Logistics major, Transport Corporation of India (TCI), expects to grow its sales and net profit by about 10-15 per cent in the current fiscal. Joint Managing Director Vineet Agarwal outlines the way forward for TCI.

What are the challenges for the logistics sector?

Logistics growth is directly related to that of GDP. Typically, logistics growth is 1.4 times the GDP growth. Growth happens because of movement in goods, change in consumption habits and emergence of new sectors. In the last one-and-half years, the growth in the logistics sector has been subdued. This is because of slowing GDP growth and also due to a lot of uncertainty in the operating environment. Capacity addition has been low. In terms of volumes, the growth has been around 10 to 15 per cent.

The Budget was a big dampener and the slowdown for the sector got even worse. Till December, the volumes were moderate to high, the slowdown started after that. From April, we saw volumes coming down very fast. The next few months will be tough for logistics companies. We are not expecting a huge amount of growth push in the next few quarters.

Why do you feel the Budget was a dampener?

Budget is one of the reasons for the slowdown. Our industry is an indirect user of infrastructure. There was no real push for infrastructure in the Budget. New manufacturing policy did not have any impact on the industry. Also, investor sentiment is weak.

How is TCI adapting to the slowdown?

In certain businesses, like freight, which are actually quite dependent on credit, we slowed down our business growth. Due to the tightening economic situation, many companies were delaying their payments. Hence, we felt that it was better to do less business than to do business that doesn’t guarantee returns. We also made some changes to our business model. For instance, in the freight business we are looking at over-dimensional cargo or rail cargo. We have started adding new services slowly, so that it can add to future revenue streams.

How are you gearing up to face competition from other modes of transport like railways?

The Indian freight market is roughly about three billion tonnes. Out of that, one billion tonnes comes from railways and two billion from roadways. But railways has been losing market share every year because of poor service and high freight rates. They have about 32 per cent market share. However, we feel there are ways to collaborate and offer customers a better solution which would be a combination of roadways and railways. Hence, we have a joint venture with Concor (Container Corporation of India). We are looking to leverage that association.

Have you explored the option of inland waterways transport? What are the challenges?

It’s an area that can grow a lot. In Europe, 10 to 12 per cent of the cargo moves by inland waterways. Even in China it is used for cargo movements. But at present, the work on this is moving slowly in India. It is a priority area even in the Prime Minister’s infrastructure plan. But infrastructure bottlenecks like building jetties, ports and safety nets around the river need to be addressed.

How will the proposed de-regulation of diesel prices impact your margins?

It will not impact our margins much. In all our contracts, we have a diesel price escalation clause. So, if diesel price goes up, pricing of services is adjusted accordingly.

What impact will the GST have on your sector?

First, for instance consider a company with ten manufacturing locations. Presently, it may have 35 warehouses spread across India to take advantage of the local tax structures and circumvent variations in taxes across different states. So, there will be 10 factories supplying to 35 warehouses. When GST comes into force, the number of warehouses will drop to 15. That is because the tax rates will be uniform, hence, companies will transport to lesser number of warehouses. So, this will impact freight movement, warehousing and inventory management in a direct way.

Second, if documentation becomes simple, it will lead to faster movement of cargo, since there will be lesser stoppages, damages will be less. Also, there will be increase in productivity and less corruption. According to a study conducted by TCI and IIM-Calcutta, trucks in India move very slowly at about 20-25 kmph on an average. There are too many check-posts and screenings, which hinder movement.

What are your capital expenditure plans for the full year?

We have a budget of about Rs 150 crore from the Board. About Rs 40 crore is for purchase of trucks, Rs 60-70 crore is to build new hub centres and warehouses, Rs 20-25 crore for buying vessels and other miscellaneous IT systems, among others.

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