TVS Supply Chain Solutions LtdQ2 FY23Transport Services

TVS Supply Chain Solutions Ltd

Q2 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

Yes

Order

N/A

Capex

1 of 4 growth signals are positive — mixed outlook.

Full analysis

Revenue guidance

Category 3

→Integrated Supply Chain (ISCS) segment showed strong growth: 20.1% YoY in Q1 FY24 with mid-teens growth expected full year.
→ISCS growth driven by domestic consumption in India, auto and industrial output; high teens growth expected in Europe and North America.
→Network Solutions (NS) segment revenue declined 35.1% YoY in Q1 due to steep drop (~55%) in freight rates compared to last year peak.
→Freight rates expected to remain stable at pre-COVID levels for full year; volumes expected to improve in H2 FY24 with new business deals kicking in.
→Final mile (IFM) business expected to start delivering margin improvements from Q3 FY24.
→Overall NS segment margins projected to improve H2 onwards due to cost reductions and price increases.
→Strong pipeline of business development deals expected to drive volume growth, especially in Network Solutions.
→Overall cautious revenue outlook with focus on profitable growth and cost management.

Margin guidance

Category 2

→Integrated Supply Chain (ISCS) segment is expected to grow in mid-teens for the full year, with strong volume recovery and continued business development efforts.
→Network Solutions segment margins are anticipated to improve in second half (H2) FY24 due to price increases, volume uptick, and cost reduction initiatives.
→Adjusted EBITDA margins for the full year FY24 are expected to rise by 80 to 100 basis points year-on-year driven by operating leverage and cost management.
→EBITDA growth observed in Q1 (7.3% YoY), with promises of further margin expansion especially in the ISCS segment (190 bps YoY increase).
→Profitability impacted in Q1 by one-time charges and increased borrowing costs, but borrowing costs are expected to normalize post-IPO debt repayments, reducing interest expense by approximately INR15 crores per quarter.
→Operating leverage and strict cost controls in Network and Supply Chain segments to support earnings growth in H2.
→Overall focus on profitable growth with improving exit run rates expected by fiscal year-end.

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Fundraise plans

Yes

- No explicit mention of any new fundraising planned through debt or equity in the call transcript. - The company focused on debt reduction, utilizing INR525 crores from IPO funds and a similar amount from pre-IPO fundraising and CCPS for repayment. - Gross debt expected to reduce from INR1,788 crores as of June 30 to about INR685-700 crores by year-end, with net debt around INR100-150 crores. - Interest savings anticipated to be about INR15 crores per quarter post debt reduction. - Capex planned under 1% of revenue (around INR100-110 crores) for FY24-FY26, indicating no major equity fundraising for expansion. - CCPS impact was a one-time, non-cash charge related to prior capital raised; no indication of ongoing or additional CCPS issuance. Summary: The focus is on debt repayment with no announced plans for fresh fundraising via debt or equity as of September 2023.

Order book

- The company is continuing to win deals, particularly in the Global Freight Solutions (GFS) segment, retaining its entire customer base. - There is a strong pipeline of business development opportunities, indicating healthy expected order inflow. - The Network Solutions segment is well-positioned to experience a growth surge ("hockey stick") when the volume uptake phenomenon reverses and improves. - Volume improvement in global freight is expected, driving better revenues in the second half. - The company’s focus on expanding customer relationships and adding new capabilities/geographies supports orderbook growth. - Indian market growth is driven by domestic consumption and industrial output, supporting a robust demand outlook. In summary, the current orderbook is strong with ongoing deal wins, and future pipeline visibility is positive for growth in both Supply Chain and Network Solutions segments.

Capex plans

→The company plans to keep capital expenditure (capex) under 1% of revenue.
→This translates to approximately INR 100 to INR 110 crores annually for FY 2024, FY 2025, and FY 2026.
→No additional specific strategic investments or large future capital investments were mentioned besides the consistent capex guidance.

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