TVS Supply Chain Solutions Ltd Management Discussions

Macroeconomic outlook

Global economy

The global economic landscape exhibited stronger-than-expected growth in the second half of 2023, particularly in significant economies like the United States and several emerging market and developing economies. Factors contributing to this growth included government and private spending, real disposable income gains supporting consumption and supply-side expansion marked by increased labour force participation and resolution of supply chain issues. Inflation showed signs of moderating through the course of the year supporting recovery and growth and paving the way for a soft landing of the global economy.

Economic activity showcased resilience in the face of global challenges such as the war in Ukraine, high energy prices and the volatile situation in the Middle East.

According to the IMF World Economic Outlook, the baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023. Advanced economies are poised for an uptick in growth in 2024 and in 2025, with the eurozone expected to rebound from sluggish performance. Emerging markets and developing economies are forecasted to experience steady growth, although regional disparities may persist. Concerted efforts to manage inflation and fiscal policies are for sustaining economic stability and fostering long-term growth. Global inflation is forecast to decline steadily, from 6.8 percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

Core inflation is generally projected to decline more gradually.

With expectations of inflation easing towards target levels, the timing of central banks pivoting towards policy easing in major economies remains a key monitorable in the near term.

Summary of world output (Annual percent change)	2023	2024 (projections)
World output	3.2	3.2
India	7.8	6.8
China	5.2	4.6

 

Summary of world output (Annual percent change)	2023	2024 (projections)
Emerging market and developing economies overall	4.3	4.2
Advanced economies	1.6	1.7
- US	2.5	2.7
- Euro Area	0.4	0.8

Source - IMF World Economic Outlook, April 2024

In the context of upcoming elections in numerous countries, moves to raise barriers to the international flow of workers could reverse the supply-side gains of recent years, exacerbate labor market tightness and skill shortages, and raise inflationary pressures.

Indian economy

The Indian economy was a definite bright spot in the global economy demonstrating a robust growth of 8.2% in FY24 that surpassed the previous year FY23 growth rate of 7.0%. Strong domestic demand, proactive government policies and growth trends across critical sectors drove this growth.

The construction sector experienced a double-digit growth rate of 10.7%, contributing to the overall GDP expansion. The manufacturing sector, a vital component of the industrial index, performed well, registering a growth rate of 8.5%. The agriculture sector grew 0.7% overcoming challenges due to erratic monsoons. Government interventions and support measures are expected to stabilise this sector in the coming fiscal year. The services sector, including trade, hotels, transport, and financial services, grew robustly, with significant contributions to GDP growth. According to consumer price index (CPI) data, retail inflation eased to 5.1% in February 2024. This moderation in inflation rates indicates stable price levels and conducive conditions for sustained economic growth.

Continued structural reforms and initiatives such as the Production Linked Incentive (PLI) scheme have boosted manufacturing and exports, further supporting economic growth. The PLI scheme incentivises companies to enhance domestic manufacturing by offering financial incentives for incremental production. The fiscal deficit for FY24 was 5.6% of GDP, lower than the governments previous estimate of 5.8%.

The governments focus on rationalising expenditure and boosting revenue through reforms has played a crucial role in achieving this target. Indias economic outlook remains optimistic as it continues to showcase resilience and promise amidst global economic challenges. Indias GDP growth will likely maintain its momentum, with projections indicating a growth rate of 7.2% for FY 2024-25, per the Reserve Bank of India (RBI).

Indias service exports showed resilience despite global economic headwinds. Non-petroleum & non-Gems & jewellery exports increase by 1.45% from $315.64 Billion in FY 2022-23 to $320.21 Billion in FY 2023-24 Indicators such as rising air passenger traffic, increased sales of passenger vehicles, rising digital payments, improved consumer confidence and expectations of a normal monsoon all point towards a strengthening domestic demand. The uptick in demand for residential properties in Tier-II and Tier-III cities bodes well for the construction sector, furthering the economys growth. Additionally, the manufacturing sector is poised for growth, with expectations of enterprise upscaling and the emergence of sunrise sectors driving quality employment opportunities. Moreover, there is growing confidence among global investors in India, as reflected in foreign portfolio investment flows.

In summary, with favourable economic indicators, expected policy stability post the general election in India and sustained efforts, India is poised to maintain its growth trajectory and solidify its position as one of the top economies in the world.

Global logistics industry overview

Structural shifts in the industry have been making supply chains increasingly complex, which has necessitated an increasing reliance on technology to ensure high service levels. Moreover, trade issues and the COVID-19 pandemic have made organisations realise the complexity in supply chains further and as result, there is an increasing trend towards end-to-end outsourcing and organisations are looking forward to engaging supply chain companies to not only manage their supply chain and logistics requirements but also offer additional specialised services.

The global logistics market presents a large opportunity, with spends on logistics of $11.4 Trillion in 2021 and projected to grow to $13.6 Trillion by 2026. Increases in supply chain complexity continue to drive companies to engage the help of third-party logistics providers as logistics and regulatory specialists. In turn, third-party logistics providers offering warehousing, integrated transportation and distribution along with required tech infrastructure are providing economies with the operational ‘backbone supporting global trade. In addition, the COVID-19 pandemic made companies further realise the complexity in supply chains, and as a result, the demand for end-to-end outsourcing continues to rise and organisations are increasingly open to engaging third-party logistics providers to manage their logistics and supply chain requirements.

The global supply chain industry is evolving, with customers requiring faster speed-to-market, end-to-end visibility across multi-modal supply chains, flexibility and dynamic optimisation. Within the overall supply chain services market, the integrated supply chain services segment is an evolving segment requiring bespoke supply chain solutions, which are designed to solve various structural challenges such as:

• improving real-time visibility and control of key supply chain metrics;

• managing operations across multiple demand channels;

• enhancing asset utilisation through sharing infrastructure and operational capacity to reduce overall supply chain costs;

• reducing cost of inventory through optimal sourcing; and

• creating new operational processes in response to changing customer and market needs.

The demand for these complex integrated solutions is driving enterprises to increasingly seek a single or smaller set of more strategic third party logistic solutions(3PLs).

United Kingdom

The UK 3PL market size is estimated at $34.3 Billion in 2024. Looking forward, the market is expected to reach $37.2 Billion by 2026, exhibiting a growth rate (CAGR) of 4.2% during 2024-2026. The rapid expansion of trade agreements and international business relationships, the escalating demand for efficient transportation and delivery services and the growing investments in warehousing, last-mile delivery, and fulfillment centers are among the key factors driving the market growth.

This interconnectedness necessitates a more robust and agile logistics network capable of handling the increasing complexity of international shipments, compliance with various regulations, and different trade policies. Along with this, the growth of urban areas in the UK has led to increased demand for efficient transportation and delivery services.

Simultaneously, investments in infrastructure development such as roads, ports, and airports facilitate smoother logistics operations, contributing to the industrys growth. In addition, the accelerating shift in expectations pressuring logistics providers to innovate and invest in new strategies and technologies to meet these demands is driving growth. Apart from this, the pandemic further accelerated the e-commerce trend, pushing more consumers online and creating an urgent need for robust logistics solutions. As a result, investments in warehousing, last-mile delivery, and fulfillment centers have increased. Moreover, the emergence of innovative business models, such as shared logistics platforms and on-demand delivery services is creating a positive market outlook.

Asia Pacific

Transport and logistics output in the Asia-Pacific region is forecast to increase 6.3% in 2024, compared to 4.0% worldwide. With the exception of Australia and Singapore, all regional main markets show robust increases of more than 5%. Transportation and logistics in India is expected to increase 8.9% in 2024 and 7.5% in 2025, benefiting from ongoing improvements in infrastructure and transport networks. Sector growth in China should amount to more than 6% annually in 2024 and 2025, driven by the goods freight segment and government support for businesses and infrastructure investment. Japan?s transport sector is set to grow 6.2% this year, significantly above the long-run average. Increasing automation results in higher demand for transportation and logistics services.

North America

The North America 3PL market size is estimated at $395 Billion in 2024 as third party logistics providers saw transportation and warehousing rates and volumes increase with the surge in demand. Looking forward, 3PL is expected to grow at a CAGR of 7.2% from 2024 levels through 2026 (estimated) where it is estimated to reach $452 Billion in 2026. The growing international trade, expanding e-commerce sector, numerous technological advancements in the logistics industry, and changing consumer preferences toward quick delivery services are some of the major factors propelling the market.

India logistics industry overview

Indian logistics sector is one of the largest in the world and presents large addressable opportunity. The sector is critical for the economic growth of the country as it connects various elements of the economy and consists of transportation, warehousing and other supply-chain solutions ranging from the suppliers to the end-customers.

Structure of Indian logistics market

India logistics market can be segmented in two different types of market structures: (1) type of services and (2) logistics solutions.

Source(s): Redseer Research, Redseer Analysis

Key factors driving growth in Indian logistics

The Indian logistics market has been highly fragmented and has experienced rapid growth in the organised market in recent years. The Indian logistics market is expected to grow to approximately $385 Billion by Fiscal 2027 at a CAGR of 13% from Fiscal 2022 to Fiscal 2027 due to technological advancement. The significant expansion in the e-commerce and online retail industry and the implementation of favourable government policies encouraging the adoption of logistics services heralds a transformative era for the logistics sector in India. However, the outsourcing as a concept is still nascent in the market. With the industry being price conscious, the integration of cutting-edge technologies and advancements in automation, warehousing, and transportation solutioning shall be cost-effective and the solutioning should have sufficient exit barriers to discourage customer churns.

The growing population, rising disposable income, and increasing online shopping activities are influencing market growth. Additionally, the emergence of specialised e-commerce logistics services led to the establishment of dedicated distribution centres and fulfilment hubs strategically positioned to accommodate the influx of online orders, thus contributing to the market growth. It uses advanced automation technologies, such as robotic sorting systems and AI-powered inventory management, to optimise warehousing processes and ensure speedy order processing. Moreover, the e-commerce industry invests in technology-driven logistics solutions, representing another major growth-inducing factor. Along with this, real-time tracking of shipments, automated warehouses that can autonomously manage inventory, and advanced route optimisation algorithms are integral to logistics operations, thus propelling market growth. These innovations enhance operational efficiency and reduce delivery times, enhancing customer satisfaction and loyalty.

Implementing favourable policies such as Make in India and Digital India creates an environment conducive to logistics advancements, thus influencing market growth. The Union Budget for FY24 outlined crucial initiatives to drive economic growth and development.

Significant allocations were made towards capital expenditure, focusing on infrastructure development, healthcare, education, and rural development. The extension of the production-linked incentive (PLI) scheme to various sectors, coupled with investments in infrastructure projects, is expected to stimulate investment, boost manufacturing, and create employment opportunities.

In parallel, multiple GoI policies and reforms are implemented for the growth of manufacturing in India thereby driving robust growth for the logistics sector:

• National Logistics Policy: The goal of the National Logistics Policy is to enhance Indias economic growth by making the logistics sector more seamless and integrated. It aims to create a single-window e-logistics market and make MSMEs more competitive. It will also drive down logistics costs as a percentage of the GDP.

• Production-linked incentive scheme: This scheme is a significant initiative by the Indian Government with an outlay of about 2,825 Billion in subsidies and incentives. The maximum outlay is for semiconductor, automobile and electronic systems manufacturing industries. This scheme intends to create national manufacturing leaders and generate employment opportunities.

• Amendment of Central Motor Vehicle Rules, 1989: The Ministry of Road, Transportation and Highways amended Rule 93 of Central Motor Vehicle Rules, 1989 to increase allowances in the height, axle length, and decoupling of N-category vehicles. The initiative has increased truck carrying capacity and accentuated profit margins for road logistics overall.

• Drone policy: The drone policy intends to improve the ease of business by simplifying and relaxing the certification, authorisation, and permit process. This policy makes it easier for companies to own and use drones.

• Make in India: The Indian Government launched the Make in India campaign in 2014 to showcase India as a global design and manufacturing hub. The campaign focuses on 25 sectors, including technology, construction, and biotechnology. The initiative aims to increase the manufacturing sectors annual growth rate to 12%-14%. This initiative also aims to promote domestic manufacturing of products and infrastructure by providing dedicated investments. It aims to increase domestic manufacturing, resulting in higher demand for freight movement and the need for supply chain solutions.

• Bharat Stage VI: Bharat Stage VI emission norms are standards set by the Indian Government that have been effective since April 2020 and phase 2 being effective since April 2023. The norms aim to reduce pollutant emissions from and motor vehicles and improve efficiency.

• Dedicated freight corridors: The project involves two freight corridors: the Western Dedicated Freight Corridor (1,506 route kilometres long) and the Eastern Dedicated Freight Corridor (1,337 route kilometres long). 95% of route commissioning across the western dedicated freight corridor is through, and work on some 110 km route in the western arm - which is around 5% of the total project - remains to be completed. On the other hand, the entire 1,337 km Eastern Dedicated Freight Corridor (EDFC) is operational. The dedicated freight corridors aim to reduce overall logistics costs, improve the average speeds of freight trains, increase the freight carried per trip and link ports for faster freight movement.

• Logistics Efficiency Enhancement Programme: This programme aims to improve freight transportation efficiency, associated costs, transportation times, and logistical practices like goods transferring and tracking through infrastructure technology and process interventions. FAME is gearing up for its third edition with a significant outlay of approximately 10,000 crore.

• Faster Adoption and Manufacturing of Electric Vehicles (FAME II): This is a subsidy scheme by the Indian Government promoting the deployment of electric vehicles and reducing total carbon emission contribution by road transportation. FAME is gearing up for its third edition with a significant outlay of approximately 10,000 crore.

• Gati Shakti National Master Plan: This comprehensive and efficient policy aspires to eliminate red tape by centralising different ministries with higher cross-sector interaction. It also aims to achieve optimisation by identifying critical gaps and synchronising activities from different departments to reduce silos. By integrating analytical and dynamic data with spatial planning and analytical tools, the policy seeks to increase the ability to visualise, review and monitor.

Performance of Our Business Segments

Integrated Supply Chain Solutions

In FY24, our Integrated Supply Chain Solutions business continued on the path of consistent growth with the business expanding across all key geographies: India, UK, Europe and North America. Growth was driven by both new business development and expansion in existing customer engagements supported by strong execution. We have successfully acquired new large customers across key geographies. We won important recognitions in this segment including being awarded ‘Partner status by John Deere, one of our key customers. Operational excellence and leveraging digital initiatives, we have achieved significant efficiencies in the segment.

Network Solutions

In the NS segment, the performance of the Global Freight Forwarding Solutions division has been impacted by the post-COVID19 normalising freight rates. Performance in the first three quarters was particularly impacted by these macro trends and rates stabilised by Q4. However, the developments in the

Red Sea did cause a spike in ocean freight rates showed a spike towards the end of December, and we are closely monitoring the situation. Ocean freight rates in the Q4 of FY24 were nearly at the bottom end of the curve, with year-term rate outlook being positive. On a full-year basis, freight volumes, however, reflected the global industry trend and were weak across all our trade lanes.

The Integrated Final Mile division of the NS segment saw steady revenue growth on a quarter-on- quarter basis. The segment, however, faced margin pressure due to extraordinary inflation levels, mainly in the UK and Europe, which have started easing now. In IFM, we are currently implementing pricing revisions with our customers and executing operational efficiency initiatives aimed at margin improvement.

We have taken strong cost control measures and driven procurement efficiencies across the NS segment. The positive impact of these initiatives is expected to become more pronounced in the coming quarters.

Key Operational Indicators

A summary of our key operational indicators is provided below:

	FY23-24	FY22-23
Infrastructure (square feet)/ logistics warehouse space	25,475,171	27,031,057
TEU of Sea Freight	83,504	107,278
Permanent Employees	17,055	17,640
Number of customers	6,909	8,360
Number of warehouses	459	509

Consolidated Financial Performance

Analysis of our financial performance for the current and previous financial year is provided below:

Amounts in INR Crores	FY23-24	FY22-23
Revenue from Operations	9,199.98	9,994.38
Other income	54.85	75.63
Total income	9,254.83	10,070.01
Freight, clearing, forwarding and handling charges	2,327.79	3,732.88
Sub-contracting costs and casual labour charges	1,471.55	1,430.59
-Cost of materials consumed	12.21	11.43
-Purchase of stock-in-trade	1,683.94	1,412.32

 

Amounts in INR Crores	FY23-24	FY22-23
-Changes in inventory of stock-in-trade	(34.80)	(40.34)
Material & related costs	1,661.35	1,383.41
Impairment losses on financial instrument	(1.70)	41.93
Employee benefits expense	2,243.25	2,010.62
Finance costs	202.71	185.08
Depreciation and amortisation expense	556.72	501.55
Other expenses	807.11	732.78
Total expenses	9,268.78	10,018.84
Share of profit from investments	4.29	4.78
Profit / (loss) before tax from continuing operations	(9.66)	55.95
Exceptional items gain/ (loss)	(26.41)	(10.00)
Tax expense	21.65	(1.70)
Profit / (loss) from continuing operations	(57.72)	47.65
Profit / (loss) before tax from discontinued operations	(32.77)	(5.89)
Tax expense	-	-
Profit / (loss) from discontinued operations	(32.77)	(5.89)
Restated profit/ (loss) for the year	(90.49)	41.76

Revenue: Business Segment and Geographical split

The following is a table with a breakdown of our consolidated revenue from operations, across our business segments:

	FY23-24		FY22-23
Amounts in INR Crores	Amount	% share	Amount	% share
Integrated Supply Chain Solutions	5,239.96	57%	4,580.63	46%
Network Solutions	3,960.02	43%	5,413.75	54%
Revenue from Operations	9,199.98	100.00%	9,994.38	100.00%

Integrated Supply Chain Solutions segment revenues grew 14.39% from 4,580.63 Crores in FY22-23 to 5,239.96 Crores in FY23-24 driven by volume growth in existing customer engagements and revenues from new business development. Network Solutions segment revenues were impacted by YoY decline in average freight rates and a fall in freight volume as a result of which revenues declined 26.85% from 5,413.75 Crores in FY22-23 to 3,960.02 Crores in FY23-24. Decline in the Network Solutions segment revenue impacted consolidated Revenue from operations which decreased by 7.95% from 9,994.38 Crores in FY22-23 to 9,199.98 Crores in FY23-24

The following table provides a breakdown of our consolidated revenue from operations, across our geographic segments:

	FY23-24		FY22-23
Amounts in INR Crores	Amount	% share	Amount	% share
India	2,711.00	29%	3,026.71	30%
Rest of the World	6,488.98	71%	6,967.67	70%
Revenue from Operations	9,199.98	100%	9,994.38	100%

Lower freight rates and sluggish volume in the NS segment impacted revenues in both India and Rest of the World. Revenue from India geography declined 10.43% from 3,026.71 Crores in FY22-23 to 2,711 Crores in FY23-24 where growth in ISCS revenues were offset by decline in freight income. Similarly, revenue from Rest of the World declined 6.87% from 6,967.67 Crores in FY22-23 to 6,488.98 Crores in FY23-24. Other income declined 27.48% from 75.63 Crores in FY22-23 to 54.85 Crores in FY23-24. And total income declined 8.10% from 10,070.01 Crores in FY22-23 to 9,254.83 Crores in FY23-24.

Operating Expenses

We continue to focus on operational efficiencies and cost management with the aim of improving our profitability margins. The key components of our operational expenses include: Material related expenses increased by 20.09% from 1,383.41 Crores in FY22-23 to 1,661.35 Crores in FY23-24 driven by new business wins in Europe in the beverage sector and North America in the farm equipment manufacturing sector Employee benefits expense increased by 11.57% from 2,010.62 Crores in FY22-23 to 2,243.26 Crores in FY23-24 on account of ramp-up in customer engagement in the ISCS Segment, requiring manpower deployment, particularly large transformational contracts in the UK.

Other expenses increased by 10.14% from 732.78 Crores in FY22-23 to 807.11 Crores in FY23-24 driven by cost inflation in fuel and short-term rentals, repairs and maintenance and exchange losses on intra-group loans on account of currency fluctuations

Adjusted EBITDA

EBITDA is calculated as the sum of profit / (loss) for the year from continuing operations, total tax expenses, finance costs, depreciation and amortisation expense reduced by exceptional items, share of profit from investments accounted for using the equity method (net of income tax) and Other income. Adjusted EBITDA is calculated as the sum of EBITDA, share based payments and loss on foreign currency transactions and translations.

Amounts in INR Crores	FY23-24	FY22-23
Restated profit / (loss) for the year from continuing operations before tax	(36.07)	45.95
Add: Finance costs	202.71	185.08
Add: Depreciation and amortisation expense	556.72	501.55
Less: Exceptional items gain/ (loss)	26.41	10.00
Less: Share of profit of equity accounted investees	(4.29)	(4.78)
Less: Other Income	(54.85)	(75.63)
EBITDA	690.63	662.17
Add: Share based payments	3.35	21.96
Add: Loss on foreign currency transactions and translations	16.16	0.99
Adjusted EBITDA	710.14	685.12

On a full-year basis, our consolidated revenues were down by 794.40 Crores, a reflection of the difficult macro environment in the freight forwarding industry and sluggish volumes in global trade. We grew our EBITDA, however, by 25.02 crores in spite of this significant reduction in the revenues driven by the strong performance of the ISCS segment and ongoing initiatives to enhance the efficiency of the NS segment On a full-year basis, revenues were down by 7.9% year-on-year, while adjusted EBITDA improved by 80 bps.

Other Costs

Depreciation & Amortisation increased by 11.0% from 501.55 Crores in FY22-23 to 556.72 Crores in FY23-24 driven by depreciation from right of use assets arising from additional warehouse leases in the GFS and ISCS business.

Finance Costs increased 9.5% from 185.08 Crores in FY22-23 to 202.72 Crores in FY23-24 mainly on account steep increase in benchmark interest rates in the H1 of FY24 offsetting the interest reduction in H2 driven by reduction in total borrowings. The increase is also partly as a result of incremental interest cost from additional leases accounted under Ind AS 116.

We had an exceptional items loss of 26.41 Crores in FY23-24 on account of loss on issue of CCPS ( 23.17 crores), loss on deconsolidation and sale of step down subsidiary ( 38.53 crores) partially offset by gain on stake dilution in joint venture ( 35.29 crores) compared to 10 Crore loss in FY22-23 which was on account of IPO costs charged off that relate to certain expenditure incurred towards the previous draft red herring prospectus filed with SEBI in connection with . the proposed initial public offering of our Company.

Capital expenditure

We operate as an asset-light business wherein our warehouses and vehicles are operated through leases with our network partners. While we do not have ownership of these assets, we have control over the capacity and fleet, and the scheduling, routing, storing, and delivery of goods are managed by us. Our capital expenditures in: (i) ISCS segment is primarily for customers in warehousing and material handling segments of the business; and (ii) NS segment is primarily for intangible assets such as computer software and others.

During FY23-24, we capitalised 69.66 Crores of property, plant and equipment and intangible assets, net of disposals. Capital work in progress was 2.86 Crores and intangible assets under development were 9.04 Crores as at end of the financial year.

Other key balance sheet items

Borrowings

Total borrowings on a consolidated basis, comprising of current and non-current borrowings decreased by 53.22 % from 1,697.31 Crores(excluding compulsorily convertible Preference shares of 292.30 Crores) as on March 31, 2023 to 793.94 Crores as on March 31, 2024. The reduction in borrowings was driven by utilisation of proceeds from the capital raised during the IPO process, Pre-IPO capital and Companys initial public offering in line with objects of the offer.

Inventories

Inventories increased by 12.03% from 345.06 Crores as of March 31, 2023 to 386.57 Crores as of March 31, 2024 in the ordinary course of business and mainly driven by new business wins in Europe in the beverage sector and North America in the Heavy Equipment manufacturing sector.

Trade Receivables

Net trade receivables increased by 14.18% from 1,234.25 Crores as of March 31, 2023 to 1,409.23 Crores as of March 31, 2024 in line with the growth of business and mainly due to various high-cost non-recourse receivable factoring in Fiscal 2023 which is normalised in Fiscal 2024.

Trade Payables

Trade payables decreased by 4.14% from 1,427.32 Crores as of March 31, 2023 to 1,368.22 Crores as of March 31, 2024 in the ordinary course of business.

Goodwill

Goodwill reduced by 3.28% from 608.42Crores as of March 31, 2023 to 588.47 Crores as of March 31, 2024 primarily due to impairment amounting to 21.57 Crores consequent to sale of step-down subsidiary "Circle Express Limited, UK" (Circle Express)

Right of use asset

Right-of-use asset increased by 6.48% from 1,113.63 Crores as of 31 Mar, 2023 to 1,185.76 Crores as of 31 Mar, 2024 primarily due to new long-term leases (typically warehouses, office premises and material handling equipment) resulting in additions to right-of-use asset of 555.06 Crores, which was offset by reversals on account of termination/ closure of similar long-term leases including reversal on sale of Circle Express amounting to 71.76 Crores, depreciation of right-of-use asset of 422.67 Crores and exchange differences on translation of foreign operations of 11.50 Crores.

Lease Liability

Lease liability (current and non-current) increased by 5.30% from 1,334.37 Crores as of March 31, 2023 to 1,405.08 Crores as of March 31, 2024 primarily due to additions to lease liability of 546.10 Crores, accretion of interest of 87.25 Crores which was offset by payments of lease liability of 486.88 Crores, reversal of lease liability including reversal on sale of subsidiary of 94 Crores and exchange differences on translation of foreign operations of 18.24 Crores.

Other Financial Liabilities

Other financial liabilities decreased drastically by 65.01% from 262.07 Crores as of March 31, 2023 to 91.71 Crores of March 31, 2024 primarily due to settlement of balance deferred consideration towards acquisition of minority shares in the step-down subsidiary of 54.31 Crores, settlement of amount payable towards factoring of 96.35 Crores consequent to normalisation of high-cost non-recourse receivable factoring in FY24.

Key performance indicators and key financial ratios

Key performance indicators

Particulars	FY23-24	FY22-23
Growth Rate of Revenue from Operations (%)	-7.95%	8.05%
EBITDA Margin (%)	7.51%	6.63%
EBITDA Growth Rate (%)	4.30%	8.10%
Adjusted EBITDA Margin (%)	7.72%	6.86%
Adjusted EBITDA Growth Rate (%)	3.65%	2.70%
PBT Margin (%)	-0.11%	0.56%
PBT Growth Rate (%)	-117.27%	21.01%
Profit / (Loss) Margin for the year (%)	-0.63%	0.48%
Profit/ (Loss) Growth Rate for the year (%)	-221.13%	202.52%
ROCE (%)	4.75%	6.19%
ROE (%)	-1.70%	5.48%
RoIC Pre-Tax	3.88%	5.53%
RoIC Post-Tax	3.26%	5.59%

Key financial ratios

In compliance with the requirement of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the key financial ratios of the Group have been provided hereunder along with the explanation only for the significant changes, i.e., change of 25% or more as compared to the previous financial year

Particulars	FY23-24	FY22-23
PBT Margin (%)(refer note i below)	-0.11%	0.56%
Profit / (Loss) Margin for the year (%)(refer note i below)	-0.63%	0.48%
Debtors Turnover	57.41	58.57
Inventory Turnover	15.34	12.60
Interest Coverage Ratio (refer note ii below)	0.58	0.99
Current Ratio	1.09	0.91
Debt Equity Ratio (refer note iii below)	0.43	1.61

(i) PBT and PAT margins are negative mainly on account of drop in NS segment and increase in costs including operating expenses, employee benefits expenses, interest costs and depreciation as explained in the financial performance discussion.

(ii) The interest coverage ratio has dropped from 0.99 to 0.58 on account steep increase in benchmark interest rates in the H1 of FY24 offsetting the interest reduction in H2 driven by reduction in total borrowings.

(iii) Debt equity ratio has dropped from 1.61 times to 0.43 times in FY24 consequent to reduction in borrowings driven by utilisation of proceeds from the capital raised during the IPO process, Pre-IPO capital and Companys initial public offering in line with objects of the offer and also on account of resultant increase in the net-worth of the Group.

Key risks faced by the industry and our business

As a global company operating across multiple geographies we face several risks that could impact our business in various ways. This could in turn affect our ability to create value for all our stakeholders.

The management team is committed to recognising these risks (both internal and external) and continue to implement actions that can proactively handle these risks mitigating potential impact to our business.

The key risks the Company is exposed to are:

Macroeconomic risks

Our growth and results of operations and financial condition are significantly affected by end-consumer demand for products manufactured or sold or services provided by our customers which in turn is linked to macro factors driving India and the global economy. These factors include levels of per capita disposable income, Business investment (specifically supply chain related investments), overall logistics spending, changes in interest rates, fuel and power prices, quantum of global trade, movement in ocean and air freight rates, government policies and other developments that affect consumption and business activities in general.

Our performance may decline during recessionary periods or in other periods where one or more macroeconomic factors, or potential macro-economic factors, negatively affect the level of consumer and business confidence and consumption or the performance of our customers. For example, our operations and the demand for our services were adversely impacted by certain macro-economic developments including the multi-sector slowdown in India that resulted in weak economic performance and decrease in demand, a strike by the workers at one of our key customers in the United States and the slowdown of global freight forwarding industry on account of decrease in global trade and red sea situation. Moreover, the decline in global ocean and air freight rates in Fiscal 2023 and 2024 also had an impact on our financial performance.

Customer concentration risk:

We derive a portion of our revenue from certain key customers, and accordingly, a material percentage of our future revenues will be dependent upon the successful continuation of our relationships with these customers or finding customers of similar size and scope.

The loss of any of our key customers, due to our inability to renew our contracts with them or a decision by any one of them to reduce the services we provide to them would result in a decline in our revenues.

Technology risks:

Our business could be affected if we fail to implement and maintain our technology systems or fail to upgrade or replace our technology systems to meet the demands of our clients and protect against system failures. Some of our existing technologies and processes in the business may become obsolete or perform less efficiently compared to newer and better technologies and processes in the future. The logistics industry could also experience unexpected disruptions from technology-based start-ups. Moreover, the implementation of technology can typically entail a significant amount of capital expenditure, including in relation to maintenance when needed, which may have an effect on our cash flow until we are able to realise the benefits of its implementation in terms of increased volumes and cost efficiency. Additionally, technology susceptible to outages and technical snags, which may disrupt our workflow and affect our revenues.

Foreign exchange risk

We derive majority of our revenue from our services provided to customers located in Europe, United Kingdom, North America and Asia-Pacific. Our revenue from operations from rest of the world as a percentage of our revenue from operations on a consolidated basis stands at 71% and 70% in Fiscal 2024 and 2023 respectively.

We are exposed to foreign currency risks that arise from our business transactions that are denominated in foreign currencies. The depreciation of the Indian

Rupee against foreign currency (primarily US$, GBP, Euro, SGD and AUD), will generally have a positive effect on our reported revenues and operating income, while the appreciation of Indian Rupee against foreign currency will generally have a negative effect on our reported revenues and operating income. In addition, a significant portion of our working capital debt is denominated in GBP and SGD.

Inflation risk:

Our operations largely depend on air, sea, rail and road transport. As a result, transportation costs form a significant part of our operating costs. Any increase of costs stemming from air or ocean capacity constraints as witnessed during the recent COVID-19 pandemic commodity price fluctuations, red sea situations etc. in particular fluctuating fuel prices (kerosene, diesel and marine diesel), which cannot be passed on to customers through operating measures (fuel surcharges) or rent increases, may have an impact on our revenues, business, results of operations, financial condition and cash flows.

Working capital risk:

Our business requires a significant amount of working capital which is based on certain assumptions, and accordingly, any change of such assumptions would result in changes to our working capital requirements. Further, our working capital requirements have been increasing with the growth of our operations. While we have not faced any instances of material losses or adverse impacts on our business and operations due to failure to raise additional financing or resources, there can be no assurance that we will always be able to raise resources to meet our working capital requirements on commercially acceptable terms and in a timely manner or at all in the future, which may adversely impact our business operations and future growth plans.

Internal controls

TVS SCS is committed to ensuring effective internal control systems commensurate with the size and the complexity of our business. We have established adequate and effective internal controls to achieve its compliance and reporting objectives. These controls are deployed through various policies and procedures and are periodically revisited to ensure they are in line with changes to our business environment. Our Audit Committee, composed of Independent and Non-Executive Directors, regularly reviews significant audit findings, adequacy of internal controls, audit plans, reasons for changes in accounting policies and practices, if any, and monitors the implementation of audit recommendations.

Our internal audit functions make an evaluation of the adequacy and effectiveness of internal systems on an ongoing basis so that our operations adhere to our policies, compliance requirements and internal guidelines. Our internal control system is supplemented by an internal audit carried out by KPMG, a third-party internal audit firm. We ensure that preventive and detective controls are embedded in all the business processes. Significant audit observations and follow-up actions thereon are reported to the Audit Committee.

Further, the Directors Report and Corporate Governance Report sections contain comprehensive details pertaining to corporate governance and statutory compliances.

Human Resources Management

At TVS Supply Chain Solutions, people are central to our business. We continued to focus people related priority and undertook several initiatives through the year. These initiatives spanned multiple dimensions such as leadership, employee training & skill enhancement, employee welfare, building high performance culture etc. Our global employee headcount as of March 24 was 17,055.

During the year, TVS SCS was ranked #7 among the Top 10 future-ready workplaces in India by the prestigious Fortune India magazine. This accolade is a testament to the ongoing HR developmental work on employee engagement, satisfaction, learning and shaping our culture.

VIBE: Employee Survey Insights

The VIBE survey, continues to be an essential tool for understanding employee perspectives across our organisation. This annual global employee engagement survey spans all eight entities under TVS SCS, covering over 18,000 employees in 26 countries and offered in

18 languages.

Survey highlights:

• Participation Rate: Reached a record high of 93%, up from 88% last year.

• Overall Satisfaction: Increased from 90% to 94%, indicating growing employee contentment.

• Customer Service: This dimension has consistently received the highest scores across all nine years of the survey.

These results underscore our commitment to fostering a supportive and engaging work environment, reflecting positively on employee satisfaction and organisational growth. Based on the analysis of results of the previous Vibe survey, a 25 people initiatives were launched. without of these, 15 initiatives were completed and the 10 are ongoing. For more details, please refer to pg 34.

Cautionary statement

Statements in this ‘Management Discussion and Analysis and this Annual Report describing our vision, projections, estimates, expectations, plans or predictions or industry conditions or events may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results, performance or achievements could differ materially from those expressed or implied. Several factors could make a significant difference to the Companys operations. These include economic conditions affecting demand and supply, government regulations and taxation, natural calamities, pandemics etc. over which the Company does not have any direct control.