Future Supply Chain Solutions Ltd Management Discussions.

This discussion aims at providing a complete understanding of the financial statements and a summary of our business performance and the eco-system it operates in.

Management Discussion and Analysis comprises:

* Economy Overview

* Industry Overview

* Competitive Landscape

* Business Overview

* Businesss Outlook

* 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 2019-20 as it faced several challenges. GDP growth moderated to 4.2% in 2019-20, with GDP growth for Q4 2019-20 being pegged at 3.1%. The last quarter witnessed a partial impact of a nationwide lockdown that got implemented in end of March 2020, due to the rising concerns on spread of the global pandemic in India - Coronavirus (COVID -19). GDP growth moderated during the first nine months partly due to a consumption slowdown.

In May 2020, the Reserve Bank of India estimated that Indias GDP is likely to decline in 2020-21, primarily due to Covid-19 led slowdown in economic activity. They expect some pick-up in economic activity only during the second half of 2020-21. The Monetary Policy Committee has not shared any specific projections for 2020-21 mainly due to the heightened uncertainty around the duration of the pandemic and its resultant impact on overall consumption demand and the Indian economy.


The logistics sector in India is expected to have grown at a CAGR of 10.5% from US$ 160 billion in 2016-17 to US$ 215 billion in 2019-2020, as per industry estimates. Management estimates that sub-segments that FSC operates in grew at a CAGR of 15-20% from 2014-15 to 2019-20.

During 2019, the Indian warehousing segment continued to witness a favourable structural shift with rise in demand for modern warehousing. The cumulative supply of Grade A and Grade B warehousing space in the top 8 cities increased from 169 million sq. ft. in 2018 to 211 million sq. ft. in 2019, registering a growth of 24.9%, as per JLL India Industrial Services (JLL India). JLL India expects the cumulative supply of Grade A and Grade B warehousing to increase to 379 million sq. ft. by 2023. However, there was a contraction of around 15% in the new supply during the quarter ending March 2020 as compared to the quarter ending March 2019, due to COVID-19. JLL India further expects space addition to witness delays in the next 1-2 quarters, mainly due to labour shortages. JLL India also expects minor correction in warehouse rentals in the short term due to pandemic-led demand uncertainty and rising cost pressures.

Covid Impact on 3PL

Time frame Impact on logistics Sector
Short term Transport movements restricted to essential commodities
Medium term Urban logistics and in-city warehouses will be in demand; Increase in outsourcing activities to 3PL due to cost pressures and efficiency enhancement
Long term Drive from e-commerce to increase growth and expansion of logistic players; Government policy and infrastructural support to accelerate activity; Mall developers to innovate designs to accommodate storage spaces within, for retail tenants.

In its recent report titled - India Industrial and Logistics Market View H2 2019 - CBRE highlighted that leasing activity was led by 3PL firms in 2019, followed by e-commerce and retail companies. 3PL firms accounted for around 48% of the leasing activity in 2019 as compared to 36% in 2018. Mid and large sized transactions (over 50,000 sq. ft. of space) constituted 58% of the leasing activity in 2019. Large sized deals (over 100,000 sq. ft.) were largely done by 3PL players. NCR, Mumbai and Bangalore dominated large sized deal closures.

Opportunities and Threats

The year 2019-20 ended with the outbreak of global pandemic, COVID-19, resulting in unprecedented disruption across 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, are expected to decline by 10-20% during 2020-21, as per the Company management.

The ongoing trade wars 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 business outlook for 2020-21 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 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 currently, 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. 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.

Competitive Landscape

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

Contract Logistics Express Logistics Temperature Controlled Logistics
Availability of Anchor Clients Network Presence Presence at right location
Use of Technology and Automation Utilisation of Network Asset Mix
Reliability and End-to-end Supply Chain Management Reliability of Line Haul Quality of assets
Increase in Compliance Standards Consistency of Service Levels VAS & integrated services
Experience across Multiple Industries Vendor Management


FSC is an 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 in India including fashion and apparel, food and beverage, fast-moving consumer goods (FMCG), e-commerce, electronics and technology, home and furniture, automotive and engineering.

During the year, Nippon Express acquired 22% stake in FSC at a price of Rs 664 per share. This transaction was a combination of primary issuance and secondary purchase from an existing Investor. Nippon Express and FSC signed a Business Collaboration Agreement to jointly explore revenue synergy opportunities based on their strategic partnership. The two companies jointly started the business collaboration activities in January 2020. With this 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:

Contract Logistics
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 cartonisation, packaging solution
Network • 74 distribution centers comprising total area of 8.20 million 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
• Trucking and distribution services using hub-and-spoke distribution network and fleet of technology-enabled trucks
Network • Operates containerised line-haul and feeder trucks
• Pan-India network of 13 hubs and 126 operational branches and franchisees
• Services 11,352 pin codes
Temperature-controlled logistics
Services Provided • Temperature-controlled warehousing maintaining perishable goods in frozen (-25 to 0 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
• 9 Temperature-controlled distribution centers
• 19,395 pallets


(Rs in Lakh)
Consolidated Revenue Split 2019-20 2018-19
Contract Logistics 94,872 88,848
Express Logistics 15,352 17,908
Temperature-Controlled Logistics 3,786 3,282
Key Operating Metrics
Contract logistics
Warehouse Area (million sq. ft.) 8.20 7.66
Average Revenue per sq. ft. (Rs per month) 100 113
Express logistics
Total Weight Handled (000 tonnes) 177 195
Temperature-controlled logistics
Number of Pallets 19,395 8,439

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 2019-20, the Company increased its warehousing capacity from 7.66 million sq. ft. in 2018-19 to 8.20 million sq. ft., while consolidating its number of warehouses from 96 in 2018-19 to 74 in 2019-20. This network re-design was largely done to benefit from scale efficiencies in future. Going forward, in 2020-21, FSCs warehouse expansion will be driven by new customers and enhanced network efficiencies only. During the year, FSC signed new business with 11 customers for contract logistics. The customers include, a reputed e-commerce company, a marquee FMCG brand, several well-known fashion brands, and a global electronics manufacturer.

Led by a weak macro-economic environment and consumption slowdown in India, during the second half of 2019-20, FSC undertook several projects and initiatives to improve productivity and increase operational efficiencies, so as to improve profitability. 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

* Continued investments in upgrading technologies to augment capabilities and efficiency


FSCs business has been severely impacted in the near term due to COVID-19 and this is likely to affect revenue growth and profit margins for 2020-21. However, from a five-year 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 and growing consumption-led sectors. 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.


Current Impact of lockdown on Operations • Contract Logistics for Non-FMCG customers and Express Logistics services halted completely for weeks
• Severe operational challenges on ground: Poor availability of transport and manpower
Steps taken by Fsc • Frequent interactions with regulatory authorities to facilitate smooth functioning of supply chain services for essential commodities
• People safety, material safety and merchandise availability top priorities during and post lock-down
• Review of operations on daily basis; ramping up quickly as and when restrictions ease
• Increased focus on fixed cost rationalisation, productivity improvement and efficiency enhancement, while remaining agile and customer-centric

On August 29, 2020, Future Group announced a re-organisation of its businesses in which its key group companies including FSC will merge into Future Enterprises Limited (FEL). The Board approved a Composite Scheme of Arrangement between various companies belonging to Future Group and companies belonging to Reliance Group, as per which FEL will issue 131 (One Hundred Thirty One) fully paid up equity shares of Rs 2/- each to the equity shareholders of FSC as on the Record Date (as may be determined in terms of the Scheme) for every 10 (Ten) fully paid up equity share of Rs 10/- each held in FSC.

FEL will subsequently transfer by way of a slump sale as going concern basis the logistics and warehouse business to Reliance Retail Ventures Limited and retail and wholesale businesses to Reliance Retail and Fashion Lifestyle Limited. The said Scheme would be subject to requisite approvals of the National Company Law Tribunal, BSE Limited, National Stock Exchange of India Limited, Securities and Exchange Board of India, Competition Commission of India and other statutory/regulatory authorities, including those from the shareholders and creditors of the Transferor Companies and Transferee Company and other applicable contractual approvals.


FSC operations are run through 74 distribution centres across India, covering approximately 8.20 million square feet of warehouse space as of March 31, 2020. The Company utilises a "hub-and-spoke" distribution model comprising 13 hubs and 126 operational branches and covering 11,352 pin codes across the country. FSC operates 9 temperature- controlled warehouses with total pallet capacity of 19,395.


Total Income

Total Income comprises:

(i) Revenue from Operations

(ii) Other Income

(i) Revenue from Operations

Revenue from Operations increased by 2.5% from Rs 1,11,277 Lakh in 2018-19 to Rs 1,14,055 Lakh in 2019-20.

(ii) Other Income

Other Income increased from Rs 561 Lakh in 2018-19 to Rs 2,003 Lakh in 2019-20.


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 69.5% in 2018-19 to 61.3% in 2019-20. The numbers are not comparable to prior years due to implementation of IND-AS 116 during 2019-20.

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, performance bonus and reward programs. Employee Benefit Expenses as a percentage of Revenue from Operations declined from 8.8% in 2018-19 to 7.7% in 2019-20.

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 8.4% in 2018-19 to 8.7% in 2019-20.

Operating Profit Margin

Operating Profit Margin increased from 13.3% in 2018-19 to 22.2% in 2019-20. The numbers are not comparable to prior years due to implementation of IND-AS 116 during 2019-20.

Depreciation and Amortisation expenses

Depreciation and Amortisation Expenses increased from Rs 4,170 Lakh in 2018-19 to Rs 16,594 Lakh in 2019-20. The primary reason for increase in Depreciation and Amortisation Expenses is due to accounting changes as a result of implementation of IND-AS 116 during 2019-20. Hence, the numbers are not comparable.

Finance Costs

Finance Costs increased from Rs 1,608 Lakh in 2018-19 to Rs 8,081 Lakh in 2019-20. The increase in Finance Costs is due to increase in gross debt from Rs 21,783 Lakh in 2018-19 to Rs 56,304 Lakh in 2019-20 and impact of IND-AS 116 accounting during 2019-20.

Profit Before Tax

During 2019-20, FSC incurred a one-time non-cash loss of Rs 9,080 Lakh on account of sale of investment in Vulcan Express Private Limited, impairment of investment in Leanbox Logistics, expected credit loss & impairment of loans and advances. As a result of the foregoing factors, Profit Before Tax decreased from Rs 6,516 Lakh in 2018-19 to a Loss Before Tax of Rs 6,388 Lakh in 2019-20.

Income tax expense

Income Tax Expense was nil for 2018-19 and 2019-20.

Profit after tax

As a result of the foregoing factors, Profit After Tax decreased from Rs 6,516 Lakh in 2018-19 to a Loss After Tax of Rs 6,388 Lakh in 2019-20.

Earnings Per share (EPs)

Basic EPS was Rs 16.27 for 2018-19 and Rs. (15.51) for 2019-20. Diluted EPS was Rs 16.24 for 2018-19 and Rs. (15.51) for 2019-20.

Net Profit Margin

Net Profit Margin decreased from 5.9% in 2018-19 to (5.6%) in 2019-20, mainly due to one-time exceptional losses in 2019-20.

Return on Net Worth

Return on Net Worth decreased from 10.9% in 2018-19 to (8.6%) in 2019-20 mainly due to a negative net profit margin. During the year, the Company raised equity of Rs 25,161.28 Lakh under Private Placement to Nippon Express.

Interest Coverage Ratio

The Interest Coverage Ratio declined from 6.5x in 2018-19 to 1.7x in 2019-20. During the year, Finance Costs increased from Rs 1,608 Lakh in 2018-19 to Rs 8,081 Lakh in 2019-20.

Debt Equity Ratio

Debt Equity Ratio increased from 0.36x in 2018-19 to 0.76x in 2019-20 due to increase in Gross Debt from Rs 21,783 Lakh in 2018-19 to Rs 56,304 Lakh in 2019-20.

Debtors Turnover Ratio

Debtors Turnover Ratio decreased from 3.7x in 2018-19 to 2.0x in 2019-20, due to increase in Trade Receivables from Rs 34,982 Lakh in 2018-19 to Rs 81,527 Lakh in 2019-20.

Inventory Turnover Ratio

Inventory Turnover Ratio increased from 201.2x in 2018-19 to 323.9x in 2019-20, due to decrease in Inventory from Rs 553 Lakh in 2018-19 to Rs 352 Lakh in 2019-20. 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 differentiator 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 the Company to offer their existing workforce with right opportunities to develop their skills further. This will not only help serve customers better but also help chart the growth graph. It will assist in living up to the Companys brand promise.

FSC employees undergo an extensive training program. The purpose of these programs is to educate while improving skills and behaviour. The Company keeps the specific needs of each of their associates 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. Key training programs include functional training programs, IT training programs such as WMS, SAP and TMS, among others, and various other behavioural training programs. FSC aims towards a holistic development of its 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.

The total number of employees at FSC stood at 1,384 as at March 31, 2020.


FSC 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 perfectly 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 quarterly reviews. It assesses the internal control environment, checks the adequacy concerning the business and make relevant recommendations.