balmer lawrie company ltd share price Management discussions
<dhhead>Annexure-1</dhhead>
MANAGEMENT DISCUSSION AND ANALYSIS REPORT
(Forming Part of the Board’s Report for 2022-23)
Pursuant to the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 and Guidelines on Corporate Governance for Central Public Sector Enterprises, 2010 – issued by the Department of Public Enterprises, this report is made with an endeavour of the Board of Directors to:
make an analysis of financial condition and results of operations of the Company;
provide an overview of each of environs in which different Strategic Business Units [SBUs] of the Company are performing;
analyze the underlying factors, which had acted upon or had impacted the performance of the Company during the Financial Year 2022-23;
share the future outlook of the Company.
The Financial Year 2022-23 was filled with uncertainties. The global economies were barely recovering from the pandemic when the war in Ukraine broke out in February, 2022. The conflict has now continued for almost a year, disrupting the restoration of the supply chains that were badly affected earlier by lockdowns and limited trade traffic. The conflict caused the prices of critical commodities such as crude oil, natural gas, fertilisers, and wheat to soar.
The Indian economy, however, appears to have moved forward after its encounter with the pandemic, staging a full recovery in Financial Year 2022 ahead of many nations and positioning itself to ascend to the pre-pandemic growth path in Financial Year 2023. In the year Financial Year 2023, so far India has reinforced the country’s belief in its economic resilience. The economy has withstood the challenge of mitigating external imbalances caused by the Russian-Ukraine conflict without losing growth momentum in the process.
The Indian economy in Financial Year 2023 has nearly "recouped" what was lost, "renewed" what had paused, and "re-energised" what had slowed
during the pandemic and since the conflict in Europe as well.
The Indian industry is on the cusp of a growth revival facilitated by public investment and policies that have eased business conditions and improved viability. Bank credit to industry has picked up momentum, particularly for micro, small and medium enterprises (MSME). Among other things, the pandemic had caused a shift in the attitude towards supply chains from efficiency to security and from ‘just in time’ to ‘just in case’. Supply chains are being reconfigured. Lockdowns and mobility restrictions disrupted consumer behaviour and gave an impetus to online shopping. The E-commerce industry is focusing on local solutions to penetrate rural areas by strengthening the network of rural distributors and retailers and using local distribution centres as Pick Up and Drop Off points, enabling logistics companies to serve rural consumers. The Government senses a big opportunity here, and its investment into and commitment towards Production-Linked-Incentive Scheme demonstrates its determination to plug India into the global supply chains. It is an industrial policy with a global vision.
PM Gati Shakti and National Logistics Policy (NLP) has sectoral complementarity of logistics facilitation. The NLP was launched in September, 2022. The targets for achieving the vision of the NLP are to:
reduce the cost of logistics in India to be comparable with global benchmarks 2030;
improve the Logistics Performance Index ranking and endeavour to be among the top 25 countries by 2030, and
create a data driven decision support mechanism for an efficient logistics ecosystem.
All of these are expected to tighten the nuts and bolts for the arduous infrastructure journey. This has also helped the country move from unimodal to multimodal transportation. The multimodal connectivity will provide integrated and seamless connectivity for movement of people and goods from one mode of transport to another. It will facilitate the last mile connectivity and also reduce travel time for people, further reducing the logistics cost and promoting export competitiveness.
Building upon it, the Government has also kept its focus towards developing the traditional infrastructure like roads, railways, airports, ports, mass transport and waterways. These play a vital role in national integration and regional development.
With the containment of COVID-19 infections and the lifting of travel restrictions worldwide, air travel has rebounded. While in Financial Year 2020-21, there was a considerable decline in the air-traffic (a decline of 54 per cent) as well as passenger traffic handled (a decline of 66 percent), Financial Year 2021-22 saw a recovery, mainly led by the domestic sector. The current Financial Year has further shown a rebound, with both passenger and cargo movements being close to the pre- COVID-19 levels. The civil aviation sector in India has great potential owing to growing demand from the middle class, growth in population and tourism, higher disposable incomes, favourable demographics and greater penetration of aviation infrastructure. This is further supported by the Government through schemes such as UDAN, which has considerably enhanced regional connectivity through the opening of airports in India’s hinterland. The UDAN scheme focuses on the connectivity between the Tier-2 and Tier-3 cities in the country. Under this scheme, the Government has approved a budget of Z4500 crore for revival of existing unserved
/ underserved airports / airstrips of the State Governments, Airports Authority of India (AAI), Public Sector Undertakings and civil enclaves. Further, the Government has also accorded ‘in-principle’ approval for the setting up of 21 greenfield airports across the country.
The eight core industries of coal, fertilisers, cement, steel, electricity, refinery products, crude oil and natural gas are critical in meeting the demand for inputs across industries. The growth in these industries has held steady, reflecting a broad momentum in industrial activity. However, the manufacturing landscape shows uneven
growth across various categories. Production of coke and refined petroleum has also increased, fetching high returns in a global market where crude oil prices were higher than in Financial Year 2022. Chemicals and chemical products such as caustic soda, soda ash, fertilisers and petroleum products have also performed well, contributing to sustaining the growth momentum in the agriculture sector while increasing exports. At the same time, a few product categories, including textiles, apparel and leather, have been showing tepid growth as export demand for these products has been mellowing with the slowing of global output and demand. Growth in pharmaceutical output has slowed due to an unfavourable base effect and the waning of the pandemic.
While India celebrated its 75th year of Independence in 2022, it is befitting that during India’s Amrit Kaal, it assumed the Presidency of G-20 nations in December 2022. Global problems need global solutions, and global solutions require collaboration and cooperation. Based on the theme of "Vasudhaiva Kutumbakam: One Earth, One Family, One Future", India’s G20 Presidency aims to achieve co-ordinated solutions to key issues of global concern. In short, the G20 Presidency is an opportunity for India to bind an otherwise fragmented global order.
INDUSTRIAL PACKAGING [IP] Industry Structure and Developments:
The Indian packaging industry is one of the largest sectors in India’s economy and its market potential is valued at INR 3,00,000 crores with the projected Compound Annual Growth Rate (CAGR) of 5 to 6%. As far as packaging is concerned, there are many types of packing options depending upon the nature of the product and it is broadly classified into two main categories i.e., Industrial packaging and Consumer packaging and it is further sub segmented into Rigid and Flexible packaging. There are different types of material that are being used for packaging such as paper, glass, plastic, stainless steel and mild steel. Majorly plastic and steel are used as material of construction for industrial segments.
In Industrial packaging, the 210L Mild steel drum plays a vital role as it gives stability and ease of handling though the cost of packaging is comparatively a little higher than the other
packing materials. As the supply is more than the demand there are some challenges on pricing. There is fierce competition as there are more than 70 players pan India.
Being a market leader in the 210 L mild steel drum industry, Balmer Lawrie enjoys a significant position with a handsome market share in most of the customer segments be it fruits, chemicals, lubricants, transformer oils or additives. With state-of-the-art manufacturing facilities and highly skilled technocrats, this Strategic Business Unit (SBU) manufactures all types of steel drums like conical, composite, open top, tight head, galvanized, tall, plain, lacquered and necked in.
There are six manufacturing facilities - pan India to cater to the needs of all the customers and for Eastern Region customers, their requirements are being taken care of with the toll blending business model. The new plant in Vadodara is picking up and it is under the process of stabilization. The Chittoor plant modernization project is in full swing, and it is getting ready to cater to the entire Southern Region.
The kind of steel being used with specialized lacquers and customer specific paints enables Balmer Lawrie to manufacture superior quality products with high reliability in supplies in the modern manufacturing plants. It enjoys high brand value and a large and delighted customer base in India as well as in overseas export markets.
SBU-IP has been continuously focusing on quality upgradation, technological innovations, health, safety and environmental parameters, and most importantly on sustainability which helps in having an edge over competition.
Balmer Lawrie retained silver rating from ECOVADIS, a global solution provider which partners with 300+ leading multinational organizations to reduce risk across the supply chain and drive innovation in their sustainable procurements.
Opportunities & Threats: Opportunities:
Introduction of new products thereby enhancing the product portfolio.
Accessing new markets through Exports.
Growing Chemicals market segment in India.
Tapping new customer base in Gujarat through the new plant at Vadodara.
Modernisation of the Chitoor plant in SR with new product portfolios.
Threats:
High input costs of key raw materials for example steel in 2022-23 led to increase in MS Drums prices.
Alternate packaging (IBCs, Collapsible Bins, HDPE & Reconditioned drums).
Competition from smaller players having locational advantage.
Segment-wise or product-wise performance:
The Industrial Packaging SBU has been showing consistent growth in volumes, turnover, profitability and profits. Due to poor fruit season and high volatility of steel prices, SBU-IP was able to close Financial Year 2022-23 with lesser volume / profits YOY. The reduction in volume is mainly due to a sharp drop in offtake from chemicals as well as from fruits segments.
Outlook:
With the on-going Ukraine war, the prices of steel had been volatile. However, with the Government taking major steps to tame inflation and levying 15% duty on steel exports, the steel prices have started to stabilize in the country. Overall industry growth and market demand is expected at CAGR of about 6% in 2023-24. The GDP is expected to grow around 7%.
SBU-IP expects to continue its growth trajectory in 2023-24.SBU-IP anticipates significant growth in the coming years with the biggest drivers being Chemicals, Food, Transformer Oils and Lubes segment. SBU-IP also plans to expand aggressively in the Exports segment.
Risks and concerns:
Geo-political developments around the world for example the Ukraine war etc. may pose challenges as an external environment.
Large number of unorganized players with low overheads, increasing presence of substitute products, low entry barriers etc. continue to pose area of concern for the SBU-IP.
Internal control systems and their adequacy:
SBU-IP is governed by performance budget system and internal control measures to monitor performance against targets / norms. BIS certification is available for all the plants of SBU- IP. All the six plants under the SBU are certified for ISO 9001:2015, ISO 14001:2015 and OHSAS
45001:2018. Additional controls are maintained through Internal Audit, Vigilance Inspection etc.
Discussion on financial performance with respect to operational performance:
SBU-IP improved its overall efficiency through continuous Operational Excellence across vari- ous manufacturing units.
Material developments in Human Resources / Industrial Relations front including number of people employed:
SBU-IP continues to enjoy cordial relationship with employees at all its units. Participants from the SBU were covered under the Mentoring Scheme, a new initiative introduced by the Company. A basket of training programmes covering relevant areas viz. TPM, Health, Safety & Environment, Export documentation & regulations, SCM, as also a customised B2B Sales training and Coaching initiative was implemented for employees of the SBU. As on 31st March, 2023, the SBU-IP had a total of 155 employees.
GREASES & LUBRICANTS [G&L] Industry structure and developments:
Balmer Lawrie was the first grease manufacturer in India when it opened plants in Sewree (Mumbai) in 1934 and in Kolkata in 1937. Balmer Lawrie’s "Balmerol" greases are the leaders in the field with over 80 years of manufacturing experience. The lubricant market is expected to grow at a CAGR of ~3-4% by volume over the next 5 years. With the current R&D facilities clubbed with our infrastructure, SBU-G&L has a very good opportunity to increase its market share to ~2+% and continue to strengthen "Balmerol" as a trusted brand that stands for its quality and reliability.
SBU-G&L has three manufacturing facilities at 1) Kolkata 2) Silvassa 3) Chennai and a wide array of distribution network.
The G&L business is divided into three broad categories:
Channel Sales (Automotive & Industrial).
Direct B2B sales.
Contract Manufacturing.
The overall growth in volumes vis-?-vis last financial year is about 3%.
SBU-G&L has a strong presence in Industrial segment and is coming up with new products to cater to the diverse demand of the industrial market. In the grease segment, we are among the top three companies in the steel and jute sector. The SBU is also a preferred supplier of greases for some of the big automobile companies of India.
In the automotive segment, SBU-G&L is doing good business across India. With our depots in place, the focus of SBU-G&L is appointing new Distributors to increase our reach and penetration nationally. New products are being developed and launched to meet the aftermarket demand. Also, focussed states are being identified with respect to the potential so as to increase our presence.
SBU-G&L is focussing on further improving the processes to increase output efficiency. Many measures are being taken by doing reverse engineering for better output.
Opportunities and Threats: Opportunities:
Three manufacturing plants in Kolkata, Silvassa, and Chennai.
Excellent R&D facility.
Positive brand image for Greases in the market due to its long-standing presence.
Among the fastest growing markets worldwide, India is expected to continue to grow over the next five plus years.
Strong affiliation and industry recognition in core sectors like Steel, Railways, Defence, Automobiles and Mining.
Threats:
Competition spends more on marketing, especially in the retail distribution network.
Constraints in sales, marketing, and technical services.
The Public Sector Oil Marketing Company’s aggressive pricing in the lubricant market.
Supply security of base oils.
Segment wise performance:
In Channel sales, the growth was 3% which is at par with industry growth in the segment. Also increase in prices of raw materials like base oil and LiOH affected the demand towards lithium based greases. The Industrial Distributor segment witnessed a growth of 5% over the last Financial Year. Marketing efforts were made to promote the brand in events, exhibitions etc. The focus areas of SBU-G&L are:
DEO & MCO segment.
Launch of greases other than lithium base.
Tractor segment which is a big industry across India.
Increase distribution network.
Launch new products in various segments.
Marketing and branding activities.
In direct B2B sales, SBU-G&L’S focus was on generating business from new customers across industries. The focus areas of SBU-G&L are:
Gaining market share in high margin products.
Working on Metal working fluids segment.
Increase reach by participating in events, seminars, exhibitions.
Increasing level of engagement with end users.
Providing support through technical support team.
Conducting trials for various products.
In the Contract Manufacturing segment, SBU- G&L has taken a lot of initiatives to tap the potential and increase volumes. Efforts are being made to revive the segment as it helps to improve capacity utilization.
Outlook:
The outlook for the business remains positive for the next few years. SBU-G&L is making efforts to accelerate growth by broadly focusing on:
Process improvement for increased efficiency.
Increase reach and penetration in the market by appointing Distributors.
Increasing branding activities.
Explore opportunities in Infrastructure and mining industry.
Increase business share in Defence and Railways.
Develop substitute products for lithium-based grease.
Focus on Tractor, MCO & transport segment.
Risks & concerns:
Fluctuating raw material prices.
Issue of supply of base oils.
Availability of low-cost substitute products.
Relatively lower entry barrier for competition.
Limited spend on branding vis-a-vis MNCs.
Less OEM tie-ups.
Internal control systems and their adequacy:
SBU-G&L has adequate internal control systems suitable for its business needs. SBU-G&L also has a detailed Management Information and Control System to monitor performance against budgets / targets. All units of SBU-G&L are certified for quality system management and periodic / re-certification audits were conducted at all units for IMS 2018 (ISO 9001-2015, ISO 14001:2015 and ISO 45001:2018). The Silvassa unit is additionally certified to IATF 16949:2016 Quality Management System specifically for the automotive sector. Regular audits have been conducted during the year for assessment of internal control systems such as HSE Audit, Energy Audit, Internal Process Audit, Internal Financial Controls Audit and Legal Compliance Audit.
Discussion on financial performance with respect to operational performance:
During the year, SBU-G&L improved its profitability by working on margin retention. SBU-G&L improved its overall efficiency through Operational Excellence across various manufacturing units.
Material developments in Human Resources
/ Industrial Relations front, including number of people employed:
SBU-G&L continues to enjoy cordial relationship with employees at all its units. As on 31st March, 2023, SBU-G&L had total 152 permanent employees.
CHEMICALS
Industry Structure and Developments:
In the current year the leather industry in India had partially recovered from the effect of slow down due to COVID-19. Thus, annual export of the leather industry from India increased by 8% over the last year to USD 5.30 Billion.
India is the second largest producer of footwear and leather garments in the world. India is affluent with hide and skin as 20% of the world’s cattle population and 11% of goat and sheep are in our country. Almost the entire resource of hides and skins are getting converted into leather and leather products for export and domestic use. There is huge scope in the leather chemicals market and thus, SBU-Chemicals has its plan to tap the market with both existing and new products.
The annual leather production in India is around 3 billion sq. ft which is 10% of the world leather production.
The leather industry is an employment intensive sector, providing jobs to about 4.5 million people, mostly from the weaker sections of the society. Women employment is predominant in leather products sector with about 30% share.
Leather processing consists of three stages. Beam house, Wet end and Finishing. SBU- Chemicals with its strong presence in Wet end particularly in synthetic Fatliquors, has started catering in the other two stages to its customers.
In terms of market potential in India, the Southern Region holds 44%, East is 23% and North is 33%. Each region is manufacturing different products for example safety gloves in East, footwear and leather articles in South, and upholstery and garments in North.
With a complete product basket in hand, SBU-
Chemicals is focusing on the Southern Region where market potential is higher and registered a sales growth of 24% over last year in this region.
Leather is a fashion driven industry. Based on the current trends and fashion, new products are being introduced without affecting the cost of production of leather. Technical services and commercial viability are the important factors of this business.
SBU-Chemicals participated in Manufacturing Excellence Audit conducted by IRIM (International Research Institute of Manufacturing) and was awarded Gold for two years consecutively.
SBU-Chemicals is also focusing on synergy businesses like Textile Chemicals and Agro Chemicals. Some of the products are launched and this will enhance the business performance of SBU-Chemicals.
Opportunities and Threats: Opportunities:
SBU-Chemicals has enough opportunities to grow in other segments like Finishing, Chrome tanning and Beam house. SBU-Chemicals has introduced new chemicals in Beam house segments like Wetting agents. SBU-Chemicals also launched a new range of Finishing chemicals with modern manufacturing facility.
SBU-Chemicals has well equipped ‘Technical Service Centers’ in all the major leather manufacturing clusters in India and renders high quality technical service to the Tanneries. SBU- Chemicals developed eco-friendly, metal free tanning process with Glutaraldehyde which has become popular now in the market.
With a well-known brand image, strong technical service team and with an enhanced product basket, SBU-Chemicals has many opportunities to improve the business in coming years.
Apart from the leather chemical business, SBU- Chemicals has forayed into other synergy chemicals such as textile chemicals and intermediate for agro chemicals business.
Threats:
Major part of Leather Industry is unorganized and comes under MSME.
Limited scope for mobilizing funds through private placement and public issue as most of them are family businesses.
Stricter and changing international environmental norms require regular upgradation, investment and newer infrastructure.
High competition from MNCs and Italian companies.
Lack of presence of any Indian brand in world leather fashion market.
Segment-wise or product-wise performance:
In spite of low demand of leather / leather products
/ footwear due to COVID-19 and the global economic meltdown, SBU-Chemicals has been able to reach 97% of previous year’s volume and has clocked 11% higher turnover by capturing the market of Imported Fatliquors. SBU-Chemicals is able to realize better price compared to previous years.
Outlook:
Path forward as envisaged in SBU-Chemicals is as follows:
Improving the sales volume through existing dealers and increase the distribution channel by appointing new dealers in all three regions.
Focusing more on new product lines like Finishing chemicals, High end Fatliquor, Beam house chemicals.
Entering into other synergy businesses.
Focusing on export markets like China, East Africa, Korea and Bangladesh.
Risks and concern:
Increasing usage of non-leather products, and very strict environmental norms, which may lead to small manufacturers closing down operations for adherence issues.
Internal control systems and their adequacy:
SBU-Chemicals uses SAP to have control on raw materials and overheads. The manufacturing unit at Manali, Chennai is certified for Integrated Management System comprising of ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018
of M/s. International Certification Services Private Limited, Mumbai.
SBU-Chemicals is a registered Member of Leather Working Group, UK (LWG).
We are also one of the ZDSC Level 3 leather chemical companies in India.
Discussion on financial performance with respect to operational Performance:
Leather articles are fashion items, niche and very high value compared to Synthetic materials. Worldwide there was less demand of leather articles on account of the post COVID-19 global financial turmoil and this affected the Indian leather industry. SBU-Chemicals managed to turnaround and make profit through OPEX initiatives, process improvements, and proactive sales and marketing activities.
Material developments in Human Resources/ Industrial Relations front, including number of people employed:
Training & development programs by internal and external faculties are continuously organised to improve the skill of employees . SBU-Chemicals maintained cordial relations with all the stakeholders of the industry. The Technical Service Centres of Balmer Lawrie are run by experienced and knowledgeable Leather Technologists who are also facilitators of environmental awareness among various stakeholders. They train young college students and industry personnel about modern environmentally friendly leather processes.
LOGISTICS
LOGISTICS INFRASTRUCTURE (LI)
Industry Structure & Development:
The Indian logistics industry is continuously evolving at an exceptional pace providing necessary impetus to boost international trade through great advancements in infrastructural development and technology to foster its growth. There is continued focus on the part of the Government to convert India into a global manufacturing hub by boosting infrastructure and introduction of the National Logistics Policy (NLP) and Prime Minister’s Gati Shakti Programme are
some of the few major initiatives in that direction. The growth in E-commerce industry is also driving the need for setting up premium infrastructure facilities backed with effective technological support in India.
India’s Logistics market is valued at US$ 250 billion in 2021, with the market predicted to increase to an astounding US$ 380 billion by 2025, at a healthy 10-12% year-on-year growth rate. Moreover, the Government is planning to reduce the logistics and supply chain cost in India from 13-14% to 10% of the GDP as per industry standards. Awarding infrastructure status has made it easier for investment inflows and this has become a major growth driver of the logistics industry. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100% under the automatic route for port, harbour construction and maintenance projects. The Logistics Infrastructure business comprises of three main segments viz., Container Freight Stations (CFS) typically set up in the vicinity of ports, and Warehousing & Distribution (W&D). Besides this, SBU-LI has also developed and is operating a Multi Modal Logistics Hub (a JV with Visakhapatnam Port Authority) in Visakhapatnam.
CFSs are an extended arm of the port set up primarily with a view to decongest ports. All the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transhipment etc. are car- ried out in a CFS. Presently, the Company has three state-of-the art CFSs located at Nhava Sheva-Mumbai, Chennai and Kolkata. During Financial Year 2022-23, container handling at top 12 ports in India went up by 1% which is on a lower side compared to last year’s growth of 16% that was majorly attributed to the recovery of the EXIM business after the COVID-19 impact in Financial Year 2020-21. The total container throughput in India during Financial Year 2022- 23 was around 12.93 million TEUs while it was
12.76 million TEUs in Financial Year 2021-22. In- cidentally, the three ports where Balmer Lawrie is interested in, accounts for nearly 59% of the total container traffic handled in Indian ports. During the Financial Year 2022-23, the import volumes in the three ports of Jawaharlal Nehru Port Trust
(JNPT), Kolkata and Chennai increased by 5% but the volumes moved to CFS from port in these three cities went down by 18% during Financial Year 2022-23 as compared to the earlier year. The increase in CFS volumes is due to drop in volumes of Inland Container Depot (ICD) and increase in nominations of Direct Port Delivery (DPD) - CFS category volumes. The industry wit- nessed the implementation of technology driven policies to clear the containers or cargo at fast pace so as to facilitate "ease of doing business" for the importers and exporters. DPD especial- ly at Nhava Sheva was started during the fourth quarter of Financial Year 2016-17 and the mea- sures taken to streamline its effective implemen- tation resulted in significant reduction of volume available for CFS and approximately 70% of im- port volumes at JNPT has been cleared through DPD route.
The India warehouse market reached a value of INR 1,113 billion in 2021. Looking forward, IMARC group expects the market to reach INR 2,069.6 billion by 2027, exhibiting a CAGR of 11.9% during 2022-2027. The usage of the warehousing system in India has gained significant prominence over the past few years. It also involves managing warehouse infrastructure and processes that involves the handling and storage of cargo in an efficient manner. The warehousing, industrial, and logistics (WIL) sectors are projected to be crucial for attaining India’s vision of being a US$ 5 trillion economy by Financial Year 2025. The warehouse and logistics industry has benefited the most from the COVID-19 pandemic, increasing its share from 2% in 2020 to 20% in 2021. Because of the growing shift from discretionary to essential internet buying during the pandemic, the E-commerce industry became more appealing and attractive.
The Indian warehousing industry gathered more impetus and prominence especially during the last 4-5 years with notable triggers being the implementation of Goods and Service Tax (GST) in the year 2017 and grant of recent infrastructure status to Logistics industry. This paved way for reorganization of supply chain wherein the focus was more on improving the efficiency of supply chain and not merely on achieving tax savings. Resultantly, fragmented
small warehouses are being replaced with large fulfillment centers in major key markets. The growth in Indian warehouse industry is led by various factors, prominent amongst them are initiatives of Government like Make-In-India in facilitating the manufacturing at the local level, the implementation of GST, growth of e-commerce, digitisation, Government thrust on economy moving to cashless state, growing domestic consumption, favourable increase in international trade and growth in private and foreign investments in infrastructure. At present, warehousing in India is mostly concentrated in tier-I cities, such as Bengaluru, Chennai, Kolkata, Mumbai, Delhi-NCR, Ahmedabad, Pune and Hyderabad. However, with the rising demand for e-commerce activities and doorstep delivery services in the tier-II and tier-III cities, the warehousing sector in India is expected to grow potentially in the coming year. The Company’s Warehousing and Distribution facilities are presently fully operational at Kolkata and Coimbatore locations. CFS - Kolkata added 43000 sq. ft area of warehouse in addition to the existing 37000 sq. ft, CFS - Chennai added 5000 sq. ft of bonded warehouse for handling Hazardous Cargo and added 20000 sq. ft warehouse space during Financial Year 2022-23 to increase focus on Warehousing activities.
Opportunities & Threats:
In India, there is huge opportunity to tap the market in containerized segment. India’s containerization level still stands at 60% whereas in most of the developed countries it is in the range of 70- 75%. Strong growth supported by Government reforms, transportation sector development plans, growing retail sales and the E-commerce sector are likely to be the key drivers of the logistics industry in India in the coming years.. Online freight platforms and aggregators have been on the rise in the Indian logistics market, given the need for low entry barriers and less capital investment compared to setting up of an asset- based business model. Manufacturing in India holds the potential to contribute up to 25-30% of the GDP by 2025 which will drive the growth of the warehousing segment in India. E-commerce is another major segment which is expected to support growth of the logistics industry during the forecast period. The Sagarmala programme,
the INR 9.2 trillion investment proposals of the Government of India entailing setting up of new mega ports, modernization of India’s existing ports, development of 14 Coastal Economic Zones (CEZs) and Coastal Economic Units, enhancement of port connectivity via road, rail, multi-modal logistics parks, pipelines & waterways and promote coastal community development, all point to a very positive direction for the Logistics Infrastructure business. Besides these, there are ports where number of CFS operators are quite less. It can also be noted that the growth of traffic at non-major ports has been increasing significantly year on year. With the implementation of GST and the increase in volume of containers getting cleared through DPD, the handling of Less than Container Load (LCL) consolidators’ cargo and venturing into Warehouse and its affiliated activities like offering value added services in addition to the CFS services like last mile transportation, packaging, labelling, and distribution would be opportunities in the long term. In October 2021, Prime Minister launched PM Gati Shakti - National Master Plan for Multi-modal connectivity, essentially a digital platform to bring 16 Ministries including Railways and Roadways together for integrated planning and coordinated implementation of infrastructure connectivity projects. In October 2022, the Cabinet Committee on Economic Affairs approved the development of a container terminal at Tuna- Tekra, Deendayal Port, Gujarat the terminal will be built on a Build, Operate & Transfer (BOT) basis under Public-Private-Partnership (PPP) mode. In August 2022, Minister of Road Transport and Highways, Minister of Ports, Shipping & Waterways and Ayush, and Minister of State for Road Transport & Highways, signed a tripartite agreement for swift development of modern Multi Modal Logistics Parks (MMLP) under Bharatmala Pariyojna across the country.
As part of the Sagarmala project, more than 574 projects worth Rs. 6 lakh crore (US$ 82 billion) have been planned for implementation between 2015 and 2035. In Maritime India Summit 2021, the Ministry of Ports, Shipping and Waterways identified a total of 400 projects worth Rs.2.25 lakh crore (US$ 31 billion) investment potential. The multi-modal connectivity will provide integrated and seamless connectivity for movement of
people, goods and services from one mode of transport to another. It will facilitate the last mile connectivity of infrastructure and also reduce travel time for people.
SBU-LI won "Best Warehouse of the Year" and "Logistics Visionary Team of the Year" under the Warehouse & Logistics Leadership Category as part of Warehouse & Supply Chain Leadership Awards 2022. CFS - Mumbai and CFS - Chennai under LI received awards in the category of "Managing Risk and Risk Assessment at Work" and "Best Health and well being Programme" in the 6th Annual Health, Safety, Environment, Strategy Summit Awards 2023 conducted by Inventicon Business Intelligence Pvt. Ltd.
The shipping lines and ports are going for a backward integration in order to offer the customised logistics solutions to their customers. The decrease in the dwell times of the containers at the CFS is affecting the bottom line of the organisation. The competition in the industry is forcing the players to follow suit so as to retain the volume. In recent years, though the DPD concept has been partially diluted by moving the containers to CFS as part of DPD / CFS facility by the importers / forwarders and Custom House Agent (CHA)s. This has led to the increase of bargaining power for forwarders / importers / CHAs to move the containers to CFS of their choice by getting the best rates with maximum free days possible in the market. With the increased DPD and various Customs-initiated reforms like Risk Management Systems, (RMS), almost all the CFSs remain largely underutilized. They are currently functioning at around 40% of their functional capacity. Another reason for the losing business is the introduction of RMS by the Customs, which has taken away 60% of the non-DPD business. Under the RMS regime, as much as 60% of the shipments do not need Customs clearance.
Outlook:
With DPD taking off in India in a big way towards reduction in logistics costs, CFS operators in the country face a grim future. However, Logistics Infrastructure SBU of Balmer Lawrie is able to bring together a unique set of value proposition for its customers. SBU-LI is expecting the CFSs to be the major contributor to the bottom line. SBU-LI is in the process of establishing long
term contracts with major Shipping Lines which will garner steady business. All the CFSs are in the course of having long-term association with major Import houses (DPD clients) which will ensure steady business. SBU- LI is also conducting feasibility studies for opening ICDSs, Warehouses in various potential locations and expecting finalization of projects in due course. Within the asset-centric business, the SBU is able to offer a basket of solutions: Container Freight Stations, Ambient Warehouses, and a Multimodal Logistics Hub (through Vishakhapatnam Port Logistics Park Limited). The comprehensive services – offered across pan-India locations make SBU-LI a partner of choice to Importers, Exporters, Shipping Lines, CHAs, Freight Forwarders and the trade. So, while there is a wide variety of hurdles for the industry and SBU- LI, it is expected that a combination of diversified service range, pan-India presence, technology- led customer intimacy, knowledgeable resources
– will ensure that the SBU is able to grow in the face of significant crisis that was inflicted to the economy by the pandemic.
The warehousing and logistics industry in India is a dynamic and rapidly growing sector that is expected to play an increasingly important role in the country’s economy. Despite some challenges, the sector is well-positioned for long-term growth and presents exciting opportunities for investors and businesses. With the Government’s focus on improving infrastructure and the rise of E-commerce, the sector is expected to be a key driver of economic growth in the country. Moreover, with the increasing adoption of technology and the Government’s push for a digital economy, there is also significant potential for logistics players to leverage data analytics, artificial intelligence, and machine learning to improve operational efficiency and enhance customer experience. There are also opportunities for foreign investment as international companies look to tap into India’s growing logistics market. The Government has made it easier for foreign companies to invest in the sector by allowing 100% foreign direct investment in logistics parks and warehouses.
Risks & Concerns:
The CFS industry is undergoing dynamic process changes with various policies of the Government
such as DPD, Online DO and face assessment making the industry more competitive. The shift to DPD at ports like JNPT has resulted in the Rs 4,500 crore CFS industry in an existential crisis. In the last five years, the industry has grown at 6-8% annually. JNPT, which alone accounts for over 40% of the container handling in the country, witnessed a substantial growth in the DPD volume. More efficient and technology driven port operations are enabling reduced dwell time. In view of the stiff competition, CFSs are not able to pass on the increase in costs to the customers. Overall there is a substantial reduction in earning per TEU for most of the CFS operators. Challenges faced by the SBU are being addressed through appropriate management intervention, employee involvement and improved processes.
Internal Control Systems and their Adequacy:
SBU-LI through its Operation package i-Comet has built in high degree of control with checks and balances to conduct its operations effectively and efficiently. Financial records are however maintained in SAP. The process for advancement in technology has also been initiated in the form of developing a new software which would further improve the efficiency and productivity as a whole. There are also periodic internal and external audits conducted for the SBU. SBU- LI, like all other SBUs of the Company has a very robust Performance Budgetary control system whereby actual performance is weighed against the Business Plan developed before the commencement of the year. All the three units of SBU-LI are certified under ISO 9001:2015, ISO 14001:2015, ISO 45001:2018 and AEO-
LO certification. Additionally, CFS - Mumbai is certified with ISO 28000:2007, CT-PAT and CFS- Chennai is certified with ISO 28000:2007.
Discussion on Financial Performance with respect to physical/operational performance of SBU:
During Financial Year 2022-23, SBU-LI was able to achieve 32% growth in terms of imports, and 7% growth in terms of exports and the turnover increased by 18% compared to the previous year.
However, due to cut throat pricing and competition from the industry and reduction in dwell times of containers at CFS, the profit reduced by 15% in comparison to last year.
Material development in Human Resources
/ Industrial Relations: including number of people employed:
Industrial relations in all the units of CFS, WD, AMTZ and MMLH remained cordial all throughout the year. As on 31st March 2023, SBU-LI had a total of 95 employees.
LOGISTICS SERVICES (LS)
Industry structure and developments:
The Indian logistics industry is growing, due to the flourishing E-commerce market and technological advancement. The logistics sector in India is predicted to account for 13-14% of the GDP. The industry has progressed from a transportation and storage-focused activity to a specialised function that now encompasses end- to-end product planning and management, value- added services for last-mile delivery, predictive planning, and analytics, among other things. One of the key drivers of this expansion is projected to be the rise of India’s logistics industry, which employs 22 million people and serves as the backbone for various businesses. The logistics sector in India was valued at US$ 250 billion in 2021, with the market predicted to increase to an astounding US$ 380 billion by 2025, at a healthy 10-12% year-on-year growth rate.
India witnessed one of the major milestones in logistics in 2022 with the release of National Logistics Policy which aimed at reducing the logistics cost from 13-14% to 9-10% and increasing the efficiency. The logistics industry is observing a paradigm shift from a fragmented and unorganised market to a seamless and under one roof solution due to various initiatives taken by the Industry and Government like PM Gati Shakti, Atmanirbhar Bharat / Make in India, PLIB schemes, dedicated freight corridors, National rail plan, Sagarmala, growth of airports, and unified logistics platform. The changing dynamics of logistics have shown that technology plays a pivotal role and Government initiatives like EXIM digitization, fast tags, E-Way bill, ULIP etc. have contributed towards the growth of technology in the logistics segment as a whole.
The industry is crucial for the efficient movement of products and services across the nation and in the global markets. The logistics business is highly
fragmented and has over 1,000 active participants, including major local players, worldwide industry leaders, the express division of the Government postal service, and rising start-ups that focus on E-commerce delivery. The industry includes transportation, warehousing, and value-added services like packaging, labelling, and inventory management. With the advent of technology- driven solutions such as Transportation Management Systems (TMS) and Warehouse Management Systems (WMS), India’s logistics industry has witnessed tremendous development in recent years. These solutions have assisted logistics firms in increasing operational efficiency, lowering costs, and improving customer service.
Opportunities and Threats:
The Indian logistics market presents several op- portunities, including:
Growing E-commerce Industry: The rapid growth of the E-commerce industry in India is driving demand for logistics services, providing a significant opportunity for companies to expand their operations.
Government Initiatives: The Indian Government has launched several initiatives aimed at improving the country’s logistics infrastructure and reducing the cost of logistics, providing a significant opportunity for companies in the sector.
Rising Demand for Cold Chain Logistics: With the increasing demand for perishable goods and pharmaceutical products, the demand for cold chain logistics services is also on the rise, presenting a significant opportunity for companies in this segment.
Expansion of the Manufacturing Sector: The expansion of the manufacturing sector in India is driving demand for logistics services, providing a significant opportunity for companies to expand their operations.
Increase in Foreign Investment: The increasing foreign investment in the Indian economy is expected to drive demand for logistics services, providing a significant opportunity for companies in the sector.
Adoption of Technology: The adoption of technology and automation in the logistics sector is expected to improve efficiency and reduce
costs, presenting a significant opportunity for companies to invest in these areas.
Threats:
Availability of quality human resource pool has been a challenge in the logistics industry. The manufacturing and logistics industries employ almost 4 million people. According to research 3PL (Third Party Logistics) providers listed their top challenges as finding, retaining and training staff.
Increase in customer expectations and serviceability - one thing the global pandemic showed us was just how much could be ordered online. What once was used for impulse purchases or last minute birthday presents was suddenly relied upon for everything – the weekly shop, clothing, essential work items, all ordered online, and all expected in a very short delivery window.
This caused a perfect storm – a huge spike in demand just as labour shortages started to bite.
The Russia-Ukraine war led to an increase in prices of several commodities including fertilizers, food products, oil and gas. The supply chain disruptions have increased freight charges, created container shortages, and lowered the availability of warehousing space. Several ports have been closed and orders are being pulled back because of delays in shipments and congestion.
The rise in natural gas prices by around 120- 130% in the 6 months since the start of the war, have had its cascading effect on rise in cost of living index in EU and consumption pattern.
Segment–wise or product-wise performance:
SBU-LS, for the second consecutive year achieved all-time record turnover. SBU-LS during the year achieved a turnover of Rs.550 crores and registered topline growth of around 20% whereas growth in bottom line is 22% as compared to previous year. The growth was driven by incremental business in mainly Air Import, Ocean Import, Ocean Export and Express service.
Discussion on financial performance with respect to operational performance:
During the year SBU-LS witnessed significant
growth in top line as well as in bottom line despite pressure on margins on account of competitive forces. Reduced volatility in freight rates has helped bottom line movement in line with growth in topline. The increase is primarily on account of the following:
139% growth in Express service mainly on account of project logistics movements.
55% growth in Ocean Import. Ocean movement for NPCIL was major contributor.
Growth in Air Import was 7% and CHA activity grew by 25% over 2021-22.
Outlook:
The Russia–Ukraine situation continues to weigh on the global economy, disrupting supply chains and adding to inflationary pressures. Sanctions have led to the suspension of virtually all trade links between Russia and the West including rail freight services between China and Central and Western Europe. Owing to the global trade war and China’s authoritarian policies, there is a gradual shift of business from China, and India is emerging as a land of opportunities backed by abundant supply of resources, cheap manpower, geographical advantage and Government reforms on FDI etc.
SBU-LS was able to retain its major GOI and CPSU customers and was also able to sign some of the new activities from those contracted customers. The SBU is now focusing on private business especially in the Air Export segment of perishables by tying up with APEDA and also eyeing the project cargo business of private customers.
SBU-LS has a well-defined plan and ambition to continue increasing its private sector business with a view to improve topline as the new sales team gains traction on a pan India basis. The combination of experienced and knowledgeable manpower as well as fresh talent in the sales team will enable the SBU to adapt to the changes faster. SBU-LS has focused on strengthening its Marketing wing through proactive brand positioning and enhancement in different forums and digital platforms to drive exponential growth.
Major focus has been emphasized to enhance ‘Customer Delight’ by providing one stop logistics
solution aligning Logistics Services along with Infrastructure and 3PL services. SBU-LS has plans to enter the 3PL business and is exploring options to diversify in other areas of logistics to become an Integrated Logistics solutions provider.
Technology being the backbone of customer satisfaction, SBU-LS is in the process of implementing new initiatives like online customer survey feedback and customized IT solutions for faster, dedicated, and focused time bound service and delivery.
SBU-LS has been continuously working closely with its worldwide Agents & Associates. In some cases, SBU-LS enjoys exclusivity with some Associates and is working closely with other players to nurture a similar relationship to gain reciprocating business. SBU-LS has also increased the number of Associates in different countries like China, Vietnam and Turkey to be more competitive in handling Ocean volumes.
SBU-LS continues to be an active member of different Industry associations like ACAAI, FFFAI, WCA, WSA, JCTRANS, AMTOI, CII Logistics
Forum, Bengal Chambers Shipping Committee to name a few.
Risks and concerns:
SBU-LS works in a highly competitive market, facing aggressive price competition majorly from multinationals and big local forwarders. Revenue generation avenues in the hands of logistics operators is getting squeezed due to the highly competitive and customized services offered, while input cost in terms of freight as charged by carriers too is showing a declining trend which remains a matter of concern in the current fiscal. This trend is likely to continue till the first half of the year due to demand / supply imbalance. Big competitors are increasing their strength by mergers and acquisitions with a view to grab incremental market share. The global trade war between China-US has influenced the Maritime and Logistics platform, which also has affected our buying rates.
Major shipments are getting converted to CIF from FOB which is ultimately affecting our top line as well as some of our contracted customers are moving towards buying on CIF / DAP
INCOTERMS instead of FOB. The industry as a whole is providing a one stop solution to their customers and is also making investments in technology, infrastructure and training to bring in synergy with increasing demand from customers on service levels. Capacity reduction for carriers, blank sailing and unavailability of PAX / Cargo Airlines will increase input cost of services till the impact of the COVID-19 pandemic stays.
SBU-LS is taking adequate steps to mitigate the challenges through its established and growing global associate network and offering our clients single window logistics solutions under one roof. Added focus is given on growing the Air Console business as India’s Air Freight Market is estimated to be USD 13.08 billion in 2023 and is expected to reach USD 17.22 billion by 2028, growing at a CAGR of 5.65%.
India has achieved a remarkable milestone in defence exports in Financial Year 2022-23. The exports have reached an all-time high of approx. Rs 16,000 crore, almost Rs.3,000 crore more than the previous financial year. It is a rise of over 10 times since 2016-17. We are actively engaged as logistics partners with different private sectors
/ PSU’s active in defence exports. SBU-LS has revamped its existing technology and has plans to further upgrade it to meet future business challenges.
Internal control systems and their adequacy:
SBU-LS has in place an effective Internal Control Mechanism and during the year under review, a fairly large number of Internal Audits were carried out in all branches and the findings were found to be satisfactory. All the branches of the SBU-LS are ISO accredited and such accreditations were valid in Financial Year 2022-23.
Material developments in Human Resources
/ Industrial Relations front, including number of people employed:
Industrial relations continued to be cordial at all units while the SBU-LS operated with optimum level of manpower across the units. SBU-LS had a total of 116 employees as on 31st March 2023.
COLD CHAIN SERVICES(CC) Industry structure and developments:
India being an agro-based nation, one of the
major challenges faced is huge losses of agricultural produce due to improper storage and not adhering to right temperature and proper infrastructure along with transportation at optimum temperature. All India Cold-chain Infrastructure Capacity carried out by NABARD Consultancy Service (NABCONS) assessed requirement of 350 lakh MT capacity of cold storage for perishable fruits and vegetables. Currently, there is 374.25 lakh MT capacity of cold storages in the country. Estimated annual value of losses of agri produce currently stands at Rs. 92,651 crores. Adequate and efficient cold chain infrastructure from farm gate to consumers is required to arrest the high losses in supply chain of perishables.
The Government of India has come up with various initiatives in providing aids, schemes, concession on various duties and income tax benefits to the Cold Chain industry. Due to all these recent developments, there has been a huge demand of organized cold chain industry offering state- of-the-art Temperature Controlled Warehouses (TCWs) along with value added services like pre- cooling, pre-conditioning, ripening, packaging, blast freezing etc. and primary and secondary logistics by Temperature Controlled Vehicles (TCV). The market has benefitted significantly from the stringent regulations governing the production and supply of temperature-sensitive products. The industry is poised for unprecedented growth over the forecast period on account of growing organized retail sectors in the emerging economies. Moreover, rising automation in refrigerated warehouses is projected to boost the demand further. India over the years witnessed a marked increase in production of perishable high nutrition products like fruits, vegetables, meat and poultry products etc. but development of cold-chain infrastructure was not strategically directed, for safe handling and to convey these perishable products to markets. The inadequacy of scientific farm-to-market logistics also contributed to high food losses in the case of perishable foods, further adding to inflationary pressures. To reduce post-harvest loss of fruits and vegetables several schemes were launched by different Ministries of GOI.
The cold chain market is expected to grow at nearly 17% per annum on a sustained basis over
the next 4 years. The major products include fruits and vegetables, meat and fish, dairy products, and healthcare products. SBU-CC has four cold chain units operating at Hyderabad, Rai (Haryana), Patalaganga (Maharashtra) and Bhubaneshwar (Odisha). To manage the end-to- end supply chain of the Cold Chain operations, the SBU is also operating with 18 numbers of 4 MT capacity of reefer vehicles on pan India basis.
Opportunities and Threats:
For the past several decades, the Indian cold storage infrastructure has struggled with challenges related to the fragmented nature of the segment, the disruption in demand and supply, the lack of skilled manpower, among many other factors. The gap presents a significant opportunity for stakeholders associated with the industry. The increase in the number of segment of products opens multiple opportunities to Company in segments like Quick Serve Restaurants (QSR), Pharmaceutical etc. Increased demand in the real time temperature monitoring of products in the entire supply chain is opening multiple doors to temperature-controlled vehicle as well.
Since the organized Cold Chain segment is highly capex intensive, the capacity utilization along with the right pricing model plays an important role in ensuring the profitability of the business. With organized players gradually entering this market segment, a high price war for ensuring capacity utilization resulting in reduction of average selling price may pose as a threat to this industry. However, service excellence, maintaining high quality standards, value added service offerings and seamless distribution of products shall overrule the price war and help in customer retention.
Segment–wise or product-wise performance:
Storage business (TCW) had increased 32% in the sales YOY and transportation segment (TCV) has shown a nominal decrease in revenue, which is mainly due to lower volume in the COVID-19 vaccine distribution business. However, the SBU has been able to rope in new customers from other segments to increase utilization of vehicles vis-?-vis an improvement in revenues which is expected to improve the revenue generation moving forward.
Outlook:
With the improvement in the asset utilization and the revenue, SBU-CC is expecting to increase it footprints across India by setting up of Mini Cold Storage facilities which will be executed at lower capex infusion and implementation lead time. SBU-CC also proposes to venture into the Asset Light Model of operations wherein facilities including vehicles will be hired from the market and deployed for its customers. This will enable SBU-CC to increase its turnover and profitability.
Risks and concerns :
Storage rental is the main source of revenue for SBU-CC and seasonality has an important influence on storage volumes. This leads to reduced capacity utilization when it is looked at an annual basis. The industry is attracting new players and existing players are also augmenting capacity leading to more competition and that is putting pressure on pricing power of SBU-CC. Attrition of junior officers and scarcity of trained manpower may lead to service quality impact and that is also a concern for SBU-CC.
Internal control systems and their adequacy:
SBU-CC is using the software Warehouse Management System (WMS) as control in the inventory. Regular checks are also being done with the customer to ensure stock accuracy. Financial records are maintained in SAP. There are periodic internal and external audits conducted for SBU-CC. The cold storage operation has been automated by SCADA software which is used to monitor and control as per the customer’s requirement.
Discussion on financial performance with respect to operational performance:
Increase in the asset utilization YOY had supported SBU-CC to uplift the revenue by 20% over last year. Storage business (TCW) has seen an increase in occupancy level by 24% over last year.
Material developments in Human Resources
/ Industrial Relations front, including number of people employed:
SBU-CC was formed in July, 2021 which was initially a part of Logistics Infrastructure. Functions of SBU-CC have been centralized
at the SBU’s headquarter in Mumbai. Industry experts have been recruited to enhance the skill and efficiency of SBU-CC. The marketing team has been reinforced after capability assessment process and ensuring the right person in the right role. As on 31st March 2023, SBU-CC has total manpower strength of 29 people.
TRAVEL & VACATIONS TRAVEL
Industry Structure & Development:
Over the past ten years, the aviation industry in India has experienced substantial expansion and change. Early in the new millennium, only a select few wealthy people in India had access to the luxury of air travel. With more people preferring to travel by air than ever before, India has grown to become the third-largest domestic market in the world, only behind the United States and China. In Financial Year 2021–2022, the COVID-19 pandemic significantly affected the civil aviation sector and imposed a financial burden on airlines, airports, and related services. However, domestic aviation traffic increased again as of Financial Year 2022-23 and is predicted to reach 97% of pre-COVID levels.
According to the Directorate General of Civil Aviation (DGCA), the nation’s aviation overseers reported that domestic air passenger traffic increased annually by 42.88% between January and April 2023 compared to the same period last year, when there were 3.52 crore passengers.
Nearly 5.03 crore passengers were transported by India’s domestic airlines during that time, demonstrating a high demand for travel throughout the nation. The domestic aviation business has continued to thrive, as seen by the 22.20% monthly passenger growth in April, 2023 over March, 2023. (Source ET-Travelworld.com).
The rise in air traffic is a positive development for the aviation industry, as seen by the air traffic flow, which was 236.71 million in the Financial Year 2022-23 (April-December 2022) as compared to 131.61 million during the same period last Financial Year 2021-22 (April-December 2021). The Indian aviation industry has largely recovered from the COVID-19 pandemic shock.
Opportunities & Threat:
India has become the third-largest domestic aviation market in the world and the Indian aviation industry is expected to contribute 5% of the GDP, creating a total of 4 million jobs.
The air transport market in India is forecast under the "current trends" scenario to grow by 262% in the next 20 years. This would result in an additional 370.3 million passenger journeys by 2037. If met, this increased demand would support approximately US $126.7 billion of GDP and almost 9.1 million jobs.
The air transport sector generates a job opportunity of 9,43,000 direct and indirect jobs. The sector is estimated to support a further 553,000 jobs through the wages it pays to its employees, some, or all of which are subsequently spent on consumer goods and services. Foreign tourists arriving by air to India, who spend their money on the local economy, are estimated to support an additional 4.3 million jobs. In total 6.2 million jobs are supported by air transport and tourists arriving by air. The spending by the air transport industry, including airlines and its supply chain, is estimated to support US $13 billion of GDP in India.
Even while there is a sizable chance for growth across the board and plenty of room for businesses to manoeuvre, the truth remains that the sector is undergoing unprecedented changes due to the quick uptake of cutting-edge technologies. We have a lot of scope to grow because a Company like Balmer Lawrie is typically seen of as one that serves in-person needs through travel desks and implants. We have worked hard to improve our online presence by creating a new B2C website that places strong emphasis on vacations and other services on a single platform. To meet a variety of customer needs, domestic and international ticketing, hotel booking, and ancillary services have been combined with an excellent search function.
We have already developed a special website for employees of the Government of India (GOI) to use for their official travel, and we want to give major corporations a booking website tailored specifically to their needs. Together with our counter personnel, our digital offering establishes a local presence through partnerships, enabling
us to provide consumers with a hybrid brick-and- click solution.
The Travel vertical has tremendously improved its ability to operate, sell, and develop software, which has significantly increased the number of clients we serve. Customers are choosing tech- rich solutions like SSBT / SBT from Balmer Lawrie because we can provide our business clients with comprehensive, cost-effective, customised services. By showcasing technologically enabled solutions and dedication to first-rate customer care, we have been successful in attracting elite private sector clientele. The SBU has made the most of the available time to prepare for the anticipated demand, and we want to have centralised ticketing to boost productivity and guarantee a consistent level of customer service.
Risk and Concerns:
The industry has defeated the sharp impact of the COVID-19 pandemic, and now there is shortage of trained and experienced manpower due to increase in business volume going past pre-pandemic level. The Travel Industry is highly dependent on technology and with the increasing use AI and Machine learning platforms, it is necessary for us to adapt to these technologies as soon as possible to keep our services at par with the market standards.
The Travel vertical remains dependent on GOI & PSU customers which consists of more than 90% of business and this remains as one of the major concerns of the vertical.
Outlook:
India’s travel and tourism sector contributed approximately 122 billion dollars to the country’s GDP, and it is projected to increase at a CAGR of over 10% to reach nearly $500 billion by 2028. It is a crucial sector for creating jobs and earning foreign currency, and the Government has implemented a number of initiatives to take full advantage of the opportunity.
By creating a stable policy environment and encouraging growth that is driven by competition, the Indian Government is actively assisting the aviation industry. The revival and development of 100 unserved and under-served airports, helipads, and water aerodromes by 2024 are planned under the Government-approved
"Revival of Undeserved and Under-Served Airports" initiative. A plan called Krishi Udan 2.0 focuses on moving perishable food items out of mountainous regions, North Eastern states, tribal territories, and other places. 58 airports have been chosen as part of this programme to encourage the circulation of air freight. In the next five years, the Airports Authority of India (AAI) and other airport developers plan to invest over INR 98,000 crore in the construction of new and existing airports.
The largest order in aviation history was placed by Air India on February 14, 2023, when it agreed to a contract with Boeing and Airbus to purchase 470 aircrafts for $70 billion. This is Air India’s first purchase since 2005, and it coincides with a rise in passenger traffic for the country’s aviation sector.
Segment-wise or Product-wise Performance:
The Travel vertical has introduced a new platform for employees of Government of India, which has given a major boost to our business and working capital requirement support as the business is on prepayment basis. The vertical’s main source of business remains autonomous bodies, GOI & PSUs which consists of over 90% of the business. The products we offer are air ticketing and related services such as hotel booking, forex, insurance, transportation etc.
Internal Control System and their adequacy:
Travel has achieved some major breakthrough in terms of internal control processes, like centralization of all ticketing in HUB including cancellation and provision of credit notes. Travel has achieved an optimal process of refund for all types of cancelled and failed ticketing activities.
Material developments in the Human Resources/Industrial Relations front, including the number of people employed:
Human Resource Development at Travel : The market opened with great positivity post pandemic and we capitalized on this opportunity by launching a centralized ticketing HUB in Delhi. To ensure the smooth operationalization of the HUB, we accomplished new recruitments in record time. This allowed us to assemble a highly competent team capable of delivering exceptional service to our customers.
We undertook a comprehensive organization restructuring, and this enabled us to realign our resources effectively, optimizing our workflows and enhancing overall efficiency. We also welcomed numerous new employees into Travel as part of this restructuring, bringing fresh perspectives and skills in our team. We engaged 15 apprentices / COPA for a year long training from the relevant trade. We ensured exposure of various functions of our SBU to make them employable and skillful.
In line with our commitment to employee growth and development, we introduced a training program in Travel specifically designed for our Out-Sourced (OS) Deputees. The training sessions proved to be highly motivating for the participants, empowering them to perform at their best and contribute to the success of Travel.
Furthermore, the Management is proactively engaged with employees through open house sessions conducted across T&V branches. These sessions created a platform for open dialogue, fostering a culture of transparency and collaboration within Travel. The feedback received during these sessions has been invaluable in shaping our HR strategies and improving employee satisfaction in the Travel vertical.
As on 31st March 2023, Travel had total manpower strength of 277 people.
VACATIONS
Industry structure and developments:
International tourism is well on its way to returning to pre-pandemic levels, with twice as many people travelling during the first quarter of 2023 than in the same period of 2022.
The start of the year has again shown tourism’s unique ability to bounce back. In many places, we are close to or even above pre-pandemic levels of arrivals. However, we must remain alert to challenges ranging from geopolitical insecurity, staffing shortages, and the potential impact of the cost-of-living crisis on tourism. We must ensure tourism’s return delivers on its responsibilities as a solution to the climate emergency and as a driver of inclusive development.
International tourism receipts grew back to hit the
USD 1 trillion mark in 2022, growing 50% in real terms compared to 2021, driven by the important rebound in international travel. International visitor spending reached 64% of pre-pandemic levels (-36% compared to 2019, measured in real terms). By regions, Europe enjoyed the best results in 2022 with nearly USD 550 billion in tourism receipts (EUR 520 billion), or 87% of pre-pandemic levels. Africa recovered 75% of its pre-pandemic receipts, the Middle East 70% and the Americas 68%. Due to prolonged border shutdowns, Asian destinations earned about 28%.
The second UNWTO World Tourism Barometer of the year shows that the sector’s swift recovery has continued into 2023. It shows that:
Overall, international arrivals reached 80% of pre-pandemic levels in the first quarter of 2023. An estimated 235 million tourists travelled internationally in the first three months, more than double the same period of 2022.
Tourism has continued to show its resilience. Revised data for 2022 shows over 960 million tourists travelling internationally last year, meaning two-thirds (66%) of pre-pandemic numbers were recovered.
India Tourism:
India’s tourism revenue grew around 291% YoY in February, 2023 compared with an increase of 369% YoY in the previous month.
India’s tourism sector is showing signs of revival following the easing of COVID-19 restrictions and the waning of the pandemic. It also noted that foreign tourist arrivals in India in Financial Year 2023 have been growing month-on-month with the resumption of scheduled international flights.
The profitability ratios of the tourism industry have shown a strong rebound in the June, 2022 quarter. Travel returned to normal levels in March, 2022 given the higher vaccination rate and overall effective management of the COVID-19 pandemic. The hotel occupancy rate has increased considerably reaching the average pre-pandemic level of 2019-20.
India has seen an upsurge in medical tourism due to the various Government initiatives like
Ayush visa for medical tourists, the launch of the National Strategy for Sustainable Tourism and Responsible Traveller Campaign, the introduction of the Swadeshi Darshan 2.0 scheme and Heal in India.
Domestic tourism together with inbound tourism has emerged as a key driver of economic growth. In the year 2022, India recorded Foreign Tourist Arrivals (FTAs) of 6.19 million (provisional) with a growth of around 305% over the same period of the previous year which account for Foreign Exchange Earnings (FEEs) of Rs.1,35,543 crore (provisional estimates) with a growth of 106.77%. Besides, as per the data furnished by State / UT Government and other information available with the Ministry of Tourism, there were 677.63 million Domestic Tourist Visits (DTVs) all over the country during the year 2021.
Opportunities and Threats:
According to research by World Travel & Tourism Council (WTTC), the travel & tourism sector’s contribution to the Indian economy would surpass the pre-pandemic levels in 2024 with a year-on- year growth of 20.7%.
India’s tourism sector is showing steady signs of revival with the waning of the COVID-19 pandemic. One of the sectors of tourism which has witnessed substantial growth is medical tourism and India is ranked 10th out of the top 64 countries in the world in the Medical Tourism Index Financial Year 2021, according to the Economic Survey. The Government initiatives like E-Visa, Swadesh Dekho etc. along with the G20 presidency have resulted in the rise of MICE activities and inbound travellers. The G20 presidency has provided a strong platform for India to promote its agenda of developing sustainable / green tourism practices.
With the change in tourism landscape, "Bleisure travel" is one of the concepts that is gaining popularity which has evolved as a radical concept among the business travellers combining business and leisure travel. India now ranks 2nd in the world in terms of Bleisure travel.
It is envisaged that Indian tourists shall be among the top spenders in 2023 for travel as the flights and hotels at popular tourist destinations are operating at their maximum capacity. Weekend
destinations have gained immense popularity.
With the change in spending dynamics and highly competitive marketplace, the international tourism industry is now wide open to the middle class segment. The tourism industry has come up with facilities like EMI (travel now pay later) which is giving an impetus to the outbound travel segment in India.
The group tours will stay and rise in demand as people would want to pay for their travel in local currency before they can travel, while TNPL will gain popularity as customers would like to conserve cash and carry extra cash to the destination or park in their saving.
Offline travel agents will gain popularity: With the booming demand, though all segments within travel will continue to gain, the offline segment (bookings done via offline travel agents) will get bigger share of total market. The reason being, just before and during the COVID-19 pandemic, travellers suffered in the hands of OTA & aggregators on issues of refunds and cancellation. As a result, they fell back on agents who serviced them better on these fronts. Also, with the changing environment, travellers always look for a fall back option if all hell breaks loose while travelling, which an offline agent handles better instead of an IVR. However, with the given increase in demand, technology and collaboration will be the new drivers of the travel industry in the coming years. To stay relevant, travel merchants will have to invest more in online technologies to make bookings seamless for the travellers. POS solutions and technology will contribute majorly to this, while airlines would be focusing on more of capabilities such as self-service, touchless travel, biometrics, and Artificial Inteligence (AI).
India is coming up with 66 new airports in the next decade. From 85 million domestic flyers in Financial Year 2022, the number is estimated to shoot up to 330 million in Financial Year 2032.
However, tourism’s recovery also faces some challenges. According to the United Nation World Tourism Organisation (UNWTO) Panel of Experts, the economic situation remains the main factor weighing on the effective recovery of international tourism in 2023, with high inflation and rising oil prices translating into higher transport and accommodation costs. As a result,
tourists are expected to increasingly seek value for money and travel closer to home. Uncertainty derived from the Russian aggression against Ukraine and other mounting geopolitical tensions, also continue to represent downside risks.
Segment–wise or product-wise performance:
In the fiscal year 2022-23, the Travel and Tourism industry witnessed increased demand over the pre-COVID levels. As we reflect on the challenging times SBUs endured during the pandemic, we recognize the efforts made by the Vacations team to seize opportunities once demand began to rise.
The year 2022-23 is a source of great pride for the Vacations vertical, which achieved its highest-ever gross topline of INR 129.91 crore, representing a growth of more than 2.03 times compared to the previous fiscal year’s along with bottom line of INR 77.13 lacs. The efforts made to recoup the losses incurred over the past two years and return to profitability are notable. The aggregate business increased by more than 2.03 times compared to the previous fiscal year.
Corporate Tours – Delhi & Mumbai put together (achieved 2.53 times more) and Retail (achieved
4 times more) experienced significant growth compared to the previous fiscal year. MICE has accomplished 1.24 times more than in the previous fiscal year.
Vacations has taken a few commendable initiatives, including strengthening internal operations, IT and customer service, manpower, a dedicated call centre for the Business, the launch of new products, and the introduction of financial incentive schemes for employees.
Outlook :
In 2023, Indian travellers will be among those who spend the most on travel options. There are travellers between the ages of 23 and 40. This year, weekend trips are anticipated to grow in prominence among vacationers willing to spend more money and enhance their experiences. In 2023, travellers will go one step further, as we prepare to embark on a tour to forecast the travel and tourism industry’s trends. Travel and tourism returned to form in 2022, and despite rising global prices, tourists continue to take vacations and explore the globe. With millions of travellers
already planning journeys and a 20% increase in earnings for the global tourism industry, 2023 appears to be a prosperous year. Travel has become a way of life, and individuals are not hesitant to spend their money on experiencing new excursions and discovering new places.
There has been a noticeable change in travellers’ behaviour in recent years, which has forced companies and destinations to adapt to meet travellers’ high expectations. There were several factors driving this change, including the popularity of remote working, the growing concern about sustainability, the desire for flexible cancellation policies, and the sentiment of revenge travel. As we can see from the numbers, international tourism showed strong signs of recovering in 2023. By 2025, this segment should be fully recovered.
Growth Drivers - Incredible India campaign, extending international tourism business in India, E-Tourist Visa facility, E-visa facility extended to 156 Countries under 5 sub-categories i.e ‘e-Tourist visa’, ’eBusiness visa’, ‘e-medical visa’, ‘e-Medical Attendant Visa’ and ‘e-Conference Visa’. Since tourist’s desire to carry less cash or save it, TNPL (Travel Now Pay Later) platforms are growing in popularity which makes travel affordable.
The tourism business has always been about the customer experience. With new technologies and a growing number of tourist choices, it has never been more important to improve the customer experience. In the end, how customers feel about your business will make or break it. Finetuning the experience can define the difference between getting a customer to come back again and again and spread the word about your business and losing a customer before they even book.
Trends in digital transformation have had a significant impact on the Tourism segment. Personalization and custom-tailored packages based on customer preferences, global mobile presence, artificial intelligence, chatbots, the Internet of Things (IoT), focus on big data, adventure tourism, and a host of other trends have characterised modern tourism. Contactless payments, Voice Search & Voice Control, Virtual Reality and metaverse travel, Virtual Reality Tourism Trends, Robots, Chatbots, and Automation are on the rise.
Risks and concerns :
Inflation and high cost of living are concerns for tourism in 2023. Skilled Human Resources, Regulatory (Visa appointments for Europe & USA) & Border Issues, Taxation, Supply chain issues, Inflation, high energy costs resulting in higher living costs, geopolitical instability etc., according to a report released by World Travel Market (WTM) London, are the major concerns facing the global tourism industry in the year ahead.
Internal control systems and their adequacy:
The vertical has an effective internal control mechanism, and during the period under review, a significant number of internal Audits involving customer feedback management, billing to cus- tomers etc. were conducted in all branches, with satisfactory results.
Discussion on financial performance with respect to operational performance:
The Travel and Tourism industry saw increased demand in fiscal year 2022-23 compared to pre-COVID levels. As we reflect on the difficult period SBUs faced during the pandemic, we acknowledge the efforts made by the SBU team to capitalize on opportunities as demand increased.
The Financial Year 2022-23 is a source of great satisfaction for the Vacations SBU, which reached its highest-ever gross topline of INR 129.91 Crore, alongwith a bottom line of INR 77.13 lacs. The efforts made to recoup losses from the previous two years and return to profitability are noteworthy.
When compared to the previous fiscal year, the total business expanded by more than 2.03 times.
Both Corporate Tours - Delhi & Mumbai (2.53 times more) and Retail (4 times more) showed considerable growths compared to the previous fiscal year. MICE achieved 1.24 times more than the previous fiscal year.
Material developments in Human Resources
/ Industrial Relations front, including number of people employed:
Employee relations remained cordial at all Vacations vertical branches. The vertical continues to improve the skills of its employees through training and development initiatives. As
of March 31, 2023, the vertical employed a total of 75 individuals.
REFINERY & OIL FIELD SERVICES [ROFS] Industry Structure and Developments:
The SBU: Refinery & Oil Field Services is rendering service to all the refineries in India by recovering hydrocarbon from crude oil storage tanks and lagoons. It handles mechanized oily sludge processing where the sludge is being processed to recover oil and hydrocarbons.
Though we are the only public sector in this business there are many companies that have entered this business thereby, creating stiff competition in getting the orders. As the competitors are MSME it’s very difficult for us to maintain the margins.
With a highly technical team with sound experience and maintaining stringent safety norms, this SBU is catering to all oil companies.
Opportunities and Threats:
The SBU continues to have the highest market share in the oily sludge processing segment in India. However, the market share has decreased significantly in recent years.
The SBU intends to leverage its experience in project execution and wide base of satisfied clientele to foray into allied service areas by diversifying its service offerings.
The main threats visualized by the SBU relate to subdued market demand and the entry of new players in the niche market. Preference of MSME vendors also poses a significant challenge to the SBU with respect to booking of new orders.
Segment and Product wise Performance:
The operational performance was more or less at par with our budgeted estimates, mainly due to advance order booked for the SBU.
The new order booking was sluggish due to high competition in the market and the expected profitability of newly booked orders is expected to be lower than historical trends.
Outlook:
The demand for sludge processing services is expected to be stagnant in the near term. The SBU aims to differentiate its offerings in the
sludge processing space through technological upgradation and incorporation of new technologies for reducing processing times and manual intervention in sludge processing.
Diversification of Business into other allied areas is also being explored.
Risk & Concerns:
Increased competition in the market can put downward pressure on market share as well as profit margins of the SBU.
Other risks include adoption of modern technologies in refineries, which would reduce generation of oil sludge in the storage tanks, thereby limiting the need for sludge processing in the long run.
The SBU is working towards mitigation of the risks through upgradation of technology, as well as expansion and diversification of service offerings and client base.
Internal Control System and their Adequacy:
Tank Bottom Sludge processing and Lagoon Sludge Processing are onsite operations and the SBU adheres to the best norms and HSE practices followed by oil refineries and oil exploration companies.
No near-miss incidents have been recorded by the SBU during the year. Periodic audits, risk mitigation measures and compliance with HSE guidelines ensure robustness of the internal control systems.
Discussion on Financial Performance with respect to Operational Performance:
The SBU has been able to be near par with its business plan for Financial Year 2022-23 w.r.t turnover and profit.
The equipment utilization levels have been able to meet the targeted levels.
Material Developments in Human Resources / Industrial Relations:
Industrial relations continued to be satisfactory during the financial year under report. The SBU has a total of 18 employees.
KEY FINANCIAL RATIOS
Ratios |
Financial Year 2022- 23 |
Financial Year 2021- 22 |
Debtors Turnover |
7.08 |
6.98 |
Inventory Turnover |
11.74 |
11.66 |
Interest Coverage Ratio |
45.76 |
37.13 |
Current Ratio |
2.13 |
2.35 |
Debt- Equity Ratio |
0.00 |
0.00 |
Operating Profit Margin(%) |
5.98 |
5.28 |
Net Profit Margin (%) |
6.46 |
5.83 |
Return on Net Worth (In %) |
11.50 |
9.35 |
Note:
The increase in return on net worth is being attributed to the easing out effect of the COVID-19 pandemic on the performance of SBU - Travel & Vacations which was severely effected in last two financial years due to the same.
CAUTIONARY NOTE:
The statements in the Management Discussion & Analysis describing the Company’s focal objectives, expectations and anticipations and those of its SBUs may be forward looking within the meaning of applicable statutory laws and regulations. Actual results may differ materially from the expectations expressed or implied in such forward looking statements. Important factors that could influence the Company’s operations include global and domestic supply and demand conditions affecting selling prices of products, input availability and prices, changes in Government regulations / tax laws, economic developments within the country and factors such as litigation and Industrial relations.
The information and opinion stated in this section of the Annual Report essentially cover certain forward-looking statements, which the Management believes to be true to the best of its knowledge at the time of its preparation. The Management shall not be liable to any person or entity for any loss, which may arise as a result of any action taken on the basis of the information contained herein.
The nature of opinions herein are such, that the same may not be disclosed, reproduced or used in whole or in part for any other purpose or furnished to any other person without the prior written permission of the Company.
2024, IIFL Securities Ltd. All Rights Reserved
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ATTENTION INVESTORS
- Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
- KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
- No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."
www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.
Risk Disclosure on Derivatives
- 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
- On an average, loss makers registered net trading loss close to Rs. 50,000.
- Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
- Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213, IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
We are ISO 27001:2013 Certified.
This certificate demonstrates that IIFL as an organization has defined and put in place best-practice information security processes.