A 30 percent jump in second-quarter net earnings at trucking giant Transport Corporation of India (TCI) may be the first indication that logistics providers are enjoying an earlier-than-usual uptick in freight demand following the July 1 goods and services tax (GST) rollout that removed multiple indirect levies on supply chains.
TCI’s net profit in the July-to-September period increased to Rs. 25.6 crore (about $3.9 million) from Rs. 19.7 crore in the same three months of 2016, as revenue was up 16.6 percent year-over-year to Rs. 527.4 crore from Rs. 452.3 crore.
That performance is the second straight quarter of double-digit gains for the company, with net income up 17 percent and revenue up 15.8 percent in the first quarter over the corresponding period of 2016.
“It has been three months since GST implementation and it has been well embraced by some of the industry, while a few others, organized, unorganized, and SME (small and medium enterprise) sectors, have got [off to a] slow start here, which is witnessed in economic activities in this quarter,” TCI Managing Director Vineet Agarwal told JOC.com.
Agarwal said that strong growth came despite initial teething problems with the new indirect tax system that created concerns for shippers and small traders. He also said the company overcame those hurdles by staying consistently focused on high margin businesses and leveraging "the synergistic benefits from rail-road-sea as well as specialized integrated supply chain solutions."
“We looked at GST readiness as an opportunity to stand out from rest of the industry in supporting customers and suppliers. We expect second half of the year to be better given the trend of high business volume towards the financial year closing for most manufacturers,” Agarwal said.
Operating changes brought on by the GST network could drive some business away from the unorganized and fragmented logistics sector to more established, organized logistics players like TCI, Agarwal said.
The Gurgaon-based company’s first-half net income totaled Rs. 43.2 crore, up 24 percent from Rs. 34.8 crore in the same six months of 2016, on revenue that rose 16.3 percent year-over-year to Rs. 1,025.3 crore.
TCI is known to have a fleet of more than 6,000 trucks, four cargo ships for coastal shipping, and about 11 million square feet of warehouse space at various locations in the country. Additionally, the company earlier this year inked a deal with the National Highways Authority of India (NHAI) to jointly build multimodal logistics sites in the country as the government works toward an integrated logistics management system to shore up supply chain productivity.
Although India’s GDP growth plummeted to a three-year low of 5.7 percent in the first quarter, with the latest forecasts hinting at slower growth for the second quarter as well, its giant leap of 30 spots to 100 in the World Bank’s 2018 global ease-of-doing-business analysis, published this week, has generated a great deal of optimism among government agencies working toward logistics cost reductions and faster growth.
“We believe that the growth rate has bottomed out and that the temporary phenomenon of subdued economic growth would be over by the end of this fiscal year,” Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said in a recent statement.
Industry leaders also believe GST, the impact of which should become more visible in the coming months, will act as a catalyst to further improve on India’s ease-of-doing-business ranking.