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    Fuel prices a pass-through; e-commerce a game-changer: Logistic cos

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    Fuel prices a pass-through; e-commerce a game-changer: Logistic cos

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    In order to understand the outlook in the logistics space, CNBC-TV18 caught up with Rampraveen Swaminathan, MD and CEO, Mahindra Logistics, and Aneel Gambhir, Chief Financial Officer, Blue Dart. Both the companies follow a pass-through model with respect to fuel price hikes. Also, e-commerce remains a growth driver for both the organizations.

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    A note by Jefferies suggests that the logistics sector in India has grown at a compounded growth rate of 10 percent between FY18 and FY20, and that organised companies could grow as much as 20 percent in the next five years.
    To discuss the outlook and demand picture, CNBC-TV18 spoke to Rampraveen Swaminathan, MD and CEO, Mahindra Logistics, and Aneel Gambhir, Chief Financial Officer, Blue Dart.
    Swaminathan highlighted that except for the automotive segment, all other businesses are growing in the high teens. He mentioned that e-commerce is a strong growth driver for the company. He added that much of the demand has moved online, and he expects a much stronger bounce back. E-commerce’s contribution is in its mid-teens, he shared.
    He said, “Over the last 7-8 quarters, excluding the automotive business, all the other businesses have been growing at high teens or mid-twenty in all our end markets. Obviously, e-commerce is a strong growth driver as well. Therefore, from a broader perspective, we expect growth to continue.”
    On fuel prices, he mentioned that it is a pass-through for the company. He explained that fuel prices are indexed for almost all the contracts of the company.
    “Fuel prices are indexed in almost all our contracts – that said, there is a broader onus from a customer relationship perspective and sustainability perspective to drive fuel efficiency improvement and so we continue to work with our fleet operator, transporters to drive more fuel efficiency in their fleets and operations. We generally transfer those benefits to our clients,” said Swaminathan.
    Gambhir of Blue Dart, also said that the company follows a pass-through model in its contracts. “We have been having fuel surcharge mechanism for almost 20 years, which has seen all volatilities of highs and lows of fuel. We have this natural hedge available, whereby all increases or reductions are passed on to the customers. So in that way, we have been protecting ourselves,” he said.
    Concurring with Swaminathan, he said that he sees a good opportunity in the e-commerce space as well. Gambhir remains confident in the business’ profitability despite the high competition.
    “Competition is most welcome and competition only helps us to be on toes to deliver superior service quality. Having said that, we have had superior technological solutions which improve customer experience and we have been keeping ahead on that front,” he said.
    Watch the video for the full interview.
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