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North Eastern Carrying Corporation Ltd Management Discussions

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Apr 2, 2025|11:19:38 AM

North Eastern Carrying Corporation Ltd Share Price 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 the business environment & industry scenario, industry risks, opportunities and the Companys financial & operational performance during the financial year 2022-23.

BUSINESS ENVIRONMENT

_ GLOBAL BUSINESS OVERVIEW

Logistics has become an integral and growing part of the global economy as its worldwide applications enable businesses to mark their presence in the global market. The sector makes it possible for companies to store and transport resources such as equipment, inventory, food, and materials to the desired destination. It helps organizations create added value, save money, deliver a better customer experience, and improve brand standards. Currently, many companies around the world are looking for strategic logistics management to lower their transport expenses.

On an average, logistics sector accounts for anywhere between 8-10% in the GDP of various countries across the globe.

The global logistics market is largely impacted by supply-side and demand-side trends. One of the major drivers of demand in the market is the rapid proliferation of trade agreements among various nations. Also, initiatives to increase global trade activities have expanded the demand for logistics to keep up with the needs of importers and exporters.

_ INDIAN BUSINESS ENVIRONMENT

As per Summary of Economic survey 2022-23, issued by the Ministry of Finance, The Indian economy is expected to grow over 7 per cent in the current financial year 2023-24. Strong growth supported by government reforms, transportation sector development plans, growing retail sales, and e-commerce sector are likely to be the key drivers of the logistics industry in India. Manufacturing in India holds the potential to contribute up to 25%–30% of the GDP by 2025 which will drive the growth of the transportation segment in India.

With Indias achievement of G20 Presidency for the year 2023, we mark the beginning of a historic journey. The idea enabling this journey towards sustainability is Vasudhaiva Kutumbakam – One Earth, One Family, One Future.

LOGISTICS INDUSTRY OVERVIEW

GLOBAL

The cover story of global logistics in the past year has been about sustainability & resilience. The disruptions caused by various geo-political events have made organizations as well as governments to relook at the resilience of their supply-chains and logistics ecosystem. Changing from China strategy to India strategy, for most supply chains, sustainability came at the forefront of their priorities. Now, instead of cost being the only deciding factor, supply continuity, redundancy and responsible sourcing have come to the forefront of the decision influencing factors. Rise in demand for robust and sustainable multi-modal logistics provided the necessary momentum for the growth in the global logistics sector. This is a great opportunity for the entire Logistics industry. Established players have a chance to leverage their strengths and partner with their customers for creating incremental value across the value system. Going ahead, the focus will remain on increasing the resilience and efficiency of logistics. Logistics players will have to opt for redesigning supply chains and adopting technology partners to offer seamless customer experience.

INDIA

Indias logistics industry has achieved remarkable progress, highlighted by the countrys rise of six spots in the World Banks Logistics Performance Index (LPI). This improvement is credited to various factors, such as technology innovation, data-driven decision-making, and policy initiatives aimed at facilitating world-class infrastructure.

The improvement on the LPI index can be a game-changer for Indias economic growth trajectory by enhancing trade competitiveness, reducing trade expenses, and boosting supply chain efficiency

Earlier in the year, the government increased the Union Budget allocation for capital investment by 33 percent, amounting to INR 10 trillion, for 2023-24. This development has been warmly welcomed by the logistics industry as it is expected to bolster Indias position in the global supply chain by prioritizing infrastructure development.

The National Logistics Policy (NLP) and the PM Gati Shakti initiative are important overarching policy steps taken in this direction by the central government to deliver results by 2024-25.

Indias transportation and logistics industry is set to play a pivotal role in supporting the countrys ambitious growth aspirations. According to a recent EY report titled "India@100: realizing the potential of a US$26 trillion economy," India is expected to reach a staggering US$26 trillion by FY 2048. As the nation gears up to achieve this milestone over the next 25 years, the transportation and logistics industry will be a key enabler.

OPPORTUNITIES & EMERGING TRENDS IN TRANSPORT SECTOR

Artificial intelligence(AI)and machine learning:

AI-powered algorithms and machine learning models enable predictive analytics, demand forecasting, route optimization, and real-time decision-making. These tools empower businesses to optimize their supply chains, improve resource allocation, and deliver enhanced customer experiences.

Rise of cross-border e-commerce

The logistics industry has been significantly impacted by the rapid growth of e-commerce, which has led to an increase in demand for international goods and MSMEs selling internationally. This growth is driven by millennials who make up a large portion of the professional purchase decision market and expect online shopping interfaces. Therefore, efficient and reliable delivery services have become necessary, leading to the rise of cross-border digital markets that have seen significant economic growth.

Digitalization

The logistics industry is undergoing a rapid digital transformation, aiming to simplify procedures, reduce expenses, and enhance effectiveness through digitalization. The digital revolution has enabled greater visibility into supply chain processes, allowing stakeholders to make data-informed decisions.

Green Logistics:

With the increasing production and manufacturing, environmental concerns are becoming increasingly important to consumers and businesses alike. The logistics sector has some serious environmental impact work to do. Transportation accounts for 17% of global greenhouse gas emissions (GHGs) and could become the highest-emitting energy sector by 2050. The logistics industry is responding by implementing sustainable practices, such as using electric vehicles, reducing waste, and improving supply chain transparency.

Government Initiatives

1. The Governments emphasis on green energy and skill development demonstrates a commitment to sustainability and growth, positioning the industry for a more efficient, environmentally conscious, and skilled future.

2. The allocation of Capex of 10 lakh crore in infrastructure, roads, and railways will help the industry accelerate its growth.

3. During the fiscals 2020 to 2025, sectors such as Energy (24%), Roads (19%), Urban (16%), and Railways (13%) amount to around 70% of the projected capital expenditure in infrastructure in India.

4. Government has already announced a 102 lakh crore national infrastructure pipeline, in accordance with the Narendra Modi governments vision to make India a $5 trillion economy by 2024-25.

5. The GOI has launched several programs with a focus on building new roads, railways, ports infrastructure, etc. This is complimented with measures to attract private capital and implement administrative reforms to streamline processes for planning and executing infrastructure investments. GatiShakti is a critical component of this strategy, which aims to integrate planning and implementation of infrastructure projects. As a result, programs such as Bharatmala, Dedicated freight corridor and Sagarmala were developed. Several Multi Modal Logistics Parks (MMLPs) are being developed to connect multiple modes of transport. The average speed of road development has increased from 20.79 km/day in FY22 to 22.23 km/ day till Jan-23.

CHALLENGES IN TRANSPORT SECTOR

Logistics space is fast changing and as we evolve, we are encountering new problems to solve. Some challenges still persist at various stages of complexity and call for increased focus towards resolution.

1. Transportation cost

One of the biggest heads in any logistics company is transportation cost and unstable fuel prices and maintenance can increase it further. For saving transportation cost, alternatives needs to be adopted like combining shipments, installing routing software and reducing carriers. Many businesses today switch between partial-truckload, less-than truckload, and full truck load shipments (FTL vs PTL vs LTL) to manage costs based on cargo.

2. Technology adaption:

It is a must to adopt technology in logistics, and inability to implement tools like shipment tracking systems, automation systems, data analytics, etc. often prove to be a deterrent for logistics companies.

3. Regulations

Logistics rules and regulations in India that are enforced by national, regional and local authorities keeps changing at times and needs constant monitoring. If not handled in a timely manner, these impact logistics and delivery timelines, and efficiency is compromised.

4. Handling customer experience

The logistics industry is highly competitive, and customers are spoilt for choices. Logistics companies are expected to deliver the best to create customer delight and thereby generate repeat business. Providing assistance at every touchpoint can be challenging for providers and affect customer experience.

5. Manpower management

Manpower plays a significant role in logistics and communicating with drivers and staff who mostly are on the road gets difficult. The logistics sector needs skilled manpower and shortage of drivers is a never-ending challenge. Moreover, there is a lack of training institutions too.

6. Deteriorating conditions of roads in the interiors of the country

While India has made significant progress in developing its road infrastructure, there are still areas, particularly in the interiors of the country, where road conditions are poor. This poses challenges for logistics operations.

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 Ltd (NECC) was started in 1968 by Late Sh. Jaswant Rai Jain as a part load service between Delhi and the difficult and most remote parts in the east and north east of India. It soon became a renowned name amongst the traders for safety of goods and prompt services. The company has always put forth the interests of its clients and till date we have been trying to follow the same principles. The companys wings were further expanded after the joining of Sh. Sunil Kumar Jain (CMD) in 1980 who took NECCs presence to pan India while starting new verticals and expanding the horizon of services offered to the vast set of clients. NECC has always been a preferred logistics partner for most of reputed organizations throughout India. Over last decades we have transformed from a mere PTL player to a full fledged logistics company, while gaining not just customers but also the reputation of being one of the most reliable transportation company and giving turnkey solutions for all logistics needs. Today, NECC family comprises of thousands of employees and associated vendors offering their services throughout India, Nepal & Bhutan.

Currently NECC offers services like part truck load (PTL), full truck load (FTL), bulk movements, ODC movements, warehousing & 3pl PTL: movement of goods/small parcels (<50kgs) from all over India to the eastern and north eastern part of the country. This is the flagship business of the company and we are proud to be the top player in the entire region in terms of network density and serviceability. We have more than 4 lakh customers in this division along with 187 offices spread across India/Nepal/Bhutan.

FTL: we provide this service to all major corporate where we can place the truck from anywhere to anywhere depending on the clients needs.

Bulk movements: in this division, we offer services like mining logistics, chrome/iron/magnese ore transportation from mines to processing hubs to plants and then to final customers. We are proud to be able to give end to end solution to our clients having negligible competition.

ODC movements: over dimensional consignments require special expertise and safety measures to be transported over long distance, NECCs team of experts do this all over India on turnkey basis.

Warehousing & 3pl: we have more than 1.5 million sq ft of warehousing space all over India. (mix of lease and owned) and providing our clients with complete solution of primary movements, storage and then to end customers on just in time basis. This is the fastest growing division for the company at the moment and we have been investing in building assets to grow our strength in this business.

We are in the process of creating new business horizons within the existing vast customer base. We have already entered 3PL & Warehousing, which is a very promising sector with high growth and substantially better margins. Our key focus is to improve the overall profitability and increase the bottom line profit percentage so as to create value for our shareholders. We focus to reduce working capital cycle through efficient cash management.

Our plan is to develop and strengthen our manpower base which is a key factor for our long term growth. Also, as a logistics service provider we feel that our reach and network is an important factor that would enable us to cater to more clients and give better serviceability to our existing ones in the PTL division. Thus, we are in the process of opening new offices & branches in remote parts of India that would help us in our next phase of growth. We are also cautious about our investments in these new locations and we take the franchise route where necessary to mitigate the risks and grow on a more sustainable basis.

We are also very bullish on our projects and ODC/Bulk business division which caters to marquee clients like TATA steel and likes. This is a promising division with the potential to give major boost to our top line and is also the one with comparatively limited competition due high entry barriers. We as a company are committed to this line of business and are working extensively to improve our infrastructure by continuously investing in advanced material handling equipments & the training of manpower for better safety standards and enhanced working capabilities though our dedicated training programs in order to get more business in this division going ahead.

Work order/contracts

TATA STEEL LIMITED

In Continuation of the work order received worth of Rs 156 cr. from TATA STEELS LIMITED for transportation of Iron ore Loading & Supervision inside KIM Loading from TSL Bunker & supervision inside mine Transportation & Rake Loading from KIM Mine Transportation & Rake Loading from KIM Mine. We have successfully completed and accomplished the work within stipulated time from 06.01.2022 to 31.08.2023

In Continuation of the work order received worth of Rs 274 cr. from TATA STEELS LIMITED for transportation of their raw materials and mining products from Joda/ NOMA Mandi. We have successfully completed and accomplished the work within stipulated time from 01.09.2020 to 31.08.2023.

Work order worth of Rs. 19 cr. from Tata Steel Mining Limited for Chrome ORE Transportation from Mines from Sukinda/Saruabil/Kamarda to Paradip, Gopalalpur, SMEL and TBPL from 01.04.2022 to 31.03.2023.

Other Work order/contracts

Work order from APL APOLLO TUBES LIMITED for the transportation of finished goods on the different lanes from effective from 1st April 2022 to 30th June 2022 for a period of Three (3) months on extendable basis.

Statement of work from M/s Commscope India Pvt Ltd for placing of vehicle from Goa to different locations from 1st of April, 2022 and the Agreement continues in full force and effect until Suppliers completion of the Services as set forth in the Statement of Work(s).

Work order from Deepak Fasteners Limited for transportation of materials from Ludhiana to anywhere in India and vice-versa w.e.f 25.01.2023.

Service contract from M/s DIC India Limited for transportation of products manufactured or sold by the Company from its manufacturing/ processing/ storage/depot through road from 01.04.2022 till 31.03.2025.to various locations in/across India.

Work order from M/s HYGENIC RESEARCH INSTITUTE PVT. LTD. for transportation of FMCG Cosmetics goods from HRI origin hubs by means of partial truck load/ LCL/ FTL to various fixed destinations across India from 01.04.2022 to 31.03.2024.

Work order from M/s L G Balakrishnan & Bros. Limited fro collection and delivery of material on ingress and egress from /to various designated locations from 01.08.2022 to 31.07.2024.

Work order from ZF Commercial Vehicle Control Systems India Limited for material transportation for WINJ/ WINC from ZF CVCS Amballur plant, Nepal to various designated locations from 15.09.2022m to 31.12.2023.

Partial truck load Sundry Movement is decreased from 54.61 % in the previous year 2021-22 to 48.29 % in the current year FY 2022-23..

Full truck load is increased from 45.39% in the previous FY 2021-22 to 51.71% in the current FY 2022-23.

Continued focus on improving profitability by moving away from non profitable clients

Top 5 customers contributed 46% of total revenues in FY 2022-23 as compared to 39% in FY 2021-2022

Right Issue of the Company

Pursuant to the consent of the Board of Directors of the Company being accorded on July 05, 2022 for issuance of the equity shares of the Company by way of a rights issue to the eligible equity shareholders of the Company, the Board of Directors at its meeting held on Tuesday, May 16, 2023 has approved the terms and conditions for Rights Issue of up to 4,51,77,602 partly paid-up Equity Shares with face value of Rs. 10.00/- each (‘Rights Shares) for cash at a price of Rs. 18.00/- (‘Issue Price) per Right Shares including a premium of Rs.8.00/- per Rights Shares aggregating up to Rs. 8,131.97 Lakhs payable on Application Rs. 9.00/- and balance Rs. 9.00/- payable on First and Final call in the ratio of 9 (Nine) Equity Shares for every 10 (Ten) fully paid-up Equity Shares held by the Eligible Equity Shareholders of the Company.

The Board of Directors at its meeting held on Wednesday, May 24, 2023 has fixed friday, June 02, 2023 as the record date for the purpose of determining the equity shareholders entitled to receive the rights entitlement in the Rights Issue. The Offer period for the eligible securities commenced on Wednesday, June 14, 2023 and end on Tuesday, July 11, 2023. [both days inclusive].

On Monday, July 17, 2023, the Rights Issue Committee of the Company approved the allotment of 4,51,77,602 partly paid-up equity shares to the successful Applicants.

The Company has duly received the Listing Approval on July 19, 2023 & Trading approval on July 21, 2023 for the aforesaid partly paid up equity shares from BSE Ltd & National Stock Exchange of India limited after completing the requisite formalities.

The Company has successfully closed the right issue by July 2023 which was oversubscribed by the shareholders as the gross subscription during the offer period was 108.08%.

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, 2023, the Companys total manpower stood at 478 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 2022-23 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 organization 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)

Chairman and Managing Director

Place: Delhi

DIN: 00010695

Date: August 25, 2023

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