Coastal Roadways Ltd Management Discussions.

INDIAN ECONOMY

During the fy 2018-19, the Indian economy grew at a rate of 7% against a projected rate 7.2%. Despite the subdued growth, the United Nations expects the Indian population of 1.3 billion to keep growing and surpass China by 2024, which in turn would provide the much needed thrust towards the GDP of our nation. India moved of 23 places in the World Banks “Ease of doing business index 2018” to 77th position. This was mainly on account of reforms in the area of starting a business, getting electricity, construction permits, getting credit, paying taxes and trading across borders.

Despite being a mixed year on various fronts, the return of a stable government and hopes of a normal monsoon, the India growth story still remains intact going ahead.

INDUSTRY STRUCTURE AND DEVELOPMENT

The government has reiterated its steadfast commitment to modernizing the functionalities of Indian logistics with a key focus on infrastructure development. With a view to improving supply chain efficiencies and enhancing connectivity to help logistics players tap the underleveraged markets in the countrys hinterlands, key infrastructure development projects have been rolled out. This points towards a better infrastructure in the future which will provide better connectivity and hence better growth. The logistics industry of India is currently estimated to be around US$ 160 Billion. According to rating agency ICRA, The sector is forecasted to witness a growth of 8-10% over the medium term. Along with the infra boost, some of the key drivers in order to achieve this going ahead would be :

Friendly Policies & Regulatory Approvals

Key reform measures and policy interventions like the unveiling of the Goods and Services Tax, (GST), relaxed FDI regulations and granting of infra status has boosted the core competencies of the Indian logistics industry. GST was a game-changer for Indian logistics. It laid the foundation for the setting up of large format multi-modal logistics parks along key consumption and industrial centres which can function as freight aggregation and distribution hubs.

Technology Assistance

The emergence of new-age empowering technologies like artificial intelligence, internet of things, and machine learning will disrupt the conventional workings of the countrys logistics sector. The impact of these technologies is anticipated to enhance productivity across the supply chain spectrum and streamline operational processes. These technologies will largely play an enabling role in boosting efficiencies of supply networks, reduce wastages and lead to supply chain optimization. haratmala Pariyojana the government through its plan of “Bharatmala Pariyojana” outlays a total investment of 5.35 lakh Cr to lay 83677 km of roads and highways all over the country. The plan includes National Corridors, Economic Corridors and is expected to be completed by 2022. The ambitious project holds the promise of strengthening the countrywide road network and improving connectivity with the interior and backward areas of the country. In addition to this, the high-speed, freight-only Dedicated Freight Corridor Project aims at decongesting a heavily saturated road network and reducing freight transit times from industrial heartlands in north India to ports on the eastern and western coast of the country.

BUSINESS STRATEGY & OPPORTUNITIES

Since independence, the Indian logistics industry has not received the much needed attention and credit it deserved. Despite being one of the sunrise sectors for decades with abundance potential, the sector still lacks optimal utilization of resources. However in the recent past, much needed awareness has fallen on this sector. We can see a lot of startups entering the sector offering services like never before. With the advancements in technologies we can surely say that theres a lot more to come. Logistics plays a vital role in strengthening the economy. It is the lifeline for every other commercial sector. Going ahead, as India steps towards a new era of growth, a few opportunities worth tapping are as follows:

3P Logistics

This area of service has been lying untapped for a very long time. However with the advancement in e-commerce and vendors racing up to provide the fastest door to door services, the scope for 3PL has widen like never before.3P Logistics is rising as a key driver of development for e-trade players as they try to create centre abilities as retailers while outsourcing their logistical necessities.

Monsoon

India is mainly an agricultural country with over 70% of its people directly related to farming. Monsoon is essential for quite a few crops in India. The production of oil seeds and grains gets a boost when rainfall is normal. Kharif crop which is sown in March depends on Monsoon rains. States of Gujarat and Rajasthan sow peanuts just before the rains arrive. This is also the season for paddy plantation in Uttar Pradesh. Paddy is dependent on rainfall for good harvesting. Monsoon influences many other crops across the country. Soya bean, Sugarcane, cotton, rice and millet are some of the crops that flourish when rainfall is good. In case of normal rains we can surely expect a hike in agricultural production and also an increase in their transportation, exports etc. Players in this sector can contemplate the future and keep a keen eye on this of services.

The next global manufacturing hub

A couple of decades ago, India was considered to be a third world country with limited economic potential. The idea of outsourcing saw countries like India and China gain substantial recognition in the field of Information Technology services. After having achieved dominance in the services related sector, India is now looking forward towards becoming a global manufacturing hub. The “Make in India” initiative, special concessions towards multinational companies for setting up manufacturing bases, cheap labour along with a thriving population would ensure the rise of many manufacturing hubs requiring services in the field of logistics.

OUTLOOK

Your Company continues with its plans to

• Consolidate its activities relating to logistics and to create a strong base of operations.

• Devise strategies to bring operational efficiency, cost effective services and to face economic slowdown and competition.

• Fine tune the operating structure, and improve the customer focus and increase the Companys competitive advantage. The new structure usher an era of efficiency and growth.

Your company will continue to focus on its key businesses by exploiting its core competence. In order to be a leading edge Company, a well-crafted strategy has been adopted entailing capitalizing on the strong brand equity, optimising costs and improving operational efficiencies at all the levels. These endeavors should facilitate superior margins, despite the forecast of a challenging business environment in the immediate future. he company expects a growth of around 5-10% with better economic conditions and with the positive impact with implementation of GST. It aims to sustain the growth momentum of its road business and focus on the dedicated container service model. It also aims to get growth from existing clients who are ramping up capacity as well as tap new customers and new segments.

Your Company is also in process of developing required infrastructure viz. warehouses, transshipment hubs, logistic parks etc required for multimodal transportation, composite supply chain solutions including end to end logistic services and has also initiated process of alliance with strategic partners by making joint venture agreements. However changes due to implementation of new GST regime has affected the selection of locations and there has been delay in implementation of the same resulting into termination of one such proposed arrangement.

RISKS AND CONCERNS

In todays highly unpredictable business environment, it is vital to take a holistic view of risk and compliance. Like any other Company having national business interests, your company is also exposed to business risks, which may be internal as well as external. To ensure our long-term corporate success, it is essential that risks are identified, analyzed and then mitigated by means of appropriate control measures. A strong and independent Internal Audit function at the corporate level carries out risk focused audits enabling identification of areas where risk management processes may need to be improved.

Here are some of the key risks faced by the Company and actions deployed for mitigation.

Industry Risks

• Economic Slowdown may affect Companys performance.

• Over dependence on one line of business can threaten viability in the event of a sectoral downturn.

• Efficiency in Internal Systems and Procedures.

Your company offers logistic and road transportation services to a diverse range of industries. It keeps a close watch on the economic environment and timely actions are accordingly taken. These measures help us mitigate the cyclical risks. Also, our internal systems and processes are constantly reviewed and revamped as per industry best practices.

Underutilization of Assets and Infrastructure

• The underutilization of assets and resources, resulting in an adverse impact on profitability in competitive or recessionary market and poor economic conditions.

The systems are being streamlined and integrated across all the branches for effective matching of availability of any underutilized asset/ resources, primarily vehicles at one branch with corresponding requirements for the same by another branch.

Legal Risks

• Threat of damage and loss of cargo due to accidents and hijacking of trucks

• Risk of pilferage leading to shortages in delivery of cargo.

All the vehicles of the company are comprehensively insured for damages arising out of accidents. The entire fleet of Companys owned vehicles is fitted with modern technology tracking tools like GPS in vehicles to ensure safety of vehicle and cargo. Locks and seals secure trucks before dispatch that can only be broken at the point of unloading. Verification of truck drivers is a necessary compliance and trucks are engaged from reliable market sources.

HR Risks

• Failure to attract & retain talent may adversely affect the Companys performance.

• Failure to implement an effective succession planning for key positions.

• Failure to continuously update employees skills sets in line with current and future requirements.

Attrition trends are analyzed on annual basis and course correction is taken accordingly. The retention ratio of your companys employee is very high due to continued focus of the management in continued engagements and confidence building measures.

Quality Risks

• Poor service may increase competition risk.

Your Company continuously upgrades its services through technology upgradation, business process re-engineering and by imparting training to its employees at all levels on regular basis.

Liquidity Risks

• A delay in receivables could stretch the Companys working capital resources.

In your Company, the continuous endeavor is to shift towards shorter transaction cycles. The Company has an in built process of credit approval and monitoring with a pre-defined responsibility and accountability at various levels.

Competition Risks

• Unhealthy price cuts and discounts by niche players at state and zonal levels for short haul movements who enjoy cost advantage due to lack of regulatory compliances.

• Increasing trends of e-auctions and entry of start-ups and large MNC Logistic companies with huge resources and latest technologies into the business may reduce the business share of the company.

Your Company continues to follow suitable strategies to positively modify its risk profile by eliminating and significantly reducing key business risks and developing and implementing strategies to achieve that maximum possible degree of insulation from broad macroeconomics risks. Timely technology upgradation and proper training of manpower is done to further minimize such risks.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The Company has an internal control system commensurate with its size and nature of business and to meet the following objectives:

• Efficient utilisation and protection of resources.

• Compliance of statutory and internal policies and procedures.

• Completeness, accuracy, promptness of the reports generated for all the transactions in the Company.

FINANCIAL RESULTS AND COMPANYS OPERATIONS

The company effective April 2018 got registered under Goods & Services Act (GST) and opted to operate under Forward Charge Mechanism. During the year under review, your company witnessed a fall of 4.5% in its turnover which is recorded at 5214 Lacs as against 5462 Lacs in the previous financial year. This was mainly attributed towards freight rate adjustment by customers while the physical volumes remained constant to mildly dull. The intensity and competition from earlier established Start-ups continues to be an area of concern leading to price war in order for wider market penetration.

At the earnings level, the company reported a loss of 168 lacs as against a profit of 31 lacs. This was entirely in the H2 of the year under review. Due to non-operation of key bridge(s) used to service an important lane accounting for significant revenue, various diversion were taken which coupled with severe congestion arising out of high traffic on unconventional routes led to an unprecedented increase in cost. Going ahead with motoring services back to usual on this lane, normalcy in operations has been observed.

Borrowing from institutional lenders for fleet acquisition were serviced with commitment. The Net worth of your company has been recorded at 1121 lacs as against 1234 lacs in the previous fiscal. No material changes and commitments have occurred after the close of the financial year till the date of this Report, which affect the financial position of the Company.

HUMAN RESOURCE MANAGEMENT

Your Company believes that constant training and development, and continuous learning, is necessary for ensuring retention of the best talent besides providing the Company a sustainable platform for growth in the business environment. Training programmes have been devised to develop cross-functional skills. The objective is to provide your Companys people with an opportunity to address areas, not only relevant to their job profile, but also for their all round development. The Company employs 56 persons.

OVERVIEW

Large numbers of players, international as well as local, are setting up their shops in Logistics and hope to get a share of this emerging new economy business.

Your company has an edge over other players, by virtue of having strong information technology back-up and better understanding of Indian roads, local laws, customer needs etc. Your Company, being a pioneer and trendsetter in road transport and logistic industry, will always play a vital role in this industry.