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Future Supply Chain Solutions Ltd Management Discussions

Jul 12, 2024|03:32:29 PM

Future Supply Chain Solutions Ltd Share Price Management Discussions

This discussion aims at providing an understanding of the financial statements and a summary of our business performance and the eco-system it operates in. Management Discussion and Analysis comprises of:

• Economy Overview

• Industry Overview

• Opportunities and threats

• Competitive Landscape

• Business Overview

• Performance Overview

• Human Resources

• Risks and Internal Adequacy

Some of the statements in discussion may be forward-looking. The future performance of such statements may differ from those stated in the Management Discussion and Analysis. Such probable difference can be on account of various factors such as changes in the macro-economic environment, Government regulations, tax regimes, impact of competition, and demand-supply constraints.


The Indian economy witnessed a turbulent 2020-21 as it faced many challenges mainly on account of COVID-19 pandemic related consequences. Due to increasing number of infected cases, repeated and prolonged lockdowns and movement restrictions, Indian economy witnessed a sharp decline in industrial and economic activities during the first two quarters of 2020-21. This led to reduced investments, muted demand, discretionary spending on essential items, drastic reductions in consumption of non-essential goods etc. In 2020-21, the Government of India released stimulus packages aggregating to Rs 20 lakh crore to counter the impact of Covid-19 on the Indian economy and revive the industrial and economic activities. Such stimulus largely comprised of fiscal and administrative measures such as emergency credit line guarantee, loan moratorium, direct transfer of economic benefits, setting up emergency health fund, food security measures, collateral free lending and bank guarantees for MSMEs, relaxations in compliances, policy changes for foreign investments etc. Despite such stimulus packages aiming to protect the livelihood of people, to bring confidence in business and to mitigate the disruptions in industrial activities, the consumption remained subdued almost for the whole year.

Although GDP growth provisionally contracted 7.3% in 2020-21, with GDP growth for Q4 2020-21 being pegged at 1.6%. The last quarter witnessed a partial impact on account of commencement of second wave of pandemic and stricter guidelines were issued by the Central and State Governments to combat the second wave of COVID-19. All these actions together impacted the production and supply shortages, cross border trades, sudden spike in commodity prices leading to higher inflation. Lakhs of employments were lost due to constraints in productions and supply chain and financial markets across the globe significantly crashed from their pre-pandemic levels. However, Governments of many countries very swiftly announced unprecedented measures, fiscal policies and stimuli packages to support the economic activities which gradually provided cushion the impact and brought steady recovery, though at slower pace. Although vaccination drive across the globe which started during the last quarter of 2020-21 has brought some hopes to overcome the virus, however, new variants, lockdowns and its resultants impact on productions, supplies, demands, consumptions and more debt distress would remain risks to the full recovery of economies across the globe. The year 2021-22 is also expected to remain volatile and uncertain on account of new mutants and variants of COVID-19.


The logistics sector is always considered to be a backbone to the industrial and economic activities. Soon after the outbreak of COVID-19 in March 2020, a nationwide lockdown was announced by the Government and businesses across the verticals came to a grinding halt. Blended with certain mandatory restrictions like no movement of goods and backlogs due to a disturbed supply chain, the logistics industry was hit hard. This took a considerable toll on the supply chain efficiency, with the entire industry racing to re-calibrate operations.

The sector in India is expected to have grown at a CAGR of 10.5% till 2025, as per industry estimates. An integrated end-to-end logistics solution would be a key growth driver encompassing integrated infrastructure / assets platform, integrated services platform and integrated digital platform. Hence, the sector would continue to witness consolidation, process standardisation, technological upgradation and digital transformation for more agility and integration not only between modes of transportation but also the users and third-party service providers. Efficient and cost-effective customised solutions would remain preferred solutions for clients to manage their entire supply chain. New age technology has revolutionised the logistics sector by being a key differentiator to provide smart solutions and disrupt the traditional way of operating. Large players are now exploring to leverage their operations to automation technology, Blockchain technology, Cloud Computing, Big data analysis, artificial intelligence and robotics to provide end-to-end lean and smart logistics solutions, minimise human intervention, reduce costs and circumventing operational errors in managing the supply chain. The industry would continue to witness fast paced technology disruptions resulting in real time supply chain visibility. Technological trends as emerged during the pandemic are expected to gain further traction in 2021-22 and are also likely to be long-lasting and something that would shape the future course of the industry. Growth supported by Governments reforms and commitment of capital expenditure, rise in demand and consumptions and fast growing e-commerce sector together likely to be key drivers of the logistics sector. Manufacturing activities would continue to have the potential to contribute the largest part of the GDP which would drive the growth of warehousing segment. Rapidly growing E-commerce is another major sector which is expected to support the growth of the industry. Although the pandemic impacted supply chain disruptions gave a significant blow to the logistics sector in the country, the sector is gradually recovering impressively.

Opportunities and Threats

The year 2020-21 ended with continuing fear of global pandemic, COVID-19, resulting in unprecedented disruption across the sectors in India and worldwide. The outbreak was followed by nationwide lockdown with many businesses facing the brunt with varying magnitudes. Revenue for logistics sub-sectors where FSC operates, mainly Contract Logistics, Express Logistics and Temperature-Controlled Logistics, declined drastically on account of subdued demand and drop in discretionary spending on non-essential goods and merchandise.

The cost of logistics as a % of the GDP is very high in India compared to other developed countries on various factors including inefficient transportation velocity, theft during the transit, highly volatile fuel prices etc. Road transport is the largest occupant of overall transportation by volume due to vast geographical space and greater reliance thereon. In order to bring down the overall logistics costs, the Government has taken various initiatives to rationalise the entire supply chain. These include granting of infrastructure status to the industry to improve the logistics infrastructure, placing more emphasis and reliance on Make in India to boost the manufacturing, push for national logistics policy to enable the creation of a single point of reference for all logistics and trade facilitation matters, commitment of capital expenditure on various infrastructure projects, launch of industrial corridors for faster and efficient movement, implementation of FASTag at tolls booths for e-payments and quick movement of vehicles etc. All these initiatives would bring efficiency in operations, reduce costs and help the industry to leverage for growth.

The trade wars in recent past and the COVID-19 crisis have forced many global businesses to shift manufacturing out of China, which could be an opportunity for India to expand its manufacturing base given favourable demographics, mainly availability of a large and young workforce. While the near term business outlook is severely impacted due to the pandemic, the long term growth drivers remain intact and these sub-sectors are expected to grow double-digits in the next five years.

Goods & Service Tax The implementation of GST has triggered consolidation of fragmented warehousing operations into fewer and larger warehouses. As a result, the Indian warehousing segment is witnessing a favorable structural shift with a rise in demand for modern warehousing.
Increasing Focus on Core Operations by Product Companies Product companies are increasingly focusing on their core competencies and looking to outsource the non-core activities, such as supply chain management.

The market size of Food and Home & Personal Care (HPC) segment is estimated to be around US$ 430 billion in India, and is estimated to grow at an average 11% CAGR to become over US$ 740 billion in the next five years. The market share of organized channels, both offline and online, is estimated to increase disproportionately primarily led by shift of consumer preferences in favour of hygienic and quality products. Modern trade is estimated to play a key role in driving sales of Foods and HPC categories due to higher visibility and better availability of products. This would drive the growth of logistics service providers that cater to these segments.

The logistics industry faces several challenges, such as high cost, impacting the competitiveness in the domestic market. Other key challenges include availability of skilled manpower, fragmented warehouses, underdeveloped material handling infrastructure, limited usage of technology and inefficient multi-modal and fleet mix. In the near term, 3PL companies could face issues such as poor availability of transport and labour shortages due to COVID-19 impact. The Indian logistics industry is majorly driven by the unorganised sector. While the logistics industry in India is generally fragmented, the Company faces competition from a number of international and domestic third-party logistics service providers, especially as the trend toward larger-scale logistics service providers in India continues.


The Indian logistics industry is highly fragmented in nature with the unorganised participants servicing nearly 80-85% of the overall demand. Competitiveness of various industry players is determined by several factors, such as availability of anchor customers, levels of automation and technology deployed in day-to-day operations, reliability of the supply chain, adherence to compliance standards and multi-sector domain expertise for a third party logistics player.

The Company faces competition from various players catering to different business verticals in different geographic locations as well as several regional and unorganised service providers. At present, there are only a few organised players in India who have a nationwide presence. A few industry participants have also focused on specific sectors.

Critical Success Factors


FSC is amongst the largest organised third-party supply chain and logistics service provider in India. The Company offers a wide variety of services such as automated and tech-enabled warehousing, pan-India distribution and transportation, and other logistics-related solutions to a wide range of customers. The Companys customers operate in different sectors across India including fashion and apparel, food and beverage, fast-moving consumer goods (FMCG), e-commerce, electronics and technology, home and furniture, automotive and engineering.

FSCs business partner, Nippon Express acquired 22% stake in FSC in 2019-20. Nippon Express and FSC signed a Business Collaboration Agreement to jointly explore revenue synergy opportunities based on their strategic partnership. FSC aims to leverage Nippon Express global customer base and competencies in diverse sectors, including automotive and pharmaceutical sectors, for the Indian market.

FSC offers services in three broad areas:


Services Provided • Supply Chain Analysis and Solution Design
• Integrated State-of-the-art Warehousing
• Transportation & Distribution
• Reverse Logistics
• Value added services, such as kitting, bundling, unit cartonization, packaging solution
Network • 65 distribution centers comprising total area of 8.02 mn sq. ft.
• Generally multi-user and Built-to-suit distribution centres
express logistics
Services Provided • Point-to-Point Part & Full Truck Load Transportation; Time-definite Transportation Services; Real-time tracking
• Prucking and distribution services using hub-and-spoke distribution network and fleet of technology-enabled trucks
network • Operates between 200-250 containerized line-haul and feeder trucks
• Pan-India network of 13 hubs and 123 branches and franchisees
• Services 11,780 pin codes
temperature-controlled logistics
Services Provided • Pemperature-controlled warehousing maintaining perishable goods in frozen (-25 to 0C), chilled (0 to +4 0C), cold (+2 to +8 0C) and cool (+8 to +25 0C)
• Primary Reefer Transportation (Long Haul)
• Secondary Reefer Distribution (Local)
Network • Network of owned and wet-leased reefer trucks
• 13 Temperature-controlled distribution centers
• 21,303 pallets
Consolidated Revenue Split 2020-21 2019-20
Contract Logistics 37,823 94,872
Express Logistics 5,973 15,352
Temperature-Controlled Logistics 3,653 3,786
Key operating Metrics 2020-21 2019-20
Contract Logistics
Warehouse Area (million sq. ft.) 8.02 8.20
Average Revenue per sq. ft. ( per month) 39.00 100.00
Express Logistics
Total Weight Handled (000 tonnes) 63 177
Temperature-Controlled Logistics
Number of Pallets (x) 21,303 19,395

The Contract Logistics segment of the Company analyses its customers needs and business processes. FSC then provides customised 3PL solutions to enable their customers to benefit from lower supply chain cost, higher supply chain efficiency while shortening the lead time to market. Typically, this solution would include infrastructure design, management of entire warehouse operations, inventory management and distribution services. The Companys distribution centres receive, store, track and dispatch the customers inventory. It also provides end-to-end real-time visibility to its customers for easy tracking.

During 2020-21, the Company rationalised its warehousing operations from 8.20 mn sq. ft. in 2019-20 to 8.02 mn sq. ft., while consolidating its number of warehouses from 74 in 2019-20 to 65 in 2020-21. This network re-design was largely done to benefit from scale efficiencies in future. Going forward, FSCs expansion will be driven by new customers and enhanced network efficiencies only.

Led by a weak macro-economic environment, consumption slowdown and pandemic situation, FSC continued to implement several initiatives to improve productivity and increase operational efficiencies, so as to conserve the financial resources. Some of these benefits were also passed on to its customers. These include:

• Warehousing network re-design & consolidation

• Transport cost rationalisation and move to a complete variable model

• Labour productivity enhancement initiatives at the warehouse level

• Fixed costs / overheads rationalisation

• Revisiting customer contracts where FSCs ROI was sub-optimal

• Technology upgradation to augment capabilities and efficiency


During the year 2020-21, FSCs business has been severely impacted due to COVID-19 pandemic and the fear of pandemic still around, this is likely to affect revenue growth and profit margins for 2021-22. However, from a longer period outlook perspective, management believes that FSC will benefit from sector tailwinds, which will contribute to strong revenue growth. These mainly include benefits of GST implementation, increased outsourcing of non-core activities by product companies, growth of consumption-led sectors and fast evolving consumer behaviour shifting to online shopping. Additionally, FSC will benefit from its strategic partnership with Nippon Express, wherein the two companies will jointly sell FSC services to Nippon Express customers globally. FSC would also expand its target market in the automotive and pharmaceutical sectors along with Nippon Express, leveraging on the latters domain expertise in these sectors.

The Reserve Bank of India cut its forecast of real GDP growth at 9.5% from earlier projection of 10.5% for 2021-22, mainly due to impact of second wave of COVID-19 pandemic. They expect global demand conditions to improve global trade to take hold, which would support countrys export sector. Backed by the Governments commitment to higher capital expenditure, gradual recovery in economic activities are expected to fully overcome the pandemic impact. The International Monetary Fund (IMF) has also projected India to emerge one of the fastest growing economy.


Current Impact of Lockdown on Operations • Supply chain for non-food customers halted completely
• Express business halted completely
• Business for many customers standstill; only in-transit stocks being transported
• Transportation business worse impacted as compared to warehousing
• Poor availability of transport & low manpower availability
• Frequent interactions with regulatory authorities to facilitate smooth functioning of supply chain services for essential commodities
• Various steps taken to ensure customers stock is safe at FSC
Steps taken by FSC • Several measures undertaken at FSC facilities to maintain health and safety for FSC employees and associates
• Review of operations on regular interval; ramping up quickly as and when restrictions ease
• Increased focus on fixed cost rationalisation, productivity improvement and efficiency enhancement


FSC operations are run through 65 distribution centres across India, covering approximately 8.02 million square feet of warehouse space as of March 31, 2021. The Company utilises a "hub-and-spoke" distribution model comprising 13 hubs and 123 branches and covering 11,780 pin codes across the country. FSC operates 13 temperature-controlled warehouses with total pallet capacity of 21,303.

Review of Standalone Financial Performance Total Income

Total Income comprises:

(i) Revenue from Operations

(ii) Other Income

(i) Revenue from Operations

Revenue from Operations decreased by 59.1% from Rs 1,14,055 Lakh in 2019-20 to Rs 46,641 Lakh in 2020-21 mainly on account of COVID-19 pandemic consequences.

(ii) Other Income

Other Income increased from Rs 2,003 Lakh in 2019-20 to Rs 3,386 Lakh in 2020-21.


Expenses comprise:

(i) Cost of Logistics Services,

(ii) Employee Benefit Expenses,

(iii) Finance Costs,

(iv) Depreciation and Amortisation Expenses, and

(v) Other Expenses

Cost of Logistics Services

Cost of Logistics Services comprises warehouse operating charges such as labour costs, transportation expenses and freight forwarding expenses. Cost of Logistics Services as a percentage of Revenue from Operations decreased from 61.3% in 2019-20 to 59.6% in 2020-21.

Employee Benefit Expenses

Employee Benefit Expenses comprise salary and wages to the employees, cost of employee welfare programs, expenses incurred in training exercises and other speciality skill-building activities and reward programs. Employee Benefit Expenses as a percentage of Revenue from Operations increased from 7.7% in 2019-20 to 16.1% in 2020-21.

Other Expenses

Other Expenses primarily include power and fuel, repairs, and maintenance, traveling and conveyance expenses, security expenses, levies and duties, and statutory payments, among others. Other Expenses as a percentage of Revenue from Operations increased from 8.7% in 2019-20 to 14.5% in 2020-21.

Operating Profit Margin

Operating Profit Margin decreased from 22.2% in 2019-20 to 9.7% in 2020-21. The decline in operating profit margin is largely on account of reduced revenues and higher fixed expenses on account of COVID-19 pandemic.

Depreciation and Amortisation Expenses

Depreciation and Amortisation Expenses decreased from Rs 16,594 Lakh in 2019-20 to Rs 16,532 Lakh in 2020-21.

Finance Costs

Finance Costs increased from Rs 8,081 Lakh in 2019-20 to Rs 9,838 Lakh in 2020-21.

Profit / Loss Before Tax

FSC incurred a Loss Before Tax of Rs 18,436 Lakh in 2020-21 as compared to Loss Before Tax of Rs 6,388 Lakh in 2019-20.

Income Tax Expense

Income Tax Expense was Nil for 2020-21 and 2019-20.

Profit After Tax

FSC incurred a Loss After Tax of Rs 18,436 Lakh in 2020-21 as compared to Loss After Tax of Rs 6,388 Lakh in 2019-20.

Earnings Per Share (EPS)

Basic and diluted EPS was (15.51) for 2019-20 and (42.01) for 2020-21. The EPS worsened due to greater losses in operations which were badly hit on account of COVID-19 pandemic.

Net Profit Margin

Net Profit Margin worsened from -5.6% in 2019-20 to -39.5% in 2020-21 due to greater losses in operations which were badly hit on account of COVID-19 pandemic.

Return on Net Worth

Return on Net Worth worsened from -8.6% in 2019-20 to -33% in 2020-21 mainly due to a negative net profit margin.

Interest Coverage Ratio

The Interest Coverage Ratio declined from 1.7x in 2019-20 to -2.4x in 2020-21 due to greater losses in operations which were badly hit on account of COVID-19 pandemic.

Current Ratio

The Current Ratio increased from 1.78 in 2019-20 to 2.02 in 2020-21.

Debt Equity Ratio

Debt Equity Ratio increased from 0.74x in 2019-20 to 0.93x in 2020-21 mainly due to decrease in networth on account of higher losses during the year 2020-21.

Debtors Turnover Ratio

Debtors Turnover Ratio decreased from 2.0x in 2019-20 to 0.6x in 2020-21, mainly due to lower turnover/ revenues from operations on account of COVID-19 pandemic.

Inventory Turnover Ratio

Inventory Turnover Ratio decreased from 323.9x in 2019-20 to 197.1x in 2020-21, mainly due to lower turnover/ revenues from operations on account of COVID-19 pandemic. Inventory primarily relates to the non-saleable material that is used in the warehousing operations, such as packaging material.


One of the Companys strategic objectives is to be an industry leader in logistics sector. This implies a requirement to attract and retain the finest people in the industry while consistently improving their skills. This makes it imperative for us to offer our existing workforce with right opportunities to develop their skills further. This will not only help us serve our customers better but also help us chart the growth graph. It will assist in living up to our brand promise.

Our employees undergo an extensive training program. The purpose of these programs is to educate while improving skills and behaviour. We keep the specific needs of each of our associate in mind and design training programs around it. The focus is on providing right tools for both professional and personal skills development while also working on their technical and soft skills. Our key training programs include functional training programs, IT training programs such as WMS, SAP and TMS, among others, and various other behavioural training programs. We aim towards the holistic development of our employees that facilitates their career progression within the Company. Strong emphasis is placed on building a healthy and rewarding work environment while constantly improving employee engagement.

As at March 31, 2021, the total number of employees at FSC stood at 1,098.


Our Company operates its business in an environment with some inherent risks. This requires identifying, monitoring, and mitigating risks predominantly in the areas of business, operations, finance, and compliance. The Company addresses such risks through a system-based approach of risk management. This involves mitigation of risks on a continuous basis. The Internal Control Systems of the Company appropriately correspond with the nature of its business and the size and complexity of its operations. These risks are regularly tested and certified by the Statutory and Internal Auditors. The Audit Committee reviews adequacy and effectiveness of the internal control process and systems. It also monitors the implementation of audit recommendations, with the perspective of strengthening the Companys risk management systems. A management team additionally conducts reviews on regular interval. It assesses the internal control environment, checks the adequacy concerning the business and make relevant recommendations.

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