navkar corporation ltd share price Management discussions


<dhhead>MANAGEMENT DISCUSSION AND ANALYSIS</dhhead>

Logistics is of critical importance for both businesses and the economy. It is an integral activity for economic growth as it involves the management of flow of goods from place of origination to the place of consumption. The sector comprises shipping, port operation, warehousing, rail, road, air freight, express cargo and other value-added services. Businesses need logistics services for reaching out to their customers within tight timelines and delivering products. The express industry, by creating and integrating door to door linkage across domestic and international regions along with shipment tracking facilities, serves the need for time sensitive logistics service.

 

OVERVIEW

Navkar Corporation Limited (hereinafter referred to as ‘the Company’, ‘Navkar’) is one of India’s largest Container Freight Stations (CFSs) and Inland Container Depots (ICDs), Rail Terminals, Container Train Operator, Warehousing and other Logistics Solution providers. The Company provide a wide range of customised, technology-enabled integrated logistics solutions and corporate mobility services. Our strength lies in our wide bouquet of offerings enabled by our extensive network of strategically located warehouses and our transportation network.

Usually, a CFS is located near the gateway port (off-dock facility located near service ports) whereas an Inland Container Depots (ICD) (also known as a dry port) is located in the hinterland. Growth of Indian container traffic has led to the demand for transit facilities such as CFS and ICD, which offer services for containerization of break bulk cargo and also handles custom activities. CFS and ICD facilities are an integral component of the logistics sector infrastructure and it is a facilitator of import-export (Exim) trade of the country.

CFS/ICD is a common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under Customs transit by any applicable mode of transport placed under Customs control.

All the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, take place from such Stations. Over the years, factors such as considerable increase in trade volumes and persistent shift towards containerization of cargo have made way for increased role of CFS/ICD in India. Being an extension for the port and a custodian for the Customs Department CFS/ ICD perform a critical role in the export and import trade. They help in providing the critical service between the ship’s hook and the door of the customer. Important procedures such as stuffing/de-stuffing of cargo, aggregation/segregation of cargo and examination/clearance related activities are carried out at the CFS/ICD, which make them an integral part of the existing export-import value chain.

Container train operations have become integral part in servicing movement to and from port. Movement of containers on rail network has lot of benefits and Indian Railway has taken lot of initiatives to promote the rail linked movement. With rise of fuel cost which is used in road movement the rail movement has become more economical. Domestic cargo movement has taken an upward jump in recent years and expected to grow at a significant pace in time to come. Private freight terminals are the entity assist the domestic movement in containerized and non-containerized form. New focus in promoting rail movement has come from the PMO office in the form of Gati Shakti Scheme. This has given a new impetus to the private investment to enter into building more and more terminal. Biggest challenge in moving the cargo on

Indian Railway network is availability of terminal and first and last mile which will be taken care of by this initiative.

It is clearly evident that the container sector in India is playing an important part in trade and commerce. It is penetrating deeper and deeper into the country and remote areas.

Movement of goods using containers has many benefits. It makes transshipment of cargoes easier, protects the cargo from nature’s adversities and ensures safety of movement of cargo. And also integration with different modes of transportation can ensure further efficiency of transportation. Containerization in the world is proceeding at a fast pace.

And it should not be forgotten that a sound transport system helps both domestic and international business to grow in a country. With each passing year, container penetration in both domestic and international traffic, is increasing.

The dynamics in the container business will continue to transform as the requirement to embrace advanced infrastructure, digitization, innovative business practices, process automation and transparency etc grows. Additionally, implementation of advanced technology, enhancements in soft and hard infrastructure are also playing a key role for these transformational changes in the industry. The growth of the Indian container installed capacity and throughput has both grown. Global and Indian operators are trying to attract transshipment cargo which could trigger inclusive growth in box trade. Few major and private players are also trying hard to establish themselves as transshipment hubs apart from serving as a gateway port. These transformational changes in box business are aiding the Indian container market to reach at the next level.

 

INDUSTRY OVERVEW AND TRENDS

The Indian economy is the fifth largest in the world and we have our sights set on becoming a $5 trillion economy by 2025. One of the big drivers of this growth is expected to come with the expansion of the logistics industry in India which employs 22 million people and acts as the backbone for multiple industries. Investing in infrastructural development by creating dedicated freight corridors, improving connectivity by road, rail and the sea, and enabling technology driven solutions for improved visibility across the supply chain will be critical if India is to accelerate and sustain GDP growth. India is one of the countries with the largest population and an expansive geographical coverage which contributes to many of the factors that influence logistics in the country. The pandemic has seen a shift with countless challenges unique to each region. The logistics industry is seeing its fair share of ups and downs but trends suggest better growth for this sector in the coming year.

As of 2021, the size of the logistics industry in India was valued at $250 billion with the market poised to grow to an impressive $380 billion by 2025, registering a healthy growth rate of 10%-12% year on year. However, the ecosystem is still coming to grips with many challenges, with India ranking 44th in the Logistics Performance Index (LPI) released by the World

Bank, and industry watchers agreeing that the cost of logistics needs to be brought down. The year 2022 was a hit-and-miss for many of the key players in the industry. ICRA’s reports suggested a growth rate of 14-17 % for the 21-22 fiscal year. Moreover, around 14.4 % of the GDP is accounted for by the logistics industry. A substantial amount of the population that are employed work in this sector. In India, the cost of logistics hovers around 12%- 13% of GDP mark which is much higher compared to BRICS countries, or US and Germany that are at 11%, 9.5 % and 8%, respectively. The Government has already outlined many steps to bring this number down to 8% by 2030, in order to drive enterprise efficiency. As regards the Union Budget of 2023, expectations center around implementation of plans outlined as part of the National Logistics Policy (NLP) that PM Modi launched in September

2022. Aimed at enhancing economic growth, increasing employment and improving the competitiveness of domestic products in local markets and abroad, the NLP will establish a single-window e-logistics market and promote the seamless movement of goods across the country. This was a natural next step following the Gati Shakti National Master Plan that seeks to urgently improve first and last-mile connectivity, which continues to be a roadblock for e-commerce players, MSMEs across the board. With the unorganized sector amounting to over 90% of the logistics industry, there is a need for less-fragmented communication between various stakeholders. A technology driven framework can bridge the gap between manufacturers, government bodies, customs, shippers, service providers by enabling information exchange in a secure, confidential and real time or near real time manner, as outlined by the Unified Logistics Interface Platform

 

The Indian Logistics Industry

The logistics industry in India, 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.

Based on service offerings, the logistics sector can be sub-divided into road transportation, freight forwarding, warehousing and value-added services and other logistics services such as container logistics, cold chain logistics, coastal shipping, and so on. Road transportation dominates

India’s logistics spends, given the vast landscape and confidence on expensive road transportation. The road transportation segment can be further divided into inbound transportation, outbound transportation and distribution, express and last-mile transportation.

The logistics industry has traditionally been highly fragmented, with several thousand unorganised entities that provide basic services such as brokerage and documentation holding a dominant share of the overall market. However, recently, the sector has been witnessing transformation, with the use of technology by both new age start-ups and established players to enhance cargo visibility, reducing errors by digitising documentation processes and by bringing transparency in pricing. The sector is expected to witness steady growth in the medium to long-term timeline, on account of growing imports and exports, supported by various infrastructure development measures taken by the government.

The Government has undertaken various measures to develop the logistics infrastructure in the country. Some key measures are listed below:

1. Logistics sector has been granted infrastructure status allowing the sector to have access to funds at easier terms with enhanced limits.

2. National Logistics Policy has been drafted to focus on the development of a fully integrated logistics network with best-in-class technology and automation. The National Logistics Policy will enable the creation of a single point of reference for all logistics and trade facilitation matters in the country, which will also function as a knowledge and information-sharing platform.

3. Planning for commencement of Western Dedicated Freight Corridor (DFC) and Eastern DFC.

4. Fitment of FASTag has been mandated by the Ministry of Road Transport and highways to ensure 100% e-tolling at toll booths. FASTag will ensure ease of payments, and reduction of waiting time at tolls.

 

About Navkar

As on March 31, 2023 the company has three Container Freight Stations, two at Ajivali and one at Somathane in Panvel with aggregate installed capacity of over 5,35,000 TEUs per annum.

 

Inland Container Depot (New ICD at Manaba, Gujarat)

The Board of Directors at their meeting held on dated July (ULIP.) 23, 2021, considered and approved the setting up of Inland Container Depot and Private Freight Terminals near Mundra or Pipava or Northern Maharashtra ("Project") subject to receipt of requisite approvals and clearances. Further During the year under review the Company has received following approvals for setting up of Inland Container Depot and Private Freight Terminals:

1. Commissioner of Customs, Jamnagar vide their Notification No. 03/2022/CCP/JMR dated November 18, 2022 has granted approval of Inland Container Depot (ICD) of Navkar Corporation Limited situated at Survey No 247/P1, 247P1/P1, 247/P2, 251/P1, 251/P2 and 254 of Village Vadharva, Taluka Maliya District Morbi for the purpose of unloading of imported goods and loading of export goods and also notified the area under Section 8(b) of the Customs Act, 1962.

2. Commissioner of Customs, Jamnagar vide their Notification No. 04/2022/CCP/JAMNAGAR dated November 18, 2022 have appointed Navkar Corporation Limited as Custodian as per Section 45 of Customs Act, 1962 for Inland Container Depot (ICD) situated at Survey No 247/P1, 247P1/P1, 247/P2, 251/P1, 251/ P2 and 254 of Village Vadharva, Taluka Maliya District Morbi and approved to act as a Customs Cargo Service Provider ("CCSP") as detailed in aforesaid Notification No. 04/2022/CCP/JAMNAGAR.

 

Commencement of Operations: The Commissioner of Customs, Jamnagar vide their Notification No 01/2023/CCP/ JMR dated February 28, 2023 have granted Commencement of Operations approval to Inland Container Depot (ICD) of Navkar Corporation Limited situated at Survey No 247/ P1, 247P1/P1, 247/P2, 251/P1, 251/P2 and 254 of Village Vadharva, Taluka Maliya District Morbi with effect from March 01, 2023.

The Inland Container Depot situated at Morbi village in Gujarat region has an aggregate installed capacity of 2,00,000 TEUs per annum.

 

Railway Terminals:

Company operates two Railway Terminals referred to as Private Freight Terminals (PFTs). These terminals are at our Somathane (Panvel) facility and at Wadharva (Morbi). Our terminal at Somathane is converted into Gati Shakti Terminal and terminal at Wadharva is green Field Gati Shakti Terminal. GCT at Somathane is served with three railway tracks and GCT at Wadharva has Four rail tracks. Our GCT terminals are capable of handling all types of rakes. At present we handle Bulk, bagged, Steel Coil, Steel, plates, containerized cargo. By providing a transit point we can easily generate good volume of agri cargo coming from Hinterland and bound for export. Railway terminals are assisted with first mile transport, warehousing, cargo/container storage, and all types of cargo handling to provide end to end services to our customers.

 

Container Train operations:

Company has strategically diversified container train operations by riding on the success of EXIM containerized movement to/from port to ICD. With category 2 License company has procured license of Arshiya and is the Category 1 License holder for container train operations. Since then company has started procuring container rakes. We operate 6 owned rakes and other rakes on short term lease basis as and when required. Success of container train operator in the domestic space depends on the number of domestic container and capability of containers to carry different type of cargos.

Company has invested heavily in procurement of domestic containers of different type. With 4 trains in domestic circuit we are achieving approx. 24,000 Km haulage of various types of more than 50,000 MT cargo on monthly basis.

 

Transfer of undertaking by way of a slump sale on a going concern basis:

The Board of Directors at their meeting held on August 16, 2022 and shareholders at the Annual General Meeting held on September 07, 2022 approved the transfer of its title, rights, interest, ownership and the operations of its Business

Undertaking situated at Survey Nos. - 44/1, 44/l/l P, 44/1/2P and other, Tumb Village, Taluka Umbergaon, Dist. Valsad, Gujarat- 396150 as a going concern, on an "as is where is" basis ("Business Undertaking") for a lumpsum consideration of approximately 835,00,00,000 (Indian Rupees Eight Hundred and Thirty Five Crore Only) to Adani Forwarding Agents Private limited ("Purchaser").

During the year under review the Company has received partial consideration amount of 785 Crores from Adani Forwarding Agent Private Limited, a subsidiary of Adani Logistics Limited and has also executed a Sale Deed for transfer of immovable property. With reference to balance consideration of 50 crore, we like to make a note that the same shall be paid by Adani

Forwarding Agent Private Limited as per the terms mentioned in the business transfer agreement executed between the parties i.e. 25 Crores shall be paid within 1 (one) year from the closing date and the balance amount of 25 Crores shall bpaid within a period of 2 (two) years from the closing date.

The Commissioner of Customs Ahmedabad has also issued withdrawal notice vide its Notification: Export 11 /2022-23 dated October 13, 2022 for removal of company’s name as Custodian of the Imported and goods for the Business Undertaking.

 

SEGMENT-WISE PERFORMANCE

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

 

OUTLOOK

As per Indian container market trend over the last few years, installed capacities and handled volume have been growing proportionately which were a positive sign for the industry.

Year over year growth of Indian container installed capacity and throughput were rising. Global and Indian operators are trying to attract transshipment cargo which could triggermile/ last inclusive growth in box trade. The surge in India’s EXIM trade is expected to continue, entailing persistent augmentation in container traffic in the years to come. Container freight stations form an important part of the EXIM supply chain, and their role in managing and sustaining such growth will be crucial. Enhanced infrastructural facilities, seamless and uninterrupted operations, standardized charges and transparency on crucial aspects such as selection of CFSs can potentially go a long way in improving operations at container freight stations as well as strengthening the logistics supply chain as a whole.

All in all, it is hard to miss the role of logistics in the progress of the nation. It ensures that the consumers procure their goods on time from producers. Moreover, the logistics industry’s performance can also be linked with the health of the economic demand. Often operating volumes of logistics firms swell during economic prosperity and drop during economic downturns.

India is projected to grow to US$26t by FY48. India’s transportation and logistics sector can act as the backbone to support this fast-paced growth, which the country is poised to achieve in the next 25 years.

India’s target to have US$1t merchandise export by 2030 will be a significant driver to push trade, thereby increasing freight movement.

Vision@2047 aims to set specific targets for 10 sectors to transition India into a developed nation by 2047. Vision@ 2047 is a guiding principle which is being supported by multiple regulatory and government initiatives to revamp

India’s logistics sector.

 

RISK AND CONCERNS

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

 

SWOT ANALYSIS

and competently. The Company also recognises that these risks could adversely affect its ability to create value for all stakeholders and has taken steps to mitigate the same.

Following are the major risks to which the Company is exposed to are:

1. The Company operates in a highly competitive industry dominated by many unorganised players. Many segments within the logistics industry are highly commoditised and have low barriers to entry or exit, leading to a market with a very high degree of fragmentation.

2. There is increase of competition from other organised and unorganised third-party logistics or people transport providers may lead to a reduction in revenues, profit margin and a loss of market share. To mitigate this, the

Company creates value through integrated technology-based solutions, transport network-based solutions, and skill development of its employees.

3. The Company’s business is primarily dependent on Indian EXIM Trade which, in turn, is dependent on global economic conditions. All the factors which can affect global economic conditions have direct impact on the

CFS/ICD business. Given the projected growth in the Indian economy and expected recovery in global trade, rising spending in the infrastructure and manufacturingof space, it is estimated that imports will continue to rise steadily.

4. Changes in political conditions, microeconomic conditions. Inflation rate, infrastructural development rates, tax rates, Government’s regulatory policies, credit norms, etc. could be seen as risk factors affecting CFS/ICD business.

The Company built a strong relationship with most of the leading carriers/liners and as a result are able to obtain competitive commercial terms and operational advantages.

Company also counter this risk with the quality of its infrastructure, customer-centric approach and ability to innovate customer specific solutions, focusing on pricing and aggressive marketing strategy, disciplined project executions, coupled with prudent financial and human resources management and better control over costs. Any damage to cargo, equipment, life and third parties may adversely affect the Company. The Company took insurance policies and suitable safety in contractual obligations to mitigate such kind of risks.

 

INTERNAL CONTROL SYSTEMS AND ADEQUACY

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 Chartered Accountants in close co-ordination with Company’s own internal audit Department.

A well-defined 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 2022-23 was also reported by the internal and statutory Auditors of the

Company.

 

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

A summary of the financial performance of the Company for the financial year 2022-23 as compared to the previous financial year is given below:

Particulars

FY 2022-23

FY 2021-22

Total Revenue

44967.58

45595.76

Total Expenses

40051.49

41116.07

Profit Before Tax from continuing Operations Before exceptional items

4916.09

4479.69

Exceptional Item

1906.42

-

Tax Expenses
Current Tax

1859.12

783.51

Earlier Year Tax

38.08

20.22

Deferred Tax Expenses

(2374.21)

(100.47)

Total Tax Expenses

(477.01)

703.26

Profit for the period from Continuing Operations

7299.52

3776.43

Discontinued Operations
(a) Profit from discontinued operations before tax

4151.51

3782.00

(b) Tax expenses of discontinued operations

2201.92

835.00

Profit/(Loss) for the Period/Year from discontinued operations (a - b)

1949.59

2947.01

Profit/(Loss) for the Period/Year (A)

9249.11

6723.43

Other Comprehensive Income, net of tax (B)
Items that will not to be reclassified to Profit and Loss
Re-measurement of net defined benefit obligations
From Continuing Operations

11.80

(8.75)

From Discontinued Operations

10.17

(8.62)

Total Comprehensive Income for the year (A+B)

9271.08

6706.07

Earning per equity shares (face value 10/- per share)
Basic and Diluted ()
From Continuing Operations

4.85

2.51

From Discontinued Operations

1.30

1.96

RATIO ANALYSIS: Details of significant financial ratios along with explanation thereof are as under :
Particulars

Unit of measurement

March 31, 2023 Audited

March 31, 2022 Audited

Variance in % term

Reasons

Current Ratio

In multiple

5.79

2.56

126.5%

The significant change occurred due to cash realised towards proceeds of slump sale of ICD-Tumb undertaking & due to repayment of loan

Debt - Equity Ratio

In multiple

0.02

0.37

-94.0%

The significant change belongs to repayment of loans during the period.

Debt Service

In multiple

1.10

1.41

-21.5%

Coverage Ratio (DSCR)
Debtors Turnover Ratio

In multiple

10.94

8.58

27.6%

The significant change occurred due debtors of ICD-Tumb undertaking transferred in Slump sale.

Net Profit Margin (%)

In %

14.02%

7.85%

78.6%

The significant change belongs to slump sale profit and exceptional profit on sale of containers and fleets.

Return on Equity (ROE)(%)

In %

4.79%

3.64%

31.8%

The significant change belongs to slump sale profit and exceptional profit on sale of containers and fleets.

Trade Payables Turnover Ratio

In multiple

19.27

36.07

-46.6%

The significant change belongs to trade payables related to ICD-Tumb undertaking transferred in slump sale.

Return on Capital Employed (%)

In %

7.06%

5.78%

22.0%

Return on Investments (%)

In %

4.00%

2.65%

50.92%

The significant change belongs to slump sale profit and exceptional profit on sale of containers and fleets.

Net Capital Turnover Ratio

In multiple

3.65

5.66

-35.58%

The significant change occurred due to slump sale of ICD-Tumb undertaking.

Inventory Turnover Ratio

In multiple

127.20

117.23

8.5%

 

MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT INCLUDING NUMBER OF PEOPLE EMPLOYED

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, 2023, the Company had a workforce of 424 people on rolls.