Lancer Containers Lines Ltd Management Discussions.
Management Discussion and Analysis Industry and Business Overview Industry overview:
One of the most important driver of economic growth is logistics as it performs the core function of moving goods from the place of production to the place of consumption and thus enabling trade. Given the evolution of the logistics function over the period of time, the delivery of logistics function has been entrusted to experienced logistics service providers also known as third party logistics providers (3PL) thus enabling businesses to focus on their core competencies of producing goods and services. Apart from the core logistical activities of transportation, 3PL players also offer value-added services such as warehousing, customs clearance, freight forwarding, import/export management, inventory management, assembly/installation, packaging and labelling, distribution, after sales support, reverse logistics and so on.
Containerization & Container Terminals: The practice of transporting goods in shipping containers of uniform size and shape has revolutionized international trade. While previously loading and unloading ships without containerization used to take up to 10 days, currently this same process takes place within 24 to 48 hours, lowering export times and costs. The containerization process has also decongested previously crowded ports and facilitated multi-modal movement of goods. With containerization of cargo movement, the ecosystem to facilitate the movement of containers has also developed, predominant among them being the Container Terminals. As on end of FY 2017-18, the total installed capacity of Indian Container Terminals was 27,050,000 (27.5 Million) TEUs. Drewry Maritime Services, an independent maritime research consultancy offering market insights and advisory services to senior stakeholders across the global shipping estimates that by 2020 Indian ports will have the capacity for handling 33.2 Million TEUs, a CAGR growth rate of 10.2% during the period of 2015-20 the highest in the world and much higher than the global average of just 2.9%.
Container Traffic: Indias 12 state-owned ports loaded a combined 9.876 million 20-foot equivalent units or TEUs in the year ended March 2019. In FY18, the dozen major ports handled 9.138 million TEUs - this is 8.08 per cent more than the previous year. Containers handled at major ports are expected to cross the 10 million TEU mark the coming fiscal. Amongst the major ports, Jawaharlal Nehru Port Trust (JNPT), Indias biggest container port, retained the pole position among the major ports in container handling, ending the year with a volume of 5.133 million TEUs in FY19 against 4.833 million TEUs in FY18, followed by Chennai Port Trust with 1.620 million TEUs in FY19 against 1.549 million TEUs in FY18. Kolkata Port Trust held the third spot with 830,000 TEUs in FY19 from 796,000 TEUs in FY18.
Increasing focus of the government in building, developing Infrastructure, which now includes the logistics sector is likely to give a further push to growth of port capacity.
Government Policies: According to the Ministry of Shipping, around 95 per cent of Indias trading by volume and 70 per cent by value is done through maritime transport. It is serviced by 13 major ports (12 Government-owned and one private) and 187 notified minor and intermediate ports. The total 200 non-major ports are present in the following States: - Maharashtra (53); Gujarat (40); Tamil Nadu (15); Karnataka (10) and others. There is thus a continuous need to develop Indias ports and trade- related infrastructure to accelerate growth in the manufacturing industry and to assist the Make in India initiative. (a) The Sagarmala Programme is an initiative by the Government of India to enhance the performance of the countrys logistics sector. It also aims at "transforming the existing Ports into
modern world-class Ports and integrate the development of the Ports, the Industrial clusters and hinterland and efficient evacuation systems through road, rail, inland and coastal waterways resulting in Ports becoming the drivers of economic activity in coastal areas. One of the key components of the Sagarmala project is Port Modernization and new port development. A 2018 Year End Review conducted by the Ministry of Shipping states that as on end of 2018, the Sagarmala Programme saw the completion of 89 projects, while 443 projects worth Rs. 4.32 lakh crore are under various stages of implementation and development. (b) Project Unnati - Operational Efficiency Improvement - Under Project Unnati, global benchmarks were adopted to improve the efficiency and productivity KPIs for 12 major ports. Around 116 initiatives were identified across 12 major ports to unlock more than 100 MTPA capacity just through efficiency improvement. Out of which, 91 initiatives have been implemented to unlock around 80 MTPA capacity. (c) New Port Development: To fill the demand gap, 6 new major ports are planned which will bring in significant capacity expansion. The New port locations identified by the government based on the cargo flow for key commodities and the projected traffic are proposed at (a) Vadhavan (Maharashtra) (b) Tajpur (West Bengal) (c) Paradip Outer Harbour (Odhisha) (d) Cuddalore/Sirkazhi (Tamil Nadu) (e) Belikeri (Karnataka) (f) Enayam (Tamil Nadu) - Transshipment Port.
The government has reiterated its steadfast commitment to modernizing the functionalities of Indian logistics with a key focus on infrastructure development. With a view to improving supply chain efficiencies and enhancing connectivity to help logistics players tap the underleveraged markets in the countrys hinterlands, key infrastructure development projects have been rolled out. (d) The ambitious Bharatmala project involving 83,677 kms. of new highways holds the promise of strengthening the countrywide road network and improving connectivity with the interior and backward areas of the country. It was approved at an estimated outlay of Rs. 5,35,000 Crore. Bharatmala Project will interconnect 550 District Headquarters (from current 300) through a minimum 4-lane highway by raising the number of corridors to 50 (from current 6) and move 80% freight traffic (40% currently) to National Highways by interconnecting 24 logistics parks, 66 inter-corridors (IC) of total 8,000 km (5,000 mi), 116 feeder routes (FR) of total 7,500 km (4,700 mi) and 7 north east MultiModal waterway ports. In addition to the above there are freight-only Dedicated Freight Corridors that aims at decongesting a heavily saturated road network and reducing freight transit times.
Lancer group currently provides various services such as NVOCC (Non-Vessel operating common carrier), freight forwarding, container trading, provision of yards for storage of empty containers, Less container Load (LCL) and Break bulk operations. We have added liquid cargo (Flexi tanks) and Air Freight forwarding to our product line. Within India we have 12 branch locations & internationally we have agency tie up at 22 locations. We are happy to share with you the following key achievements of your company for the year under review:
1. The company has added branches at Hyderabad and Jalandhar locations taking the total number of branch locations to twelve.
2. We have during the year tied up with agents covering southeast Asia locations, thus enabling us to expand our area of coverage.
3. During the year under review the company added 1560 boxes taking the total number of boxes to 8500 boxes as at the end of FY 2018-19. The current inventory level by end of Q1 FY 20 stands at 8900.
4. The company in May 2018 moved from the SME platform of the Bombay stock exchange to the Main board.
5. The company has during the year acquired and moved to a larger office and now designated as registered office.
6. The Company has successfully rolled out EBMS platform to keep a track on the process of logistic movement from the time of customer order to delivery of order for the client.
Strengths, Weakness, Opportunities & Threats - SWOT Analysis
It is imperative that for driving long term sustainable and responsible growth, we must constantly review the environment where we operate, know our strengths, identify our weakness, be ready to take advantage of the opportunities and take steps to mitigate the threats facing the business. In true spirit to this ideal we have undertaken a SWOT analysis of the industry and the company.
| Government focus on Logistics sector & high level of investments proposed.|| Asset Heavy Industry and Asset heavy business model.|
| Non-Discretionary products/services.|| Need for Capital - Equity and / or debt to fund asset acquisition and thereby growth.|
| Industry growing at CAGR of 10.5%|
| Promoter vision.|
| 8900 Own containers readily available to serve clients.|
| Strong brand recall amongst shippers, freight forwarders, Port, Slot Operators.|
| Focused efforts on Middle East & South East Asia.|
| Network of branches at locations closer to port and clients.|
| Network of Agents.|
| Deep relationships with Ports and Slot operators.|
| Financial discipline maintained - Low Debt / Equity levels, High level of Fixed Assets - Containers.|
| Talent pool.|
| Develop and roll-out multiple products catering towards diverse set of products.|| Economic slowdown Risks of War, Trade wars & embargoes.|
| Coastal transport.|| Damage to Assets.|
| Scalability of the existing business.|| Competition from smaller players.|
| New Sectors / Geographies.|
Your company continues to build on the strengths & tap into the Opportunities while remaining vigilant about the various threats and weakness facing the industry and business. The leadership team of your company continues to scan the competitive landscape & takes steps to steer the company on sustainable and responsible growth strategies.
The performance of the Company for the Financial Year ended March 31, 2019 is as follows:
Revenues at Rs.197.96 crores, up 78.8 % Y-o- Y.
EBIDTA at Rs.20.5 crores was up 46.7 % Y-o-Y despite higher operating expenses.
Depreciation up at Rs. 7 crores in FY19 vs Rs.4.6 crores in previous year. Despite this, PAT at Rs.8.22 crores, was up 20.03 % Yo Y
The EPS (earning per share) was Rs. 8.18 for a face value of Rs. 10 per share.
The debt to equity ratio of the Company stood at 1.28 times as on March 31, 2019.
Key Financial Ratios:
As required under Regulation 34 of SEBI LODR, the following are the key financial ratios and the reasons for the changes in each of the ratios.
|Particulars||FY 19||FY 18|
|Gross Profit Margin||16%||20%|
|Debt equity ratio||1.28||1.08|
|Interest Coverage Ratio||5.69||6.62|
|Debtors turnover ratio||21.08||16.34|
1. Details of changes over previous year:
During the year, more so in Q4, we undertook major initiatives on expansion details of which are shared herein: (a) We opened new branches at Hyderabad and Mangalore. (b) Added new product lines i.e. liquid cargo (Flexi Bags) and Air cargo freight forwarding. (c) The company also explored new sectors like Vietnam. (d) Added additional capacity of 1560 containers (e) During the year under review, the company acquired and moved to a larger office & thus incurred expenses for shifting to new premises (f) Higher Depreciation and Interest costs. The combined effect of these initiatives are expected to boost revenue in the coming years. Some of these initiatives did resulted in higher cost especially in Q4 FY19 & thus the resultant impact on full year numbers, but enabled us to explore and tap business opportunities today to be ready to reap benefits of good growth in business. For the full year, FY 19 the PAT at Rs.8.22 crores, was up 20.03% YoY higher.
2. It may be noted that your company has ventured into new areas, new products, new locations, new sectors and hence the need arises to provide a reasonable level of credit period to be competitive the market. This has pushed the debtors turnover ratio higher than compared the previous year. The Company has a credit control and review process which keeps tabs on the outstandings.
Corporate Social Responsibility:
As mandated under Section 135 of the Companies Act, 2013 the company is required to spend towards CSR activities. Your company has constituted a CSR committee under the chairmanship of the Managing director, Abdul Khalik Chataiwala. The company during the year spent Rs. 400,000 towards promotion of education & Rs. 431,000 towards medical treatment of chronic conditions of the poor and needy patients. Your company believes in giving back to the society in which it operates and remains committed towards making a difference to the needy people through it CSR initiatives.
Internal Control Systems and their Adequacy:
The organization maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations. The company is well structured and the policy guidelines are well documented with pre-defined authority. The Company has also implemented suitable controls to ensure that all resources are utilized optimally, financial transactions are reported with accuracy and there is strict adherence to applicable laws and regulations. In addition, the board of directors and the Audit Committee periodically review the findings and ensure corrective measures are taken.
Human resources is an integral part of any organization. Your company had 173 employees at end of FY 2019, as against 117 employees in FY 2018. During the year, we are pleased to inform you of the following initiatives on the people front for our Human Resource assets:
1. Your company through HEALTHSPRING conducted a health check-up camp for its employees covering important health parameters.
2. Your company offered Internships to 13 employees and of these 9 were absorbed as permanent employees.
3. Your company has started hiring from the campuses, Institute of Logistics- Cochin(Kerala) and Indian Maritime University-Navi Mumbai.
Your company believes in ensuring fair and transparent treatment of all its stakeholders and considers cooperate governance regulations as an enabler and continues to adheres to the guidelines in letter and true spirit.
This report contains forward-looking statements based on certain assumptions and expectations of future events. Actual performance, results or achievements may differ from those expressed or implied in any such forward looking statements. The company undertakes no obligations to publicly revise any forward looking statement to reflect future/likely events or circumstances.
|For and on behalf of the Board of Directors|
|Lancer Container Lines Limited|
|Abdul Khalik Chataiwala|
|Place: Navi Mumbai||Chairman & Managing Director|
|Date: 29th August, 2019||(DIN:- 01942246)|