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Shadowfax Technologies Q1 FY27 Earnings Conference Call | Concall.in — Transcript

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0:00Ladies and gentlemen,
0:01good day and welcome to Shadowfax
0:03Technologies Limited Q1 FY27 earnings
0:06conference call.
0:08As a reminder, all participant lines
0:09will be in the listen-only mode and
0:11there will be an opportunity for you to
0:13ask questions after the presentation
0:14concludes.
0:16Should you need assistance during the
0:17conference call, please signal an
0:19operator by pressing star then zero on a
0:21touch-tone phone.
0:22Please note that this conference is
0:24being recorded.
0:25I now hand the conference over to Mr.
0:27Abhishek Bansal, managing director and
0:29chief executive officer. Thank you and
0:31over to you, sir.
0:35>> Thank you, Yusuf, for hosting this call.
0:39Good evening, everyone,
0:40and thank you for joining us today.
0:43With me today are Praveen, our CFO, and
0:45Sachin Dikshit, who leads corporate
0:47development and investor relations.
0:50So, the format we'll follow for this
0:52call, we'll have
0:53a quick opening remark from my side,
0:56followed by a quick presentation from
0:59Praveen,
1:00which we'll follow up with Q&A.
1:09As I start this call,
1:12I want to start with explaining how this
1:14quarter actually felt like from inside
1:17Shadowfax.
1:18Because if you only read the print, you
1:20will miss the entire story.
1:23This has been one of the most complex
1:25quarters for us.
1:27Early this quarter,
1:29diesel price went up along with the gas
1:31crisis
1:32and elections in a couple of large
1:35states.
1:36Now, for a logistics company, diesel
1:39prices and manpower impact is everything
1:41we do.
1:43So, the question we asked internally
1:45went well beyond what does this cost us?
1:49We asked something really big.
1:51Will India's consumption demand hold?
1:55Consumption held up
1:57better than many expected.
2:00In fact, we have now seen repeatedly
2:03that periods of economic pressure often
2:06strengthen digital commerce.
2:09Consumers become more value conscious,
2:12compare more, search more, and
2:14increasingly shift online.
2:17This quarter reinforced that pattern
2:20once again.
2:23Moving on to the supply side,
2:26we did what strong operators do.
2:29We worked with our customers,
2:31collaborated closely with our delivery
2:32partners and vendors,
2:34and used our network intelligence and
2:36data
2:37to dynamically rebalance incentives
2:40so that service levels remain intact
2:42despite the labor disruption.
2:46And here is the outcome that matters
2:48most.
2:49Through all of it, our performance
2:52effectively showed zero volatility.
2:55We delivered one of the highest
2:57sequential growth while also improving
3:00our margins.
3:01Now, that is by design.
3:03That is a company built to flourish in
3:06the toughest times.
3:11With all this uncertainty behind us now,
3:15we expect massive tailwinds into this
3:18year.
3:20Hence, we want to make a very important
3:23announcement, probably the most
3:25important one over this earnings call.
3:29We are now revising
3:31our financial year '27 revenue growth
3:34guidance
3:36from 27% to 30% that we had given
3:38earlier
3:39to 38% to 40% for this financial year.
3:44Having said that, our margin trajectory
3:47remains unchanged, suggesting faster
3:50growth with the same disciplined path
3:54into profitability.
3:58Moving forward,
4:00let me quickly now give a view of each
4:03of the strategies
4:05that have led us to display some of the
4:07financial numbers that we have seen for
4:10the last quarter.
4:14My conversation is going to be broken
4:15down now into Express Parcel, which is a
4:18large part of our revenue, and quick
4:20commerce and hyperlocal. So, we'll talk
4:22about both these factors.
4:25Talking first about Express Parcel,
4:28the three large talking points for us
4:32which have driven and shaped the
4:33business over the last quarter.
4:36The number one within that
4:39is the industry consolidation
4:42and the market share win that Shadowfax
4:45is is seeing in the in the in the market
4:47today.
4:49Now, what we have been seeing
4:51quarter on quarter,
4:54volume
4:56is getting more and more consolidated
4:58between the two large 3PL networks
5:02that have held service levels at a
5:05national scale.
5:07Clients are choosing partners
5:10that they can sustainably depend on, and
5:13that choice is now settling in our favor
5:15as well.
5:17The second shift
5:19within this industry is what we are
5:21seeing is that the large marketplaces
5:24are expanding fast into low value
5:26categories,
5:28where a 250 rupees order calls for a
5:30different kind of network altogether.
5:33We believe that outsourcing
5:35will grow as these marketplaces need
5:38access to proven and low-cost supply
5:40chains.
5:41Now, within this ambit of market share
5:44gain, one important factor has been the
5:48area around our geographical coverage
5:50and where you can see in our earnings
5:52presentation as well that there has been
5:54a lot of execution.
5:57We ended the quarter at about 16,372
6:00pin codes
6:02where we opened about 716 pin codes over
6:05the last 90 days. Almost eight pin codes
6:09every single day.
6:11And the way it works is beautifully
6:13simple.
6:14The moment we go live in a pin code
6:17our existing clients order into that
6:19area gets switched on.
6:21Every new pin code
6:23helps us gain further market share.
6:26Now,
6:27that
6:28this industry phenomenon and this market
6:30share
6:31is around some of the core services,
6:33core businesses that we have created
6:34year on year.
6:36Moving within this express parcel
6:38business into some of the experiments
6:41and some of the new lines of business
6:42that we started creating a couple of
6:44years back.
6:45Number one being
6:47the prime and D2C
6:49business.
6:51Now, prime is a business where we offer
6:53same-day delivery, next-day delivery
6:55services to to the D2C brands that we
6:57work today.
6:59We are the only 3PL of national scale
7:01offering same-day delivery across the
7:03country.
7:04And because we are the only one, every
7:06client wants the speed
7:08who wants speed has to come to us.
7:11That is showing up directly in our
7:12wallet share. When a client moves their
7:14fast delivery volumes to us, the rest of
7:16the volumes also tend to follow.
7:20This story isn't about just growth.
7:22It is about acceleration as well.
7:24Prime grew almost two and a half times
7:27last year.
7:28It has accelerated to 2.7 times year on
7:31year this quarter even at a much larger
7:33base.
7:34Along the way, we have crossed more than
7:37400 D2C customers who are using our
7:39prime services across our platform.
7:42Now, within this D2C ambit,
7:45we had launched a pretty ambitious
7:48product just about 90 days back called
7:51Shadowfax 360. It was a sales serve
7:54platform meant for smaller SMEs, smaller
7:58brands
7:59where any individual brand can
8:02self-onboard themselves and have a
8:04democratic access to our to our
8:06platform.
8:08Within one quarter of the launch, we
8:10already have more than 1,200 transacting
8:14sellers.
8:15And this number is compounding every
8:17single week.
8:20Moving over to the other
8:23experiment that we incubated last year
8:26was the business around prime large,
8:28which was our foray into heavier
8:30deliveries via light commercial
8:32vehicles.
8:33We have already expanded to 10,000 pin
8:36codes, which was our fully a target for
8:38FY27.
8:39We hit that number within the first
8:41quarter.
8:42We are now raising our FY27 target for
8:44prime large to 12,000 pin codes.
8:47Revenue has grown close to 170%
8:51year-on-year to roughly about 25 crores
8:54ARR in this business line.
8:5725% is the growth at a quarterly level
9:00that we have seen between Q4 and Q1 this
9:03year.
9:04So, that's largely about the express
9:06parcel business where some of the
9:09core businesses are firing.
9:11Some of the newer experiments that we
9:13had created and the newer product lines
9:15are continuing to
9:17show very, very good signs of success.
9:20Switching gears and moving into
9:22one of the most interesting bits about
9:25the commerce of this country, which is
9:27around quick commerce.
9:29Well, for quick commerce,
9:31the pie is just getting bigger, not just
9:33more crowded now.
9:35Hyperlocal has grown about 53% year on
9:39year,
9:4017% over the last quarter itself.
9:43And this growth is not coming from one
9:46platform doing well. It is coming from
9:48the category itself getting bigger.
9:51As you will all know, quick commerce now
9:54has five to six large players, and each
9:57one of them is growing with us.
9:59This demonstrates the deep potential of
10:01quick commerce in the country.
10:03And we are the ones who are powering
10:04that growth.
10:06Strong ambitions communicated by Amazon
10:09now
10:10are great for us as our wallet share
10:12with them is higher than that with
10:15others.
10:18Further,
10:19there are also hundreds of vertical
10:21quick commerce company
10:23which continue to grow rampantly by
10:25solving for category focused assortment.
10:31Even in food delivery, which is
10:34a fairly mature segment of hyperlocal,
10:37we are seeing emergence
10:39of low order value models.
10:42This will make the pie larger as seen in
10:44China as well.
10:46More orders, more frequency, more
10:49density on the ground.
10:50And every one of those orders will
10:53require somebody to physically deliver,
10:55and that's when
10:56that's that's where Shadowfax gains.
11:00Now, within quick commerce, there's this
11:02exciting element around dark stores.
11:05If you remember last quarter, we had
11:07made an announcement that this year we
11:10are going to open 100 dark stores for
11:12the full year.
11:15We are super proud to communicate that
11:18out of those 100 dark stores, 47 are
11:21already live as on 30th June, and
11:24another 20 are on the way to go live.
11:27This is nearly half our full year
11:30commitment delivered in the first
11:31quarter itself.
11:34Today, we are live across six metro
11:36cities and some of the best known
11:39fashion beauty platforms in the country
11:41are anchoring that network.
11:45Today, we are seeing every category
11:47having its own vertical quick commerce
11:50business, be it grocery, fashion,
11:52beauty, child care, pet care, even
11:54building materials.
11:59The reason is simple and it is very good
12:01for us. These specialist brands want to
12:03spend their time, their capital on what
12:05do they what they do best.
12:09For logistics, they prefer to depend on
12:10a specialist like us. This is exactly
12:13the role we played in vertical
12:14e-commerce
12:16about a decade back and it is exactly
12:18the role we are playing in vertical
12:20quick commerce today.
12:23We believe
12:25vertical quick commerce can grow to
12:2720-25%
12:29of the overall quick commerce market
12:32following exactly the same path that
12:34e-commerce took.
12:37This is about a brand new market being
12:39created and we are helping build the
12:41roads it will run on.
12:43This is a great place to be for us.
12:51Now,
12:53while we have spoken about various
12:54segments of how they have performed over
12:57the last quarter,
13:00I want to draw your attention and zoom
13:02out a bit
13:03to talk about the company and the
13:05culture which is driving some of these
13:08things in action.
13:12Every single thing became began as an
13:15experiment. Prime was an experiment a
13:18couple of years back. Prime large was an
13:20experiment we started last year.
13:23SF 360 was an experiment we just
13:26launched 90 days back.
13:28Dark stores was an experiment we
13:30patiently ran for more than a year
13:32before we committed capital to it.
13:37As an organization,
13:40driving success in our core business
13:42while also
13:44getting some of these experiments to
13:47work
13:48and scale
13:49is something we attribute to the strong
13:52organizational DNA where we cultivate
13:55this innovation.
13:56We are extremely proud of the success
13:59and remain excited about the newer areas
14:02that we continue to bet on.
14:06Now, before I close and hand it over to
14:08Praveen,
14:09a few closing remarks from my side.
14:16This quarter
14:17asked a great deal of this company and
14:20frankly the company answered.
14:23But here is what I want to leave you
14:24with because it tells
14:27you a far more about our future than
14:29about our past.
14:31While the environment was at its most
14:34demanding, we chose to build.
14:37This was the quarter in which we added
14:38more physical capacity than any quarter.
14:41We added more pin codes than we ever
14:43have.
14:45That is who this company is. When the
14:47environment gets tougher,
14:49we lean in,
14:51aggressively
14:54rally our troops
14:55to come out stronger.
14:57This is what we did back in 2017. This
15:00is what we did back in 2022. This is
15:02what we are doing now.
15:04We call it the build mode.
15:08As we are stepping into the rest of this
15:09year with more capacity, higher
15:12coverage, more customers, stronger
15:13conviction than any point in our
15:15history,
15:17I have never been more excited about
15:19where this company is headed into.
15:21With this as a backdrop, let me pass on
15:24the mic to Praveen to discuss our
15:26quarterly performance. Thank you.
15:29>> Hi, thanks Abhishek. Uh good evening,
15:31everyone.
15:32I think all of you would have already
15:33reviewed the financials.
15:36I will try and give a little flavor of
15:38how we went about meeting our numbers in
15:40this quarter.
15:42Firstly, very happy to say that we have
15:44delivered another record quarter across
15:47every key metric.
15:49Our revenues grew 65% year-on-year to
15:521,358 crores.
15:54It's a fifth consecutive quarter of 65%
15:57plus growth.
15:59And more importantly, we also continue
16:01to grow sequentially. Quarter 4 to
16:03Quarter 1 revenue of 10%
16:06through what is typically a seasonally
16:08softer quarter.
16:10Order volumes reached nearly 25 crores,
16:14growing 83% year-on-year.
16:16That's 100 crores now on an annualized
16:19basis.
16:20To put that in perspective, we delivered
16:22as many shipments this quarter as we did
16:25in the entire FY23.
16:28Now, growth once again has translated
16:31into stronger profitability.
16:33Adjusted EBITDA rose to 67 crores
16:36with margins expanding to 4.9%, which
16:39was 4.7% last quarter.
16:42And profit after tax reached a record 65
16:45crores.
16:47This was the most profitable quarter in
16:48our history.
16:50And again, the third consecutive quarter
16:52in which we've been able to say that.
16:55To comment on our business lines,
16:57Abhishek already touched upon Express
16:59vertical continued to rapidly outgrow
17:01the industry.
17:02Hyperlocal delivered substantial
17:04sequential growth.
17:06And other logistics services returned to
17:09sequential growth as critical log
17:11integration,
17:12and more importantly, dark store
17:14revenues continued to scale the
17:15vertical.
17:17Now, I want to spend a few minutes on on
17:20the part of this quarter
17:22we're the proudest of, because it's the
17:24part that does not show up in a growth
17:26number.
17:28You know, Abhishek told you at the start
17:29about the macros, the fuel shock, and
17:31labor squeeze.
17:33Let me tell you exactly how we absorbed
17:35them.
17:37On diesel price, many of our contracts
17:39allows us to pass increases straight
17:41through
17:42to our customers, and we had every right
17:45to take that hike on day one.
17:47But, we chose to lag it by five days and
17:49carried on ourselves.
17:52See, in a quarter when our customers
17:54were absorbing pressure from every
17:55direction, we decided that this
17:57relationship was worth more than the
18:00five days of pass through.
18:01That's the kind of decision that we
18:03cannot we cannot express on a slide,
18:06but it is why these relationships also
18:07last.
18:10We were not going to let the external
18:12environment decide our margins.
18:14So, to compensate for headwinds, we
18:16really worked hard to improve
18:18efficiencies across our cost base.
18:21I want to just name a few.
18:24So, our lost shipment debit cost,
18:27that's come down to 5.5% of revenue,
18:31which was 7.9% a year ago and 6.1% last
18:35quarter, Q4.
18:37We did a lot of work on transportation
18:39and line haul costs. Transportation cost
18:41held flat sequentially in a quarter
18:44where we opened 716 new pin codes,
18:48and all of them will be running below
18:49capacity initially.
18:52The largest cost line item, delivery
18:54partner expense, went up just by 10 bips
18:57quarter on quarter,
18:58despite significant supply squeeze and
19:01growth in hyper-local vertical.
19:05And running underneath all of this now
19:07is technology,
19:08deployed at scale,
19:10not pilots, not proofs of concept, but
19:12production systems carrying millions of
19:14transactions.
19:15Just two examples I would like you to
19:17hold on to
19:19on what we have done on this front.
19:21The first is delivery partner buddy,
19:25which is an AI co-pilot for our riders.
19:28It's a multilingual AI agent that
19:30resolves our rider partner queries and
19:32issues.
19:33It now handles around 16,000 rider
19:36conversations in a single day.
19:38And roughly 97% of queries are all
19:41resolved without a human agent ever
19:43touching them.
19:44This buddy also learns continuously
19:46learns itself resulting in even higher
19:49auto resolutions in due course.
19:52That's one example. The second one is
19:53what we call as vision AI at pickup.
19:57This is a feature that we have deployed
19:59in our reverse process where
20:01riders are picking up reverse shipments.
20:04It is catching roughly 40% of bad
20:06pickups before they become losses.
20:09And all this is about just 35 times
20:11lower inference cost than a frontier
20:13model would charge us.
20:15So, what this does is this helps us
20:17reduce our QC losses, which is a part of
20:19our lost shipment debit cost line item.
20:23So, those are examples. These are the
20:25places where our margin expansion is
20:27actually coming from. Not from pricing
20:29yet, not from cutting corners on
20:31service, from doing the same work with
20:33fewer errors and less waste
20:36at a scale that compounds every quarter.
20:40And let me say what Abhishek always
20:43quotes.
20:44AI is making the engine behind the
20:45scenes smarter,
20:47but the front line stays human.
20:49The delivery partner, the conversation
20:51at the door, the problem solved on the
20:53spot, all these remains a person, a
20:55human always.
20:57With that, uh we will open it up for
20:59questions. Yusuf, over to you.
21:03>> Thank you very much, sir.
21:05We will now begin the question and
21:07answer session.
21:08Anyone who wishes to ask a question may
21:10press star and one on their touch tone
21:12telephone.
21:14If you wish to withdraw yourself from
21:16the question queue, you may press star
21:17and two.
21:19Participants are requested to use
21:21handset while asking a question.
21:24Ladies and gentlemen, we'll wait for a
21:26moment while the question queue
21:27assembles.
21:33First question is from the line of
21:35Gaurav from Morgan Stanley. Please go
21:37ahead.
21:40>> [clears throat]
21:40>> Hi.
21:43Thank you for taking my question.
21:45Um, you know, congratulations on uh
21:47stellar results.
21:49Uh my first question is on your improved
21:52uh quote outlook compared to the
21:54previous quarter. Obviously, this is
21:56supported by a very strong performance
21:58in 1Q, but there's also assumption that
22:01you are
22:02building in from 2Q to 4 quarter.
22:05So, just trying to understand the
22:06confidence behind uh those assumptions,
22:09especially the metrics around
22:11insourcing, outsourcing that you alluded
22:13to in your comments also,
22:15uh which allows you to kind of, you
22:16know, improve the outlook from overall
22:18revenue perspective.
22:22>> Uh thank you, Gaurav, for the for the
22:23question. I'll take this one.
22:27See, growth in our uh typically,
22:29Shadowfax is an organization where we
22:31work with enterprise customers. An
22:33enterprise customer, we typically get a
22:36fair degree of visibility, especially
22:38when we get into the sales season,
22:41around the kind of volumes one should
22:43expect because necessary capacity
22:46actions have to be have to be created in
22:49that.
22:50I think be it working with the large
22:52marketplaces where they do also have
22:55some sort of in-house
22:57delivery ecosystems.
23:00Today, we can probably say that we a
23:03fair degree of visibility and high
23:05degree of confidence on the number that
23:07we are projecting and hence we are
23:10revising our estimates from a growth
23:12standpoint.
23:14Typically all of our large customers in
23:16the enterprise give us forward
23:18projections so that again those
23:19capacities get created in due time.
23:22Now for the customers who do not have
23:25alternate ecosystems for delivery, who
23:27100% depend on 3PL it's largely a
23:31function of the investments and the
23:33growth outlook that we see from our
23:35existing tail of growth and the and the
23:39and the new customers that we are going
23:41to acquire.
23:42What we see is that our rapid
23:44investments and hiring of sales teams,
23:47investing into D2C brands and the
23:50tailwinds that we are carrying for the
23:51last few quarters
23:53the new customer growth looks to be
23:55quite aggressive and positive and just
23:59to but the answer to a short one, I
24:02think we are fairly confident on the
24:03numbers that we are looking at.
24:07>> Got it.
24:08My second question is on the uh
24:12probably front loading of the
24:14investments and capex. Uh you gave a
24:16number of 60 crore which is pretty
24:18strong like high number for a quarter.
24:21Uh just trying to understand how much of
24:22this is because you have seen the
24:24upgrades to your current growth because
24:26my assumption is all these current
24:28growth numbers is already backed up by
24:30the investment that you made last year.
24:32So these are fronting of the investment
24:34uh probably has to do beyond FY27
24:38outlook that
24:39you know, you have in mind which is why
24:41you are kind of up fronting some of
24:43these investments like across the board,
24:44not just like this uh in terms of square
24:47feet square square footage of space
24:50uh but also the dark store that you
24:51talked about. Uh
24:53the pin code coverage that you talked
24:54about, the large uh you know, parcel uh
24:58pin code reach that you talked about.
24:59Everything you looks like you have
25:01upfronted the investments here.
25:03So, obviously that has to do with the
25:05confidence beyond just FY27. So, you
25:08know, you I'm just trying to reconcile
25:09the outlook with the investment that you
25:12have made.
25:14>> So,
25:15yeah, Gaurav, I'll try to answer this
25:17question in multiple parts,
25:19but you're absolutely correct. I think
25:21our view on long-term growth outlook
25:24continues to stay quite aggressive and
25:26strong.
25:28And every quarter that passes by, I
25:30think the confidence on the growth
25:32outlook is only going up right now.
25:35Now, having said about investment, so
25:37there are two kinds of investments that
25:39we have to do as an organization. One is
25:41around CAPEX, the other one is around
25:44OPEX, which largely comprises about
25:46people, trucks, and rentals.
25:49Speaking first about CAPEX, you're
25:51absolutely right. A lot of our
25:53investments typically have to be
25:55front-loaded before the sale season
25:57because sale season you typically see a
26:00huge peak, and that sort of peak
26:03stabilizes post that. While last year
26:05was something interesting where post
26:07peak also we saw sequential growth,
26:10but typically we plan for CAPEX for the
26:13peak season, and hence in the first two
26:15quarters of the of any financial year,
26:18you tend to see a higher CAPEX outlay
26:21getting executed on the ground.
26:23Now, within that,
26:25if you see the slide in our
26:27presentation,
26:28see, we have not changed the nature of
26:30the CAPEX.
26:32Everything we are investing in is the
26:34same set of
26:37products that we were even doing in the
26:38previous year. 77% of the CAPEX that we
26:41are talking about has gone into network
26:44and automation. To make it simple,
26:47network and automation typically means
26:50everything which is part of our
26:51sortation centers. So, be it the sorting
26:54machines, be it the infrastructure, be
26:56it the IT and and any sort of electrical
27:00expenses from an infrastructure side.
27:0277% of these expenses continue to be
27:05focused on the middle-mile
27:08capacity enhancements that we are doing.
27:10And you are right, these are very very
27:12long-term investments. Typically, these
27:15facilities, once you create, last for
27:185-plus years as well. So,
27:21we continue to make these kind of
27:22investments. Secondly, again, you are
27:24right, we are expanding our pin codes.
27:27We are We are going We are expanding our
27:30coverage into the deeper rural areas of
27:33the country, and that has a OpEx impact.
27:36But, yes, all of that is a continuous
27:38investment we are doing as we have seen
27:40some of these growth projections from
27:42our customers.
27:45>> Got it. My last question is on some
27:47margin bridge, if possible to give,
27:49because there are multiple elements that
27:51have played out during the quarter,
27:53which is, you know, fuel price hikes,
27:55the labor cost escalations,
27:58uh some operating leverage that has come
28:00through your business, and and there
28:02could be other factors as well. So, a
28:03broad uh bridge would be very very
28:06helpful. Thank you.
28:09>> Yeah. Uh Gaurav, I'll take that. So,
28:12see, essentially,
28:15as we said, right, because of the fuel
28:17hike
28:18for the last few days in the quarter,
28:20so, we took that additional cost. So, as
28:21you see, our transportation cost
28:24has gone up from last quarter, 18.7% to
28:2618.8%. That's one cost increase that has
28:30happened.
28:31Uh partner expense from last quarter has
28:33again slightly increased um because, of
28:36course, there was a supply squeeze.
28:38Our um hyperlocal also grew at a faster
28:41pace uh sequentially. So, that's another
28:44area.
28:46The
28:47the if you see the consumable cost also
28:49has gone up by 0.1 percentage points,
28:51which is again
28:52some of the inputs are related are
28:54linked to crude crude prices and some
28:56prices actually took off by middle of
28:58the quarter. So, that's that's
28:59responsible for the 0.1 increase.
29:02And all other expenses put together was
29:030.1%, but
29:05significant benefits have come from say
29:08lost shipment where we did a huge amount
29:11of work in this quarter. So, that's come
29:13down from 6.1% 5.5%.
29:17In fact,
29:18what you see is is not so
29:20straightforward because
29:22for example, had we not
29:26worked on improving our efficiencies,
29:29our for example, transportation cost may
29:32have been higher than what it is today.
29:34Our partner expenses could have been
29:37higher than what it is today. And even
29:39our employee benefit expenses could have
29:40been higher than what it is today.
29:42So, we saw that there is a higher cost
29:44incident.
29:45And we said, "Okay, let's work harder to
29:47keep it
29:49within our limits." So, that's that's I
29:51don't know if that helps like a bridge,
29:53but that should give you a flavor.
29:56>> No, this is helpful, Praveen. Just a you
29:58know, follow up. Is the full impact of
30:00the cost already reflected in the
30:01financials in 1 Q or they're likely to
30:04come over the next two quarters? Thank
30:05you.
30:07>> Yeah, more or less it's reflected in
30:09quarter one. The cost may be higher, but
30:10we'll also have a little upside from the
30:13revenue coming to neutralize that.
30:21>> Thank you.
30:25Next question is from the line of Mukesh
30:27Saraf from Avendus Spark. Please go
30:29ahead.
30:31>> Yeah, [clears throat] good evening and
30:32thank you for the opportunity. My first
30:34question is on the express segment
30:35itself.
30:37And our network currently is largely set
30:39up for the large horizontal platforms,
30:43but obviously your focus now is on the
30:46D2C as well as the prime large. So, just
30:50trying to understand
30:51how much of the existing network can you
30:54know can kind of accommodate growth in
30:56these two sub-segments?
30:59Or will entirely or or will majority of
31:01the growth here will will have to come
31:03through say newer infrastructure and
31:05newer network that they're going to set
31:06up?
31:10>> Thank you Mukesh for the question. I'll
31:11take this up.
31:13So, while we are setting up prime and
31:15prime large sort of service lines,
31:19one thing we want to
31:21tell everyone over here is that there is
31:23no dedicated infrastructure for any
31:26particular service line or a particular
31:29line of customers.
31:32How we have formed as a supply chain
31:34company is that for different line of
31:37services within the same infrastructure,
31:39within the same last mile hub, partition
31:41center, or trucks,
31:43we have created prioritization based on
31:47what the customer needs.
31:49Not all customers are on the same SLA as
31:52you would understand. So, different
31:53customers have different SLAs.
31:55We call this segmented supply chain.
31:58Okay? So, within the same supply chain,
32:00within the same sort center,
32:02multiple SLA kind of configurations run,
32:05and that orchestration is done by the
32:08in-house technology that we have
32:10created. How to ensure that the that the
32:13brand which needs a same-day delivery
32:15can go within the same roof versus let's
32:19say a low-value shipment, which again
32:21has to be shipped in a in a different
32:22configuration maybe altogether.
32:25But as I said, there is no dedicated
32:27infrastructure that we have set up for
32:28any particular service lines.
32:31If you end up setting dedicated
32:33infrastructure, it has a huge
32:35implication on operating leverage and
32:38the costing which our customers expect
32:41the business has become completely
32:42enviroble.
32:55Okay, do you have more questions?
33:00>> Mr. Saraf.
33:05>> Yeah, maybe we can go to the next.
33:07>> As there are no as there is no response
33:09we'll move to the next question from the
33:10line of Sachin Salgaocar from Bofa.
33:13Please go ahead.
33:16>> Hi, congrats management on great set of
33:18numbers. I have three questions. Let me
33:19go through them one by one.
33:22First question, it would be great if you
33:24guys could
33:25dissect the 38% growth what you guided.
33:29Is this primarily getting driven by
33:31Express? Is it QC? Is it hyperlocal? Any
33:35rough guide in terms of how the
33:36individual businesses could grow?
33:41>> I think it's a it's a combination of
33:43both the businesses. We have seen upside
33:46in hyperlocal as well as
33:49e-commerce. E-commerce given the
33:52tailwinds with which we are coming with
33:54with the new customers that we have
33:56acquired
33:58over the last two three quarters. We
34:00believe that growth is going to sustain
34:02and hence there is a there are there is
34:04a readjustment on these on these target
34:07numbers.
34:08Similar sort of a view even for quick
34:10commerce where we have seen upside in in
34:13newer customers like Amazon now. Where
34:17we believe that some of the benefits
34:19that we have seen now we had not
34:20anticipated that two quarters back. And
34:23given the kind of business we are doing
34:25and the visibility we have with those
34:27customers, we we have basically been
34:30building it into our projections now.
34:34>> Got it. Pretty clear, Abhishek.
34:36Second question is more of a follow-up
34:38on, you know, these comments on new
34:39customer growth, what you mentioned.
34:41Would love to understand how there is a
34:43mix change happening in your express
34:45business between an e-commerce D2C
34:47vertical, let's say, as compared to a
34:49year back.
34:50And I, you know, did look at your market
34:52share at Express for this quarter versus
34:55last quarter. You did mention about a 28
34:57to 30% market share versus a 27 to 29
35:01last quarter. So, the question out here
35:03is is this gain more at the expense of
35:05smaller players or larger player?
35:09>> Well, I think I'll answer the market
35:11share question first. What we are seeing
35:14in the market today is that the
35:16consolidation continues to strengthen
35:18between the two large players. And every
35:22quarter, the two large companies in the
35:24express parcels segment are continuing
35:27to gain market share. And that's
35:30something we have been observing as a
35:31trend over the last, probably, four to
35:35six quarters now. So, I think that's a
35:37trend
35:38that that we have been seeing.
35:40Around
35:42Again,
35:42D2C brands was a relatively smaller
35:45business for us four quarters back.
35:47Eight quarters back, it was virtually
35:49non-existent. Four quarters back,
35:52I mean,
35:53it it became some some
35:56smaller number. Today, I mean, that has
35:59grown to almost 2.7 times. So, you can
36:02imagine that the D2C brand and the
36:03associated smaller businesses are
36:06growing significantly faster than the
36:08rest of the business.
36:11>> Got it. Super clear. And third question
36:13is on the quick commerce side. And while
36:16we understand, let's say, how an
36:17e-commerce entity thinks about
36:19insourcing and outsourcing, because one
36:21of them is public.
36:23Would love to actually understand from
36:25you a framework which you guys could
36:27help,
36:28you know, analysts and investors
36:29understand how these quick commerce
36:30platforms are thinking between uh
36:33insourcing and outsourcing. Uh there was
36:35a comment in your presentation where you
36:37talked about e-commerce platforms
36:38focusing more on outsourcing. But, you
36:41know, how do the incumbent quick
36:42commerce and food delivery guys think?
36:44Is there a rough proportion of their
36:46orders which they outsource? And, you
36:48know,
36:49is there something where they specially
36:51go to specialists like you for delivery?
36:55>> Yeah. No, that's a that's a very, very
36:57good question. Um I'll tell you a larger
36:59point around
37:01around outsourcing or having multiple
37:03supply chains in any given line of
37:05business. And, what I'm going to state
37:07is say
37:08stands true for any sort of
37:12online business today. Be it e-commerce,
37:13food delivery, or quick commerce.
37:16In this country,
37:18it is impossible for any supply chain to
37:21come up and say that we are the best
37:24supply
37:26every single minute of the day, every
37:29single PIN code, every single route of
37:31this country. Our country is extremely
37:33complex.
37:35So, having just a single supply chain to
37:37depend all your fortunes on is never a
37:40great idea.
37:41To to manage for the end customer and to
37:45optimize your experience for the last
37:46customer,
37:47every supply chain tend to diversify and
37:50have multiple solutions.
37:52Same goes for quick commerce. While in
37:54quick commerce industry, we are the
37:55single largest player operating today
37:57where now we have a meaningful market
37:59share.
38:00Uh and we believe our market share will
38:02be will be more than 50% today in the in
38:05the quick commerce outsourcing segment.
38:08Typically, all companies think about us
38:10having as an alternate supply
38:13partner rather than a capability driven
38:15supply supply chain. Because not every
38:19day their own in-house supply chains
38:21will will always offer them the best
38:23SLAs. Now, if for a marginal price
38:26increase, you are having access to a
38:28supply chain which meaningfully
38:31improve your customer experience and you
38:33do not lose that customer in a
38:35extremely competitive environment to
38:37your to your competitor,
38:40it makes sense to outsource.
38:43What we are seeing is that cust like
38:45customers can outsource even maybe 20
38:4925% of the volumes if there are enough
38:51players available. Given we are the
38:53single largest player of the national
38:55scale right now, we have seen the
38:57outsourcing levels in the industry to be
39:00trending anywhere between
39:0212 to 15% today.
39:06I hope it answers your question.
39:08>> Abhishek, super clear. One quick
39:10follow-up for Praveen, uh more of a
39:12bookkeeping question. Praveen, uh what
39:14is the impact of the minimum wage hike
39:16in the four states on your margins?
39:22>> Yeah, we have uh
39:25we have roughly taken about between two
39:27to two and a half crores a month impact
39:30um
39:31because of minimum wage impact coming
39:33from various states.
39:36>> See, one thing also to understand about
39:38our business is that see, we necessarily
39:41don't always pay minimum wages to our
39:43contractual employees. A lot of people
39:45actually get incentives and and markups
39:47on top of that because minimum wage
39:49level hiring is not the easiest at
39:52times. Uh so, typically when the minimum
39:54wage correction sort of happens, not
39:56like whatever is the delta, it does not
39:58necessarily transfer to your P&L.
40:01>> Again, yeah, that's one. As I said, you
40:03know, every cost line item would have
40:05looked different had we not embarked on
40:07a very strong uh
40:11uh efficiency uh drive at the beginning
40:14of the quarter. So, we tend to improve
40:15utilizations and, you know, create stuff
40:18that will bring us benefits on the P&L.
40:22>> Yeah, thank you and all the best.
40:25>> Thank you.
40:27Next question is from the line of Dhruv
40:29Jain from Ambit Capital. Please go
40:31ahead.
40:33>> Hi team. Thanks for the opportunity and
40:35congratulations on phenomenal numbers in
40:38such a challenging quarter. Uh so, you
40:40know, in this quarter we've seen
40:41significant margin expansion, right? So,
40:44you know, you spelled out the guidance
40:45of about 38 to 40% top line growth. Uh
40:49incrementally does that also change your
40:52full year guidance for your margin
40:54because you've been talking about 100 to
40:55150 basis points and you know, very
40:57challenging quarter you showed almost
40:59100 basis point margin expansion. So,
41:01you know, how should we really think
41:02about this? Uh you know, in this year at
41:04least.
41:06>> Yeah, that's that's an interesting point
41:08and
41:10see, we are not fundamentally changing
41:13our margin profile in the business.
41:16While we are catching up on growth
41:18faster,
41:20uh
41:20we still want to maintain the margin
41:23guidance that we had given at the start
41:25of this year.
41:27The way we think about our business is
41:29that we know this is a steady state
41:32margin we want to hit at a certain time
41:34frame.
41:35Whatever excess profits we generate,
41:39we typically do one of the two things.
41:42Either we pass on some benefits back to
41:45our customers so that we can gain market
41:47share faster,
41:49or we invest that capital into newer
41:52capabilities and again growing fast. So,
41:55we have put a certain target of margin
41:57profile
41:59out for for the for for all
42:01shareholders. Uh beyond that, we just
42:04want to reinvest and accelerate as an
42:06organization.
42:10>> Fair. Fair, Abhishek. Uh you know, the
42:12second question that I had uh
42:14was on your other logistics services.
42:17So, you know, you spoke about
42:19integration happening this quarter. But,
42:21you know, beyond 27, how should we look
42:24at that segment, you know, from a 3-year
42:26or a 5-year perspective, you know,
42:28growth standpoint? Uh, you know, what
42:30are you trying to I mean, I know what
42:32you're trying to solve there, but just
42:33in terms of the opportunity, uh, how
42:35should we think about it because it's
42:37slightly different versus the first two
42:39things of the core or core businesses,
42:40so to speak.
42:43>> Uh, yeah. So, Critical Log is an is an
42:46is an acquisition we did almost 1 and
42:491/2 years back, and there's been a lot
42:51of integration between both the
42:53organization as on today.
42:55See, the way we think about that
42:58business is it's an it's a value-added
43:00services capability for us.
43:03And not necessarily too different than
43:06the core supply chain that we run, but
43:08again, it's a different category of
43:09solutioning that we have created.
43:12Now, for our strategy, the way we think
43:14about it is that anything and everything
43:17which helps us gain more mind space of
43:21our existing customers is great for us.
43:24Creating more unique services like a
43:26Critical Logistics for for our large or
43:30small marketplaces is is something which
43:32is the core strategy around doing that
43:34acquisition.
43:36So, the way typically we do it is once
43:38you acquire an organization, we we give
43:40it some time for both the cultures to
43:42seep in.
43:43And only post that, we basically start
43:46selling cross-selling the services
43:47between our customers. I can give you
43:50one example.
43:52There is an active conversation which
43:54can potentially increase the the revenue
43:57of Critical Log as an organization by by
44:00mid midteen percentage points, where one
44:04of our existing customers has the
44:06problem of delivering extremely high
44:09value shipments for which they were
44:11definitely not using Shadowfax. Uh
44:14where they are willing to move because
44:16they have trust uh with our integration
44:18and and our capabilities, they are
44:20willing to consider a subsidiary to
44:23basically integrate with them and start
44:25that business in. Now, the way we are
44:27looking at it is that this cycle will
44:29continue for the next 12 months and post
44:32that is when we will see critical
44:35logistics to actually grow much faster
44:37than the Shadowfax core business. Once
44:40that branding, marketing, and that
44:42cross-selling typically has happened.
44:46One thing also want to get everybody to
44:48understand, when you're selling critical
44:50logistics or a value-added services as a
44:52category,
44:53the sales cycle are phenomenally longer.
44:58If you're selling a low-value service,
45:01the sales cycles are typically shorter,
45:03but when a customer has to move
45:07a expensive item from their existing
45:09setup into a newer solution, it takes a
45:12lot of time, lot of convincing, and but
45:15again, as you would understand,
45:17typically when long sales cycle comes,
45:19the hook for those services is also much
45:21higher.
45:23I hope I answered your question.
45:26>> Yes, yes. Thanks a lot, Abhishek, and
45:28all the
45:31>> Thank you.
45:33Ladies and gentlemen, in order to ensure
45:35that the management is able to address
45:37questions from all the participants in
45:38the question queue, please limit
45:40yourself to two questions only.
45:42Should you have a follow-up question,
45:44please rejoin the queue.
45:46Next question is from the line of
45:48Abhishek Banerjee from ICICI Securities.
45:50Please go ahead.
45:54>> Hey, hi. Thanks for the opportunity and
45:56again, congratulations on another
45:58superlative performance.
45:59Just a couple of questions from my side.
46:01First, uh
46:03on on the point that you made on uh
46:07you know,
46:08uh delivery uh riders doing reverse
46:10logistics, could you please expand on
46:12that a little bit? I I didn't understand
46:14that.
46:18>> Yeah.
46:19Abhishek, so this is where we have So,
46:22we have a technology there.
46:24When a rider is at the doorstep, he's
46:26doing a a pickup, he has to do quality
46:30checks, right?
46:31There was already an existing system in
46:34place where he used to uh technology
46:37used to assist him
46:39in ensuring that he's doing the right
46:41pickup because we are charging a
46:42premium, we are supposed to do a quality
46:44check and pick up the right product for
46:46our customers. Now, we have used AI to
46:48enhance what he was already doing.
46:50So, the chances of him picking a wrong
46:53shipment has
46:55has significantly reduced.
46:58Which is what will, if you remember, in
46:59our lost shipment cost we used to always
47:01say, half of that is quality check cost.
47:05So, that's the
47:07uh
47:08that's the feature that is there.
47:10>> All right. So, so how much has your lost
47:12shipment cost uh come down as an overall
47:15percentage?
47:18>> So, it's come down from uh 6.1% in the
47:20last quarter to 5.5%.
47:23As a percentage of revenue.
47:25>> And and do you see it coming down
47:26further over the next year or so?
47:30>> See, as we always said, right? There is
47:32enough scope here. Historically, this
47:34cost used to be around 4 and 1/2 to 5%.
47:37And then our target was to bring it down
47:40to about 3 and 1/2 4% in the long run.
47:42The target still remains. We will keep
47:44tugging at it every quarter and see how
47:46much it comes down by.
47:49>> Got it. And and one last question for
47:51Abhishek. So, so uh sir, uh see, again,
47:55uh
47:55full credit to the entire team for this
47:57wonderful performance, but one question
48:00that kind of keeps coming up is see, you
48:02are now a listed player
48:04and your core anchor customer is also a
48:07listed player. We can obviously see, you
48:10know, your performance, your margins.
48:12Do you foresee any scenario where, you
48:15know, they ask you for
48:17even, you know, better, you know,
48:19pricing?
48:21Just looking at your kind of margins. I
48:22mean, do you feel that there could be
48:26further pricing pressure on you? Uh
48:30from from your core customer. And and
48:32is that something that you are prepared
48:34to kind of manage?
48:37>> Yeah, Abhishek, uh it's a it's a
48:38question irrespective whether we are
48:41profitable or not, which we'll need to
48:43answer as a as a business at all moments
48:46of time.
48:47Our customers
48:49are optimizing their cost and experience
48:52literally on every lane that they work
48:55on.
48:56So, if we are not competitive, we will
48:59anyways not get the desired volumes that
49:04we are delivering today. Staying
49:06competitive, building lean supply
49:08chains, and ensuring that the back-end
49:11operations are extremely efficient is
49:14what delivers profitability in our in
49:16our business.
49:20Having said that, for all our customers,
49:24okay, we have pricing rate cards where
49:26their cost of working with us will go
49:28down as they increase more volumes
49:31because we pass on that sort of leverage
49:34back to them.
49:36Ours there's a fixed amount of fixed
49:38cost in our in our business. So, as they
49:40give more volumes, they essentially end
49:42up saving cost, and that is what has
49:44been happening over the last few
49:46quarters as well.
49:50>> Got it. No, understood. Understood.
49:53Uh very helpful. Thank you so much. I'll
49:55move back in the
49:58>> Thank you.
50:00Next question is from the line of Mukesh
50:02Saraf from Avendus Spark. Please go
50:04ahead.
50:06>> Yeah, hi. Good evening again and
50:08apologies I got disconnected the
50:09previous time.
50:11I did [clears throat] hear your response
50:13though. My second question uh is
50:15regarding the vertical
50:18dark stores the vertical D2C business
50:20that you
50:21are building. Just trying to understand
50:23will there be an overlap of this with
50:25the D2D the the SDD business that you're
50:28doing on the D2C. Uh because both seem
50:30to be largely similar in terms of you
50:33know what value you're bringing in which
50:34is quick delivery for the smaller
50:37brands. Uh so will there be a
50:40cannibalization there as you expand your
50:41dark stores? Uh
50:43would help understanding that.
50:46>> Yeah, that's a great question. Um again,
50:48too early to comment on what the future
50:51is going to be a few years down the
50:53line. Uh but see largely both cater to
50:57very different needs of the same
50:59customer as well.
51:01Typically, when you look at same-day
51:03delivery, same-day delivery offers
51:06probably that service in a in a city for
51:09close to about 1 million SKUs for a for
51:11a large marketplace.
51:13But I mean
51:15dark store led delivery which is
51:17happening in an hour will be possible
51:19for maximum of 10,000 SKUs. So the SKU
51:22expansion is is very different for a for
51:26a same-day delivery versus a versus a
51:29quick commerce kind of a model.
51:31Typically, these verticalized quick
51:34commerce platforms provide a specialized
51:37solution to the end customer and I would
51:40say they are more in line with
51:42competition with the horizontal guys
51:44rather than with the e-commerce same-day
51:46delivery sort of value proposition. The
51:48SKU spread is very, very different and
51:51that's what
51:52we see from our customers as well.
51:55>> Okay. Okay. And And just follow up on
51:57that, the the cities that you're going
51:59to have these services, will there be an
52:00overlap there or or even the the the pin
52:03codes are very different?
52:06>> Well, I think the cities the customer is
52:08going to be probably the same. See,
52:10typically if you think about the Yeah,
52:12the metro cities, every metro city you
52:15should have the the 1-hour proposition,
52:17same-day proposition, 3-day proposition.
52:20The SKUs tend to differ a lot.
52:23>> Got it. Got it. Got it. All right.
52:25Thanks a lot for this, Abhishek. I'll
52:26get back in the queue.
52:29>> Thank you.
52:31Next question is from the line of Atul
52:33Borse from JM Financial. Please go
52:36ahead.
52:38>> Hi team.
52:39First of all, congrats on great set set
52:41of numbers.
52:43Uh my first question is around the dark
52:45or operations. So, on the last call you
52:47had mentioned that the dark store can
52:50generate roughly 8 to 15 lakhs per month
52:52revenue.
52:53Uh
52:54so, any color on how much uh in 1 Q it
52:58has contributed to the other segment
52:59revenue?
53:02>> Um
53:04Atul, see, I think at this point we may
53:06not want to disclose specific store-wise
53:09revenues. It's still a larger experiment
53:11we're doing. We're live in 47 stores.
53:14Um But, broadly I can say about all the
53:17stores put together would be
53:18contributing to about 10 to 12% of our
53:20other logistics services revenues.
53:23But, at a store level, as you can
53:25imagine, different types of customers,
53:27different SKUs, the stores can range
53:29anywhere between 200, 300 square feet to
53:31almost 3, 4,000 square feet.
53:33So, the dynamics are very different for
53:35each store, but um we will come back, I
53:37think, as as this vertical matures, we
53:41will come back with more information
53:42that will help uh you.
53:44>> Okay.
53:46Um and then uh so for Amazon now, we
53:48have started fulfilling, but do are we
53:51seeing the express volume also coming
53:54from Amazon?
53:56In 1 Q at least.
53:59>> Hi Atul. Uh yeah.
54:00So, yes, Amazon
54:03express parcel volumes have also
54:05started.
54:06Uh we are now live
54:08in the top 10 cities. And uh that number
54:11continues to compound as we enter into
54:14the sale season. But again, that today
54:17the larger focus of the partnership is
54:18to is to really scale up the Amazon Now
54:21business. One more additional fact, I
54:23think Amazon has now become and entered
54:27the top 10 customer club for us.
54:30>> Okay. Okay.
54:31Uh and one more follow-up on this. So,
54:34um so what realization in express are
54:36still, you know, trending around 50
54:39rupees.
54:40Uh
54:41do you see with
54:42Amazon coming in and the D2C share
54:45rising, when
54:47do you see that this realization will
54:49start uptrending?
54:53>> See again, um I think realization over
54:55here is a factor of a lot of factors. Um
54:58be the average weight or the distance of
55:01delivery, the type of service, value
55:03added versus not.
55:05Uh and obviously the volumetric weight.
55:07So,
55:08uh while on a true if you were to
55:11compare on the same weight sort of a
55:13basis, if the business continues to gain
55:16more D2C volumes, it should ideally uh
55:19be increasing on the realizations, but a
55:22lot of it is dependent on some of the
55:24other factors, which is weight,
55:26distance, which is typically not in the
55:28control of the logistics company.
55:31>> Okay.
55:32Okay. Yeah. Thanks. Those are my
55:34questions and best of luck.
55:38>> Thank you.
55:40Ladies and gentlemen, we will take this
55:42as a last question for the day. I now
55:44hand the conference over to the
55:45management for the closing comments.
55:49>> [clears throat]
55:51>> Okay. Uh no, thank you everyone for
55:53joining in on a Friday evening.
55:55Uh in case any of you have have any sort
55:58of questions, so you can directly reach
55:59out to us and we'll be happy to engage
56:02over the next few weeks. Thank you
56:03everyone for joining in. Signing off.
56:05Thank you.
56:07>> Thank you, sir.
56:09On behalf of Shadowfax Technologies
56:11Limited, that concludes this conference.
56:13Thank you all for joining us and you may
56:14now disconnect your lines.

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