Jet Freight Logistics Ltd Management Discussions.

1. Overview Of Indian Air Cargo Industry:

The domestic air freight demand is expected to touch 1.1 million tonne by the fiscal 2025 at a compounded annual growth rate (CAGR) of 7-9 per cent propelled by rapidly growing e-commerce activity, increasing capacity and improving airline connectivity to smaller cities, according to a research note.

However, cargo capacity of airlines is expected to grow at a higher CAGR of 13-15 per cent, given the impending fleet expansions. This will further shift the market towards airlines, ratings agency CRISIL NSE -1.40 %. The estimated Rs 600-700 crores domestic dedicated air freighter market stood at 0.8 million in 2019, logging a CAGR of 8 per cent in the last five fiscals. Shorter lead distances compared with global freighters, lack of significant niche cargo, and intense competition from airlines which also carry cargo in aircraft belly are expected to continue restricting growth of domestic dedicated freighters.

2. Company Business Outlook:

In order to have a more balanced growth amongst the two business divisions i.e perishable and general cargo, greater emphasis is put to promote general cargo business. Further emphasis is also placed on Ocean freight business in the year under consideration. By focusing more on General Cargo segment, the company would be in a position to improve upon its customer portfolio by serving some well known company like Cipla, Cadilla, Dishmen Pharma, Arvind Mills etc.

Having said that since these clients would be from organised sector it would improve the company prospects of garnering structured funding.

For a more aggressive growth, the company would definitely require funding from various sources. With the establishment of Dubai operations, the management would consider availing funding in foreign currency by evaluation of all the possible options. This would result in saving in interest cost as foreign currency loan would be available at quite a cheap rate as compared to domestic funding.

Domestic Cargo business which was an erstwhile division of Jet Freight has been shifted to a separate company incorporated as its wholly owned subsidiary w.e.f June 17, 2018 in order to give the business vertical more visibility and recognition in the Domestic markets.

During the year under consideration 15 new branches/PUDOs point and 7 new warehouses were opened across India. Further horizontal expansion in terms of number of branches across other geographic is also under consideration.

Our key assets i.e. Human resources is being retained and nurtured by motivating them adequately at all levels. Quality of manpower is also maintained with highly experience manpower being appointed with relevant experience in the industry.

Inorganic growth of business is also something which the management is keen to pursue in days to come. There are loads of good opportunities for consolidation of business, thereby providing the required scale to the existing business.

2. Key Risks Identified:

• With the exponential growth in the Aviation Industry and due to liberal government policies, your company expects a lot of additional cargo capacity being put in the market in future years. However, the freight forwarding market is quite fragmented and demand being lagging as compared to supply, your company shall have to face the risk of shrinkage in margin in order to maintain the market share.

• Stretched working capital would be a scenario which the company may have to face due to its diversification strategy. Adequacy of funds for expansion would be the key to future growth.

• Delay in the Exporters refund on account of GST poses a threat to the working capital availability for the company.

• Companys diversification in different verticals would expose the company to various internal and external risks.

• With the diversification in new geographic it is envisaged that consequently political and currency risk would also come into play.

3. Risk Mitigation Strategy:

The Board of Directors have a vision to achieve the growth as envisaged in its business plan. Hence to be realistic, adequate arrangements for funds have been made in terms of entering into factoring service for quick realisation of funds against receivables. In order to diversify on financing risks the company has embarked on multi banking facility by borrowing from multiple banks. A good mix of public, private and foreign banks has been maintained which gives a flexibility of financing. A foreign bank in the portfolio would help the company to raise funds overseas and at a competitive rate.

Skilled Manpower is very crucial for the growth of the company. Hence identification and recruitment of manpower skilled to handle various cargo is pre-requite for the success of the business. In that direction, your company is having proper HR department in place to minimise the attrition rate and the existing manpower is provided with adequate training and grooming by conducting training programmes and sponsoring them for various trade related programmes.

4. Opportunities:

Better availment of incentives from airlines, an area wherein the company is exploring by giving maximum tonnage to the airlines. This would result directly in improving the operating margin of the business. Hence acquiring bigger market share with horizontal expansion in terms of new branches, better cost management would shield the companys margin from future business risks like GST or any other change in government policies.

There lies a huge opportunity in the domestic cargo business which would facilitate the growth of E-commerce business in India. Capitalising on E-commerce growth, the company envisages a good revenue visibility over the next few years to come.

Company has started its digital platform for procuring order which would in turn facilitate the new business acquisition. It would provide a seamless trade experience to its shippers/exporters by giving them quick quotes with least manual intervention and within the shortest turnaround time, the shipment would get executed. A separate company is incorporated under the name of R2D Freight Private Limited giving a digital platform to the shippers.

5. Segment-wise Performance:

The company operates in a single segment.

6. Internal Control Systems and their adequacy:

Your Company has a proper adequate internal control system and code of conduct to ensure that all the assets are safe guarded and protected against the loss from unauthorized use or disposition and that transactions are authorized, recorded and reported correctly.

The Management reviews the adequacy of the control systems on the monthly basis and on the basis of which our Internal Auditor assesses such control systems. The internal control is designed to ensure that the financial and other records are reliable for preparing financial statements and other data and for maintaining accountability of assets.

7. Trademark Registration:

We are pleased to inform you all that we have received a Certificate of Registration for our trademark application in class 16, 35, 38 39. Our logo can now be presented with a denotation of . Our Registration of trademark is valid for a period of 10 years from the date of application i.e. 27.07.2018.

Benefits of Trademark Registration:

a. Exclusive Rights to the owner,

b. Builds trust and Goodwill amongst the customers,

c. Differentiates services from others,

d. Use of symbol,

e. Protection against infringement- No competitor or other person can use the wordmark or logo registered under trademark. However, if in any case one uses it without the approval of the owner of trademark or make any deceptive use of same, the owner can get the legal protection under the Act and stop the person doing so.

8. Discussion on financial performance with respect to operational performance:

To mitigate the risks factors referred above that impacts the operations of the company, better operating processes, improvement in services and focus on optimization of resource deployment are some of the measures taken to achieve reasonable performance.

9. Material developments in Human Resources/Industrial Relations front, including number of people employed:

Total 191 number of employees were employed as on March 31, 2019.

10. Details of significant changes (i.e. change of 25% or more as compared to the immediately previous key financial ratios, along with detailed explanations therefore, including:

Debtors Turnover: 19%

Inventory Turnover: N/A

Interest Coverage Ratio: -27% (Interest coverage ratio has deteriorated by 27% due to compression in the profitability as compared to previous year)

Current Ratio: -10.76%

Debt Equity Ratio: 22%

Operating Profit Margin (%):-32%

(The operating profit margin is reduced on account of closure of Jet Airways and compromise on margins in order to maintain the growth in the market share.)

Net Profit Margin (%): -38%

(The explanation for the fall in the net profit margin stands same as given above for the fall in the Operating profit margin.)

Return on Net Worth(%): -31%

For and on behalf of the Board of Directors
For JET FREIGHT LOGISTICS LIMITED
Place: MUMBAI Richard Theknath Dax Theknath
Dated: 08.08.2019 Managing Director Whole-time Director