maheshwari logistics ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

GLOBAL ECONOMY

The year 2021 was all about positive developments after Covid wreaked havoc across the globe. The global economy registered a substantial growth rate of 6.1% as per the IMF World Economic Outlook, April 2022 estimate. The last years estimate was 3.1% contraction of the world economy.

What led to such paradigm shift? Primary propellers were widespread vaccinations, not just in advanced economies, but in developing nations as well, lifting of lockdown restrictions in many countries and renewal of commercial activities across the globe.

Global trade soared during this time to US$28.5 trillion in 2021, which was 13% higher than 2019 and 25% higher than 2020. Trade in services rose by US$50 billion to touch US$1.6 trillion. Global manufacturing production increased by 9.4% in 2021 after a 4.2% contraction the previous year. However, at the end of the year, global geo-political crises and consequent supply chain bottleneck, rise of fuel and food prices have posed as hurdles to the overall recovery.

Exponential growth in due course must stabilise to be sustainable. IMF in April 2022 predicted the growth curve to stabilise. A growth of 3.6% in world economy for 2022 and 2023 has been projected by IMF in its April 2022 estimate. The 2022s projection is 0.8% lower than earlier projection of January. War-induced inflation, resultant supply chain bottleneck and resurgence of Covid-19 have often come up as bumpers on the road to growth and development.

INDIAN ECONOMY

In FY 2022, the country registered a GDP growth of 8.7% from a 6.6% contraction in 2020-21 - a turnaround never registered before. Extensive vaccination drive and reach of medical amenities even in the rural and semi-urban areas is one of the primary reasons for these improved numbers and waning fears of further outbreak. As a result, local authorities started lifting restrictions, markets opened up, trade and commerce began operations after a hiatus, which made the growth engines move forward. As of January 16, 2022, India administered at least 1.56 billion doses to its population.

Last fiscal demand for consumption was anticipated to move 7% north, exports were to grow by 16.5% and import by 29.4%. While agricultural and allied industries were projected to grow by 3.9%, industry to grow by 11.8% and services by 8.2% in 2021-22. Indirect taxes like total excise duty collection were Rs.1.88 lakh crore exceeding the budgetary estimate. Custom duties grew by 48%, which reflects renewed growth in trade activity. Finance Ministry reported a highest tax to GDP ratio in 202122 of 11.7%, with indirect tax to GDP ratio at 5.6%. Total indirect tax collection for the financial year was Rs.12.90 lakh crore which is higher than the budget expectation of Rs.11.02 lakh crore.

Industrial production growth remained muted at 1.9% in March 2022 compared to previous year same period and as per IIP (Index of Industrial Production) data published by NSO (National Statistical Office) the manufacturing sectors output grew 0.9%. However, for the full financial year 2021-22, IIP rose 11.3% compared to last year when it was contracted 8.4%. Intermediate goods, infrastructure / construction goods ended up in green and consumer durables also saw growth.

Gross Value Added (GVA) is estimated to have grown 8.1% in 2021-22 slightly lower than NSO expectation of 8.3%. It contracted 4.8% in 2020-21. In the backdrop of geo-political turbulence, rising commodity prices various world agencies cut down Indias growth forecast for 2022-23. IMF slashed their projections from 9 to 8.2% whereas World Bank downgraded India from 8.7 earlier to 8% which makes it worlds fastest growing economy. However, Moodys anticipates inflation to average in 2022, but says given the strong fundamental of Indian economy, it will continue to be on a high growth trajectory unless any further complications arise.

INDIAN KRAFT PAPER INDUSTRY

Kraft is a German word that translates to strength. Kraft papers widespread use has come into effect due to its tear-resistant characteristics without being heavy. Also, it is very environment friendly. It is used primarily for heavy-duty industrial packaging, gift wrapping, void filling, protective wrapping, etc. Kraft paper can be made from wood, agro-residue or through wastepaper recycling.

The Indian paper & paperboard packaging market witnessed robust growth in last decade or so spanning several end-user segments like food & beverage, healthcare, personal care, household care and others. The paper & paperboard packaging industry faced major challenges due to Covid-19 last year and issues including nationwide lockdown, major companies moving production away from China, people reconsidering materials used for packaging, price rise in raw material (wastepaper). While the supply side of the industry saw a major impact, a sudden increase in some of the applications increased the consumption of paper & paperboard packaging like corrugated boxes, folding cartons etc.

The future holds great prospects for the industry. Because per capita consumption of paper in India is among the lowest in the world, it holds immense growth potential in paper & paperboard industry.

IPMA (Indian Paper Manufacturers Association), a leading industry body predicts, paper consumption is going to increase 6-7% annually in the next five years to reach a volume of 30 million tonne by 2027, which will make India the fastest growing paper market in the world. This presents an exciting scenario -- a big enough leap in domestic consumption in line with the robust economic growth of the nation.

The domestic paper companies ramped up their marketing activities globally and exports have been rising in the last few years at a rapid rate due to capacity expansion and technological upgrades of domestic paper companies which led to a big improvement in product quality. Indian paper & paperboard industry saw an investment of over C25,000 crore for new capacity and introduction of green technology in the last five years.

India exports paper & paperboard products primarily to countries like UAE, China, Saudi Arabia, Bangladesh, Vietnam and Sri Lanka. In FY22, Indian exports of paper & paperboard jumped almost 80% to reach a record Rs.13,963 crore. Out of this, coated paper and paperboard export increased by 100%, uncoated writing & printing paper by 98% while export of kraft paper boosted by 37%.

GROWTH DRIVERS

1) Increase in disposable income, changing lifestyle

2) Growth in organized retail

3) Continued demand for quality packaging in FMCG, pharmaceuticals, textile

4) Boom in e-commerce

5) Fast growing food & beverage sector

6) Growing environmental awareness

7) Emphasis on education & literacy

RISK CONCERN

1) Because India contributes very little to global demand, price fluctuation in the international market greatly impacts the domestic industry

2) Inadequate raw material availability inside the country

3) Due to great dependence on imports of raw material, increase in price of raw materials overseas, effect the cost of production

COAL & PETCOKE TRADING

Energy commodities have always ruled the global market. Other than petroleum, coal is one of the key energy commodities in the world. The largest coal importing countries are India, China, South Korea & Japan while the biggest coal exporters are Indonesia, Australia, Russia, USA and Colombia.

Petcoke or petroleum coke is a byproduct when bitumen found in tar sands is refined into crude oil. High grade petcoke which is low in sulphur and heavy metals can be used to make electrodes for the steel and aluminium industry. However, most petcoke, about 75-80%, produced in the world are not of high grade, used solely as fuel. Petcoke is costlier than coal but produces more energy when burnt. The cement industry worldwide is the main consumer of fuel-grade petcoke.

India depends on coal for 70% of the power sector need. With the total power generation of India expected to double at the end of this decade, the contribution of coal will continue to remain above 50% by 2030. Furthermore, Indias current installed coal capacity is 209 GW which is about to be expanded by 57 GW of new capacity in the pipeline. Compared to renewables, coal is a reliable source of energy. Found abundantly in India, it is important for the countrys energy security. India is the second largest producer and consumer of coal in the world. As of 2020, India had the fifth-largest coal reserve on the planet.

According to International Energy Agency (IEA), primary energy consumption in India is going to double to 1,123 million tonne of oil equivalent by 2040. India is currently the 4^th largest energy consumer in the world, but its going to overtake even the European Union by 2030, IEA predicts. To meet its energy demand, India will rely more on fossil fuel imports than anything else.

India contributes 16% to the global coal trade and many global coal suppliers were relying on the growth story of India to support planned export-oriented mining investments. But this goes against Indias very own aim to be completely independent of coal import in coming years, except for the possibility of importing coking coal for growing steel production and steam coal for coastal power plants that were designed to receive import grades. Also, for coastal power plants in southern and western India, it is much cheaper to import coal from Indonesia than to bring domestic coal.

Moreover, compared to Indian coal, the ones from Australia and America have high calorific value and low ash content and low fly ash fraction. Such coals cause less ash disposal and less particulate pollution and power generation becomes more environment friendly and economical. Coal with high ash content produces more slag and clinker in the furnace, hinder the reactions and forces high equipment maintenance. Further, these days India is building more and more supercritical and ultrasupercritical power plants and these power plants need high grade coal which can only be obtained from foreign countries. Naturally, the import grade coal is going to be the mainstay in coming years for these big-ticket power generation units.

The iron and steel industry are the largest consumer of energy (~36%) and contributor to GHG (green house gas) emissions (~37%) in the Indian manufacturing sector. Typical coke consumption is anything between 344 to 400 kg/thm compared to global best available technology of 280 kg/thm. There are multiple ways to reduce coke consumption, but Indian steelmakers chose petcoke for both economic and environmental benefits - reduced transport emissions, ash generation and production emissions.

GROWTH DRIVERS

1) Rising demand of power all across the country

2) India does not produce enough high grade coal

3) Massive industrialization

4) Growth in steel manufacturing in India

5) Upcoming new thermal power plants

RISK CONCERN

1) Indian government wants to stop coal import completely by 2023-24.

LOGISTICS SERVICE

India has the second largest population in the world and the logistic market is estimated to be worth $210 billion. It contributes nearly 13% of GDP and it is anticipated to grow at a CAGR of 8-10% in years to come. In last few years logistics sector saw big changes in terms of GST implementation, improvement in road infrastructure and increase in automation which resulted in improved logistics efficiency.

Last year, pandemic lockdown put both Indian logistics sector and Indian economy in jeopardy. Due to strict restrictions on goods movement only vehicles with essentials were moving. Then there was labour crisis in FY21, but thankfully that issue was resolved within 2-3 months.

Logistics sector in India can be divided in 3 categories namely, transportation, warehousing and value added / other services. Among these three types, transportation accounts for the largest share of the Indian pie. At present the logistics sector in India is dominated by road transport which is about 60% of total cargo movement in terms of tonnage.

The surface transport sector is anticipated to grow at a CAGR of more than 8%, the fastest growing area in Indias infrastructure space. The revenue of surface transport is $140 billion. The surface transport sector can be divided into three categories like full truck load (FTL), half truck load (HTL) and express. The FTL holds the major share in surface transportation sector which is around $120 billion and is expected to grow at a rate of 7-8% in coming years.

GROWTH DRIVERS

1) Flurry of government reforms in transportation and logistics sector including GST implementation, digital transformation, utilizing e-way bills and Fastags.

2) Number of start-ups in the logistics sector aided the growth

3) Rapid improvement in road infrastructure

4) Adoption of new age technology like automation, smart logistics solutions which minimized human errors and cut costs

5) Rise of e-commerce companies driving growth

6) Growing retail sales market

7) Government of India allocated Rs.17,000 crore in 2020-21 for transportation sector

RISK CONCERN

1) Trucking industry has a large carbon footprint

2) Old infrastructure

3) Lack of skilled professional

4) Hike in fuel price

WASTEPAPER

RECYCLING

Wastepaper has become a major raw material for the paper industry now and many new plants are coming up based on wastepaper. Paper recycling has reduced landfilling, every tonne of paper recycled saves more than 3.3 cubic yards of landfill space. Currently, recycled paper is a major source of raw material for most paper mills in India and abroad.

The global paper recycling market was estimated to be at $47.5 billion in 2021, whereas it is anticipated to be at $58.6 billion by 2026, growing at a CAGR of 4.3%. Paper recycling market saw significant growth in last few years due to decreasing natural resources. The demand for recycled paper is estimated to be increasing at a CAGR of 7-8% in developing countries.

The recovery of wastepaper is not very high in India. In developed nations like in Germany it is nearly 73%, in Sweden it is 69%, whereas in India it is 25-28%. Naturally, countries like India are considered waste fiber deficient and have to import major chunk of the raw material from abroad. In FY21, ban on wastepaper in European countries and pandemic lockdowns caused major disruption in the paper recycling industry.

GROWTH DRIVERS

1) Increasing environmental awareness

2) Cost benefits of paper recycling

3) Favourable government policies

4) Emergence of highly automated advanced technologies

5) Strong demand from end user industries

6) Increasing demand from exports

RISK CONCERN

1) Largely import-dependent for raw materials

2) Not enough awareness about recycling of paper

3) High cost of machinery

4) Lack of wastepaper collection and segregation mechanism in the country

SEGMENT

WISE PERFORMANCE

2. COAL & PETCOKE TRADE FINANCIAL & OPERATIONAL PERFORMANCE

The Company reported another year of all-round healthy growth even as the business landscape became more competitive.

Net Sales increased by 54.33% over the previous year to Rs.1,03,466.52 lakh. Business growth was driven by a healthy contribution from kraft paper manufacturing and coal trading verticals.

The Companys EBITDA scaled up 21.62% to RS.5451.16 lakh in 2021-22 from RS.4,482.01 lakh a year back.

The EBITDA margin stood at 5.27% in FY22 against 6.69% in FY21.

The interest liability and provision for depreciation declined marginally over the previous years levels. Profit after tax increased appreciably to Rs.1,714.92 Lakh in FY22 against C928.30 lakh in FY21. Out of this, the Company ploughed Rs.1,714.92 lakh back into business operations.

Even as the business momentum improved, the Company continued to strengthen its financial edifice.

• Networth increased from Rs.13,876.37 lakh as on March 31, 2021 to Rs.15,459.00 lakh as on March 31, 2022.

• Net debt increased from Rs.14,123.41 lakh as on March 31, 2021 to Rs.17,674.65 Lakh as on March 31, 2022 - the debt-equity ratio increased from 1.02 as on March 31, 2021 to 1.14 as on March 31, 2022.

	Standalone		Consolidated
Particulars	131st March 20221	31st March 2021	31st March 20221	31st March 2021
Net Sales/Income from Business operations	1,03,466.52	67,043.56	1,03,488.97	67,618.52
Other Income	289.03	224.46	269.77	179.46
Total income	1,03,755.55	67,268.03	1,03,758.74	67,797.97
Less: Expense (Excluding depreciation and Finance Cost)	98,304.38	62,786.02	111,298.68	63,295.44
Profit before Depreciation and Finance Cost	5,451.16	4,482.01	5,460.06	4,502.53
Less: Depreciation	1,220.73	1,285.04	1,220.73	1,285.04
Less: Finance Cost	1,863.03	1,932.76	1,863.11	1,932.96
Profit before Exceptional & extraordinary items & Tax	2,367.41	1,264.21	2,376.22	1,284.53
Less: Exceptional Item		-	-	-
Add/Less: Extra Ordinary Items		-		-
Profit Before Tax	2,367.41	1,264.21	2,376.22	1,284.53
Less: Current tax	585.43	255.56	594.05	275.42
Less: Deferred tax	67.06	80.36	67.06	80.36
Net Profit/ (Loss) After Tax for the year	1,714.92	928.30	1,715.11	928.75

KEY FINANCIAL RATIOS

Significant changes (i.e., change of 25% or more as compared to the immediately previous financial years) in Key Financial Ratios, along with explanation are as under:

Particulars	2021-22	2020-21	Y-o-Y changes (%)	Reasons
Debtors turnover	8.19	5.64	45.12%	Revenue Growth after recovery from Covid-19 resulted in an improvement in ratio.
Inventory turnover	11.05	8.42	31.22%	Revenue Growth after recovery from Covid-19 resulted in an improvement in ratio.
Interest coverage ratio	2.93	2.32	26.18%	Increase EBITA and decrease Interest Cost resulted in an improvement in ratio.
Current ratio	1.77	1.80	-1.29%	Below the threshold of 25%
Debt equity ratio	1.14	1.02	12.33%	Below the threshold of 25%
Operating profit margin (%)	4.09	4.77	-14.26%	Below the threshold of 25%
Net profit margin (%)	1.67	1.39	20.19%	Below the threshold of 25%
Return on net worth	11.19	6.72	66.52	Increase Net profit recovery from Covid 19 resulted in an improvement in ratio.

risk management

Risk management is critical to the overall profitability, competitive market positioning and long-term financial viability, to meet client and stakeholder commitments. We have put in place a strong risk-management structure that enables meticulous examination of business activities for identification, evaluation and mitigation of potential internal or external risks. We have established processes and guidelines, along with a strong overview and monitoring system at the Board and senior management levels. As an organisation, we encourage ethical values and integrity which considerably mitigates risk.

This framework and our suite of risk management policies ensure that risks are appropriately managed to achieve the Companys business objectives. Our risk management culture encourages discussions on risk decisions and facilitates an environment, where employees are transparent about threats and outcomes.

Forward looking statement

Statements in this ‘Management Discussion and Analysis and this Annual Report describing the Companys objectives, projections, estimates, expectations, plans or predictions or industry conditions or events are ‘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 and so on over which the Company does not have any direct control.