think about the contours in terms of what will drive the growth towards a low-end and high-end? And when we talk about new customers, you know, what kind of new customers? Is it mainly the quick service which is picking up and beyond? And any color in terms of, you know, how much volumes are e-commerce, let's say, versus a D2C vertical quick service would be helpful. Let me pause here, and then, you know, I'll ask the other two questions.

Sachin, why don't you give me all of your questions, and then I'll answer them one by one.

Got it. The second question, Sahil, is on PTL yield. You did mention about this number going up in a meaningful manner this quarter. Is it something related to seasonality or is it something which is sustainable going ahead? That's question number two. And question number three is this entire contractual revisions in terms of fuel price, which comes with a time lag of one month and your point of it getting reflected into Q2. One of your listed peers actually has a similar revision, but that happened after five days versus one month. So just wanted to understand, are we doing an apples to apples comparison? Or, you know, this is something more a bilateral agreement with 3PLs get with their customers? Thank you.

Sure. Let me start off. On Express, I think overall look, our growth so far in Q1 is 55% YOY, but of course, that also has the base effect due to the fact that the EcomExpress acquisition was sort of fully reported from Q2 onwards in the last financial year. Broadly, looking at where we are at the start of Q1 and the early part of Q2, I think we're towards the mid or upper range of, mid or upper side of the range that I spoke about, which is a 20 to 30% range. Demand has continued to remain strong even in Q2. To be honest, Q1 is actually interesting because it's a quarter which generally is quite soft. Now, what we have seen is that even adjusting for the EcomExpress acquisition, our volume growth in Q1 has actually been pretty robust. We are ourselves sort of trying to see what that means in terms of our internal projections for the rest of the financial year. If I look at the Q1 volumes and where we started off in Q2 and what we are hearing so far for the rest of Q2 and early Q3, it does look like we will be towards sort of the better end of the range that we have provided. That said, you know, like I said, this is something that we're still tracking pretty closely, which is why the wider range. Otherwise, we would have been, you know, a bit narrower. In terms of what factors will affect, you know, overall volumes for the year, I think we'll look at it. I'll know a bit more over the next month as we see sort of the festive sales are starting to spike towards the festive sales. August is generally one of the first high watermark months that you see in this industry. What's interesting, of course, like I said, is that we already started seeing pretty high volumes in Q1. And August, you know, so far, I know it's only been eight days, but so far, you know, even August volumes are looking pretty robust. That's one part. But the second is, of course, from a technology standpoint, we have improved, you know, I've spoken about this in the past. We have improved our serviceability engines and our demand shaping tools over the last year or so, which determines sort of both the volumes that we are directing into different DCs and also the kind of volumes that we are directing into our different DCs. And I think that also will play some part in our ability to take on, you know, extra loads. One of the key features as an example is our ability to redirect traffic within our network towards underutilized nodes. Now, as that system continues to mature, the really big impact that we will see will be during the peak season. So, like I said, I'm fairly optimistic about the fact that we'll be towards the upper end of that range. But just given how abnormal it is to see a very strong Q1 in this industry, I mean, I've been doing this 15 years. This is possibly the first time that we've seen a Q1 which has been strong on volumes. We've just taken a wider range. In terms of new customers, we've seen this across the board. Obviously, in terms of the count of customers, the majority of new customers that come into the delivery network are, you know, direct to consumer and SME businesses. We continue to have pretty solid client growth in terms of the number of customers signing up to use delivery, self-signing on to the delivery one portal, or even using, you know, the consumer application to come on. So growth has been pretty much across the board. Our D2C volumes, you know, every year I get asked this question, and I think every year we come back with more or less the same answer. The sustained growth in D2C volumes continues to be in that 40 to 45% range year on year. This is a segment within which we have a disproportionate share. And also what tends to happen is that we have a disproportionate share of heavier packages and so on. So, while we've seen new customers come in across the board, across segments, obviously, the larger count has been on D2C and SME. But that said, if you look at the volume growth numbers, it's pretty evident that volumes have grown more or less across all customers, across all segments. Faster speeds also, obviously, have contributed additional volumes. We launched our SDD and our NDD programs in a more structured fashion. I mean, we always provided the service, but it's a more structured product, you know, over the last five or six months. And it's also better integrated into our supply chain services business. Now, that is also becoming a meaningful part of our overall express volumes. On PTL yields, this isn't a seasonal improvement in yields at all. This is actually a planned and delivered improvement in yields. You know, we've been talking about this for several years now, saying that, you know, And as our relative scale continues to improve, you know, our ability to generate higher yields will also improve. Of course, a part of it is linked to the fact that there are fuel pass-throughs. But I think, you know, we have something like a 37 Paisa improvement in yield, of which really only about 6 Paisa is coming from the fuel inflation. Most of it is just organic improvements in yield. So there's no reason to believe that this will not be sustainable. And, you know, it's across all sort of distances. So it's not that we're just carrying, you know, long distance parcels, which is long distance freight, which is really increasing the yield. We're seeing this across the board. In terms of contractual revisions, this just depends really on what kind of contracts different logistics companies have signed with customers and how soon it manifests. In our case, with some customers, we have situations where we look at the average fuel price over a month and then sort of index to that and revise pricing going forward because there's sort of pretty significant variability right now in the way fuel costs have been moving. So in our case, it took a, you know, by about end April, mid May is when the discussions with customers on the contractual revisions had begun. And in some cases also, we have more complex engagements with customers where the pricing that we charge to them, you know, also depends on the kind of share of wallet that they provide to us and the profitability of every lane that they provide to us. So, in any case, what will happen is the entire sort of impact of the fuel inflation and the pass-throughs will be evident in the Q2 numbers.

Got it, Sahil. Just one clarification on the NBFC point you guys mentioned in the shareholder letter. The point was out there, asset light. From what we understand, you know, obviously, if it's lending, there will be capital allocated towards NBFC. So, what exactly do you guys mean by asset light?

So, our intention is not to lend heavily off of the delivery balance sheet at all. I think we have a number of high-quality lending partners who we intend to work with and with whom discussions are already underway, where essentially the logic is that delivery understands and knows both the demand side as well as the supply side, and therefore the information that we have first of all is valuable. And the second piece, of course, is that we are underwriting, to some extent, the demand that the supply side of the fleet owners are expected to serve. So fundamentally, we don't anticipate having to allocate significant capital ourselves to lend. The idea really for delivery is to be able to facilitate fleet owners to get both insurance as well as fleet financing and expand their fleet. It's the benefit to us, of course, is the fact that a larger pool of supply ultimately becomes a more stable pool of supply for us as we grow and also reduces cost of service for us over time.

Great. Thanks, Sahil. All the best.

Thank you.

Thanks, Sachin. The next question is from the line of Vijit Jen.

Yeah, hi. Thanks for the opportunity. Sahil, three questions from my side, and I'd also just shoot them straight up. So, a follow-up to your previous answer where you said that, you know, the yield increases in PTL about 6 paisa would have been fuel-linked. If I back that out, is it fair to say that, you know, maybe 20% of the margin impact that you would have seen in the quarter is fuel-linked and the vast majority of the rest is more of those minimum wage increases? Is that a Fair characterization of the I mean, when I look at the gross margins on a QQ basis, they're down 300 bps. So I'm just trying to split that into these two. That's first. Second is to your comment on e-commerce demand environment in 1Q. And I mean, it's pretty visible that on a QQ basis, this is I think one of the first quarters in many years where you've seen, you know, five, six percent growth rate. I wanted to understand how much of it is, you know, underlying market improving versus, you know, Further market consolidation, we've of course heard of those things happening. That's the second question I had. And on the third question I had was, you know, the delivery local and delivery direct businesses, do they use your existing physical infrastructure? Because at least to my understanding would be that these would be more or less local transportation in cities, right? So, I just wanted to understand these three things a little bit better. Thank you.

Sure. Thanks, Vijay. I'll answer those questions. I'll answer them in reverse order because on the first one, I'll also ask my colleague Vivek, who's our CFO, to come in. On delivery local, there are two parts to it on delivery local and delivery direct. Local, obviously, is the one where we provide light commercial vehicles on higher on-demand intra-city. This is largely speaking a point-to-point movement, which is, you know, let's say a trader wants to ship something to another trader within Ahmedabad or within Bombay or Delhi or Bangalore. So in that sense, they don't really use any physical infrastructure. The fleet owners who participate in delivery local are either, you know, sort of independent fleet owners, and they're typically a combination of people who work with us across other parts of our network. So this could be people who provide LCVs to our regular, you know, sort of express or PTL operations, or even within, you know, our gateways or within our hubs, starting from one facility to another. But there isn't really that much physical infrastructure that's involved in this business. On the local side, Delivery Direct, which is also delivered through the same app, which is the delivery app. So you can both book LCVs in these six cities, but you can also, as a consumer, ship intercity across the entire country. Delivery Direct is the consumer application. There, of course, it's no different in some senses from our express business, which is sort of like an e-commerce parcel for all practical purposes. In terms of growth on e-commerce, it's interesting because you're right, we have not seen a 5.5% or any growth, frankly, between Q4 and Q1 of the subsequent financial year for a while. So it's actually a pretty solid indicator, all things considered. I'm not sure that all of it is down to underlying market growth, because if you look at it, overall market commentary has been that market continues to grow. People have been pretty guarded overall on e-commerce volumes. I think a part of it is down to like, I don't know if I should call it consolidation, but effectively, as I mentioned in the past, uncertain environments are actually good for delivery. You know, we brought this up in the past as well. What typically tends to happen in uncertain environments is that there's a flight to quality and there's sort of a flight to a long-term sustainable player. And so typically in this period, we do see volumes coming to delivery because what tends to happen, and to some extent, you know, in an ideal world, we would have liked profitability in Q1 to be higher than it's turned out to be. But we made the decision at that point in time at the start of Q1 to say, look, network service quality has to take precedence over anything else. And so those investments in having additional staffing were required because of the uncertainties that we had, you know, to continue to support our fleet partners when fuel costs were going up, and to sort of make certain investments in the network to maintain service levels. I think that has paid off, and that's part of the reason why we've seen, you know, the increase in volumes in Q1 and sort of a sustained improvement towards this part of Q2 that we've been in so far as well. So I think it's sort of more share shift towards higher quality because we've sustained service levels as opposed to anything else. In terms of the change, in terms of the impact of both fuel as well as minimum wages, I think Vivek, can you comment on specific details that we have over here? See, just very broadly, before Vivek comes in, in the transportation businesses, one thing to bear in mind is that fuel and wages have differential impact on express and on PTL. Fuel is obviously a more significant factor for PTL, relatively speaking, as compared to express, where labor is sort of a more important cost overall. But Vivek, you know, feel free to go ahead.

Yeah, Vijay, I think you were referring to some 20%, which I guess you mean 0.6% of margin impact is through fuel. Look, if you think about the direct impact, which is the fuel price at the retail pump going up for our trucks, yes, you are broadly right, but in a way, the impact will actually be higher. The overall oil prices do impact consumables cost. They do impact the airline charges. And our last-mile riders also start expecting a higher payout when the fuel prices go up. So overall impact actually would be higher than that. The direct impact is closer to the number that you are referring to. The manpower cost will be in the similar range, the manpower cost.

I see. So Vivek, out of the 300 bps, if I'm looking at it, quarter on quarter basis, 6 Paisa, the fuel price increase that you've taken on PTL, gives a good indicator. That's what I was looking at. So, it seemed like minimum wages had a bigger impact here. I just wanted to double check if that assessment was correct.

But minimum wages, you would expect them to have a bigger impact also because there is no contractual pass-through clause for minimum wages. To some extent, in this quarter, the contractual pass-through of fuel rates would give you some cushion against the cost increases and some margin protection. The full benefit will be visible in second quarter. But on minimum wages, you don't have any such contractual clause, so yes, the impact would be larger.

Got it. And maybe if I can follow through on that, would you be looking to pass on these cost increases as well immediately in 2Q and 3Q and so on, the minimum wage impact?

I think let me take that. I think yes in certain parts, but I'll go back to what I was talking One of the things I was talking about earlier, which is, you know, we've spoken about this. A lot of how we choose to price individual contracts with different customers depends on the overall volume share that we expect to get from them, because there's also the fact that as volumes go up, we see operating leverage. And so we, you know, in that sense, we have a unique ability in an inflationary environment to make sure that customers don't bear the full extent of the inflation by using our efficiencies as well. So both sides end up winning. But yes, you know, as minimum wages get revised, and we do anticipate that they will continue to get revised, you know, we will pass that on in the form of price increases to customers down the line.

Got it. Thank you so much, Sahil. Thank you, Vivek. Those are my questions.

But I just, sorry, I know this wasn't your question. So Dhruv, before we take the next question, I think on the previous question, sort of question that was asked by Sachin, there was something about somebody saying that there would be a five day pass through of diesel price hikes. I believe that was one of our competitors who's in largely in the e-commerce space when we were referring to the fact that contracts typically can stay at the month end, stay till the month end before you revise pricing. That's typically in the freight world. In the e-commerce world, of course, any inflation on pricing in terms of fuel, you know, many of those contracts obviously don't have the same structure as the freight contracts. A larger part, the reason why I was talking about the freight contracts and why it's important to differentiate is that fuel has a significantly outsized impact on freight business as opposed to the e-commerce business.

Sure. Thanks, Aya. Go ahead. Next question is from Alok Devra. Alok, you can unmute and go ahead with your question.

Yeah. Hi. Good evening. This is Alok Devra from Motilal Oswal. So some of the questions have been answered, but just following up on the question related to the increase in cost. So, just had a couple of questions. One is like now we are in August. So, you know, the last diesel price hike was say in May. So, as we went into July and the contracts would have been repriced for the fuel impact. So, is it fair to assume that July, August would be at the pre-diesel hike, you know, margins? So, one question is that and second is, you know, typically we have seen that the wage cost pass-through is a much more difficult thing to do very seamlessly as compared to fuel cost because fuel is very much, you know, in the public domain. So, customers are still kind of okay to allow that to some extent, but wage cost is typically, you know, more of negotiation and how we actually put it across. So, could there be a case that the wage impact could last for maybe, you know, one quarter or two quarter, depending on the demand scenario and things like that? Just your thoughts on that, please.

Yeah, sure. So on wage cost, yes and no. Wage costs don't have the same sort of contractual structure that fuel costs have. And also part of the reason is because sort of fuel is relatively speaking, national rates are closer to each other, whereas wage costs vary dramatically across different states. But fundamentally, look, the wage cost also, when the changes are as dramatic as they have been, does get passed on. And it's not as difficult a discussion with customers as you might think, because the reality is that when the minimum wage goes up, it's a statutory wage that goes up. Now, unless you as a shipper are deciding specifically to work with a non-compliant partner, which large shippers, you know, and meaningful shippers generally are not willing to do, because ultimately you do want your goods to be delivered safely and by a reliable network, you know, the reality, therefore, is that that inflation is borne by all your service providers. So it's not really as difficult a negotiation. The only difference, of course, is that with fuel costs, you have a defined timeline, which is, you know, the contract is indexed every month to the fuel cost for that prevailing month, which with wage costs, you know, it's not very cleanly defined. And so this is a discussion that goes on with customers. But suffice to say, you know, all of these negotiations with customers are underway. And as I mentioned, should the wage cost inflation continue, more states come in, you know, we're still waiting to see what happens exactly in Karnataka. But as that comes in, pricing for customers will get revised in line with that, you know, and I don't anticipate that that delay will be very significant. Which brings me back to the original question, which is, do we anticipate any changes to our margins overall for fiscal 27 compared to what we've been saying so far? You know, I don't think we will see a very significant difference to our margins. We don't anticipate a very significant difference to our margins, despite where Q1 has turned out to be. A couple of reasons I mentioned, the only difference is that we've had to sort of to make sure that service standards across the network remain absolutely robust in a difficult operating environment. We've had to, you know, bring forward some investments that we would have otherwise made a little later in terms of either staffing or network expansion. Now, those have come in a little earlier. The good thing is that H2 typically is when volumes and logistics, whether it's parcel or freight, both, you know, grow pretty significantly. And as that happens, you know, some of these investments have been made already. And so, you know, they'll just get absorbed. So no, I don't anticipate any sort of structural change to our margin trajectory for the year or beyond either. But of course, you know, to be honest, on fuel, especially at this point in time, you know, your guess is as good as mine as to what's going to happen tomorrow. So we'll continue to watch that. And obviously, we'll keep everyone updated. But as things stand, I think, you know, things seem okay.

Sure. If you could also indicate whether from July onwards, since all the fuel contracts have been kind of revised, I mean, that month lag has played out now. And would we be, as far as fuel is concerned, we would be at the pre-diesel hike kind of margins?

Yeah, I think Barun Bakshi is on this call, but I'll just tear it up. More or less, I think practically all of the contracts have been revised, but Barun, you're on the call.

Yeah, so, Alok, while the coverage is not 100%, I can confirm it's almost, almost 100%. There are few customers where it wasn't there for reasons. Very, very, very less volume. We have covered upward of 97-98% at this point in time. Obviously, when the diesel price hike happened, this number was slightly lower, which we have worked on till then. Just clarifying one more thing on DPH for benefit of everyone. DPH is look back and look back on the previous month on the average price. So basically the price escalation happened in multiple parts during May, which means the June reference was not totally the last hike price for me. It was an average of gradually moving from 1st May to 31st May. So, in that sense, the effect of DPH in July can be expected. If the price remains in July, August can be expected to be more than AMJ. So, hope that clarifies.

Sure, sure. That does. Thank you. Thank you so much. All the best. Yeah.

Thanks, Alok. The next question is from the line of Kaurav Rateria. Kaurav, you may unmute and go ahead with your question.

Hi. Congrats, Sahil, on the reappointment. Congrats, Wani, on elevation. My questions are a couple of them. Let me just read out all of them together. The first is you alluded to market share gain in your express business. Just want to understand, is it more within the 3PL consolidation happening with the stronger pairs, or is there also some evidence of share shift happening from the in-sourced logistics arms of the e-commerce companies to the 3PL companies? The second question is, like, I understand the 1Q margins had many factors, you know, which are external in nature that impacted the service of the margin of 13.1%. But is there any normalized margin to go with what would have been the normalized margins had these factors not been at play? And how much of this and how would be recouped and by when? And if I mean, it kind of it may surprise all the comments that you're making around the fuel and the wage costs. The third is that on the wage costs, I understand it's related to the minimum wages, but there was also certain changes made to the gig worker side of the things in couple of states. So have they been implemented yet? Or the there is further implementation of that will bring certain changes to the cost structure for the industry and for the company. And lastly, Sahil, I know that you're giving up certain of the roles, more roles to Vani, more responsibilities. So how are you going to be incrementally spending time on going forward in the company? Thank you.

Thanks, Kaurav. Let me go one by one. On market share, your question was

whether it's growth with a look across clients.

We've seen both improvement overall in our share relative to other 3PLs, but also an improvement in share from customers who have in-house logistics. Basically, the growth in volumes from customers who have in-house logistics is also large enough to suggest that we've gained some share versus in-house logistics, and more or less for the reasons that I've been talking about since the day we went public, which is one, obviously, maintaining service levels in a complex and inflationary environment is difficult for most networks, including first-party networks, and uncertain environments are typically good for delivery. We've always seen that in the past 15 years. You know, we have certain structural cost advantages. We have certain structural sort of service advantages. And we also, to be fair, which will bring me to your second question as well, have invested to make sure that we retain that service quality in the challenging environment. So my sense is that we've gained share overall. Is it evidence of a structural shift in how people think about insourcing versus outsourcing? Evidence is a strong word. The reality is, again, I've been pretty honest about this for several years now, which is that working with a high-quality, trusted third-party partner is a very high-quality decision for any e-commerce company. I do believe that there are structural advantages that the third-party industry brings to e-commerce shippers. Whether it's evidence or not, of course, depends on what our client's individual strategies are. They have individual viewpoints on why they continue to run logistics in-house. They have individual experiments that they're all trying. Certainly, we've seen two very good quarters, you know, in terms of volume, whether it's Q4, which again, historically has not necessarily been as strong as Q3. You know, we saw a good Q3, we saw a strong Q4, and we've seen a strong Q1 now. Is it conclusive evidence that there's a shift from insourcing towards third party? I certainly hope so. You know, and at least so far, the volumes have been pretty encouraging. But, you know, let's see. I hope so. Let me put it that way. Your second question, in terms of the impact that we should see, the impact that would have of the inflation of both wages and fuel and what normalized margins are, my sense is that we should have, Vivek, you would have more detail on this, but my sense is what, between 35 and 40 crores?

Signed, yes, closer to the number on the lower range.

Yeah, close to about 35 crores there, thereabouts, in terms of just making sure that one, I mean, some of this, obviously, what will happen is that this is because of a delay in the pass-through on fuel, which will happen in Q2, but some of it, as I've mentioned, is to make sure that we maintain service quality in quarter one. So normalized, you know, it would have been at least probably about 30, 35 crores higher compared to where we ended up. Third question, you know, there's more, there's the area that, you know, we need to spend most time on as a company outside of, of course, everyday operations management, make sure our clients are happy and so on goes without saying. But, you know, again, I've spoken about this in the past when we were going public as well. And, you know, about every four or five years, there's sort of a fundamental sort of change that happens from a technology engineering standpoint in logistics. And I have been speaking about this for the last year or two, which is that we're sort of at the cusp of that moment again. You know, when we started the company, there was no industrial automation in logistics at all. And then we went through sort of phase one, where we went out and started introducing automation. The next question after buying automation or simple automation was to design more complex automation that was uniquely suited to delivery's needs. You know, the third piece after that was to integrate, you know, from a technology standpoint, our two different networks, which enabled us to deliver, you know, the kind of cost structure and service quality that we're able to deliver. We're at that sort of juncture again as a company. Where we really need to relook at how we're going to mitigate some of, you know, the risks that we see coming up, whether it is, you know, labor availability is going to get more complex, statutory labor codes are changing, doesn't matter whether it's, you know, for fixed employers or for fixed employees or whether it's for gig workers. And either way, wage inflation is a reality. The reality is that the operating environment from a climate standpoint is becoming more and more difficult to operate in. And these are challenges that delivery absolutely has to mitigate. Great. So more of the time, you know, across the senior management team and certainly more of my time is going to go into sort of the fundamental competitive advantages that delivery has, which are around network structure, around technology, around product and engineering. And I think that is really going to set us up for the next sort of call it, you know, till we reach the next leap, which is hopefully maybe, you know, four or five years out.

Thank you. All the best. Thank you. Thanks, Gaurav. The next question is from Aditya Suresh. Aditya, you may unmute and go ahead with your question.

Yeah, thank you. So maybe three questions. So first is, Saad, just a clarification on margins. So basically, it's kind of what you've given in the letter in terms of volume growth. Can you just clarify again what margin we should expect for PTL and Express for FY27? We appreciate the longer term and what the business could do, but just I want some clarity on fiscal 27 based on the volume growth that you see. That's one. Second is on supply chain services. The broader theme of the past few quarters has been about kind of recalibrating that business, resetting that business. We want kind of better margins, better contracts, et cetera, right? So in that context, you speak about the sequential decline, even as you've scaled revenues this quarter. And the third question was on quick commerce, or how are you seeing the quick commerce opportunity in terms of where you would like to play today, right? So there is obviously, some of the illicit peers were more aggressive in that space. Do you have any kind of desire to build more capabilities, capacities in the last one? Thank you.

Sure. Thanks, Aditya. Vivek, do you want to comment on the first one?

I can take two and three after you.

Yeah, Aditya, we have express margin. Our target has been in that 16 to 18% service EBITDA range. We continue to maintain that, and we remain confident that in the second half of this financial year, we will be in that range, in fact, closer to the higher end of that range. Thank you very much. The PTL, as you would have seen over the last two years, the consistent QoQ margin expansion, which we typically end up exiting each financial year at roughly about one and a half to two percentage points better margin than the previous financial year. And that's the target with which we continue to execute this financial year as well. So, yeah, the long-term target there also is 16 to 18 percentage. We exited last financial year at 13.4 percentage. I think this financial year, our internal objective will be to exit closer to 15, 15 and a half percentage that we see with the margins.

Yeah, coming to supply chain services, just to be clear, the reason why there's the sequential decline in the margins is not because of any structural change to the existing contracts that we had from the previous financial year. So the existing contracts that we had continue to remain profitable, continue, you know, last year, the supply chain services business actually improved EBITDA by 4x year on year. So those contracts continue to remain, you know, as Sort of profitable as they were in the last financial year. The major change is the start of two new big contracts. At the start of the contract, what typically tends to happen is that, you know, we will commission the fulfillment centers across multiple sites. Inventory starts rolling in. There's a period where there's a mismatch between inventory inbound and inventory outbound, and typically our billing will be on inventory outbound. So what tends to happen during that period, and it is factored into the overall sort of, you know, NPV calculations or IRR calculations for the project, is that typically there's this build-up phase where margins are negative because, you know, we're essentially paying the rent, we're paying the manpower, we're just stocking up for the client as they move from their previous, you know, operations to us. And that is sort of the overhang that you see on Q1, where we've been scaling up both with an industrial supplier and a consumer durables player. You know, it takes a little bit of time to sort of set the network in place. So it's not any structural change in the supply chain services business. It's just we had these two large contracts, which were starting off together. And what typically tends to happen is about sort of, you know, 45 to 60 days after the inventory starts rolling in is when you start moving to high potential sort of, you know, the full potential outbound volumes. And at that stage, the margins start quickly scaling up and reaching their full potential.

So there's no sort of, we don't anticipate any sort of complications with the two new contracts that we've signed as well.

Now, obviously, where we started on e-commerce clients coming in, those contracts are typically profitable, you know, more or less, almost from the get-go. I mean, there's an inventory build-up phase, but it's typically much shorter because we already have the systems are already pre-integrated very often. It's transportation is happening to our existing network and so on. So no fundamental sort of structural change for the SCS business. In terms of quick commerce, I've said this in the past, we do play in the part of quick commerce where brands which either work with us as part of our supply chain services business or, for example, in the PTL network are supplying into mother warehouses or dark stores of the four or five large quick commerce players. And I think that part makes a lot of sense for delivery because it fits strategically and from a margin profile and from a unique sort of, you know, differentiated capability standpoint with what we do as a network overall. You know, we are ultimately one of the, we are now the fastest growing PTL network in the country, one of the larger ones, you know, the second largest player in the space. We have a differentiated ability to manage, you know, appointment deliveries, hold requests, and so on. We understand e-commerce pretty well. We have the ability to allow our customers to ship to multiple channels out of the same pool of inventory and so on. So that's where our focus is going to remain because we believe that that's where we add the most value. We have stayed away from two specific parts of quick commerce, as I've pointed out before. We do not run dark stores for quick commerce players. As of now, there isn't a multiplayer dark store model that has emerged because every quick commerce player wants to have dedicated dark stores. And we do not do delivery from dark stores to consumers. For the simple reason that even if today the reality is that because the industry is going through this period of explosive growth and you've seen Amazon enter and Flipkart enter and there are five or six different players, our view is that this isn't the land grab that it appears to be where Because you've established a beachhead by running dark stores for one of the five or six large quick commerce platforms, this is either strategic to them or something that they will, you know, indefinitely outsource to third party players. We do believe that, you know, ultimately, as these companies look at the margin pressure, you know, the first place where they're going to try and sort of squeeze the operation, and perhaps justifiably so is going to be in the dark store operations in the last mile delivery costs, you know, which is more or less how it's played out everywhere else. And so we don't see any value in being in that part of the supply chain. It is an undifferentiated service. The ability to rent a 2,500 square foot shop, rack it up and stock FMCG and count it while using somebody else's systems is essentially contract logistics by a different name. And contract logistics businesses in India have always struggled to generate returns. The fact that it's in quick commerce doesn't particularly differentiate it from anything else. And similarly, last mile delivery in quick commerce, again, we don't view it as a differentiated capability. I do think that that's something where, again, the quick commerce players ultimately will sort of keep this completely captive and they will crash rates over a period of time. You can see that happen, for example, in food delivery. So where, again, the outsource percentage is pretty small. So we think the same thing will play out and we've stayed away. So we don't, well, you know, we're not particularly excited about it. We believe that as long as quick commerce continues to grow, there will obviously be the very large challenge of getting goods to mother warehouses, getting goods to dark stores on time, and making sure that that happens reliably is really where delivery is going to play. Thank you. Thanks.

The next question is from Krupashankar. Krupashankar, you can unmute your line and go ahead. Yeah, good evening, and thank you for the opportunity.

My first question is on the express parcel side. Just wanted to get a sense around pricing structurally, given the fact that, Sahil, you've said that the industry has seen a consolidation as well as outsourcing is gaining traction. So how should we look at pricings and margins beyond specific hits like fuel hit and so on structurally? How do you see this going ahead?

Sure. Krupa, you said you had more than one question. Do you want to just quickly let them on? Sure.

So the second one is that, you know, you did mention that the QC pricing and margins on hyperlocal will collapse, just like foot delivery. So just wanted to get a sense around, you know, how do you see this going ahead? Why do you believe so? And how quickly do you think this can pan out? Something on those lines. And lastly, on the new initiatives, just also wanted to get a sense around how does it, you know, spend split across your local, your rapid financial services and so on. And how do you see that business going?

Sure. So, in terms of pricing structurally in the e-commerce industry, even irrespective of the inflationary costs that we've seen in the last quarter or so, I discussed this in the past in the last earnings call as well, we don't see significant pricing pressure in the market any longer. I have mentioned this in the past, two years ago, we did go through a period where there was pretty poor pricing overall. And frankly, that allowed We will see much less of that at this point in time. And so structurally, we don't anticipate any need for pricing or yields in this business to come down. We will, at the bare minimum, it's safe to assume that yields will hold. Of course, yields in any given quarter will change, like I've discussed dozens of times in the past, in reaction to the weights that we are carrying, the distances we're carrying, the client mix and so on. Typically, for example, H2 yields will be higher than H1 and H1, and so on, it will be higher than H2. One, because you're carrying more heavy and so on. But broadly speaking, no change. And of course, this inflationary environment, as we gather more information, as more of the cost structure becomes manifest, these increases in labor costs, these increases in fuel are obviously passed through to customers. And frankly, our discussions with customers on this are fairly smooth, because most customers do realize that it's not just a delivery problem, this is an industry-wide problem. And irrespective of whether they happen to run in-house logistics or work with 3PLs, Everybody is subject to the same cost inflation. In terms of quick commerce, I'm not always sure that you're asking somebody who's already skeptical. So take whatever I say, perhaps with a pinch of salt. But why do I believe and how soon do I believe there will be structural pressure, margin pressure on people who are providing third-party services? Why will there be more attention to these costs? Because this fundamentally, first of all, is not a super high margin industry to begin with. There's not a lot of margin when you're delivering a 500 rupee AOV product and trying to deliver it within 15 minutes because it is a point-to-point delivery. One of the things to understand in quick commerce, you know, you guys have asked this question in the past in PTL, this comes up in freight all the time, which is directionality of load makes a big difference to the cost at which you serve. You know, if I have to run a truck which goes from Delhi to Calcutta and then comes back empty from Calcutta to Delhi, the chap who ships from Delhi to Calcutta is more or less the chap who ends up paying for the entire trip. Quick commerce by virtue of being a point-to-point delivery is a doubly expensive delivery as opposed to a consolidated delivery, which is what we do. And so the ability to eke out efficiencies in this business, first of all, are minimal, which is one of the reasons why structurally delivery stays away from this business. There are limited to known network benefits when you're trying to deliver in such a short period of time. I mean, the math behind this is largely undeniable. You have a Poisson arrival of orders. If you don't have a sufficient queue of agents, you either get exponential delays or you have to overstaff. I mean, this is really not rocket science. It's more or less sort of predictable as to what will happen. And to give you another example, you know, you've already seen this happen, for example, in cabs. You know, the great promise when cabs began were that everybody would be riding in air-conditioned Mercedes cars at eight rupees a kilometer forever. But the reality is that as demand goes up, if you insist on maintaining a 10-minute arrival of cabs, either the reality is that you have to have a lot more cabs, in which case the company, which is the platform, has to burn that money for idle utilization, or everybody has to pay a lot more. And so today, cabs don't cost eight rupees a kilometer and cost three times as much. So that is a choice, of course, that quick commerce will have to make at a certain point, saying, are we going to truly reflect the cost of this extremely fast delivery? In which case, of course, the question is, what is the real demand? Or alternatively, the point is that somebody is going to have to really pay for this. So I don't really know. That's one of the reasons why delivery has stayed away from this. I don't think you can manufacture efficiencies. And how soon are companies going to come to start looking at this cost? The reality is that when you're in a process of rapid growth, you will try and outsource and say anybody who can set up a dark store for me, you know, is as good as me doing it myself because companies at this point in time will say, look, we lack, you know, enough organizational bandwidth and we would rather launch, you know, people are throwing out saying we want to launch three dark stores a day or whatever it is. Now, when you need to launch three or four or five dark stores a day, you probably do need to have as many partners as you can possibly have. One of the indicators which worries me when I look at that is that the number of startups which came in saying we are dark store specialists and, you know, no longer exist already in a period of, you know, less than 12 months is fairly significant because as a company, we see this pretty often. You know, somebody will come to us and say, you know, can I run dark stores for delivery? And we say, you know, who are you? And they say, we happen to run three dark stores for quick commerce in Chennai, or we run two dark stores in Bangalore or whatever it is. And the reality is that that first set of, you know, six, eight, 10, 15 dark stores and so on, it happens pretty fast. And then the economics don't stack up and this company essentially runs out of gas. And this sort of gets seamlessly transitioned back to the quick commerce player.

So in that sense, it's difficult to see how this becomes a scale business.

And like I said, ultimately, as delivery, what we are most interested in is businesses which have strong and sustainable network effects. The fact that I happen to run a dark store well in Gormangla in no way, you know, makes it any more likely for me to be much better at running a dark store in, you know, whatever, in Mumbai somewhere or in Ahmedabad or in Delhi or whatever it is. There are, frankly speaking, no network benefits at all. So how soon will it come? As soon as quick commerce companies start seeking greater and greater efficiencies, you know, wherever they happen to have outsourced this.

But again, like I said, you know, the world surprises me all the time. So, you know, this is just my point of view. Take it with a pinch of salt.

All right, your last question on local and investments across new initiatives. The largest portion of the investments in new initiatives are in delivery local. It's also the largest and the fastest growing opportunity that we're chasing at the moment. Financial services is extremely new. We just got our NBFC approval in July. So it's still relatively a very, very new business. So practically speaking, the safest way to think about is all of the investments that we're making in new initiatives is largely in delivery local. The good news, of course, is the delivery local at this point in time is growing faster than we anticipated. You know, we were expecting to exit the financial year at a 250 crore ARR, but, you know, here we are, we're sitting in August and we're already hitting a, sorry, in July, and we're hitting a 150 crore ARR. So, you know, it's a good sign, again, we're revising this target upwards, and B, contribution margins have been better than we originally expected. So, in that sense, the amount that we had here marked, you know, up to about, whatever, 160, 175 crores for the financial year, at least looking at current trajectory, we should be well within that.

Got it. Very clear. Thanks for answering my questions.

Thank you. The next question is from Jinesh Joshi. Jinesh, you can go ahead with your question.

Am I audible?

Yes, you are. Yes, yes, you are. Please go ahead.

Yeah, sir, I have a question on B2C realization. This might sound a bit repetitive, but I just wanted to get your thoughts on this. So while we understand that the realization is a function of weight and distance, as you highlighted in response to the previous participants question, but the general thinking was the general thinking that we have is that once our market share increases post acquisition of e-com, ideally, We should be getting some kind of pricing power, right? Obviously, this adjusts for the dilution that comes from the lower weight of the acquired network. But at some point in time, yields have to settle down at a range from where on sequential basis we see an improvement come through. And now if I have a look at your numbers from 1K of F526, the yield which was at about 67.5. In 1Q of FY27, we are at about 58, and every quarter we have seen that decline come through. So just wanted to get your thoughts as to when on sequential basis this decline will get arrested, and we will see the benefits of pricing power come through.

Yeah, Janesh, this is a repetitive question. Between Q1 of last year and Q1 of this year, However, you know, I think we addressed this in Q2 last year, which is, and I'll bring it up again, Ecom Express did not provide heavy delivery services at all. So essentially, our acquisition was of a small parcel delivery network. In Q1 of last financial year, we were a standalone network. So the proportion of heavy consignments in the combined volumes of delivery and e-com express, which is in Q1 fiscal 27 or delivery consolidated effectively now, is lower than it was in Q1 of fiscal 26 and materially lower because we acquired a small parcel delivery network, as a consequence of which the yield is materially different. So mix is the simple answer as to why there's a big change between Q1 Fiscal 26 and Q1 Fiscal 27. It's just fundamentally as a proportion of the total volume, but we're also carrying 55% higher volumes in Q1 Fiscal 27 as compared to Q1 Fiscal 26. So it's actually, it's fairly simple math. You know, that's really why the yield is different between Fiscal 26 and Fiscal 27 Q1s. In terms of pricing power, you know, when will you see now as an example, and were we to have this discussion at the end of Q3, you would probably see compared to Q1 a sequential increase in yields because the proportion of heavies, for example, goes up. Typically, you know, intercity shipment distances tend to rise during this period because you see much larger volumes coming in from, you know, tier 3, tier 4 cities and so on. So you would see that. But that again would not be evidence of any change from a pricing standpoint. That is just evidence of the fact that the mix has changed. I think the question that you're getting at is, will there continue to be cuts in pricing? The answer to that, as I've mentioned, is no. For two reasons. One is in an inflationary environment, first of all, even if you're maintaining price or if you have the ability to increase price to less than the impact of inflation, You know, effectively for your customers, that's still better. So we don't anticipate that there will be any, you know, in this inflationary round, customers are not going to come to us and say, look, you need to reduce prices at any point. And so there's no pricing pressure from that standpoint, first of all, from a customer standpoint. The second is this is an industry-wide inflation. So it's not like there are any other players who have the ability to absorb this. If anything, delivery has the ability to absorb these inflationary forces much better than anyone else, which perhaps is reflected in our increased volumes. And the third is, in any case, as the number of players in the market has come down, the need to respond to anyone's irrational pricing has also reduced quite significantly. There's no need. We don't have the competitive situation that we had. Now, if your question is, are we going to take pricing up sequentially? As I mentioned, we continue to monitor exactly what's going to happen to statutory labor costs going forward. From a fuel standpoint, of course, first of all, the impact of fuel in our express network is significantly lower. And also relative to other players who provide only e-commerce services, it's still lower because of the form factor of the vehicles we use, for example, the structure of the network, the distances that we travel. And so the inflation of fuel has a slightly lower impact relatively for us in the express network. But yes, if statutory wages go up, and this is a discussion that we're having with customers, pricing has to go up in response to that. And that is a negotiation that is ongoing with most of our customers. And I mentioned, it's not a particularly difficult negotiation to have, because it is an industry-wide problem.

Got that, sir. Pretty clear. One last bookkeeping question from my side. I think in the press release, we have mentioned that our PAT before the e-com integration cost is at about 62 crores, while our reported PAT for the quarter was about 32 crores. However, the e-com integration cost that we have reported in this quarter is about 17 crores. So can you please highlight the difference of 15 crores that is there in this quarter?

Then I shall take that. On the 17 crores is more like a cash cost equivalent. But on the actual stat PNM, you will also have depreciation. And you'll also have the depreciation on tangible assets, but you'll also have the rent, which actually shows up as depreciation on ROU assets. So on the STAT PNL, this number is closer to 30 crores. You can see the line-by-line difference in the two columns that we have, the STAT column and the management estimate column. So that's why the PAT difference is higher than the EBITDA level difference.

Understood, sir. Thank you so much.

Thank you. The next question is from Swapnil. Swapnil, you can go ahead and ask your question. Swapnil, if you're speaking, we can't hear you. As there is no response, the next question we'll take is of Aditya Mohongia. Aditya, you can go ahead and ask your question.

Yeah, thanks for this. I had a question. Firstly, on the express parcel segment, I want you to get a sense of how much is now the small parcel business for you in the entire mix. And the context is that if there's an expectation that this mix will keep on increasing,

and if so, is there a

need to probably tinker or You can try to change the way the delivery business model or network is structured to be more effective in taking care of different requirements that are there.

Sure. You have a couple of questions, right? Do you want to just lay them on?

I'd prefer to go on the one if that's fine.

Yes, so on the first question can you just walk me through how you're thinking about it? Because, see, fundamentally our legacy, of course, is we began life as a small parcel So the underlying network structure per se, the structure of the delivery centers and so on, they don't need any fundamental change as our small parcel volumes go up. So the fundamental architecture of the first mile and the sortation centers routing into, you know, whatever the last mile delivery points continues to remain more or less the same.

No, understood. I'll take that as an answer from you, and then we can move on. But the context was just that, is there any change that you would want to do? Let's say if this small parcel business was to become majority of the business, which can happen, let's say Misho can become, whatever, 35-40% of your overall business, 55% of your express parcel business, and let's say Amazon Flipkart start scaling up a similar line of work. Is there any change that you would want to bring about in the way things are being done?

I see. Well, one of the things that structurally does, I don't know if structurally is the right word, but it does change in the network. There are one or two things that change, and these are sort of, it's an interesting question. Two things change a little bit. One is the last mile delivery center average sizes as the service center network gets larger, does change. Now, let me, okay, actually, this is a good question. Let me sort of try and explain what's going on. Let's say you're in a city, and you were earlier doing both PTL and heavy delivery out of distribution points, which are also doing last mile delivery. And let's say last mile delivery for e-commerce, and we didn't have a service center, you know, because we have whatever, we have only about 180 odd service centers. But let's say I'm making this up, but we do have a service center in Patna, but let's say you were in Patna, and you did not have You didn't have any service centers. You had no freight service centers. So freight and heavies being directed into Patna were being delivered by DCs, which were erstwhile e-commerce delivery DCs. Those are now providing the serviceability. Now, what happens is that when you activate a freight service station in Patna, which now has the ability to do PTL freight as well as heavies, what's happening is you're withdrawing the average weights from the DC network back into a gateway or a service center. And when you do that, the average size of delivery centers that you need in that specific city suddenly crashes because you no longer have the requirement to service, you know, 100 kilos of freight or 200 kilos of freight. And so the opening of a service center and subsequently, of course, we're already seeing this happen in the freight network as well. When you take service centers back for certain kinds of loads back into the gateway, so for example, loads that weigh over 200 kgs have now been withdrawn wherever possible into gateways as opposed to being delivered from forward service stations. So what that means, for example, in Chennai is that our gateway will deliver all LRs which are above 200 kgs as opposed to our service centers. When you do that, the average size of the service centers also starts reducing. So in that sense, yes, there is a structural change that happens to the network. What happens is that you try to deliver in a more consolidated fashion, the heavy goods from a centralized point, points further down in the network reduce an average size. And when there is a reduction in average size, two things happen. One is obviously your rental costs come down, your supervisory costs tend to change, your storage costs tend to change, and your delivery architecture changes a little bit. So, yes, actually, as I think of it, there will be some changes as small parcel goes up and as the freight architecture changes.

Thanks. Wait to see the companies on top of this. The second question is a little bit philosophical that I have. Sahil, the way I understand and the way things are going, obviously, we are going to focus more and more on certain specific aspects going forward. It seems the journey of delivery has been a clear focus on the hardware operation, the mid-mile of the network. There are other elements which peers may be doing, and I'm focusing more on delivery and what they can do from here. Let's say, doing more services of taking care of more pinpoints for the same customer, reverse logistics, whatever that may be called. On the flip side, there is this delivery partner of yours. So let's say he's given more jobs in hyperlocal. He's happier working for you. Some of these you are doing, you're doing the financial services part of it. But I'm trying to say is that if there's a stage wherein the company thinks that there is a lot more to be done on the software side of things, the customer, the vendor, the daily partner involved, and just trying to get a sense of whether that's the life you're thinking, So the hardware may have its own limitations that may get hit somewhere. And that's this question.

Yeah, I know what you're getting at, Aditya, and it's a good question. You know, yes, our focus, so let me sort of try and give a short answer to what is a pretty interesting question again. And look, our focus on the mid-mile and what we're referring to here on the mid-mile and the automation has largely been because a significant portion, the most important portion of a problem in logistics rarely boils down to how do you navigate the last mile. The last mile is expensive. Yes, it is one of the most expensive parts of the entire delivery process, but it's not the hardest or the most challenging part, and it's not the part where optimization, either in terms of, you know, the simplest one is route optimization, which delivers a certain amount of benefit, but it's not as significant as people typically tend to imagine, or, you know, time optimization of a rider who needs to work a certain number of hours and so on. You know, yes, those have certain advantages, but they typically cap out very fast. The hard part in logistics has always been, how do you get goods to the last mile with a very high reliability? And how do you select where they go to? And how do you select once they get there, what is sort of the form factor that you are going to use to deliver? So, while a lot of our focus may have appeared to be purely just on the automation side alone, from a software standpoint, one of the areas, you know, and we've spoken about this in the last couple of earnings calls, two or three earnings calls, because these systems are starting to mature, is how you shape your demand and how you shape your serviceability. I spent just 30 seconds on that. You know, on serviceability, one of the more interesting choices you make as a network is what is the last mile node that is most appropriate to deliver a certain kind of load. Because as an example, a 300 kg LR in freight and a 50 kg LR in freight are not the same. 50 kgs made up of five boxes of 10 kilos each and a single refrigerator are not the same. A parcel going into, you know, a delivery center, which is 98% utilized versus a delivery center, which is slightly further away, but is 72% utilized or different. A 140 gram parcel, which yields, let's call it 21% gross margin versus a 370 gram parcel, which yields a 27% gross margin are not exactly the same. A lot of the focus of the company, therefore, even from a software standpoint, has been on establishing these kinds of serviceability rules and making them more intelligent over time, determining what node is the right point from which to deliver a specific form factor. Now, our belief is that these deliver value, which is very difficult to replicate. These are very difficult decisions to make, not even non-real-time. In real time, they become particularly complex. And I think over time, we've been able to mature our systems to a point where now we are making a lot of these decisions in real time. Which packages do we accept? Which packages do we not accept? Which packages go to what kind of location? What is the right architecture? You know, like I said, we've been withdrawing freight backwards into the network. You asked the question earlier saying, how does it change when small parcel becomes a larger percentage of our business? Clearly, the architecture of the network itself will change. So from a software standpoint, the focus has not just been on the mid-mile and the automation, but also on what we call orchestration, which is a very difficult problem. And in terms of the capabilities that other players in this space are building, do we have the capability to do all of these and do we provide them already? Yes. Where we have lower relative scale compared to some of our competitors in certain segments within, reverse logistics is a good example. Our relative share in reverse logistics is certainly lower than our relative share in forward logistics. But the reason it is lower is fundamentally because we have the ability to examine the profitability of every parcel that we are taking. And so as a consequence of that, when we see bad reverse logistics volumes, which ultimately result in claims, you know, and claims are a particularly complex thing because claims are not a cost which manifests instantly, right? You go and do the reverse pickup today, you bring it back, it takes 20 days to sort of mature at the end of the seller who you go and report it to, then there's an entire process where that guy raises a claim to the The platform then comes to you. And then you sort of have to bear that cost further in the future. You know, we've tried to stay away where we have these kinds of uncertain SOPs and where it's not always very, you know, let me put it this way, where we don't feel comfortable carrying the kind of volume. So typically in some of these capabilities, we've been more conservative with how we build them out. And we tend to sort of stay with high quality volume because that allows us to deliver a high quality service. And on the multiplexing of time of the riders, you know, we already do provide that. Of course, our desired goal is that riders spend a defined workday working for delivery with a defined load level. And the reason for that is I think the directionality of the conversation, you know, when you look at the changes to statutory wages, or when you look at things that are coming into effect on the gig worker laws, is justifiably gig workers as well as regulators are looking at this and saying if somebody ultimately and look at how gig worker contracts are really structured, right, at the end of the day, while everybody theoretically talks about how, you know, somebody is working for a food delivery company on Monday, and then an e commerce delivery company on Tuesday, and then delivering quick commerce on Wednesday, Wednesday and flowers on Thursday or whatever it is. The fact of the matter is the incentive sheets of each of these companies are designed in a way that you only stack up the incentives when you really work for them all day and work for them all week. You know, you get bonuses for working whatever eight or nine hours a day. It may not say nine hours a day. I think there are bonuses based on login hours. But outside of that, there are bonuses based on a minimum number of tasks that you complete, which cannot be completed in anything less than those eight or nine or 10 hours in any case. And then there are additional bonuses, which are based on how many you complete in a week, which you might as well tell the guy, dude, you work for me all day, and you work for me all week. So we've philosophically not really tended to go towards this idea of how do we multiplex everybody's time. And the other reason why we don't want to do it is that in this situation, we've seen that the delivery metrics of people who stay with us and who deliver for us regularly, unsurprisingly, are superior to ones who are both newer and people who tend to drop in and out of the system very frequently. And so there's a lot of sort of benefit to designing systems where people work for you for, you know, the five days a week, carrying a defined number of packages in a defined timeframe. And our job from a software standpoint, therefore, is not so much to take advantage of whatever little free time this person may have, but to figure out how to make that person as efficient as they can possibly be within the hours that they're already dedicating to delivery. So it's a slightly different approach to how we think about, you know, what kind of tools our riders should have. For example, for us, a hugely complex problem is how do we make sure that the rider can precisely get to a customer and make sure that the delivery is done perfectly. This means both being able to identify the location, but equivalently being able to identify the preferred time at which the customer may want the delivery on a preferred day. And the more data we collect, obviously, the better we get at this, which is also, of course, the genesis, for instance, for delivery maps. But does it mean that from a user design standpoint, it's slightly less important for us to be able to flash saying, we have three jobs for you. Could you come and work for us for the next two hours? Yes. In an order of priorities, problem number one to our mind over the medium and long term is a significantly more important problem than problem number two. So you're right, we have stayed away from, or rather we have, relatively speaking, less focus on certain kinds of problems. But that is driven by our viewpoint of the world.

Just maybe on this question, ask you a second part. Just forget I said software. Let's say softer aspects of business, okay? I'm doing the same question again with you. There's one way of increasing margins, which is the way we have gone about things. The other way is to solve pain points, and that leads to leverage, which leads to margins. Reverse logistics may not work for you as a claim or a business by itself, but it gives you leverage when you're negotiating contracts, maybe on the forward side of things. Similarly, with a delivery partner who's getting some extra income, having the flexibility of not working nine hours a day in one go, but four hours in the morning doing job A, and job A can't happen in the night, so you do something else. It does give, let's say, you, if you start doing it, all your peers, if they're doing it, some leverage, and that leads to margin expansion. You can have a very short answer to this question and say, this is all rubbish, or you can say, it makes sense. I'm just trying to get a sense where the things are.

It's not rubbish at all. And it's an absolutely valid point, man. And I have no truck or no argument, you know, against what you're saying whatsoever. Yes, solving specific pain points for specific customers, of course, leads to margins. It, of course, gives you the ability, theoretically, at least to be able to expand and go beyond whatever you're doing. But at the end of the day, as a business, you know, we have a responsibility to look at the field of opportunities that we see ahead of us and see which ones make the most sense. I'll give you an example of the pain point problem and why we stay away from certain kinds of things. And look, more often than not, we do tend to get it right. But have we always got it right? The answer is not really, right? But long back, there was this whole, and it comes up even now, every now and then, you know, people still come every now and then and say this, we want to have try and buy delivery where we want to ship 10 products to some customer and you want to bring back nine of them. And this has been there now for the longest time. In fact, if you go back to press releases from whatever, six, seven years ago, everybody was talking about how this was the best thing since sliced bread. Jabong launched this back in the day when they were relevant, and the whole view was the e-commerce industry is going to change forever because everybody's going to do try and buy services. And as delivery, we just said, look, we're going to stay away from this because, yes, is it a pain point? Certainly. If you define your problem as I require 10 products to be sent to a consumer and nine to be brought back, is it a pain point? Yeah, of course it is. It's a pain point because you've defined it as such. Is it something that is going to endure for a long period of time? It's very hard to say. So it's something that we have to keep judging. Now, do we always get it right? The answer is no, we don't always get it right. Are there certain things that we continue to monitor, we watch and we say, okay, we need to respond to this and we need to build up a network? Yes. And we're very happy to be second movers in some of these cases because our execution capabilities allow us to scale up and our customer relationships allow us to scale up. So there's a little bit of a, you know, we don't always have to be the first movers into everything. But that said, suffice to say, there's nothing within logistics that we've seen We've seen that any of our competitors is doing that sort of we've looked at and we either don't do at all, or that we've looked at and said, Oh, my God, this is something that, you know, we absolutely never thought of so far, and everything's the future. I don't know. So it's a choice. It's a question of where we put our attention. And our view is that our fundamental responsibility at the moment is to continue to make forward delivery as efficient as it can possibly be as fast as it can possibly be, you know, hook it up to a fulfillment network. Of course, we do reverse logistics. We do a very large, absolutely And with one specific client, we have a different approach as opposed to other players in this industry. So it's a complicated sort of answer to your question. Is it a bad question or are you incorrect? No, I don't think so. And on the riders, again, I don't disagree with you. If there are people who would like to work in the morning for four hours as a newspaper delivery agent or whatever it is, or somebody is finishing a shift as a security guard and And then wants to come in and work for six hours delivering food or quick commerce or whatever it is. Certainly, there's, you know, whose delivery to cast any sort of judgment on that. But our point of view is we have found more than enough people who actually are looking for a stable job with a stable employer. And they want to work a defined number of hours in the day. And they want their employer to expend as much effort as possible towards making their job easy. You know, when I look at our retention rates of field staff across the country, it's actually, You know, it's something that's really worth seeing. And also the other reason why we do it is that in a network which is as operationally intense as ours, a large portion of our supervisory layer over a period of time has come from people who have started out in the field. And this is important to us as a company. This is hugely important to us as a company. You know, ultimately, we have a supervisory span in the distribution centers of maybe, you know, one is to 15, one is to 20. So if you join us as a field executive, you know, 6 or 8% of those people are going to make it to a supervisory level within, you know, call it a year or year and a half or two. And to a significant percentage of the population of India, the idea of being able to build a long-term career where they have the ability to see a company invest in them to develop their skills and not remain a delivery agent till the end of time is significant. And given that it is significant, you know, we have made a choice as an employer that that's the kind of opportunity that we wish to provide. Do we also provide the ability to do what you're talking about? Yes, we do. We obviously have the ability for you to sign up and to come and work for us for a short period of time. Do we expend every possible effort when you do so to explain to you why you should work for us full time? Absolutely. Absolutely.

There's one more question, sir. Aditya, I have to request you to move back.

The next question is from Jainam Shah.

Yeah, I hope I am audible. Yes, you are. Sir, the first question is, if we see during the last quarter commentary, one of the key margin positive that we were thinking was the corporate overheads to go towards the 7% range, which will be eventually around 2-2.5% increase from the existing level. In a way, the margin part. What we see is that in FI25, in FI26, and even in 1QFI27, the corporate overheads as a percentage of sale has been stable at around 9.3, 9.4%. So, when we can see some operating leverage playing out from the revenue and corporate overhead percentage to take our EBITDA higher, shall I go ahead with all the questions or shall I go one more?

Yeah, go ahead.

Go ahead. Yeah. Our second integration part, so as it has been highlighted that the difference between 17 crore of the EBITDA versus 30 crore at the PED, the 13 crore has been largely attributable to the, let's say, ROU or the depreciation or the other intangible cost as well. What I see is that during last quarter, the seminar number was around 6 crore difference between this EBITDA and PED, excluding the other income. So is it going to be a normal kind of depreciation and ROU run rate and

it is not a one-time cost that we can think of or are we thinking something on that?

This particular integration cost part. Third one would be on the new services part. So if we see for any additional single rupee of revenue, we are still spending 1.5 rupees and we are still at negative contribution of around 50%. What kind of trend rate that we expect from the newer services, maybe let's say after three years time, five years time, and what kind of contribution margin that it can take up to and how it will be done? Like is it on a volume based thing or how we should be eventually approaching this segment? Because the loss combined overall till date is more than 100%. Whereas still we are doing for any additional revenue, the cost is 1.5 years. So how do we see this segment contributing to the financial point of view? Of course, we are solving a problem and the thing has been there, which is good overall from the customer point of view. But from a financial point of view, how do we see this segment probably for next three to five years time? And the last one would be on the contract labor part. So can we get the number that we used to have as in line haul expenses and all those things? There was a one line item, which was contractual manpower expenses. Can we get that number for this? 1QFI27 to better understand the margin from, let's say, the labor cost which has increased.

Sure. Let me take questions 1 and 3, and Vivek can comment on questions 2 and 4. On the first one, very quickly on corporate costs, there are two components to this. One part, you know, is something that we've been talking about. I spoke about this in my analyst calls on quarter 3 and quarter 4, which is the expansion of our business development teams specifically for our partners. Part-truck and full-truck freight businesses, essentially moving to a different, much wider cross-sale structure, which would allow us to penetrate, you know, I think we're now in whatever, 100 cities all over India, much more deeply compared to where we were earlier, which was really, you know, the top three cities plus some. And the reason that investment was necessary is that we don't, we looked at our relative geographic market share and realized that, you know, actually, another interesting statistic is that we believe that we service such a small percentage of the total number of shippers in India, that in some senses, the market opportunity for us is practically infinite. I think we looked at it in our penetration basis, our overall list of customers, some 3%. You know, this is despite being the largest logistics company in India. So a large portion of this was towards building out our business development teams, which is what we had started doing, you know, sort of November, December last year. It sort of slowly started gathering pace in Jan, Feb. And a large part of that build out happened through the March, April period in preparation for the new financial year. So one of the reasons why you see increased wage costs in Q1, outside of the fact that this is our increment cycle, a lot of this normalizes through the year as well as a certain amount of attrition. But a large portion of this, of course, is because the business development team has been built up. The good thing is that the cross-sales team is actually fully active now, and we're already seeing pretty strong traction on cross-sales in terms of generating volumes for the express business, generating volumes for the PTL

business, generating volumes for our cross-border business as well.

The other, of course, is that technology costs have gone up year-on-year. Some of this is directly volume-linked. AWS costs, for example, go up in proportion to the increase in volumes. Of course, we have certain scale benefits, but broadly speaking, the absolute costs go up. And there's also a currency issue that happens. So there's about a five or six crore, I think, impact, which comes from that. We can share more details. Now, in terms of the new services, when will we break even? It's different for different cities. So the first city that we launched in delivery local, for example, which was Ahmedabad, in fact, looks set to break even most likely at some point, you know, within quarter three. Unless, of course, something completely untoward happens. But so far, the trajectory is that that city will break even. Now, this point is, of course, different for different cities, because given that it's an intracity logistics problem, the sizes of different cities are completely different. So the break-even point for Delhi and Bangalore will be perhaps slightly pushed out compared to the break-even point that we had for Ahmedabad. But the break-even point for Jaipur is going to look more like the break-even point for Ahmedabad or perhaps even sooner. So it really depends. The composition, the relative composition of these different cities and how they grow will determine where the break-even point for the business overall will be. That said, like I'd mentioned, both our growth trajectory on new initiatives on delivery local, as well as our contribution margin trajectory at the moment, continue to be ahead of plant. We had anticipated that we would do 250 crores in this financial year. It does look like we will exit with a higher ARR than that, given where we are today. And contribution margin also actually is significantly ahead of where we anticipated we would be in Q1 itself. And we continue to see some improvement in Q2 and anticipate that that will improve further in Q3. Because again, similar to the rest of the business, Q3, Q4 tend to be sort of end Q2, early Q3 tend to be much busier quarters as compared to Q1 and Q4.

But anyhow, Vivek, do you want to take questions 2 and 4, please?

Yeah, nothing. It's the same, the depreciation on ROU and depreciation on tangible assets and the amortization on intangible assets. The numbers were different because it was the last quarter was a fiscal year end quarter. So there may have been some specific adjustments, but otherwise, no, there is nothing different in those depreciation items. And your another question was the contractual manpower. That number would be 371 crores for this fiscal. Sorry, this quarter, this quarter of FI, first quarter of FI 27.

Got it, sir. On the depreciation part of the question was more on that, is it a recurring nature of thing of 12, 13 crore, which is eventually led to the difference between EBITDA and PAT of the integration, or is it something that we should take it as a one-time?

It's recurring because one is that we spent on say people as they either got absorbed in delivery or say they left, then we spent on some of the client contracts, which eventually we did not intend to retain, but till those contracts couldn't be exited, we had to continue. And then we spent on facilities which were under lock-in, and we couldn't exit. So all of those were just cash costs. And so they are part of the cash integration cost, which is the 17 crores. But there are certain unused assets which are awaiting disposal, and they are also being depreciated. So that's why we are not really incurring any cash cost on it. But the depreciation for that is part of our statutory P&L. So that's the item here. The more relevant number is the 17 crores, because our initial guidance of 300 crores was a cash integration cost guidance. But here, because on the statutory P&L, the depreciation on unused asset also impacts the path. We are separating it out and kind of showing you the true business part, which is comparable to the quarters in which there was no EcomExpress-related integration cost.

Just one clarification, but on this contractual manpower, is it safe to assume that all the labor costs would be parked into this expense largely, this expense said?

Yes, largely, yes.

So, sir, the question would be on that, that last year, similar quarter, we were having 12.2%, the contractual manpower expense is a percentage of revenue. This quarter with all this wage raising across the states, this is at 12.8%. So the EBITDA margin impact at the service EBITDA would be at around 0.6%. The other cost that has been talked about is on the fuel cost. And what I generally believe is that it would be in the range of around 30%, which we used to report as a line haul expense. And this 30% cost for one month increase at around, let's say, 78% would have We have been around, let's say, 0.6, 0.7%. So, around 1, 1.5% impact of these two things, the, let's say, diesel cost as well as the manpower cost would have impacted the EBITDA margin overall. But when we see sequentially or, let's say, on a year-on-year basis, the impact has been large. So, if you can clarify, is there any other cost structure item that would have changed during the quarter which would have impacted us and might be recurring in nature going forward? Of course, I believe that 1Q has been seasonally weak quarter from the margin perspective. But is there been anything that has changed the cost structure materially? Because this is just maybe maximum 1.5% impact of these two things on the contractual manpower and line-haul expenses.

Now the line-haul impact would actually be larger than 30%. Now that's all just fuel. But linked to oil price, you also have cost of consumables going up. You also have cost of air movement of parcels going up. In a way, you'll also have the cost of your last mile partners going up because while you don't pay them fuel separately for your gig workforce, but their expectations on what they need to earn on a daily basis goes up when the fuel component goes up because for them the petrol is a large cost on a daily basis. So it will show up in your last mile cost increase as well. Apart from that, now all of that is linked to the minimum wages and the fuel price increases. But apart from that, even in a more normalized environment, the first quarter would have had the annual increments coming in. So your employee benefits cost would have gone up. And your first quarter onwards, we would also have our network expansions coming in because first quarter is where the first half is where the capacity is added because the third and fourth quarter are respectively the peak quarters for our express and PTL businesses. And so your overall fixed cost base would also go up during the first half of any financial year. So, there are these increments and network expansion costs, which would be true for any financial year. And on top of that, there is this fuel cost increases and minimum wage increases, and the oil price linked items cost increases, which was more specific to this financial year.

Got it, sir. That was very helpful. Just one suggestion. If you can just start providing this expense line item, which we used to provide two, three quarters with, that would be really helpful. Of course, our data has been always up to the mark. So if you can just start covering those details as well. Sure. Thank you so much.

Great. Thanks, Jainam. And thanks, everyone. That was the last question. Sahil, over to you for any closing remarks.

Yeah, no, thank you, everyone, for joining. I know it's a Saturday evening and late on Saturday evening. And Dhruv and Amber team, you know, as always, thank you for hosting us. Hopefully from here on, as we look forward, you know, This is a pretty decent start to Q1 with record volumes on Express and high volumes on PTL continues. The external environment, of course, you know, the reality is it's been a challenging start to the year. Our view, at least at the moment, is that things seem to be easing up a little bit. Now, hopefully, we're right. And as that continues, you know, we'll keep you posted. But structurally, good start to the year and, you know, look forward to seeing you in Q2.

Great. Thanks, Sal. Thanks, everyone. You may now log out. Have a nice weekend.

Thank you.