Navkar Corporation Ltd Management Discussions

The logistics industry plays a vital role in the dynamic economic landscape of India by enabling the efficient movement of goods and services throughout the countrys large territory. As India strives to realise its ambitious economic goals, efficient management of its logistics sector emerges as a pressing imperative. Given its pivotal role in supporting various industries, from manufacturing to agriculture and e-commerce, the logistics sector faces a myriad of challenges, and offers a number of opportunities.

The Indian logistics sector is one of the largest in the world and presents a huge addressable opportunity. The sector is critical for the countrys economic growth as it connects various elements of the economy and consists of transportation, warehousing and other supply chain solutions ranging from suppliers to end customers.

The global economy has demonstrated unprecedented resilience in meeting supply economic upheaval in 2023-24 caused by cataclysmic geopolitical events in the form of the continuing conflicts between Russia & Ukraine and the Israel Palestinian was culminating in the Red Sea Crisis. Global growth is projected by the World Bank to hold steady at 2.7% whereas Indias growth rate projection remained at 6.7% up by 0.2% over the previous year. As per the January report of World bank predicted the world economy to settle below pre COVID era. However, with imposition of Tariffs by USA the new normal is shifting its base. Countries that collectively account for more than 80% of the worlds population and global GDP would still be growing more slowly than they did in the decade before COVID-19. Several factors contribute to this tepid forecast, Tariff war, high central bank policy rates, withdrawal of fiscal support, high debt levels, slowing down economic activity, low productivity growth and wars across various geography. Conversely many parts of the world are on the other hand, most of the regions are seeing a better than expected response to tight monetary policy manifested by reduction in inflation, also supported by resolution of supply side issues. Global headline inflation continued to recede last year amid easing energy and food prices, healing supply chains, and the lagged effects of tight monetary policy stances (figure 1.5.A). As a result, headline inflation by late 2024 was at or below target in over 60 percent of economies and remained only slightly above target elsewhere Global inflation is expected to moderate to 2.7% in 2026, however many central banks are expected to remain cautious in lowering policy interest rates. IMF predicts slow global recovery on account of regional divergences. The Red Sea crisis, Tariff imposition has complicated and destabilized global supply chains which will get manifested in the 2025-26 period. Increased shipping and insurance costs coupled with longer lead times will contribute to this disruption and squeeze earnings further.

Ongoing trade disturbances, geo-economic disruptions, escalating geopolitical tensions, extreme climate change, and uncertain financial scenarios continue to pose risks affecting growth in trade and commerce.

This disruption and realignment provides a strategic opportunity for challengers like India to increase their share of the pie thereby boosting economic growth.

The Indian economy is a bright spot in this generally dismal scenario caused by the global disruptions. The economy has a positive outlook for coming years and is poised to be the fastest growing amongst the major economies globally. Various sources place the growth rate of Indian economy between 6.2% and 6.5% with the IMF indicating that Indias economic growth forecast for the current year has been reduced to 6.2 percent poised to increase to 6.5% in FY 26. The improvement in the growth estimate is attributed to the robust economic performance of the country, domestic demand and investment, is expected to continue driving growth of the economy. Indian economy has been strong in 2023, with substantially higher levels of capital formation enabling growth. In India, growth is expected to decelerate to 6.5 percent in fiscal year (FY) 2024/25 (April 2024 to March 2025) from 8.2 percent in FY2023/24, reflecting a slowdown in investment and weak manufacturing growth. However, services activity has been steady, while growth in the agricultural sector has recovered. Private consumption growth has remained resilient, primarily driven by improved rural incomes accompanied by a recovery of agricultural output. In contrast, higher inflation and slower credit growth have curbed consumption in urban areas

However, private sector investment has been inadequate in spite of sustained implicit and explicit incentives from the government. Aggregate decline in participation of Foreign Direct Investment has also impacted the overall capital investments. The economy however is poised to grow backed by the services and financial sectors.

Going forward, Government should prioritise reforms in the areas of learning and development, skilling of workforce, energy security, health and wellness, womens participation in the workforce and promotion of small businesses especially in the manufacturing industries to improve our growth prospects.

The phenomenal increase in the National Highways and Indian Railways networks is a key driver of growth in the economy. This phenomenal development enhances accessibility to the remote parts of the country thereby improving national connectivity. The investment in infrastructure entailed by this development has created numerous employment opportunities thereby propelling economic growth.

The Indian logistics industry is on the cusp of a giant leap forward, annual growth is expected to be in the range of 8.0% to 9.0% in the next decade. This growth will be propelled by new age businesses, drawing heavily on contemporary technology. Government intervention by way of industry friendly policies, support to advancement of requisite technologies and rapid infrastructure creation will be an enabler in this growth journey. We can already see evidence of this rapid growth with the advent of the physical and technological infrastructure to sustain road, rail, sea and air transportation, contemporary warehousing and peripheral services like freight forwarding, new age solutions and technological support forming the entire spectrum of activities. The industry has transformed to encompass hitherto unexplored activities like predictive planning, analytics, value-added services comprehensive, customized and complex multimodal supply chain solutions, amongst others.

It is noteworthy that despite advancements, logistics costs in India remain high at 14% of GDP as compared to middle and low single digits in developed countries. Initiatives like Gati-Shakti programme, coupled with the major activity in infrastructure development and technology adoption is improving the efficiencies and economies in this sector Customized and integrated solutions encompassing multimodal transportation and warehousing services along with other peripheral services are essential offerings in this evolving landscape.

Higher cost of logistics in India is driven by inefficiencies inherent to the industry in India. For example road transportation accounts for nearly 70% of goods moved, while rail, ocean, and air account for the balance 30%. In the last few years the Indian Government has taken cognizance of these factors and launched several initiatives to foster industry wide efficiencies.

1. National Logistics Policy: The National Logistics Policy seeks to bring about a paradigm shift across the logistics landscape and enable reduction of logistics costs by half to benchmark levels by 2030. The policy envisions a Digital Integration System, ULIP, Comprehensive Logistics Action Plan, and Ease of Logistics Services, among other initiatives to achieve this task. The policy is supported by 13 State Logistics Policies diversifying and customizing policy frameworks to suit their specific needs.

2. Logistics Programme (LEEP): LEEP is designed to improve freight transport efficiency. Associated cost, transportation time, and logistics practices like goods transferring and tracking through infrastructure technology and process interventions.

3. PM Gati Shakti Scheme: The PM Gati Shakti Scheme was launched by the Government of India in 2021 with the purpose of creating a world-class, seamless multi-modal transport network in India. It will incorporate the infrastructure schemes of various Ministries and State Governments, Economic Zones to improve connectivity & make Indian businesses more competitive. It will also leverage technology extensively including spatial planning tools with ISRO and imagery developed by Bhaskaracharya National Institute for Space Applications and Geoinformatics.

4. Dedicated Freight Corridors: This project involves the construction of the Eastern and Western Dedicated Railway Freight Corridors (DFCs), having a cumulative length of over 3,000 km. Dedicated Freight Corridor (DFC) project was conceived in 2005 and two DFCs, namely Eastern DFC (EDFC) and Western DFC (WDFC) were approved by Cabinet in 2008. The aim is to reduce overall logistics cost by increasing speed, optimizing capacity, and providing seamless connectivity with ports for expediting movement with efficiency. The end objective is to decongest high density rail routes and facilitate shift from road to rail and coastal shipping

5. Sagarmala Programme: Sagarmala seeks to enhance the performance of the logistics sector by reducing logistics costs for both domestic and international trade. By leveraging coastal and waterway transportation, the program aims to minimize the need for extensive infrastructure investments, thus making logistics more efficient and improving the competitiveness of Indian exports. 839 projects, calling for investment of nearly Rs. 5.8 lakh crores, are aimed to be undertaken for implementation under the Sagarmala Programme, out of which, 241 projects worth Rs.1.22 lakh crores have been completed.

6. Bharat Mala Pariyojana: The Bharatmala Pariyojana envisages development of about 26,000 km length of Economic Corridors, which along with Golden Quadrilateral (GQ) and North-South and East-West (NS-EW) Corridors are expected to carry majority of the Freight Traffic on roads. Further, about 8,000 km of Inter Corridors and about 7,500 km of Feeder Routes have been identified for improving effectiveness of Economic Corridors, GQ and NS-EW Corridors. The programme envisages development of Ring Roads / bypasses and elevated corridors to decongest the traffic passing through cities and enhance logistic efficiency. As of December 2023, 76% of the planned length, equivalent to 26,418 km, was awarded for construction, and approximately 15,549 km was completed. Completion of the project is expected by 2026.

Navkar Corporation Limited (hereinafter referred to as ‘the Company, ‘Navkar) is one of Indias fastest Integrated Logistics Services Providers having capabilities across Container Freight Stations (CFS) & Inland Container Depots (ICD), Rail Terminals (PFT), Container Train Operations (CTO), Warehousing and other supporting Logistics Solutions. The Company provides comprehensive, customised, technology-enabled logistics solutions at a transactional or strategic level to meet customer specific requirements. Our strength lies in our wide bouquet of offerings enabled by our extensive network of strategically located facilities and our transportation network integrating as a vast hub and spoke model designed to empower customers in enhancing the productivity of their supply chain.

Our solutions seamlessly integrate multiple modes of logistics deploying industry-leading technology, infrastructure, processes, and human resources.

We operate in four distinct yet interwoven business streams, viz. Container Freight Station Operations, Inland Container Depot Operations, Container Train Operator Operations and Private Freight terminal Operations. Our network consists of 3 CFSs in the vicinity of Nhava Sheva Port, 1 ICD in the hinterland of Saurashtra at Morbi served through Mundra and Kandla Ports, 2 PFTs, one adjacent to our CFS at Somathane and one adjacent to our ICD at Morbi, assorted bonded warehousing, general warehousing and transportation assets at all our facilities, and 8 owned container rakes.

We serve Indian and Multinational companies across a multitude of sectors, including Manufacturing, Automotive, Chemicals and Fertilizers, Consumer Goods, Retail, Commodities, Paper, Iron & Steel, Non Ferrous Metals, Tiles, Petrochemicals, Agri-commodities amongst other industries.

Navkar operates in four distinct business streams, each with dedicated operations supported by business functions, viz. sales & marketing, operations, human resources, information technology and finance. Our marketing strategy focusses on offering customers the flexibility to choose between standalone and integrated solutions across the business streams to meet the exact demands of their business.

1. Container Freight Stations: Navkar Corporation Ltd. owns three Container Freight Stations (CFSs) serving the gateway port of Nhava-Sheva. Our CFSs handle import and export containers, offering customs clearance services and also offer a variety of value additions for our customers. We own contemporary cargo and container handling, dedicated warehouses to meet customer needs, and container stacking yards. We provide end-to-end cargo and container services, including parking and repair facilities.

2. Inland Container Depot & Multi Modal Logistics Parks: Navkar Corporation Ltd. owns one Inland Container Depot (ICD) at Vadharva. The ICD is part of the Multimodal Logistics Park offering Warehousing (Domestic and Bonded), Multi Modal Transportation, Storage yard for empty and laden containers and storage and handling of various types of cargo ranging from bulk, block, palletized, liquid, Hazardous and Reefer cargos.

3. Private Freight Terminals: Navkar Corporation Ltd. operates two Private Freight Terminals (PFTs) i.e. private railway terminals for handling Freight Trains. These terminals are to serve MMR (Mumbai Metropolitan Region) located at Somathane (Panvel) and to serve Saurashtra & Kutch regions of Gujarat with focus on Morbi located at Vadharva (Morbi). Our Rail Terminals are capable to handle all types of cargo trains ranging from trains for Steel cargo, Bulk cargo, Bagged cargo, Containerized cargo and Automobiles.

4. Container Train Operator: Navkar Corporation Ltd. Owns Category 1 License issued by Indian Railway for operation of Container train on Indian Railway Network on PAN INDIA Basis. We own 8 container trains in addition to operations of rake on lease basis time to time. Our rakes are deployed on EXIM and domestic circuit and giving regular service across Ports and Industrial centers.

The Company is engaged in the business of providing services of CFS, ICD, Rail Operations and other related services. There is no other reportable segment.

Indias GDP growth in FY 2025-26 is likely to be impacted by various factors like US tariff, inflation, reduced participation from Private Sector and Foreign Direct Investors in the India growth story, tight monitory policy and a continuing unstable financial outlook. Amid this scenario, the GDP growth is likely to be around 6.5% for this fiscal The Annual budget is a balanced response by the Government to the projected 6.5% GDP growth rate for FY 2025-26 The continuation in robust investments in the infrastructure sector by Government of India and the push for agricultural productivity, skilling and employment generation and Research & Development in the budget will support the onward growth of the economy.

Leveraging technology, along with Third Party Logistics Services. For the Indian economy, the logistics sector plays an important role. The large Indian populace is a sector for consumption of goods that are procured locally or imported. This consumption partly drives the economy and the logistics services. Improvement in Indian Railway infrastructure with development of DFC will help in increase of rail efficiency.

Leveraging presence of our own and leased railway assets to provide integrated logistics solutions to some of the most prominent industries in India

Growing competition from other Logistics Sectors. Government Initiative share of DPD containers is increasing every month. Amongst these DPD containers, there are many that head straight for factories and some that head for CFSs for interim storage or for completing the customs processes prior clearance.

Increasing congestion in Mundra Port has affected rail evacuation.

Increase in capacity by competitors and development of new terminals.

The Company is dedicated to identifying and managing the risks it is exposed to, both internal and external, and has put in place mechanisms to handle the same proactively and competently. The Company also recognizes that these risks potentially have an adverse impact on its ability to create sustainable value for its stakeholders. A comprehensive and robust mitigation plan has been put in place to address such risks. The major risks faced are as below

1. We operate in a highly competitive industry populated by a large number of unorganized players. Many segments within the industry are highly commoditized and have low barriers to entry, creating a highly fragmented market where achieving substantial market share is difficult.

2. The high level of fragmentation and consequent competition may impact revenue and profitability adversely. To mitigate this, the Company creates value through integrated technology-based solutions, transport network-based solutions, and skill development of its employees.

3. The ICD / CFS business of the Company is subject to the performance of the Indian EXIM Trade which, is in turn dependent on global economic conditions. A plethora of factors with potential impact on global economic conditions in turn have a cascading effect on the business. Given the projected growth in the Indian economy and expected recovery in global trade, rising spending in the infrastructure and manufacturing space, it is estimated that imports will continue to rise steadily.

4. Policy changes of the Government pertaining to Monitory & Fiscal Policies, political changes, microeconomic and macroeconomic changes, tax rates, infrastructure development and regulatory environment changes have potential impact on all business lines -

1. The Company has built a strong relationship with major industry participants viz. Shipping Lines, Custom Handling Agents, Freight Forwarders etc.

This strong relationship shores up our existing market share in the business and also gives us an advantage in obtaining favorable and competitive commercial terms to protect our revenues and margins.

2. Our services to the customers are marked by the best in class infrastructure we have positioned, customer centric approach in all our interactions with the customers and the ability to provide innovative and customized solutions to meet specific business needs

3. Our focus on pricing products competitively and with an understanding of the customer expectation, enabled by sound operational, financial and human resources management helps us differentiate against competitors.

4. Completion of projects timely and within budget helps in keeping our costs in check contributing to the overall cost competitiveness and profitability objectives while simultaneously helping us be in the forefront of new development within the industry

5. The company has recognized the vagaries of the exim trade especially in the wake of the ongoing trade war between China and USA which will result into disruption in global supply chain. Companys trade reliance on USA is not meaningful, while some headwind is expected. Conflicts between various countries across globe remains a cause of concern and Company will monitor. Anticipating such disturbances in the past we have diversified our services to increase the contribution of businesses not dependent on ocean freight.

6. Multimodal businesses have contributed a major portion of our annual revenues in FY 2025. Growth is expected to come from the volume of both current and new customers.

7. The business strategy team in the Company is monitoring changes in relevant policies and other events and continually assessing the impact on our businesses with countermeasures being planned and executed expeditiously to minimize impact on revenue, profitability, customer service objectives.

The Company has robust Internal Control Systems and processes in place for smooth and efficient conduct of business and it complies with relevant laws and regulations. It has well documented system of internal financial controls in place, in the form of delegation of powers, policies and procedures that cover critical as well as important activities of financial and other operating functions. The procedure are in the form of manuals, guidelines, delegation of powers and IT system and controls which are effected through people operating in various departments within the Company at different levels at each stage of the processes. These are designed to ensure compliance to the internal financial controls as detailed in the Companies Act, 2013.

The Company uses Tracker Software that connects all parts of the organization, to record data for accounting, consolidation and management information purposes. The organization continuously assess the effectiveness of its internal controls through extensive internal audits, which are being conducted on regular basis by experienced independent firms of Chartered Accountants in close co-ordination with Companys own internal audit Department.

A well- internal control framework has been developed identifying key controls and independent external auditors verifies the adequacy and effectiveness of the internal financial control system through regular periodic audit and system review, provides assurance on the compliance of internal polices & procedures of the Company and certify the appropriateness of internal controls. Internal audit firms directly report to the management at higher level. The functioning of the internal audit as well as internal financial control systems are periodically reviewed by the Audit committee to ensure comprehensive coverage of the areas and necessary directions are issued whenever required to further strengthen the internal financial control system & procedures keeping in view the dynamic business environment in which the Company operates.

Reports of the auditors are reviewed, compliances are ensured and the reports along with the compliances are apprised to Audit committee periodically. Proactive steps have been taken to ensure compliance with various upcoming regulations through deployment of cross functional teams. The Company at all times encourages the employees to adopt fair, compliant and ethical practices. In addition, implementation and effectiveness of internal financial controls during 2024-25 was also reported by the internal and statutory Auditors of the Company.

A summary of the financial performance of the Company for the financial year 2024-25 as compared to the previous financial year is given below:

Your Company endeavors to provide a conducive workplace with best standards and believes that employees are the most important assets. To ensure that an effective and the right resource is acquired, your company continuously strengthens and updates its hiring mechanism.

Being a Service Provider of essential services employees are the key assets. The Company has adopted people practices that enable it to attract and retain talent in an increasingly competitive market; and to foster a work culture that is always committed to providing the best opportunities to employees to realise their potential. As on March 31, 2025, the Company had a workforce of 457 people on rolls.