Lancer Containers Lines Ltd Management Discussions.

INDUSTRY STRUCTURE AND DEVELOPMENTS.

The logistics industry in India is highly fragmented with a large number of unorganized players. While there is a need for the highly fragmented Indian logistics market to get more organised, there is also a need to reduce logistics cost to 10 per cent by 2022 from about 14 per cent now. Only 10-15 per cent of the $215-billion Indian logistics market is owned by organised players.

Lancer Container operates in the NVOCC, Bulk Liner and Freight Forwarding industry which, caters to multiple sectors as well as individual customers by providing time definite services. Logistics services are used for various products such as securitised documents, electronic products, automotive components, temperature controlled shipments, trade samples, lifesaving drugs, mobile phones, etc. The Indian logistics industry has been gaining traction in the last few years and plays a very important role in facilitating trade and thereby propelling the growth of the Indian economy. Several factors such as - improving infrastructure nationwide, opportunities in emerging markets andchannel alliances, urbanisation, faster adoption of newer technologies and digitalization, increased consumer preference for the reduced delivery time, and deployment of innovative techniques for a fast delivery of products are all playing the role of a catalyst in fuelling the growth of the logistics industry in India. The logistics industry, considered to be the lifeline of the country, holds unprecedented importance as it connects various markets, suppliers and customers dotted across the country, and has now been firmly embedded as an integral part of the national GDP value chain.

The deeper penetration into Bharat (Tier II, III & IV towns), economy enhancing initiatives, GST implementation and other initiatives such as Make in India, Digital India and soon to be released National Logistics Policy, all hold a promise for an efficient and integrated logistics industry in the days ahead. Despite the enhancement in the logistics performance index from the 54th Rank in 2016 to the 35th rank in 2018, India has substantial potential for improvement. The Indian logistics sector provides livelihoodto morethan 22million people andimproving the sector will facilitate10 % decrease in indirect logistics cost leading to the growth of 5 to 8% in exports.

OPPORTUNITIES AND THREATS:

Opportunities: The Container industry is a key enabler in facilitating trade and commerce because of the time sensitive nature of most goods and the demand for reliability, efficiency and safe transport. The opportunities are immense for the logistics industry in India as the current logistics spend is at 14% of the GDP compared to a notably lesser single (digit) percentage in developed economies. The need for the highest level of efficiency still exists.

Lancer is committed to retaining its position as a key player through focused customer acquisition and enhancement of customer loyalty while continuing to expand to new markets. The strategy revolves around sector focus, emerging markets and MSMEs.

Risk: In sectors such as Automotive, Engineering, Electronics and Electricals, Pharmaceuticals, Medical Equipment etc. major customers of Lancer are shifting heavier shipments to the ground as cost pressures across industries push them to focus on cheaper modes of Container transport.

Furthermore, the cost of operating at major ports has significantly increased after their privatisation without any improvement in services or differentiators. The problem of insufficient container parking bays, truck docking stations, limited space for terminals and clearance processes leading to a delay impacting operating costs persists.

PERFORMANCE REVIEW

Over the last decade, Lancer has played a vital role in shaping the container industry in India. The Company has led, evolved and innovated its services to work towards customer delight. However, the period under review has been challenging in terms of market conditions and business sentiments due to a dynamic regulatory scenario & the outbreak of the COVID-19 pandemic globally. Lancer with its dedicated freighters and wide route connections on the ground has the unique capability to offer an wide service across an expansive and diverse Indian geography.

FY2019-20 Strong Revenue Growth and Stable Profits

Revenues at Rs.265.3 Crores, up 34% YoY

Containers deployed as on year end at 9696, up 14% YoY EBIDTA margins at 8.41% PAT at Rs.8 Crores, marginally down 2.6% YoY

For the year ended March 31, 2020, Lancer on a standalone basis reported Income from operations of Rs. 265.26 Crores (previous year – Rs. 197.41 Crores ) and posted net profit, after accounting for one off items, on a standalone basis of Rs. 8.02 Crores (previous year profit after tax of Rs. 8.26 Cores).

Major Performance parameters are mentioned below:

OUTLOOK, RISKS AND CONCERNS:

Rating agency Moodys has slashed its 2020-21 GDP growth projections for India close to zero from the earlier 5.2% and before that a 6.5% forecast on the back of slower recovery, citing largely domestic factors and cautioning that the global & domestic economy will be adversely impacted by the novel coronavirus (Covid-19) outbreak.

Unfortunately, for Indias corporate sector, the coronavirus outbreak has damaged some of its most indebted businesses. Almost 14% of Indias imports come from China, making it the nations biggest import partner. India is heavily dependent on Chinese imports such as Electronic, Components and Pharmaceuticals. India procures almost 70% of its active ingredients for medicines from China and has only a few months supply of inventory, making us particularly vulnerable to further disruptions.

The industry was hit badly during initial days of pandemic in April-May 2020, which was well managed by visionary team of Lancer. Being said that, we being in Logistics industry, out biz has no end till people have demand of goods and services, where our role is very important.

We firmly believe that every end is a new beginning and with chances of major shifting of manufacturing Industry from China to India and ASEAN nations, will give us a super boost post pandemic. Increase in manufacturing will have direct positive impact on growth of logistics & shipping industry. We are expecting straight 7-10% hike in logistics sector.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:

Across industries, internal process control and systems play a critical role in the health of a Company. An effective system of internal controls forms a keystone necessary for building, maintaining and improving shareholders value and helps to enhance the overall quality of the business and enterprise.

Lancer remains committed to ensuring an effective internal control environment that provides assurance on the efficiency of operations and the security of assets. Lancer has a sound internal control system to ensure that all assets are protected against loss from unauthorised use. All transactions are recorded and reported correctly. The Companys internal control system is further supplemented by internal audits carried out by the internal audit team. Well-established and robust internal audit processes, both at business and corporate levels, continuously monitor the adequacy and effectiveness of the internal control environment across the Company and the status of compliance with operating systems, internal policies and regulatory requirements.

Lancer has maintained adequate and effective internal financial controls based on internal control over financial reporting criteria established by the Company. This takes into account the essential components of internal control stated in the Guidance Note on ‘Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India (ICAI). These responsibilities include maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the Companys policies, safeguarding its assets, prevention and detection of frauds and errors, accuracy and comprehensiveness of the accounting records, and the timely preparation of reliable financial information, as required under the Act. The Audit Committee of the Board, works closely with both the Internal Auditors and Statutory Auditors ensuring that all their queries are addressed. The Company also conducts Risk Assessment Workshops annually to define and identify what the Companys most significant risks are and how those risks can be mitigated. The members of the Leadership team actively participate and deliberate in the risk workshops.

PERFORMANCE MANAGEMENT:

The performance management system in Lancer is Compared through Financial performance on quarterly basis. Lancer Group is integrated by a team of Experience People who believe in providing prompt and effective services to customers, which is beyond compare. We firmly believe in providing superior service through clear, concise two-way communication. The goal is to build relationships through our flexibility to meet our customers changing needs. To develop the competency aspect of our employees, various training programs have been incorporated to strengthen the development culture.

EMPLOYEE DEVELOPMENT:

Our goals are best achieved when motivated and well-trained employees provide quality service that always fulfils our customers expectations. Our Certified programmes are tailored for seamless& easy implementation. Common values of Passion, Can Do, Right First Time & As One and a clear focus on quality are the foundational tools necessary for all Lancer employees to deliver customer centricity par excellence. We have begun introducing the ‘Certified Programmes and will roll-out the same in a phased manner across the country.

Compliance strengthens a business ‘license to operate and is the foundation of an entrepreneurial business practice that encourages compliance-driven behaviour. In order to motivate employees and recognize their outstanding work, employees are being awarded the by individual managers for excellent work and several employees are being acknowledged for achievements beyond the call of duty.

FINANCIAL PARAMETERS:

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios along with detailed explanations are as under:

Particular March 31, 2020 March 31, 2019
Debtor Turnover Ratio 9.10 21.08
Inventory Turnover Ratio 283.63 -
Interest Coverage Ratio 4.57 5.92
Debt Equity Ratio 0.87 1.28
Operating Profit Margin 5.23% 7.13%
Net Profit Margin 3.02% 4.16%
EBIDTA Margin 8.4% 10.4%
PBT Margin 4.09% 5.92%
Current Ratio 0.90 0.73
ROCE 22% 24%
ROA 8.31% 9.84%

a. Inventory Turnover Ratio remains high due to no inventory was recorded for the year 2018-19. b. Operating Profit Margin and Net profit have moved more than 25% as there has been increase in the amount of expenditure incurred for new office in Cochin, higher depreciation and finance cost during the year 2019-20. c. To alive our motto for Total logistics solutions and providing all services under one roof, Company has scaled-upthe Freight Forwarding business which work on credit terms to be in competitive market. This has impacted the Debtor turnover ratio compare to previous year. However, the Company has a credit control and review process which keeps a regular check and balances on outstandings.

CAUTIONARY STATEMENT

The statement forming part of this Report may contain certain forward looking remarks with the meaning of applicable Securities Law and Regulations. Many factors could cause the actual results, performances, or achievements of the Company to be materially different from any future results, performances, or achievements. Significant factors that could make a difference to the Companys operations include domestic and international economic conditions, changes in government regulations, tax regime and other statutes.