INDUSTRY STRUCTURE AND DEVELOPMENT
Company is primarily engaged in the business of storage infrastructure
and renewable energy, viz.
(a) Liquid storage facilities for handling bulk storage of liquid
commodities such as edible oils, petroleum products, bitumen, paraffins, liquid chemicals,
with transfer via pipeline etc.
(b) Warehousing facilities including storing agri commodities such as
wheat, maize, soybean, cotton, chana etc. as well as extending customised warehousing
facility for various industries dealing in FMCG, E-commerce, cement, white goods, soap,
adhesive, paint etc. and (c) Renewable Energy The Company has set up wind energy projects
in MP including through 100% subsidiary. The Company is also evaluating opportunities for
expansion in this sector.
In recent times, Indian warehousing market has been on a high growth
trajectory. Also, since the outbreak of COVID-19, the usage of warehousing facilities by
e-commerce platforms has risen sharply as demand for goods has been unprecedently high,
boosting the e-commerce market and warehousing space requirements alike. This kind of
demand has got focus and attention of many domestic and international investors. Growth of
new segments like organized food delivery, quick grocery delivery has also been fueled
because of the pandemic, resulting in incremental demand for customized warehousing space.
As a result of such demands, the warehousing industry has emerged as a
resilient asset class and continues to show an uptrend within the real estate sector. A
lot of capital is also being allocated to the technological infrastructure of the
warehouse, to ensure automation and efficient operations.
As per the information and reports available in public domain, it is
estimated that India?s warehousing market is expected to reach
2,87,210 crores by 2027, expanding at a compound annual growth rate
(CAGR) of 15.64% during 2022-2027. Also the annual warehousing transactions for the top
eight Indian cities (primary markets) will grow at a CAGR of 19%. For the next 5 years,
the e-commerce segment is expected to take up significant space estimated to be 98 million
square feet (9.1 mn sq m) approximately registering an increase of 165% from the preceding
five years. Thus, there is wonderful growth opportunity in all the sub-verticals of
Warehousing and Storage business. The annual investments in the logistic sector are
expected to reach $500 billion by 2025-26. It is also observed that the rising trend of
Grade A development continued in good momentum till recent years with developers focusing
on higher grade park development compliant with contemporary norms and the efficient
requirements of businesses today.
Thrust to infrastructure development across sectors such as roads,
ports, economic corridors, affordable housing, solar and wind energy is identified by the
Government as an important lever to generate growth and employment. The government?s
impetus to the national infrastructure pipeline (NIP) is one of the examples. The
Government has rightly recognized the need to lessen the burden of the budgetary support
for the vast amount of funds required for infrastructure sector. Income tax exemption to
attract investment by sovereign wealth fund into infrastructure, increasing the FPI limits
for investment in corporate bonds, withholding tax relief for ECB investors are steps in
the right direction. The Government has emphasized the role of private investment and the
PPP route for funding the development of infrastructural initiatives.
The Indian warehousing industry accounts for around 15% of the total
logistics market in the globe. Looking at the tremendous expansion, India will need to
create adequate supply to meet an absorption of 223 million square feet of Grade-A
warehousing demand over the next three years. The industry structure is highly fragmented
especially the industrial warehousing segment with the un-organised players accounting for
70 to 75 percent of the total warehousing space. However, the logistics industry faces
challenges such as under-developed material handling infrastructure, fragmented
warehousing, multiple regulatory & policy making bodies, lack of seamless movement of
goods across modes, minimal integrated IT infrastructure. In order to develop this sector,
focus on new technology, improved investment, skilling, removing bottlenecks, improving
inter-modal transportation, automation, single window system for giving clearances, and
simplification of processes are being considered. The industry believes these concerns are
in process of being addressed.
In the same manner, Renewable Energy has also been accorded priority in
the Energy sector in the country in recent years. As a part of its Paris Agreement
commitments, the Government of India has set an ambitious target of achieving 175 GW of
renewable energy capacity. These include 100 GW of solar capacity addition and 75 GW of
wind power capacity.
INDUSTRY OUTLOOK
The Indian warehousing industry is set to grow at a CAGR of 8 to 10
percent and modern warehousing at 25 to 30 percent over the next five years due to various
factors including anticipated increase in global demand, growth in organized retail
coupled with increasing manufacturing facilities, presence of extremely affordable and
desirable e-commerce options and growth in international trade. Agri spot market is on
growing trend on all exchanges, including NCDEX, MCX and BSE?s portal. The pandemic
has prompted the industry to build future-ready infrastructure that can respond to any
disruption more swiftly. Going forward, a responsive supply chain will be a combination of
speed, cost and efficiency. Market and demand patterns are changing very rapidly and the
ultimate strategy would be opting for agile supply chain management.
Edible oil and chemicals are mostly stored in commercial tank farms.
Demand for liquid storage is increasing in India amid increasing traffic and limited
existing capacities. Currently, the utilization of commercial farm tanks in India is
around 80 percent.
Bitumen is used as a binder in road construction and in roofing and
waterproofing applications. Almost 90% of the bitumen is used in India in road
construction with the balance of 10% shared for roofing and waterproofing, adhesives,
insulation, etc. In the construction and industrial sector, bitumen is an important raw
material for manufacturing road, water tanks, dams and bridges due to its high viscosity,
stickiness and water-resistance properties. According to government data, pre-pandemic
highway construction works were done on an average to 25 kms per day, but now as the
highway expansion drive picks up pace, the target has been up to meet an average of 60 kms
per day for the year 2024-25 and 2025-26.
Government of India under its flagship schemes- Sagarmala Project,
Bharatmala Project, Parvatmala Project, etc. aims to enhance the logistics sector by
building new mega ports, connecting waterways to coastline and make an alternative to
conventional roads in difficult hilly areas. The goal is to improve commuter connectivity
and convenience while also promoting tourism.
The Ministry has taken up detailed review of NHs network with a view to
develop the road connectivity to Border areas, development of coastal roads including road
connectivity for non-major ports, improvement in the efficiency of National Corridors,
development of Economic Corridors, Inter Corridors and Feeder Routes along with
integration with Sagarmala, etc., under Bharatmala Pariyojana. The Bharatmala Pariyojana
envisages development of about 26,000 km length of Economic Corridors, which along with
Golden Quadrilateral (GQ) and North-South and East-West (NS-EW) Corridors are expected to
carry majority of the Freight Traffic on roads. Further, about 8,000 km of Inter Corridors
and about 7,500 km of Feeder Routes have been identified for improving effectiveness of
Economic Corridors, GQ and NS-EW Corridors.
The government has kept the development of roads at a high priority. In
such a scenario, bitumen will play a vital role towards planning and execution of road
construction projects in India. Based on the projected demand from upcoming projects,
India?s bitumen consumption will outpace production in the coming years.
India is the one of the largest importers of Bitumen and imports most
of its Bitumen from United Arab Emirates, Iraq and Iran. It is sure that in coming times,
demand and supply for Bitumen Storage will enhance. Capacity to store Bitumen is limited
in India as it requires insulated tanks, pipelines & allied infrastructure and skilled
labour. Company is well placed to capitalize by initiating construction of tanks dedicated
for storage of Bitumen.
The India bitumen market was valued at $2.8 billion in 2018, and is
projected to reach $3.6 billion by 2026, growing at a CAGR of 4% from 2023 to 2028.
Tank Farm Industry is on the threshold of phenomenal growth in India.
There is a good demand for SS tanks, Floating Roof Tanks, storage tanks for specialized
products like Bitumen & Coal Tar and bunkering fuels supply.
The factors influencing the aggregate demand are as follows:
1. Consumption led demand by per capita income, booming e-commerce
industry and Fast Moving Consumer Goods market gaining traction.
2. Manufacturing led demand - Make in India campaign is expected to
increase the manufacturing activities in India, entailing demand for warehousing. The
warehousing segment is expected to attract an investment of close to 15,000 crores in the
next five years. The “Make in India initiative” is expected to boost the
manufacturing sector to 10 percent growth. The manufacturing sector spends 2 to 20 percent
of its revenue on logistics.
3. Growth in Agriculture and allied businesses with pent-up demand
growth after pandemic.
4. Improvement in International trade (Export and Import).
5. Emergence of organized retail and E-commerce and other online
delivery modules.
6. Increasing private and foreign investments in infrastructure and
logistics.
7. Easing of Government regulations in Agriculture sector.
8. Implementation of GST and other tax reforms.
9. Rapid expansion of highway and expressway infrastructure.
The new growth drivers such as organised retail, information technology
(IT), telecommunications and health care can be considered as high potential sectors. The
growth of these drivers, backed by the advent of technological advancements, is likely to
raise the demand for organised and automated warehouses going forward.
The industry is trying to address the structural limitations of the
warehousing industry viz. lack of alignment of capacity, absence of appropriate scale to
support value-oriented pricing, low capital and operating efficiencies, in-appropriate
level of automation. Established players are also bringing in new technologies in the
market. This is leading to focus on mechanization and better cost management.
From a mere combination of transportation and storage services,
logistics is fast emerging as a strategic function that involves end to end value added
solutions to improve the efficiency of the supply chain and to offer better value to the
consumers of the services. Growing demand for better services at lower costs has led to
the emergence of organized warehousing in the country. Appropriate size of storage,
locational factors to facilitate better connectivity between the provider, aggregator and
end user, efficient inventory management systems, modern storage solutions, automation of
warehouses for the effective utilization of space and MIS implementation are key
differentiating factors which would be considered in future investments in the sector for
the organized players, keeping in view the long term and sustainable advantage.
It is believed that the following initiatives would contribute towards
creating a sustainable roadmap for the growth of the logistics sector in the years to
come:
(a) Infrastructure enablement
The government has reiterated its steadfast commitment to modernizing
the functionalities of Indian logistics with a key focus on infrastructure development.
Further Central Government?s grant of ‘Infrastructure Status? to the
logistic sector including warehousing, had also proved to be catalyst. The ambitious Delhi
Mumbai Industrial corridor is passing through MP and some of the existing and planned
warehouses are falling on strategic locations near the corridor. The Sagarmala initiative
is a key step in doubling India?s coastal shipping share in the country?s
broader modal mix and aims at formulating a comprehensive shipping policy and optimizing
the country?s maritime assets. The high-speed, freight-only Dedicated Freight
Corridor Project aims at decongesting a heavily saturated road network and reducing
freight transit times from industrial heartlands in north India to ports on the eastern
and western coast of the country.
(b) Regulatory support
Key reform measures and policy interventions like the unveiling of the
Goods and Services Tax (GST), relaxed FDI regulations and granting of infra status has
boosted the core competencies of the Indian logistics industry. The ongoing trade policy
related matters between the US and China presents India with the key opportunity to expand
its export trade and correct its trade imbalances with the Asian economic powerhouse.
There are also some reforms being implemented in mandi operations in Madhya Pradesh, the
state in which the warehouses of the Company are located, with the objective of creating
environment of ease of doing business. Further, Government plan to create buffer stock in
various states is going to give boost to warehousing demand.
(c) Technological leverage
The emergence of new-age empowering technologies like artificial
intelligence, internet of things and machine learning will disrupt the conventional
workings of the country?s logistics sector. The impact of these technologies is
anticipated to enhance productivity across the supply chain spectrum and streamline
operational processes thus resulting in boosting efficiencies of supply networks, reduce
wastages and lead to supply chain optimization.
The above growth will have a positive cascading impact on the growth of
storage infrastructure opportunities in India. The Company is in the process of developing
capabilities to customize the set up for existing and potential customers to derive mutual
benefits. Several initiatives like online monitoring, digital stock management etc are the
systems being implemented already.
BUSINESS STRATEGY; OPPORTUNITIES AND THREATS
(a) Liquid Storage Business Vertical : Your Company has storage
terminals at four major Ports Haldia (West Bengal), Mangalore (Karnataka), Chennai (Tamil
Nadu), Cochin (Kerala) and at three major State Ports- Jamnagar (Gujarat), Kakinada
(Andhra Pradesh) and Karwar (Karnataka). The major products handled are Edible oils, Fatty
Acid, Caustic Soda Lye, Phosphoric Acid, Sulphuric Acid, Carbon Black Feed Stock, 2-Ethyl
Hexanol, Molasses etc. Your Company is exploring a number of options to leverage the
strengths of the company viz. being the major player in the bulk liquid storage industry,
having experienced and well-trained manpower and maintaining a strong track record in tank
terminal business. Additional storage capacities are being built-up at Haldia and Cochin
terminals and preferential issue of securities was made during the financial year ended
March 31, 2023 primarily to meet capital expenditure requirements of the Company. New
business possibilities in terms of storage and handling of Bitumen are being explored at
various locations, including Cochin and Haldia. Your Company focuses on further expanding
and optimizing its network of storage terminals.
(b) Warehouse Storage Business : This vertical of the Company has
achieved around 25%+ CAGR for past 5 years. Company is in the middle of complete business
transformation and in last 12-14 quarters, it has established itself as one of the leading
warehouse and service provider in MP. Further, your Company is poised to generate even
higher annual profitability in the financial year 2023-24. Additional capacity have been
built-up and made operational at two warehouses, during the year under review. Further,
capacity enhancement of up 20% is planned at two more warehouse locations in financial
year 2023-24. The Company has not only enlarged the product portfolio to include storage
of various non-agriproducts but also has successfully started construction of customized
warehouse for the prospective customers. This will enable the Company to utilize the
facilities efficiently, unlock the potential value, from time to time, due to better
economies of scale and visibility in the growing space with better connect with the
existing and potential consumer base. Company is gearing up to counter the prevailing
challenges and convert these to opportunities, which has resulted into diversified
portfolio of customer and visible growth in revenue.
Considering the long term outlook of the storage industry, the Company
is evaluating various opportunities to formulate strategic plans for a sustainable growth
of the company. This will entail investments, strengthening of the existing systems,
strategic partnerships/alliances etc. to cater to growing supply chain dynamics and
disposal of non-performing assets. The competition in this industry is, however,
increasing due to many factors including technological factors, capacity orientation,
efficiency in costs, dynamic changes in the needs of user industry apart from seasonality.
Your company is aware of the changing nature of the storage industry and reviewing action
plans to be constantly relevant to the user industry and facilitate value addition.
(c) Renewable Energy: Your Company has 10.8 MW wind power project
which has been in successful operations for about 14 years and the project is debt free.
Also a wholly-owned subsidiary of the Company has set-up a 14.7 MW wind project, which is
successful operation. In this project also the debt is reduced to less than half and the
generation and revenue is at par with the expectations with clear visibility of next 17
years.
RISKS AND CONCERNS
Government policies have always played very important role. Despite
that the policies are progressive in the infrastructure segment owing to various factors
including infrastructural needs, demand supply gap, economic growth, technological
advancement to achieve operational/cost efficiencies and equitable view towards various
stakeholders, the Company is keenly tapping the private market to minimize the risks
associated with changes in government policies. Still the portion of business which is
being done with Government brings in the risk of delayed payment. Company is concerned
with duty structure of the imported edible oil which changes the business dynamics even
when there is slightest change in the duty structure. The management reviews the potential
risk factors on an ongoing basis and appropriate measures are taken to mitigate the risks.
Construction costs have increased due to rising material prices such as crude oil, steel,
aluminum, cement, labour, equipment rental costs, and costs of plumbing and fixtures.
Additionally, Covid-19 has caused a significant shift in construction costs, resulting in
slightly higher material costs and supply chain disruptions.
INTERNAL CONTROL SYSTEM AND ADEQUACY THEREOF
The Company?s internal control systems are adequate and ensure
that all corporate policies are strictly adhered to and that transparency is maintained at
all levels and functions throughout the organization. Systems have been put in place at
all levels to ensure optimum usage of resources and to minimize risks across all
activities undertaken by the Company. The internal control systems are designed to ensure
the safety of all assets of the Company and also to ensure that all transactions are
carried out as per the documented policies, guidelines and procedures. Detailed framework
of internal financial controls and adequacy thereof is included in the Directors?
Report.
ENERGY CONSERVATION
Your Company is focused towards the energy conservation at macro as
well as micro level. Its renewable energy business is already generating approximately 40
million green energy units (including generation of subsidiary company) which is
sufficient to light up around 15000 homes for a year. Further, at micro level and as a
continuous process company is actively pursuing towards reducing its carbon footprint by
way taking small measures including but not limiting to discontinuation of usage of CFL
bulbs and switching towards LED, usage of only 5 star rated components/equipment in office
space.
KEY FINANCIAL RATIOS ANALYSIS
2022-23 2021-22 Change (in %)
Debtors Turnover (Days) 62 85 27 Inventory Turnover (Days) 58
50 (16) Interest Coverage Ratio (Times) 1.72 13.06 (87) Current Ratio (Times) 1.37
1.54 (11) Debt Equity Ratio (Times) 0.43 0.56 23 Operating Profit Margin (%) (0.11)
(1.62) 93 Net Profit Margin (%) 0.05 0.23 (78) Return on Net Worth (%) 0.00 0.25
(100)
1) Debtors turnover has improved in financial year 2022-23 as compared
to the previous year due to better recoveries.
2) Inventory turnover has reduced due to lower turnover and increase in
inventory carried.
3) Interest coverage ratio has reduced due to lower profit.
4) Current ratio has decreased due to increase in current liabilities.
5) Debt Equity ratio has improved due to preferential issue of equity
shares and repayment of debt.
6) Operating profit margin has improved due to better capacity
utilisation.
7) Net Profit margin is decreased due to lower profit.
8) Return on net worth has decreased due to lower profit.
SEGMENT PERFORMANCE
The detailed analysis of operations and financial results is provided
in the Directors? Report. The financial statements have been prepared in accordance
with notified Ind AS. The detailed segment-wise performance is given in note no. 49 to the
stand alone financial statements of the Company. There were no material
changes/developments in human resources requirement during the year under review.
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