Patel Integrated Logistics Ltd Management Discussions.

(Within the limits set by the Companys competitive position)

Economic Scenario:

Growth of the Indian economy moderated in 2018-19 with a growth of 6.8 percent, slightly lower than 7.2 percent in 2017-18. Yet, India continued to be the fastest growing major economy in the world.

The manufacturing sector was characterised by higher growth in 2018-19 while the growth in agriculture sector witnessed tapering. India maintained its macroeconomic stability by containing inflation within 4 percent and by maintaining a manageable current account deficit to GDP ratio.

Service sector growth declined from 8.1% in 2017-18 to 7.5 percent in 2018-19, due to decline in the growth in Public administration, defence & other services and Trade, hotel & transport sector. Yet, the sector continues to be the main contributor to growth of the Indian economy. The share of services sector in overall economy has been increasing and now stands at a little over 54%.

The logistics industry continues to grow and prosper due to the improvement in retail, e-commerce, manufacturing and various other sectors. The rise in e-commerce consumption, as well as domestic logistics, also adds to an improvement in the Indian logistics market 2019. GST has been the game changer for logistics industry. Also Government initiatives like Make in India and improvement in infrastructure the logistic industry is likely to reach USD 215 bn by 2020.

The year 2019-20 has delivered a huge political mandate for the government, which augurs well for the prospects of high economic growth. The growth in the economy is expected to pick up in 2019-20 as macroeconomic conditions continue to be stable while structural reforms initiated in the previous few years are continuing on course.

Companys Business in brief:

Your Company is a single stop Logistics Services Provider, offering unified Logistics solutions through the extensive infrastructure of Offices and Delivery Destinations across all over the country. The Company provided various services to their client through its different divisions and products during the financial year 2018-19. Your Company offers a complete range of Logistics Products, which include following business activities:

Surface Transport through Patel Roadways division:

The Flagship division of the company undertook the conventional transportation of Goods including Full Truck Load (FTL) & Less Truck Load (LTL). FTL takes care of full truckloads at national level in metric ton capacities of 3, 4.5,6, 9, 16 and thereafter in trailers of specific sizes. FTL is point-to-point hard freight options catering to corporates and traders at more than 200 delivery stations countrywide. LTL specializes in hard freight sundry shipments. Having a national network with a regional reach, it moves goods at long, medium as well as short routes at an all India level. LTL provides customized solutions as per clients requirements in sundry loads.

Retail Door Pick-up and Door Delivery through Patel Express division:

With service delivery covering PAN India and guaranteed daily dispatches on 65 routes, PATEL Express reach extends to every location in India, no matter how remote. The company guarantees a faster, safer load movement through scheduled dispatches and customers have a window of next day to nine days delivery schedule to choose from. Prompt Door-to- Door Express Cargo and cost-effective services tailored to suit client requirements, are the main drivers of Patel Express operational model. A large fleet of trucks, a wide network and trained human resources at every station fuel the reliable, safe and timely delivery of goods.

Warehousing through Patel warehouse:

Your Company is looking to spread its wings in sphere of Warehousing. Presently the Company has its Bonded Warehouse of 15,000 sq. feet at Chennai under Patel warehouse, which is providing warehousing solutions to the customers. The Construction of warehouse at Bangalore is completed and will be operative in this financial year. It offers services in Warehousing and Distribution, Manufacturing Logistics, C&F Management apart from other valuable services in cargo and vendor management. The Company also looking to expand Warehousing at Hyderabad, NCR Region and other strategic locations in India in the coming years.

Air Cargo Consolidation through Patel Airfreight division:

This division of the Company carries on the business of courier and air cargo consolidation in the domestic as well as in the International market. These divisions are IATA approved divisions and undertakes efficient and cost-effective courier and air cargo consolidation with network of branches across all over the country.

Industry Overview:

A) Surface Transport and Logistics:

Over the past few years, the freight transportation sector in India has been the key beneficiary of Governments reforms cycle. From the implementation of Goods & Services Tax (GST) and E-Way Bills to awarding infrastructure status, the sector has witnessed series of developments, which are gradually driving efficiency in the entire logistics ecosystem.

According to the domestic rating agency ICRA, Indian logistics sector is expected to grow at a rate 8-10% over the medium term. This is an improvement over the compound annual growth rate (CAGR) of 7.8% at which the industry grew during the last five years. The logistics industry of India is currently estimated to be around US$ 160 billion. With implementation of GST the sector is expected to benefit and touch US$ 215 billion over the next two years,

B) Air Cargo:

Globally, air transport is a highly dynamic industry and in this regard, the industry in India is no different. The Indian air cargo industry is poised for significant growth on the back of both the strength of Indias economic growth and many other drivers of growth in Indias commerce, trade, investment and consumption, which include significant demand from small and medium B2B segments.

The air transport industry contributed about US$ 30 billion annually to Indias GDP, and directly employed more than 390,000 people while supporting another 570,000 in the supply chain as per study carried out by Air Transport Action Group (ATAG).

Open Sky Policy for air cargo and improved international connectivity coupled with expanding cargo-handling infrastructure, both physical and digital have sustained the high growth of air cargo in India in the last few years.

Opportunities & Outlook

A) Surface Transport and Logistics:

National Integrated Logistic Policy (NILP) focus on increasing the capacity of storage and warehousing and other value- added services. Multi-modal logistics parks and integrating various transportation modes are also being developed right up to the District level.

India is moving ahead with a pan-nation scheme to improve the road network to bridge critical infrastructure gaps through corridor-based development.

According to CRISIL the future for the Indian logistics industry is going to shine even brighter. The research firm suggests the logistics industry of India which stood at Rs 6.4 trillion in FY17 will grow at a CAGR of 13% over the next three years and will be at Rs 9.2 trillion by FY20.

There is huge potential in the logistics and warehousing sector. With high demand for high-quality logistics facilities and increasing market maturity, the space is set to grow from this stage. With 24% share of total platform level investments in India in 2018, warehousing and industrial segment is expected to retain strong momentum over the next few years.

Going forward, strategic investment and government initiatives to support the sector are going to be crucial for the logistics industry in India.

B) Air Cargo:

As markets evolve and customer demands change, air cargo operators must constantly review and update their operations and product offering to ensure that they continue to meet the market need. Indias aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the countrys population, of which nearly 40% is the middle class. Despite being a costlier mode of transportation, the growing demand for perishables, chemicals and valuables, and the rising demand for just-in-time production of goods has created a massive demand for air freight services. Owing to the continued growth in online shopping, many third party logistics (3PLs) are offering more multi-modal services, which includes air cargo service as a critical mode of transportation.

The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost Indias civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2020.

Going forward, it is felt that the focus on improvement in the Ease of Doing Business in India coupled with landmark Government of India initiatives like Make in India, and Digital India, coupled with suitable policy, logistics, regulatory, and skills regime will all contribute to facilitating accelerated growth in air cargo.

Risks & Concerns:

A) Surface Transport and Logistics:

Overall, if the current scenario of Indian roads is to be considered, it has to go a long way and still does not bode well with the countrys growing economic activity. Although the inefficiency in transportation of goods and services still exists across the country, there is definitely a change in momentum, with projects like Bharatmala Pariyojana.

Despite holding promise the logistics sector in India remains mired in several complexities which have the potential of holding it back. These includes significant inefficiencies in transportation, poor condition of storage infrastructure, complex tax structure, low rate of technology adoption, and poor skills of logistics professionals.

B) Air Cargo:

Air Cargo full freighter operations have not developed as was expected and continual efforts through new policies/ incentives need to be devised to provide a favourable environment to support growth.

There is need for removal of Airport Infrastructure bottlenecks for Air Cargo growth, including adequate landside & airside facilities and approach roads. Increasingly pharmaceuticals, perishables, new e-commerce products, PO mail and Courier require a holistic cargo village concept that facilitates optimal cargo flow at airports. Airport operators to be encouraged to provide the necessary infrastructure to support cargo operations to cater to each specialised air cargo segment.

The growing demand for air freight transportation services has opened new challenges for the air cargo service providers. Airlines need to focus on implementing fuel-efficient solutions and accommodate innovative technologies to provide cost-effective services.

Fuel prices have climbed up the operating costs of the air cargo industry. The ever-increasing cost of fuel is the biggest area of concern as it is reducing profitability.

Human Resource Management:

Human resource management plays an important role in the Companys growth. The emphasis on employees learning within the Company as well as adapting to its changing external environment promotes a workplace where diverse set of talents can connect, contribute and thrive in partnership with business leaders.

The Company is operating in Logistics sector which has been growing rapidly. However, there is an acute shortfall of personnel with adequate training and education in logistical management in India. The management and mid-tier levels are provided with training on leadership skills, jointed skills and positions and being process-driven.

The Company has in place its HR policies for various HR processes. Sourcing the right candidates, engagement, development and retention of intellectual capital is a vital management exercise. Our human capita constitutes a judicious mix of youth, imagination, risk-taking ability and seasoned experience.

Guided by the vision and overall strategy of Company, the focus is to build strong workforce by establishing strong linkages between employees, processes and values. Its focus remains on capability development in employees to maximise productivity and expand skillset.

The Company continues to enjoy peaceful and harmonious relations with all its employees through several proactive measures during the year. The Company employed 829 people as on 31st March 2019.

Internal Control System:

The Company has a satisfactory Internal Control System, the adequacy of which has been reported by the Auditors in their Report as required by the Companies (Auditors Report) Order, 2015.

The Company is committed to further improve Internal Controls and strengthen the Internal Audit function. Further stress on Corporate Governance is being given in the current year. We firmly believe that the business can grow and develop on the required lines and profitability can be sustained only through Strong and Transparent Corporate Governance.

Financial performance and segment-wise performance:

The discussion on the financial performance of the Company is covered in the Directors Report. The segment-wise performance is available in note 39 of the notes forming part of the Accounts for the year under consideration.

Key Financial Ratios:

Description 2018-19 2017-18
Debtors Turnover 4.43 4.45
Interest Coverage Ratio 1.88 2.49
Current Ratio 2.17 2.07
Debt Equity Ratio 4.99 4.63
Operation Profit Margin (%) 3.52% 4.23%
Net Profit Margin (%) 1.41% 1.94%

Cautionary Statement:

Statements in the Management Discussion and Analysis Report describing Projections, Estimates, Expectations, Future Outlook etc. in connection with the business may be forward looking statements within the meaning of applicable securities laws and regulations. However, the actual results could materially differ from those expressed or implied in the statements made by the Management. Various factors which are outside the purview of the Management Control can cause these deviations. These factors include economic developments in the country, changes in governmental policies and fiscal laws, sudden and unexpected rise in input costs, change in the demand supply pattern in the industry, etc.