North Eastern Carrying Corporation Ltd Management Discussions.

(Pursuant to Regulation 34 read with the Schedule V of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015)

The Management of the Company is pleased to present its report on Industry Scenario including Company performance during the financial year 2019-20.

BUSINESS ENVIRONMENT

Global Business Overview

As per the International Monetary Fund (IMF) estimates, the global economy recorded a decline in growth of 2.9% in 2019, as compared to 3.6% in 2018. The outbreak of COVID-19 in the first quarter of 2020 has led to an immense economic impact and plunged the world into a global recession. There were lockdowns, isolation and widespread closures in order to protect lives. There is extreme uncertainty around the global growth forecast. The economic outcomes depend on factors that interact in ways that are tough to predict, including the result of the pandemic, the intensity and efficacy of containment efforts, the extent of supply chain disruptions, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioral changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices.

Indian Business Environment

The Indian economy following global footprints witnessed a decline of consumer demand in the year 2019. The year 2019-20 started with the commodity, automobile and consumer sectors slowing down mainly due to the liquidity crunch. Goods off take reduced at all levels across segments. The automobile sector was the worst hit. The last quarter of the financial year remained subdued and the usual expected surge in March was totally missing due to the COVID-19 pandemic. Indias Gross Domestic Product (GDP) grew by 4.2% in FY 2019-20, as against 6.1% growth clocked in FY 2018-19. COVID-19 undoubtedly is a mega disruptor not only for the whole world; for businesses, supply chains have got tested and the need to revamp based on the "New Normal" is the need of the hour for every company across the world.

Further, in the light of the COVID-19 pandemic, the World Bank estimates the Indian economy to contract by 3.2% in FY 2020-21, owing to a fall in consumer spending and fixed investment due to the lockdown and disruption in economic activities. Strict containment measures, including the nationwide lockdown and social distancing measures have brought the countrys manufacturing and service sectors to a grinding halt and disrupted supply chains. Policymakers have been proactively implementing substantial fiscal and monetary measures to support affected livelihoods and counteract the economic fallout. The Indian economy, will now likely revolve around Health Services, Medical Devices, Pharmaceuticals and Chemicals thereof in the short term. Food Retail and E-commerce will see ascendancy. Discretionary spends have plummeted to an all-time low leading to a recessionary environment.

Global Logistics Industry Overview

As the global economy grapples with COVID-19 situation, container movements have contracted with recession conditions in North America and Europe. Labour shortages across ports and terminal hubs, along with border closures, have led to stranded goods; while driver shortage in the trucking industry and reduced fleet deployments led to supply chain bottlenecks. However, the pandemic resulted in a rapid rise in demand for online grocery, creating a tailwind for domestic road freight and distribution channels. Post COVID-19, the global logistics market is projected to grow at Y-O-Y growth of 17.6% from 2020 to 2021, to reach USD 3,215 billion in 2021 from USD 2,734 billion in 2020. The projection for 2021 is estimated to be down by over 10-15% as compared to pre-COVID-19 estimation. The major drivers of this market are increasing supply of essential commodities, creation of supply chain stabilization task force to fight COVID-19, and growing demand and distribution of personal protective equipment.

Indian Logistics Industry Overview

Increased investment in infrastructure, last-mile connectivity and emerging technologies have been instrumental in streamlining the logistics landscape in India. Efficient logistics is a cornerstone of the nations economic development. Logistics sector in India has been witnessing strong growth in the past few years due to some revolutionary reforms such as the introduction of GST, E-way bill, eased foreign direct investment (FDI) norms; renewed government infrastructure spending; and greater access to global markets. Growth in manufacturing envisioned through the Make in India initiative is projected to demand high levels of logistics efficiency and newer and bigger warehouses.

OPPORTUNITIES & EMERGING TRENDS

The logistics industry in India is incredibly critical to its economic growth. The sector is full of potential, but still lacks optimal utilization of resources. A number of start-ups are entering the sector and offering services like never before. With the advancements in technologies few opportunities for the industry have been identified below:

The New Normal: Supply Chains getting revamped

Indias supply chains will go through huge transformations in the next few years as the impact of COVID-19 continues to challenge demand and supply frameworks. Due to widespread disruptions, supply chains are either broken or severely affected. As ongoing supply side issues start getting addressed, there will be demand contraction in several industry segments creating further disorder. Organizations would need to adapt to this new reality to build supply chain resilience.

Large Companies & MSMEs to receive a boost under Atmanirbhar Bharat Abhiyan

Global brands will be likely to de-risk their supply chains and this will bring some shift of manufacturing to new locations of which India will surely benefit. The Make In India initiative will receive the required boost as companies look at alternatives to their current supply chains.

The MSMEs will gear up in the New Normal, with Government incentives and support, through the recently announced economic stimulus package. Simplification of systems and processes and a national market will enable them to scale up.

Growth of Multimodal Logistics

As cargo moves nationally, crisscrossing multiple states, multimodal transport using a combination of rail, sea and road will gain dominance. Typically, multimodal transports first and last-mile is mostly local with a shorter lead thereby reducing inter-state movements and the number of touch-points for cargo. To prevent the spread of the virus, it would be desirable to reduce the number of touchpoints any product goes through in the entire supply chain, from production to handling till the doorstep of businesses and homes.

Adoption of Automation & modern handling

Automation in handling systems including palletisation of cargo, conveyor systems, robotics, drones, and drop boxes, amongst others, will see an accelerated trend. These are critical to achieve the speed, efficiency and resiliency needed to meet both the demands of todays complex markets and to keep the lines of supply moving and open both in times of normalcy and time of crisis. A rapid shift towards omni-channel dprocurement would be visible. Reducing the spread of the virus would also mean an increase in phytosanitary standards in handling of food grade products.

New Demand Sectors: Essentials

The pandemic has clearly shifted consumer preferences to essentials which include a host of sanitization items. Demand for these items will lead to more manufacturing across India and globally. In India, it is roughly estimated that the demand for sanitizers is anywhere between 30-50 million litres a month whilst capacity is only around 10 million thereby creating huge opportunities.

As a result of Governments new policies, sectors such as Agriculture, Agro Chemicals and Allied industries will hugely benefit leading to increase in the Farm sector and Food processing industries. The need for cold supply chain and regular logistics and storage will see a surge.

Pharmaceuticals, APIs, Chemicals will see enhanced capacities too. India API imports from China averaged almost 70 per cent of consumption by value and importers are at risk of supply disruptions and unexpected price movements. If Big Pharma wants to diversify their supply chain, India could be a good destination for them to outsource APIs.

Social Distancing Impact: E-Commerce and Omni-channel in Logistics

Consumers would naturally refrain from going to malls and shopping complexes due to the fear of the pandemic and adopt social distancing. This behaviour will lead to increase in home deliveries, need for E-commerce and omni-channels to service the consumer much more than ever.

This will also lead to increase in Warehousing Solutions, investments in Material Handling and Material Storage equipment as customers would minimize human touch-points everywhere in the value chain. Middle-mile and last-mile delivery requirements in terms of 2-Wheelers and 4-Wheelers will also see a rise in demand thereof.

With increased move towards e-commerce and online orders, the future service expectations will change. This will lead to investment in virtual agents built using AI technology offering customers instant, on-demand service. This will also accelerate the future of customer experience in categories such as agent agility, channel choice, real-time workforce management and prevalence of AI virtual agents.

CHALLENGES

Infrastructure Bottlenecks

Lack of infrastructure development is one of the biggest hurdles in the logistics sector. Inadequate and low-quality modal and terminal transport infrastructure, suboptimal modal mix, inefficient storage facilities for cargo and containers and underdeveloped material handling leads to greater cargo transit time, inefficient use of resources and poor fleet management. This has resulted in higher use of road transport at the expense of cost-effective and sustainable modes like coastal shipping, inland waterways and railways.

Regulatory Challenges GST

Introduction of GST is seen going a long way in transforming the logistics sector. However, such reforms also require effective implementation. While GST is intended to simplify supply chains, logistics businesses have been facing a few challenges such as EWBs on import consignments, as this is a key ingredient in improving the ease of doing business. The major raw material for the logistics industry are petroleum and diesel. Taxes (i.e. ED, VAT and CST) paid on petrol and diesel becomes cost to the industry as these are out of the purview of GST. It would help if either the Governments reduce VAT & Excise Duty on petrol & diesel considering the reduction in oil prices or should bring the petroleum products under the ambit of GST

E-way Bill

Post mandate of E-way bill, w.e.f. 1st April, 2018, the compliance burden has increased significantly for the entire value chain. The E-way bill has led to faster movement of goods since only a single document is required to boundaries of other states. However, Logistics Service Providers (LSPs) face certain challenges such as lack of sufficient IT infrastructure, constraints in movement of goods and the burden of additional paperwork leading to delays in shipments. Regulatory issues in land acquisition and consolidation, time and cost overruns of projects, continue to be the key impediments. Lack of transparency and efficient compliance further add to the sector woes.

Inadequate insurance coverage

Unlike most developed economies, the goods being transported into India are not adequately insured. In fact, logistics service providers (LSPs), warehouse service providers (WSPs) and transporters end up taking insurance on behalf of their customers for ‘direct cash debits for significantly high amounts. Further, LSPs continue to be highly vulnerable due to the unfair risk allocation between them and shippers. Shippers are sometimes absolved of liability even when they are at fault, and these costs are borne by LSPs Inadequate insurance coverage Unlike most developed economies, the goods being transported into India are not adequately insured. In fact, logistics service providers (LSPs), warehouse service providers (WSPs) and transporters end up taking insurance on behalf of their customers for ‘direct cash debits for significantly high amounts. Further, LSPs continue to be highly vulnerable due to the unfair risk allocation between them and shippers. Shippers are sometimes absolved of liability even when they are at fault, and these costs are borne by LSPs.

Security, Health and Safety & Environment concerns

The logistics industry is highly susceptible to health and safety challenges. COVID-19 has further added to the woes. These stem from ignorance, lack of education and inadequate training of personnel, poor condition of roads, warehouses and logistics-related infrastructure. Yet another factor is the lack of proper safety and hygiene measures followed either by the consignor/consignee as well as on part of the transportation safety authorities. In addition, pilferage and theft of goods in transit, high levels of fragmentation of the industry, and poor storage structure remain a challenge.

Considering the global climate situation and the recent pandemic, the need of the hour is to build a green logistics network by integrating environmental considerations and investing in climate-resilient infrastructure.

Cost Pressures

The other challenge associated with the sector is the rising expenses. The costs associated with the Indian Logistics sector significantly exceed those that are incurred in Russia, Brazil and China.

The lack of efficient inter-modal and multimodal traditional systems are recognized as major reasons behind the higher costs in the Indian logistics sector. Other important reason contributing to the higher expenses is fuel prices. Higher fuel prices are likely to increase transportation costs for shippers due to increased fuel surcharges such as the COVID-19 surcharge on fuel. Rising diesel and fuel prices may lead to escalation in surcharges added to freight rates. Working with increased sanitization and social distancing protocols, increased digitization could also lead to an increase in operational costs.

Business Continuity Plans: Risk Mitigation & Management

A particular aspect of logistics operations during this crisis was that many companies were operating supply chains mostly just in time with limited stocks and were hence unable to provide products when needed. Risk management and mitigation will gain prominence in supply chains where companies will start building more safety stock in their distribution pipelines. This is likely to lead to an increase in more warehousing space across networks. The practice of developing multiple and robust contingency plans will now be taken more seriously.

Every entity engaged in running supply chains would need to go through severe compliances as worker, product, transport and facility sanitization protocols are put in place. A natural outcome of this pandemic will be increase in insurance premiums.

Government initiatives

Key Government actions to boost growth in the logistics sector include

• Development of logistics-related infrastructure such as Bharatmala Pariyojana, Dedicated Freight Corridors (DFCs), 35 Multi Modal Logistics Parks (MMLPs) across India, Sagarmala and inland waterways will increase efficiency of the logistics sector significantly.

• The Government had accorded infrastructure status to the logistics sector in 2017, with the objective of reducing logistics costs. This will provide multiple benefits to the sector, including access to infrastructure lending at easier terms and competitive rates, access to External Commercial Borrowings (ECBs), longer maturity loans from insurance companies and also making them eligible to borrow from India Infrastructure financing Co. Ltd (IIFCL)

• Ease of doing business: GST has transformed the way Indian logistics industry earlier functioned. This has resulted in a shift in business from unorganized to the organized sector. Post GST, companies have been consolidating their supply chains for efficiency and leasing large format warehouses. Faster movement of goods resulted in higher efficiency, thereby resulting in cost savings.

• Implementation of E-way bill system streamlined documentation and quicker movement of goods across states in India. The regulatory burden has come down considerably, leading to enhanced transparency and better compliance. The proposed E-Invoicing which has got postponed from implementation date of April 2020 should also lead to ease of doing business and build transparency.

• The National Logistics Policy has been formulated with the aim to enable integrated development of the logistics sector in the country to spur economic growth and trade competitiveness boosting the MSME sector and leading to improvement in the Ease of Doing Business (EODB) rankings. This will be enabled by creating an integrated, seamless, green, and cost-effective logistics network by leveraging best-in-class technology, processes, and skilled manpower. .

RISK MANAGEMENT AND CONCERNS

Internal Control Systems and their adequacy

The Company has an effective and reliable internal control system commensurate with the size of its operations which are constantly assessed. The efficacy of the internal checks and control systems is validated by internal as well as statutory auditors. The Audit Committee reviews the internal audit plan, adequacy and effectiveness of the internal control system. It also reviews functioning of the Whistle Blower mechanism and monitors the action taken on the cases reported. The Audit Committee of the Board of Directors, Statutory Auditors and the Business Heads are periodically apprised of the internal audit findings and corrective actions taken. To maintain its objectivity and independence, the Internal Audit function reports to the Chairman of the Audit Committee.

The company has in place adequate internal financial controls with reference to financial statements. During the year, such controls were tested and no reportable material weakness in the design or operation was observed The Audit Committee of Directors periodically reviews the significant findings of audits, as prescribed in the Companies Act, 2013 and in the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Risk Management

Your Company believes that managing risks helps in maximizing returns. The Companys approach to addressing business risks is comprehensive and includes periodic review of such risks and a framework for mitigating controls and reporting mechanism of such risks. The risk management framework is reviewed periodically by the Board and the Audit Committee.

The Company however faces the following risks:

Competition Risk: This risk arises from more players wanting a share in the same pie. Like in most other industries, opportunity brings with itself competition. We face different levels of competition in each segment, from domestic as well as multinational players. However, NECC has established strong brand goodwill in the market and a strong foothold in the entire logistics value spectrum.

Regulatory Risk: If we are unable to obtain required approvals and licenses in a timely manner, our business and operations may be adversely affected. However, the Government has come up with a number of initiatives to boost the logistics sector and has planned massive investments in the infrastructure sector. As all industry predictions suggest that this will be the trend in the future as well and given our own experience in obtaining such permissions, we do not expect this risk to affect us materially in the coming years.

Liability Risk: This risk refers to our liability arising from any damage to cargo, equipment, life and third parties which may adversely affect our business. The Company attempts to mitigate this risk through contractual obligations and insurance policies.

As a diversified enterprise, your Company continues to focus on a system-based approach to business risk management. A strong and independent Internal Audit function at the corporate level carries out risk focused audits across all businesses, enabling identification of areas where risk management processes may need to be strengthened.

OPERATION AND FUTURE OUTLOOK (ABOUT NECC)

North Eastern Carrying Corporation Limited, part of NECC Group, is a leading giant founded in 1984, the Company started the business of core transportation & carriage of goods in FTL and Parchoon segment in 1999-2000. Since then it never looks back and achieved its target turnover for the Financial Year 2019-20.

NECC is an integrated logistics solutions provider with presence pan India, Nepal and with an operational set up in Bhutan and Bangladesh:

• Presence of over 4 decades. Leadership: Second and third generation promoters Mr. Sunil Jain and Mr. Utkarsh Jain

• Proven capabilities in Part Truck Load (PTL) and rail logistics for all types of materials:

• Owning a fleet of 150 trucks

• All trucks equipped with GPS tracking

• Customized vehicles based on customer requirements

• Booking offices across the country and Nepal, servicing multiple routes with warehousing

• 250 offices across 29 states and 4 countries- India, Nepal, Bhutan and Bangladesh

• Warehousing of 1.5 million sq feet - includes owned and leased under management

• Working with leading companies in the FMCG, Paper, Pharma, Automotive, Textile, Chemicals, Steel and Telecom sector

• Established track record of providing flexible, responsive and timely delivery services to our clients

• Demonstrated by being chosen by several leading companies to undertake repeat business over several years

HUMAN RESOURCE/INDUSTRIAL RELATIONS

We truly believe that NECCs biggest strength is its people, fondly called as NECCites, and is the single most important factor to ensure sustainable business growth and become ‘Future Ready. This is why we have a relentless focus on strengthening our talent management and employee engagement processes. As on March 31, 2020, the Companys total manpower stood at 516 employees which include Executives and Non-Executives.

For effective and meaningful Human Resource management at NECC, we concentrate on all aspects of the employee lifecycle to provide a holistic experience to the NECCites. During their tenure with NECC, a NECCites is motivated through various skill development interventions, including job rotations, customized training programme and engagement and volunteering programs. We also strived to be more open, transparent and objective in our people processes. We encourage debate and open dialogue on various processes directly impacting NECCites which helps us to develop and improvise our people strategy for future.

The Industrial Relations of the Company too, continued to be on a cordial note. There was no loss of man-days on account of industrial unrest. Further, there are regular interactions between the management and the employees, thereby fostering an atmosphere of trust and cooperation.

Internal policies

The leadership competency framework for the organisation has been fully integrated with various HR processes. A functional competency framework for all the different functions in the Company has been developed; it is now being used to create learning academies and drive excellence in each function. To enable people to take up the higher responsibilities, the transition programmes have been made more relevant and robust. Learning needs have been addressed during FY 2019-20 through new programmes in the areas of strategy, execution and critical thinking.

Our people practices have received recognition at different forums and we are committed to provide professional and enabling working environment at all levels envisaging a boundary less workplace, ensuring free flow of ideas and information through unified organisation structure and defined processes. We are a non-discriminating employer ensuring our HR and CSR initiatives are devoid of any prejudices protected by law. Our affirmative actions include actively hiring women candidates, support hiring of differently abled and other CSR initiatives which touches more than 15000 lives.

CAUTIONARY STATEMENT

Certain statements in "Management Discussion and Analysis" section may be forward looking and are stated as required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Management envisages in terms of future performance and outlook.

On Behalf of the Board of Director of
North Eastern Carrying Corporation Limited
Sd/-
(Sunil Kumar Jain)
Place: Delhi Chairman and Managing Director
Date: September 05, 2020 DIN: 00010695