Jet Freight Logistics Ltd Management Discussions.

1. Global Economic Overview:

Global air cargo market will grow at a steady CAGR of close 5% p.a. One of the primary drivers for this market is the constant rise in e-commerce activities across the world. In e-commerce, since vendors have to ship orders fast, the demand for air cargo services has gone up considerably. As geographic borders do not restrict online retailers, shipping products by air will result in quicker deliveries. The ability of this mode of transportation to move goods from one location to another within a short span of time will result in its increased popularity among end users. During the year 2017, its been a good start to the year for air cargo. Demand growth accelerated in January, bolstered by strengthening export orders. And that outpaced the capacity growth which should be positive for yields. And, longer-term, the entry into force of the Trade Facilitation Agreement (TFA) will cut red tape at the borders for faster, cheaper and easier trade. The onus is now on the industry to seize the opportunity to accelerate the modernization of processes to make air cargo an even more compelling option for shippers.

2. Overview Of Indian Air Cargo Industry:

Indias air cargo industry is expected to handle 2.8 million tons of cargo by 2018, increasing at a compounded annual growth rate (CAGR) of 5.5 per cent mainly due to the relaxation of Foreign Direct Investment (FDI) limits by the government. This growth rate is expected to be maintained in the coming years also. The governments focus on attracting foreign direct investment has proved to be a major boost for the industry by allowing 100 per cent FDI in existing airports and under automatic routes along with 100 per cent tax exemption for airport projects for the next 10 years, have been major growth drivers.

The government has also various airports across the country for the development of cargo terminals. "Airports located in tier-two and tier-three cities have been identifi ed where common user domestic cargo terminals will be established after checking feasibility.

There are challenges faced by the Indian air cargo market due to the lack of dedicated air cargo warehousing facilities at major airports and restrictions on sanctioning of licenses for operating bonded warehouses.

With increasing trade activities in the Asia-Pacifi c region, the Indian air cargo industry has the second fastest growth rate in the world, ranking just behind the Middle East. As per the study, international air cargo traffi c is expected to grow at an average rate of 4.7 per cent year-on-year over the next two decades.

3. Company Business Outlook:

The approx. market size of Air cargo industry in India is 2.6 MN tonnes. However there is no offi cial statistics provided by the government of India. The fi gure is based on the research reports published by various chambers, associations and trade channels. Going by this, your company has carried a tonnage of 34000 which works out to approx. 1.4% of the entire industry tonnage. Hence there exists a vast potential market share to be explored by the company.

As a strategic business decision, your Board of Directors decided to undertake Domestic cargo activity by setting up a separate vertical with all the infrastrure in place at its Mumbai and Delhi Branch. To start with Mumbai and Delhi are the two major hubs being covered. However there are plans in place to exploit other regions in order to increase the market share. Further horizontal expansion by way of increase in number of branches is also envisaged in business plan to gain the market share.

Diversifi cation into more of General cargo and increasing the revenue contribution from it is going to be the way forward. Since clientele in general cargo business being more from organised sectors having corporate identity, the company would even explore Receivable factoring services from banks. As a result of this, your company would be in a position to provide long credit period which is a pre-requisite to gain business from various pharma, chemicals, FMCG companies. Inorganic growth would be the other area which your company is always open to for further growth. However there should be synergy in the business to be acquired which in the long run should add to the shareholder value.

Discussions and negotiations are on the table for overseas diversifi cation by setting up either a branch or a wholly owned subsidiary to exploit the overseas markets. Your company has a vision to achieve a market capitalisation of Rs.100 CR within next two years. For this your company is all geared to embark on this journey with the right kind of people and processes in place to reach the destination.

4. Key Risks Identifi ed:

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 diversifi cation strategy. Adequacy of funds for expansion would be the key to future growth.

Change in the government policies can pose a challenge for the company.

Companys excessive dependence on perishable shipment poses a challenge in terms of concentration of business risk.

5. 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 receivables. Enhancement in the working capital limits is also being explored with the existing bankers in order to keep the business adequately funded. Skilled Manpower is very crucial for the growth of the company. Hence identifi cation 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. Adding further, an Additional Director in the category of an Independent Director has been appointed with a banking and fi nance background, basically an ex-banker in order to facilite the funding from the banks.

6. Opportunities :

Your company foresees a lot of opportunities in Domestic freight forwarding due to a big growth in the volume of e-commerce business in India. With the advent of GST, a lot of unorganised players in the industry would get weeded out as working capital requirement for all the companies would increase substantially. Hence companies with deep pocket would be able to take advantage in terms of better rates from Airlines as well as better negotiations powers with the shippers.

There are opportunities in terms of inorganic growth whereby Jet Freight can acquire a business either in the same business or can go for acquisition in different vertical. Consolidation of business is the way forward in freight forwarding industry with the advent of GST.

With the boom in e-commerce business in India, warehousing can be an additional facility which your company can offer to its existing shippers as well as domestic e-commerce companies. End to end solution providers is the ultimate aim of the company.

Due to our existing long standing relationship with most of the domestic airlines there are opportunities to provide further load to the airlines and in turn getting better rates for domestic freight forwarding activity. This would be an USP from our company to the shippers whereby we can form alliance with domestic courier companies by providing back end services.

Overseas freight forwarding markets is another area which your company would like to explore. Having a sizeable market share of exporters of perishable items, the company can offer further services of overseas clearance and transportation of material up to importers warehouse. To an extent, this would be an end to end solution to its existing shippers.

7. Segment-wise Performance:

The company operates in a single segment.

8. 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 fi nancial and other records are reliable for preparing fi nancial statements and other data and for maintaining accountability of assets.

9. Discussion on fi nancial performance with respect to operational performance:

To mitigate the risks factors referred above that impact 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.

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

There were signifi cant appointments to the top management of the company such as the Managing Director & Whole-Time Director who were appointed w.e.f. June 20, 2016, Chief Financial Offi cer who was appointed w.e.f. July 25, 2016 and Company Secretary & Compliance Offi cer who was appointed w.e.f. July 19, 2016. More detailed information has been given in the Directors Report.

Total 119 number of employees were employed as on March 31, 2017.

For and on behalf of the Board of Directors For JET FREIGHT LOGISTICS LIMITED

Richard Theknath Dax Theknath
Managing Director Whole-time Director

 

Place: MUMBAI
Dated: 29.05.2017