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.
ECONOMY OVERVIEW
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.
INDUSTRY OVERVIEW
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.
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
BUSINESS OVERVIEW
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:
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
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
BUSINESS OUTLOOK
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.
IMPACT OF COVID-19 ON OPERATIONS
| 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 |
PERFORMANCE OVERVIEW
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
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.
HUMAN RESOURCE
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.
RISK AND INTERNAL ADEQUACY
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.
+91-9892691696
