Allcargo Logistics Q1 FY26: Why Did Profits Dip But Debt Fell?

Navigating Headwinds: A Deep Dive into Allcargo Logistics’ Q1 FY26 Performance

Allcargo Logistics, a prominent player in the Indian and global logistics landscape, recently released its Q1 FY26 earnings, painting a picture of strategic navigation amidst a challenging global economic environment. While the headline numbers might initially raise an eyebrow, a closer look reveals underlying operational resilience and targeted turnaround efforts that warrant attention.

The company reported a mixed bag: a marginal increase in consolidated revenue, but a notable dip in reported EBITDA and PAT. What’s driving this divergence? Let’s unpack the numbers.

The Curious Case of Gross Profit Growth Amidst EBITDA Decline

At first glance, Allcargo’s consolidated revenue saw a modest 1% year-on-year increase, reaching ₹3,817 crores. However, the true operational story begins with Gross Profit, which impressively grew by 8% YoY to ₹856 crores. This healthy growth, achieved despite flattish volumes in some key segments, underscores the management’s effective yield management strategies and, notably, a beneficial foreign exchange impact from the Euro’s appreciation against the USD in European operations. 📈

This positive gross profit trend, however, didn’t translate into reported EBITDA. Consolidated EBITDA, excluding other income, stood at ₹103 crores, a decline from ₹136 crores in Q1 FY25. The primary culprits? Elevated staff and general & administrative (G&A) costs, further exacerbated by the Euro’s strengthening impacting European cost bases.

But the plot thickens for reported earnings. The Profit After Tax (PAT) was significantly hit by a substantial notional foreign exchange loss of approximately ₹83 crores. This isn’t a cash outflow; it stems from intercompany transactions where the Euro’s sharp 9% appreciation against the USD created a paper loss. Management highlighted its notional nature and hinted at exploring accounting practices to reduce such volatility in reported earnings. This is a crucial distinction: while it impacts reported profit, the underlying cash flow generation remained robust, enabling significant debt reduction.

Sales Trajectory: A Segmented View

While consolidated revenue growth was modest, the performance across Allcargo’s diverse segments tells a more nuanced story:

• International Supply Chain (ISC): This segment, driven by global trade, saw flattish revenues at ₹3,330 crores, mirroring the stable LCL and FCL volumes (up 3% and 6% QoQ respectively for LCL and FCL). Air volumes, however, saw a seasonal decline QoQ. The segment’s EBITDA declined, primarily due to cost pressures in Europe. Looking ahead, July saw a strong seasonal rebound in volumes (8-10% increase), but the management prudently views this as seasonal rather than a structural recovery, tying long-term prospects to macroeconomic stability. The global nature of Allcargo’s operations allows it to mitigate weakness in one trade lane by leveraging others, a key advantage in volatile times.

• Domestic Express (Gati): This segment is undergoing a strategic turnaround. Revenue declined by 7% QoQ to ₹357 crores due to seasonality and a deliberate strategy to be more selective on revenue, focusing on higher-margin business. Crucially, despite the revenue dip, EBITDA improved by 18% YoY, a strong indicator that cost rationalization efforts are bearing fruit. The management is confident about continued cost optimization and aims to push Gati’s operating gross margin closer to 30% from under 25% currently. This is a very positive change, signaling a shift towards profitable growth.

• Contract Logistics: This segment continues to be a standout performer, registering robust revenue growth of 49% YoY and EBITDA growth of 29% YoY. The company is benefiting from the Indian economy’s domestic growth themes, particularly infrastructure and manufacturing. The exciting part? Allcargo still operates with “white space capacity” – underutilized facilities – meaning future revenue additions here can significantly boost margins without proportional increases in rental costs. Several new contracts signed post-quarter signal continued momentum.

Note: Specific Q1 FY25 revenue for Gati & Contract Logistics not provided in transcript, hence approximated based on YoY % change mentioned for Gati. Consolidated EBITDA is excluding other income.

Operational Efficiencies and Future Growth Levers

Management’s focus on cost reduction and digital transformation is evident. While operational outsourcing saw some delays, financial outsourcing is on track, promising annualized savings. Automation and AI initiatives, particularly rate management tools and the ECU360 app, are progressing well. The ECU360 platform, initially for LCL, has expanded to FCL, aiming to capture more gross profit from the crucial first and last mile, alongside value-added services. This digital thrust is a significant step towards long-term operational efficiency and customer stickiness.

Working Capital and Debt: A Bright Spot 💰

Despite the reported PAT being impacted by notional FX losses, Allcargo demonstrated strong cash flow generation and prudent working capital management. This allowed the company to significantly reduce its net debt to ₹467 crores (from a gross debt of ₹1,060 crores, down by ₹107 crores QoQ). This substantial debt reduction, driven by operating cash flow and working capital efficiencies, is a strong positive signal, reflecting sound financial health and the ability to self-fund operations.

What Does This Mean for the Future?

Allcargo Logistics presents as a company undergoing strategic shifts. While its core International Supply Chain business navigates global cyclicals and cost pressures, its domestic segments are showing promising signs:

• Gati’s turnaround gaining traction with improving profitability despite selective revenue.
• Contract Logistics emerging as a consistent fast-growing segment, benefiting from India’s robust domestic demand, capex revival, and government infrastructure push.

The significant notional FX loss temporarily distorts reported PAT, but the underlying operational gross profit growth and strong cash generation (leading to debt reduction) are encouraging. The company’s continued investment in digital platforms like ECU360 points to a strategic long-term vision for efficiency and market share capture.

The ongoing demerger process, expected to conclude with listing in a few months, will further unlock value for shareholders by separating the distinct business entities.

In the context of the Indian economy, which prefers domestic-growth themes, Allcargo’s Contract Logistics and the improving Gati position it well to capture opportunities. Investors should look beyond the headline PAT, focus on the underlying gross profit trends, segmental performance, debt reduction, and the progress of cost optimization and digital initiatives. The next few quarters will be critical to see how cost pressures stabilize in the international business and if the domestic momentum accelerates. Allcargo is certainly one to watch closely as it executes its multi-pronged strategy.

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