Tata Motors, GMR Airports, Zomato, Delhivery, CarTrade: Management commentaries, growth outlook & more

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On Day 3 of Kotak Chasing Growth - 2023 Conference, a host of companies including Tata Motors, GMR Airports, Zomato, Delhivery and CarTrade gave their business updates, highlighting growth outlook and capex plans. The day, Kotak said, saw more 688 members of the institutional investor community exchanging thoughts and ideas with 119 senior managers of 52 companies, across more than 2,500 interactions. Here are the key takeaways from the management of five companies:

Tata Motors

EV order: Tata Motors secured a new order from Uber for 25,000 EVs, which will be delivered in a phased manner over the next three  years, as the cab aggregator/fleet operators need time to ramp up the charging infrastructure required to support the mobility of vehicles. As part of this agreement, Uber will deploy the company’s EVs by partnering with fleet operators in various cities in India.

Update on semiconductor situation: Tata Motors expects that the current quarter volumes will be in line or marginally better as compared with the previous quarter, as the semiconductor shortage continues to impact the sales of JLR, despite a robust order book of 2,15,000 units, as on December 2022. However, the company exudes confidence with new supply contracts kicking in from January 2024.

The supply of semiconductor chips will improve gradually and aspires to reach 100k units on a quarterly basis.

Capacity ramp-up: The current annual capacity of cars for Tata Motors’ PV business is around 4,80,000 units, which is expected to be ramped up to 7,80,000, with the acquisition of Ford India’s Sanand plant to cater to the growing demand for both PVs and EVs in Indian market. The most attractive element of the acquisition is the massive saving on time in terms of negotiating with governments to procure land, obtain permissions, construction and commission for which the competitors are scrambling.

Impact of RDE norms: The company already announced a price hike of 2 per cent for PVs across powertrain and expects a 3-5 per cent price hikes for the CV segment. Tata Motors said that the price hike is marginal when compared with the price increases taken during the transition from BS-IV to BS-VI, as all the CVs were upgraded with Selective Catalytic Reducer (SCR) during the BS-VI transition. As part of phase II, the changes will be restricted to installing diagnostic devices, which track and regulate a car’s performance.

Product launches: Tata Motors said that there will be a dry spell for new model launches in the coming year, with a lot of portfolio refreshes, including Safari, Punch EV, Altroz CNG and Harrier. The company expects the Curvv EV to be launched by the end of next year.

CV business: Tata Motors believes that there was excess LCV capacity built up in the system, and therefore, demand is expected to remain flat in the short term. However, as the economy is recovering, the company expects the demand for MHCV and buses to continue increasing as witnessed in the previous quarters.

GMR Airports Infrastructure

Bidding for new opportunities: GMR Airports said it will keenly look at new opportunities that can come for privatisation of airports. It already has a portfolio of 9 airport assets – 6 domestic and 3 international and has required expertise in developing airports. With partnership of ADP, it will continue to scout for opportunities across east Europe too.

Aero revenue growth: Aero revenue growth would be led by improved passenger levels as well as capacity expansion which is being done at both Delhi and Hyderabad airports. Delhi airport capacity will be expanded to 10 crore passengers from 6.6 crore currently and Hyderabad capacity will increase to 3.6 crore from 1.2 crore currently. Along with this, recently commissioned airport at Goa will also aid volumes.

Non-aero revenue growth: Non-aero revenue growth will be driven by retail spending and from duty free shops. In Hyderabad airport, retail spending has already improved to $8 and in Delhi airport, it stands at around $12 per passenger. This will further increase from improved contribution from Goa airport as passenger profile in Goa is very different and non-aero revenues will be far superior.

Land monetisation: GMR has nearly 230 acres of land in DIAL, 1,400 acres in HIAL and nearly 232 acres in Goa airport and offers a good potential of monetisation from each of these airports.

Financial partnership with NIIF: GMR has entered into financial partnership with NIIF for investing equity capital in three airport projects including Goa, Bhogapuram airport. It has already received Rs 630 crore in the form of CCD for Goa airport as primary investment.

Debt will taper down on capex completion: Corporate net debt for GMR has remained constant at Rs 25,000 crore but will start tapering down once capex at Delhi and Hyderabad gets over.

 

Zomato

Take-rate: Zomato indicated that aggregate level take-rates have room to grow. The company operates at 23-24 per cent take-rates; this will go up, despite delivery charges declining slightly as Zomato Gold gains scale. It believes that some restaurants can still pay higher take-rates, and there is potential  for better ad revenue monetization driving up take-rates. Market participants can accept higher take-rates, given the volumes Zomato generates on its platform.

Revenue growth: Overall, the slowdown in certain pockets of discretionary consumption has slowed growth for Zomato. It is unclear when this spending becomes more favourable. However, Zomato has grown faster than QSRs in Q3, and will push for new products such as Zomato Everyday to revive growth. Several of these products start as experiments, and if they find the right product market fit, Zomato will carry out mass introduction. Zomato Everyday will operate on an asset-light model, but will need to invest in finishing stations to roll this out in the next few weeks in Gurgaon and Bangalore. Some learnings of Zomato Instant will be implemented. The company’s focus is to significantly increase the number of power consumers, i.e., consumers who transact on the platform more than 50 times a year.

Zomato Gold: Zomato Gold since launch has garnered 9 lakh customers. Earlier, Pro had a free delivery feature for all orders. Now, Gold provides free delivery, subject to conditions and other benefits. On-time guarantee is a new, unique feature added in Gold. The Rs150 subscription price for three months is an introductory offer, and the price has already risen to Rs 250. After expiration of 3 months, it is likely that terms and conditions change and the price of subscription increases and/or certain conditions of the offer change. Zomato Gold may be dilutive to take rates initially, but there are enough levers available with the company, which can sustain CM at healthy levels, despite some additional spend toward Gold.

Blinkit: According to management, if progress continues at the current pace, Blinkit’s path to profitability can be faster than the expectation of 2-3 years. One of the causes of the average order value (AOV) drop was that customers were purchasing smaller ticket size SKUs. As the business scales up, AOVs might stagnate or decline, but higher efficiency should still help drive it toward a path of profitability. The company has no inorganic expansion plans. Blinkit may experiment with other service options such as longer delivery times for the value conscious customer in the future. However, the core 10-minute delivery proposition will remain unchanged.

Delhivery

Express Parcel vs PTL cargo: The key drivers of a Rs 70 per kg pricing for Express Parcel and Rs 10 per kg pricing of PTL are last mile transportation, similar difference in first mile and mid-mile transportation cost being 2 times for Express parcel (volumetric) versus PTL (higher dead weight) and sorting and packaging costs in mid-mile associated with Express Parcel.

Delhivery explained how a combination of Express Parcel (volumetric) and PTL (higher dead weight) can help increase the space utilisation of a truck with a fixed payload and size constraints. Beyond such has advantage, the other significant advantage for Delhivery is using the combined volumes of Express Parcel and PTL to run long-length and more fuel-efficient trucks. It currently is moving 35 per cent of its cargo tonnage through such tractor trailers versus 15 per cent in FY2022 and is targeting a higher 70 per cent share over time. It expects such tractor trailers to become a bigger advantage once expressways suggesting the one connecting Delhi and Mumbai get commissioned.

Relevance of freight exchange: Delhivery explained the 4-5 per cent savings in full truck load business is when the truck runs 2 times the distance at 10,000 km per month versus the typical 5,000 km a month. The key is to provide visibility of traffic and that is the function of the freight exchange launched by the company. By virtue of the company currently underwriting the transportation journey to build the exchange, the entire transportation top line and a 4-5 per cent margin is getting booked.

Prospects of cross-selling: The five lines of business for Delhivery (Express Parcel, PTL, FTL, SCM, cross border services) help the company in adding new customer accounts. Based on the customer’s requirements, it converts the customer through the line of service the customer most needs. It then starts offering its other lines of business. For the company, the quantum of revenues from customers availing two or more of its services is important and stood at 58 per cent of its total revenues in FY2022.

Spending on seeding new business: Delhivery spends 35-40 per cent of its overall corporate costs on technology, a meaningful part of which gets spent on the logistics Saas vertical. This vertical is aimed at selling Delhivery’s technology stack to logistics service providers in overseas geographies and presently does not generate any meaningful revenues.

India vs China: Delhivery explained the differences on both the demand and supply side in China versus India. In China on the demand front, there is one large player. Then are 5-6 large sized logistics firms of similar size, similar size, all asset heavy and all doing only mid mile. Also the allocation of shipping is decided by franchise sellers which make the mid-mile companies outcompete each other on pricing. In India, demand side is more spread out – for instance Delhivery has a fat tail of customers accounting for more than 20 per cent of its revenues. On the supply side, Delhivery is 2 times the size on the next 3PL player and captives have almost maxed out their extent of insourcing and are still no more profitable than Delhivery.

Security is a key aspect: Delhivery shared almost 100 scans that happen through journey of the cargo with Delhivery, all of which are available on their API. As part of their hub operations, the manual intervention is limited to the loading of trucks (done inside the premise). The truck then is sealed and only gets opened at the destination. Checks at the hub include weight and chip location testing of mobile phones (can identify fake brands at the source) and then through the mid mile (checks at every 50 kms to track whether there has been an unforeseen stoppage of the vehicle).

CarTrade Tech

Acquisitions: Cartrade has built the business inorganically with acquisition of various entities. It invested $100 million in Carwale platform in 2016 due to it large organic traffic, content, reviews and photos. Further, it invested in Adroit in 2018 which works with banks and financial institutions for used car inspection and valuation services.

Used car segment: C2C used car business is strong but marred with issues of trust. CarTrade has nearly 40,000 consumer listings of used cars on the platform. Other asset-heavy peers like Cars24, Spinny, etc. are competing with used car dealers (who don’t pay rent, work with own funds). The Absure dealers have an option for inventory financing at showroom, but CarTrade charges interest.

Consumer (classifieds) business: New vehicles share was 84 per cent, used vehicles share was at 16 per cent (was 90:10 in 3QFY22). Dealer share is expected to inch up. The combination of adding more dealers to the platform and higher digital advertising by dealers and OEMs will drive growth. New launches are important driver for growth.

Competition: Remarketing segment of SAMIL, CarTrade Exchange has no competition. The challenge is to shift the market from unorganized to organized. Of the total revenues of consumer segment, 85 per cent comes from new cars, remainder 15 per cent is used car. In the new car classifieds space, the only competition is Cardekho. All other players are in used car space. Cardekho is also shifting focus on insurance and finance. Another used car classified players is Olx but is a horizontal player. Others like Spinny, Cars24 buy, refurbish and sell and act as a pseudo-dealer. Cars24 lists its cars with CarTrade.

Financing: The company has built instant loan approval across banks. Now, the company is looking to build disbursements along with banks. It additionally wants the banks to recognise their customers and to offer them preferred rates.

Mobility outlook: The company recently started with insights on automotive space. On the consumer side of the business, it provides industry intelligence to dealers and OEMs.

Others: SaaS opportunity exists for CarTrade but is more global in nature. For example, some of its offerings are being used by MG, Mercedes. Integrated lead enquiry and end-to-end ERP solution with LMS. Not charged. (2) Company claims that ads are contextual for the visitor basis the data-backed intelligent insights. Data does not get sold to OEMs. However, data-backed insights are provided to OEMs.
 

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