All You Need To Know About Western Carriers
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00:00Hello and welcome to NDTV Profit. You are watching IPO. And the company coming out with
00:06IPO is Western Carriers. It is a multi-model logistics company which basically caters to
00:14multiple sectors including metals and FMCG sector here. The company's IPO is opening
00:19on September 13th, closes on September 18th. Price between 163 to 172 rupees per share.
00:25The company is coming out with a fresh issue of 400 crores and an OFS of nearly 93 crores.
00:30And it is nearly 28% of the post IPO equity that is in offer here and the company is valued
00:38at a little over 1750 crores at the upper end of the price band. And joining me today
00:43is Kanishka Sethia who is the Promoter Director and CEO of the company. Mr. Sethia, thank
00:48you very much for joining us on NDTV Profit. Sir, to begin with, it is an emerging sector
00:54and a very sunrise sector as well. Can you take us through what is the purpose of the
01:00400 crores that you are raising through fresh issue?
01:04Sure. First of all, thank you very much for having me here. It is an honour.
01:11Yes, sir, go ahead. For the sector, this sector is, I feel personally
01:18that it has a lot of prospect going forward. I think this is going to be one of the industries
01:27which is really going to be a sunshine industry for the rest of the decade. And we are positioned
01:32to be a 4PL supply chain company in which we cater to the entire requirements of our
01:37customers doing end-to-end logistics and a single stop logistics. The fund raise is basically
01:43for funding our growth. We are looking at a raise of about 400 crores of primary, half
01:48of which will go into our debt servicing. A portion of it will go into our capex and
01:54a portion of it will be into general corporate purposes.
01:57Give me a sense of what is the current borrowings that you have and once that repayment of debt
02:02happens how will the balance sheet look like? Right. So the current borrowings which are
02:11mostly towards working capital is north of 200 crores. A substantial portion of it is
02:16what we are planning to clear out with this fund raise.
02:19And when you are saying that you are going to use half of that for capex, which is 150
02:23or 2 crores odd which will be used for capex, what kind of capex are you looking at?
02:31So 100 odd crores is towards capex. We are in the business of logistics, multimodal,
02:40so we are looking at some investments in containers which are both 20 feet and 40 feet,
02:47some specialized containers, container handling specialized equipments like reach stackers
02:52as well as some trailers that we need to run our supply chain. That is the broad spectrum
02:57of the capex that we are looking at for the current.
03:01You have an asset light model. Can you elaborate on the asset light model?
03:07Absolutely, sir. So our business is asset light. So whatever we can lease from market
03:14or take from market we take. The only assets that we get onto our books are the critical
03:18ones that we need for running our supply chains, critical components like container reach stackers
03:24or specially designed equipment. That is the only assets that we purchase. Everything else
03:29we remain completely asset light. Asset light model helps us in being very flexible and
03:34upscaling or downscaling basis our customer's needs. Our focus remains on solving the customer's
03:41supply chain problems. So we are not an asset based company. We are not an asset heavy company.
03:46We are very focused on realizing the solution for the customer and the only assets that
03:51we need to run the supply chain are the ones that we purchase.
03:57Give me also a sense of the kind of supply chain synergies or the efficiencies that can
04:04come in because since you do end-to-end logistics for your clients, what kind of synergies and
04:12efficiencies can come in and how does it help you in improving your margins?
04:20Absolutely, sir. That's a perfect question. Actually, our whole focus is in creating a
04:25synergy in creating an end-to-end supply chain solution for our customer so that there are
04:30not redundancies in the supply chain that they are working at. We try to do the work
04:35in an entire holistic picture, a single window and not do the work in silos. The idea is
04:41to add value to the customer's supply chain, make it more robust, make it more future forward.
04:47Our idea is always to see how we can improve the efficiencies going into the supply chain
04:52for our customers by making sure that there are no redundancies in the system and this
04:56is what our core expertise is, is to basically combine supply chains, create a multi-modal
05:02supply chain which is what we are experts at and our multi-modal supply chains are very
05:08real focus. So it's a railway plus road, etc. So the idea is that the customer gets an end-to-end
05:14solution, we have our skin in the game and we are in a position to solve the problems
05:19for the customers and take care of the logistics requirements.
05:23With road, when you say it's rail focus, I assume that it's basically primarily on rails
05:29that the logistics you are looking at. How is that traffic growing for you, going ahead?
05:38Also what kind of margins do you get in that rail logistics?
05:43Sir, I'm actually losing you in bits but I think you are asking about rail logistics.
05:53So I think the future of rail logistics is huge, sir. As a multi-modal carrier in this
05:59country I think we are at the cusp of something really great. You know, multi-modal logistics
06:05is not something which has been around in our country for a very long time but as the
06:10volumes and the size and scale of customers and companies expand, we feel that the role
06:15of multi-modal is going to go ever increasing and people, especially the customers are going
06:21to see tremendous benefits. I mean, it's not like 30, 40 years ago where you could set
06:28up a small scale plant and run it in a 1PL or a 2PL placing trucks and trailers. Now
06:36the whole concept is to have a knowledge base in which you can actually run your entire
06:40supply chain and our focus is to actually treat our customers' customer as our end customer.
06:47So our focus is to ensure that the deliveries to the end customer of our principles happen
06:52in the condition, in the speed, in the time that we promise them to do it, sir.
06:56You know, give me a sense of your revenue growth because you've been growing at the
07:01CAGR of or compounded annual growth rate of nearly 4.6% per annum. I was looking at
07:07your volumes, TU volumes as well, they are growing at 10%. Why isn't your revenue growing
07:15at the same pace as your volumes?
07:19That's an excellent question, sir. So if you see the growth in TUs of almost 10-11% over
07:28the last year, this is despite and in spite of a black swan event that we are all living
07:33through, which is the Middle East crisis. You know, despite that, despite there being
07:37slippages in the export numbers out of the western seacoast, we have still managed to
07:42grow 10%, sir, and that basically gives you a sense of the robustness of this business,
07:47sir. We are, you know, very confident at the work that we are doing and we are very positive
07:53at the outlook of the work that is happening now, sir.
07:56Which also means that you are not able to pass on the pricing which has come in because
08:00of the Middle East crisis because supply chain prices and, you know, container rates have
08:06gone up because of that event. And if you are not able to grow the revenues, it basically
08:14means that the pricing has been very tough for you and you have not been able to pass
08:17on to the customers?
08:22No, it's not like that, sir. Actually, it's a mix of both. You know, the volumes also
08:27go down in exports, so there is shrinkage in the volumes if you don't do exports through
08:32the western seacoast, say the JNPT, the Gujarat, Kandla, Mundra ports, you know, that reduces
08:38your volumes there. But the margins remain good, the margins remain steady, and once,
08:43you know, you come out of the crisis, you can hope to see plenty of growth going forward
08:48as well, sir. That's the hope, not only for me, but for the rest of the industry as well.
08:54What is the kind of pricing increases that have happened in the last, say, 12 to 18 months?
09:05So the price increase basically is a factor of lots of things, sir. We basically do the
09:10end-to-end supply chain, so depending on what component goes up or down, the pricing is
09:15a very dynamic sort of a price. So some of the contracting which, you know, has shifted
09:20from the western seacoast to the eastern seacoast will see a price shrinkage. Some contracts
09:25which have actually, you know, gone from the eastern to the western or to the southern
09:28have seen a price increase. So it's a factor of what the customer wants. We are here to,
09:34you know, run the supply chain for our customers, sir. So whatever their export obligations
09:39are, either to the, you know, the Far East, the Middle East, or Europe or America, we
09:44are here to service them, sir. So depending on their own order booking, we are able to,
09:50you know, twist and turn our supply chains to meet their requirements, sir.
09:54You had a margin of nearly 9%, you know, 8.6% on core revenues, basically. It's grown in
10:02the previous year from 7.5% on. What is the kind of, you know, upside that you see in
10:08Logistics business from a EBITDA margins point of view?
10:15So sir, hopefully, you know, the margins are pretty good. You know, our ROC and ROE numbers
10:22are quite good, one of the best in the industry, if I can say quite humbly. And as we, you
10:29know, progress in our supply chain journey, in trying to strengthen our supply chains,
10:33getting rid of redundancies, improving our systems and operations, we are hopeful that
10:38we will be able to take this on an upwards journey going forward, sir.
10:42Are double digit or early teen margins possible in your business?
10:49Sir, anything is possible. It depends on what the opportunity is and what the kind of work
10:56that we are doing, sir. So it's hard to make a general statement, but depending on the
11:00project and the opportunity, there are, you know, chances of seeing good growth in numbers,
11:05sir.
11:06So give us a sense of the kind of, you know, customer profile you have. What we see from
11:11the IHB is that nearly half of the customers are from the metal sector. What is the kind
11:16of growth that you've seen for customers from this sector, you know, because Tata Steel,
11:21Alco, these are some of your clients which you serve.
11:29Absolutely, sir. So I would just want to take a second to step back. So we are actually,
11:34sir, not either sector dependent or customer dependent, though we draw 50% of our revenues
11:39from metals. The remaining 50% is a broad mix of pharma, FMCG, industrial chemicals
11:46and MSME.
11:48So to answer to your question about metals, we have a natural hedge in our metals business
11:52as well because we cater to all metals, sir. Primarily steel, aluminium, zinc are the three
11:58large metal clusters that we work with. And so they have their own cycles which basically
12:03gives us a natural hedge.
12:05The numbers in the metal sectors have been robustly growing, sir. You know, we are a
12:09business dependent on the growth of our principles and luckily we have very stellar clients who
12:15have been growing very robustly over the last two decades and there is plenty of scope
12:20of expansion as well. Most of our clients are under large expansion projects, be it
12:26in aluminium, steel. And so, you know, we look forward to actually partaking of that
12:32growth opportunity with them as the, you know, the expansion projects goes on.
12:39What kind of pricing agreement that you have, given the fact that your business is subject
12:44to geopolitical risk, risk of fuel cost, you know, and there are other risks which
12:50is associated with logistics and supply chain. How do you, you know, put a contract together
12:58for sale with your clients so that, you know, the risk is minimal on your balance sheet?
13:04It's a wonderful question, sir. So usually two large components in the rail focused multi
13:14mode that we have, one is the railway haulage, the other is the road haulage. Both of these
13:20are in most of the contracts taken care of by, you know, standard escalation and de-escalation
13:26clauses. For example, for the movement by road, we have what is known as a DPVC, which
13:31is a diesel price variation clause. So if the price of fuel goes up as a formula, our
13:37rates go up and vice versa. Same is the story with most of the contracts which happens for
13:42railways, which basically container movement depends on the haulage. So if it goes up,
13:47we have a pass through, it comes down, we have a pass through. So we are in most cases
13:53completely hedged for these costs. Once you, you know, undertake the CAPEX, which
14:00you need, what is the kind of, you know, the capacity that will go up for you in terms
14:07of the number of, you know, the volumes that you can manage going forward?
14:14So, sir, that's an excellent question. So the CAPEX that we are doing, which is primarily
14:21what we have done over the last two years, is in, you know, some of these handling equipments
14:26as well as some of these specialized containers. You know, the business of specialized containers
14:32and regular containers is seeing good traction both in the domestic market as well as the
14:37EXIM market. And we are hopeful that for the CAPEX that we do, we should get a quantum
14:42increase both in the top line as well as bottom line. These are projects which are highly
14:47specialized and we've been working on these for a few years. So we are very keenly focused
14:53on this business. We are very, I should say, positively inclined towards these businesses,
15:00and we are seeing good traction with our existing customers as well as with a lot
15:04of prospective customers as well, because we think that we'll be able to add substantial
15:09value to their supply chains.
15:11When you said value, because I read in your RHP that you're looking at providing value
15:16added services and that will also help in improving your operating margins. Can you
15:20give us an idea of the kind of value added services that you would be providing and going
15:25forward, what kind of impact that will have on your margins expand?
15:29Correct, sir. So we, like I said, sir, we do a single stop, one window logistic solution.
15:40The idea is that we take care of the entire supply chain. So some of the value added services
15:44that you can look at is lashing, choking, fumigation, containerization, palletization,
15:50first mile transport, last mile transport, custom clearance, three-way dooring, packing,
15:56re-logistics. So it basically, sir, it's a gamut of services. Not each service is required
16:02by a customer. We create a customized solution to what the customer wants. Needs of an FMCG
16:10customer towards, say, packing, knitting is very different from the needs of a metal customer
16:15who's doing maybe bulk import of scrap. So depending on what their requirement is, sir,
16:20we pick and choose from our bouquet of services and offer them, you know, a string of services.
16:26And it's the customers who are the last, you know, person to decide what they want, what
16:31they don't want. We don't force our customers to make any changes to the supply chains or
16:37to make any changes to their way of working till they are comfortable with it, till they
16:41see an opportunity to actually, you know, make their supply chain stronger and more
16:47efficient. Our goal always remains to basically, you know, streamline the supply chains for
16:52our customers in the little which way which we can, sir.
16:56You have an ongoing relationship with Concur, and Concur has been put on the block by the
17:02government for a divestment and a strategic sale to a new owner. What kind of relationship
17:09that you have, and if and when there's a change in ownership, will there be an impact on you?
17:17Excellent question, sir. So we are one of the largest business associates of Concur.
17:23We have been for several years. We take, you know, we book the rakes from them and do the
17:28multimodal contracting for our customers through them. It's a very good relationship that we've
17:36had. We've had a lot of support in our journey with them. But if you ask me, honestly, I
17:42don't see it being of much difference to us if it goes to a private hand, because, you
17:49know, I am giving business to them of my customers, and that relationship would remain the same
17:55even if it is sold. I don't have any conjecture of the sale, et cetera. But I think the work
18:02that we are doing is something which is a win-win both for the customer as well as Indian
18:07railways. So I think going forward, we shouldn't have much of headwinds in this either ways.
18:13You have very high working capital days, 96 days at the end of FY24. I mean, your receivables
18:19were around 114 days. How do you plan to bring down these receivable days and the net working
18:27capital days? I know you spoke about the fact that you will use some of the proceeds for
18:30working capital. But how do you reduce your receivable days?
18:38So, sir, the receivables as an industry as a whole went up during the time of the corona
18:44crisis. You know, the principals were not having the bandwidth to take care of the, you
18:50know, the payables, et cetera. The numbers have actually ballooned at that time. So they've
18:55started shrinking now. And we are on a path of, you know, continuously shrinking these
19:00days. Our target is to shrink it by about four, five days every calendar year going
19:05forward as well. We have made – we are making some progress with terms of our internal
19:10systems and processes in trying to see how quickly, you know, we can finish our end of
19:16the deal. And we are working very closely with our customers in trying to get this cycle
19:20reduced. But this is more of a pan-industry situation, sir, not only just us.
19:27Because your payable days are 18 days. So you have to pay much faster and you're receiving
19:32almost after 90 days or after a quarter. So if that is a scene, you know, doesn't it bring
19:38strain on your balance sheet and also, you know, increases your cost as well?
19:46Oh, absolutely. It's a fair point, sir. And it's something that as an industry we are all
19:50working towards it, sir. And, you know, we have very, very good customers, you know,
19:55the top marquee customers in this country. And so we are working very closely with them
20:02in trying to see how much, you know, robustly we can reduce our cycle, sir. So that's something
20:08which is a work in progress, not only for us as a company, but for us as an industry, sir.
20:13Mr. Kanishka Sethia, thank you very much for joining us today on NDTV Profit. Your IPO
20:18is opening on September 13, closes on 18th. 163 to 172 rupees per share is the price band.
20:25The company is raising 400 crores in fresh issue and there's an OFS of 93 crores,
20:2992.9 crores which is there. So the total IPO size is 429.9 crores, giving the company a
20:36market value of 1754 crores at the upper end of the price band. Thank you for watching.