Ruchi Infrastructure Ltd Management Discussions

Company is primarily engaged in the business of storage infrastructure and renewable energy, viz.

(a) Liquid storage facilities for handling bulk storage of liquid commodities such as edible oils, petroleum products, bitumen, paraffins, liquid chemicals, with transfer via pipeline etc.

(b) Warehousing facilities including storing agri commodities such as wheat, maize, soybean, cotton, chana etc. as well as extending customised warehousing facility for various industries dealing in FMCG, E-commerce, cement, white goods, soap, adhesive, paint etc. and (c) Renewable Energy The Company has set up wind energy projects in MP including through 100% subsidiary. The Company is also evaluating opportunities for expansion in this sector.

India comprises a significant size maritime sector with 13 Major and 200+ Non-Major Ports situated along its 7500 km long coastline spanning 13 maritime States and Union Territories and a vast network of navigable waterways. The countrys maritime sector plays a crucial role in its overall trade and growth, with 95% of the countrys trade volume and 65% of the trade value of Indias International trade being undertaken through maritime transport.

Liquid storage tank terminal facility business is increasing in India amid challenges like increasing traffic and limited storage capacities. Tanks for storage of Edible oil, black oil, Bitumen, Chemicals, LPG, etc., has boomed in recent years. Bulk liquids consisting of Petroleum, Oil & Lubricants (POL), Bulk Liquid Chemicals, etc., feed a reasonable number of significant market sectors and industries such as petrochemicals, chemicals, synthetic fibers, power generation, food processing and pharma are in requirement of amicable handling solutions for the same.

Government is keen and giving top priority to port-led infrastructural development so that the immense potential of Indian coastline strength can be harnessed to the fullest.

India is the 6 largest chemicals producer in the world and the 4 largest agro-chemical producer globally. Indias chemicals trade balance is negative with imports being significantly higher than exports. The critical challenges faced in Liquid bulk handling facility is above optimum capacity utilization because of capacity mismatch and inadequate port infrastructure. In recent times, Indian warehousing market has been on a high growth trajectory. Also, since the outbreak of COVID-19, the usage of warehousing facilities by e-commerce platforms has risen sharply as demand for goods has been at an unprecedented high, boosting the e-commerce market and warehousing space requirements alike. Further, after e-commerce, Quick-Commerce and instant delivery modal has generated tremendous demand. This kind of demand has got focus and attention of many domestic and international investors. Growth of new segments like organized food delivery, has also fueled because of the pandemic, resulting in incremental demand for customized warehousing space.

As a result of such demands, the warehousing industry has emerged as a resilient asset class and continues to show an uptrend within the real estate sector. A lot of capital is also being allocated to the technological infrastructure of the warehouse, to ensure automation and efficient operations.

As per the information and reports available in public domain, it is estimated that the annual warehousing transactions for the top eight Indian cities (primary markets) will grow at a compound annual growth rate (CAGR) of 19% to 76.2 mnsqft (7.08 mnsq m) by the financial year 2025-26. The warehousing sector of India is set to cross the 300 million square feet (MSF) mark by 2025, according to a report jointly launched by CREDAI and CRE Matrix. Currently, the overall Grade A warehousing stock stands at 216.2 MSF. In Q1CY24, India witnessed a 5 per cent increase in rentals, reflecting how Indias warehousing demand continues to surpass supply with the absorption to supply ratio standing at 1.4 in the quarter. Thus, there is wonderful growth opportunity in all the sub-verticals of Warehousing and Storage business. The annual investments in the logistic sector are expected to reach $500 billion by 2025-26.

Thrust to infrastructure development across sectors such as roads, ports, economic corridors, affordable housing, solar and wind energy is identified by the Government as an important lever to generate growth and employment. The governments impetus to the national infrastructure pipeline (NIP) is one of the examples. The Government has rightly recognized the need to lessen the burden of the budgetary support for the vast amount of funds required for infrastructure sector. The Government has emphasized the role of private investment and the PPP route for funding the developmental of infrastructural initiatives. Governments project DMIC (Delhi Mumbai Industrial corridor is covering the maximum area from MP and the companys 5 warehouses are now in the proximity of the corridor. The Indian warehousing industry accounts for around 15% of the total logistics market in globe. It is the second most important component after transportation and also expected to add more capacity in next two-three years. The industry structure is highly fragmented especially the industrial warehousing segment with the un-organised players accounting for 70 to 75 percent of the total warehousing space. However, the logistics industry faces challenges such as under-developed material handling infrastructure, fragmented warehousing, multiple regulatory & policy making bodies, lack of seamless movement of goods across modes, minimal integrated IT infrastructure. In order to develop this sector, focus on new technology, improved investment, skilling, removing bottlenecks, improving inter-modal transportation, automation, single window system for giving clearances, and simplifying processes are being considered. The industry believes that the concerns are in process of being addressed.

In the same manner, Renewable Energy is also accorded priority in the Energy sector in the country for past years. As a part of its Paris Agreement commitments, the Government of India has set an ambitious target of achieving 175 GW of renewable energy capacity .These include100 GW of solar capacity addition and 60 GW of wind power capacity.

The Indian warehousing industry is set to grow at a CAGR of 8 to 10 percent and modern warehousing at 25 to 30 percent over the next five years due to various factors including anticipated increase in global demand, growth in organized retail coupled with increasing manufacturing facilities, presence of extremely affordable and desirable e-commerce options and growth in international trade. Agri spot market is on growing trend on all exchanges, including NCDEX, MCX and BSEs portal. Going forward, a responsive supply chain will be a combination of speed, cost and efficiency. Market and demand patterns are changing very rapidly and the ultimate strategy would be opting for agile supply chain management.

Edible oil and chemicals are mostly stored in commercial tank farms. Demand for liquid storage is increasing in India amid increasing traffic and limited existing capacities. Currently, the utilization of commercial farm tanks in India is around 80 percent. Bitumen is used as a binder in road construction and in roofing and waterproofing applications. Almost 90% of the bitumen is used in India in road construction with the balance of 10% shared for roofing and waterproofing, adhesives, insulation, etc. In the construction and industrial sector, bitumen is an important raw material for manufacturing road, water tanks, dams, and bridges due to its high viscosity, stickiness, and water-resistance properties. According to government data, highway construction works are done on an average to 25 kms per day but due to the pandemic impact it fell to 21.3 kms in the last fiscal year.

Government of India under its flagship schemes- Sagarmala Project, Bharatmala Project, Parvatmala Project, etc. aims to enhance the logistics sector by building new mega ports, connecting waterways to coastline and make an alternative to conventional roads in difficult hilly areas. The goal is to improve commuter connectivity and convenience while also promoting tourism.

India is the one of the largest importers of Bitumen and imports most of its Bitumen from United Arab Emirates, Iraq and Belgium. It is sure that in coming times, demand and supply for Bitumen Storage will enhance. Capacity to store Bitumen is limited in India as it requires insulated tanks, pipelines & allied infrastructure and skilled labour. Company is well placed to capitalize by initiating construction of tanks dedicated for storage of Bitumen.

Tank Farm Industry is on the threshold of phenomenal growth in India. There is a good demand for SS tanks, Floating Roof Tanks, storage tanks for specialized products like Bitumen & Coal Tar and bunkering fuels supply.

The factors influencing the aggregate demand are as follows:

1. Consumption led demand by per capita income, booming e-commerce industry and Fast Moving Consumer Goods market gaining traction.

2. Manufacturing led demand -Make in India campaign is expected to increase the manufacturing activities in India, entailing demand for warehousing. The warehousing segment is expected to attract an investment of close to ‘150 billion in the next five years. The “Make in India initiative” is expected to boost the manufacturing sector to 10 percent growth. The manufacturing sector spends 2 to 20 percent of its revenue on logistics.

3. Improvement in International trade (Export and Import).

4. Emergence of organized retail and E-commerce and other online delivery modules.

5. Increasing private and foreign investments in infrastructure and logistics.

6. Easing of Government regulations in Agriculture sector.

7. Rapid expansion of highway and expressway infrastructure

The new growth drivers such as organised retail, information technology (IT), telecommunications and health care can be considered as high potential sectors. The growth of these drivers, backed by the advent of technological advancements, is likely to rise the demand for organised and automated warehouses going forward.

The industry is trying to address the structural limitations of the warehousing industry viz. lack of alignment of capacity, absence of appropriate scale to support value-oriented pricing, low capital and operating efficiencies, in-appropriate level of automation. Established players are also bringing in new technologies in the market. This is leading to focus on mechanization and better cost management.

From a mere combination of transportation and storage services, logistics is fast emerging as a strategic function that involves end to end value added solutions to improve the efficiency of the supply chain and to offer better value to the consumers of the services. Growing demand for better services at lower costs has led to the emergence of organized warehousing in the country. Appropriate size of storage, locational factors to facilitate better connectivity between the provider, aggregator and end user, Efficient inventory management systems, Modern storage solutions, automation of warehouses for the effective utilization of space and MIS implementation are key differentiating factors which would be considered in future investments in the sector for the organized players, keeping in view the long term and sustainable advantage.

It is believed that the following initiatives would contribute towards creating a sustainable roadmap for the growth of the logistics sector in the years to come:

The government has reiterated its steadfast commitment to modernizing the functionalities of Indian logistics with a key focus on infrastructure development. Further Central Governments grant of ‘Infrastructure Status to the logistic sector including warehousing, had also proved to be catalyst. The ambitious Delhi Mumbai Industrial corridor is passing through MP and some of existing and planned warehouses are falling on strategic locations near corridor. The Sagarmala initiative is a key step in doubling Indias coastal shipping share in the countrys broader modal mix and aims at formulating a comprehensive shipping policy and optimizing the countrys maritime assets. The high-speed, freight-only Dedicated Freight Corridor Project aims at decongesting a heavily saturated road network and reducing freight transit times from industrial heartlands in north India to ports on the eastern and western coast of the country.

Key reform measures and policy interventions like the unveiling of the Goods and Services Tax, (GST), relaxed FDI regulations and granting of infra status has boosted the core competencies of the Indian logistics industry. The ongoing trade policy related matters between the US and China presents India with the key opportunity to expand its export trade and correct its trade imbalances with the Asian economic powerhouse. There are also some reforms being implemented in mandi operations in Madhya Pradesh, the state in which the warehouses of the Company are located, with the objective of creating environment of ease of doing business. Further, Government plan to create buffer stock in various states is going to give boost to warehousing demand.

The emergence of new-age empowering technologies like artificial intelligence, internet of things and machine learning will disrupt the conventional workings of the countrys logistics sector. The impact of these technologies is anticipated to enhance productivity across the supply chain spectrum and streamline operational processes thus resulting in boosting efficiencies of supply networks, reduce wastages and lead to supply chain optimization.

The above growth will have a positive cascading impact on the growth of storage infrastructure opportunities in India. The Company is in the process of developing capabilities to customize the set up for existing and potential customers to derive mutual benefits. Several initiatives like online monitoring, digital stock management etc are the systems being implemented already.

(a) Liquid Storage Business Vertical : Your company has storage infrastructural facilities at strategic locations across the country. Your Company is exploring a number of options to leverage the strengths of the company viz. being the major player in the bulk liquid storage industry, having experienced and well-trained manpower and a strong track record in terms of strategic alliance with third parties. Your company focuses on further expanding and optimizing its network of storage terminals, providing specialist logistic concepts and entering into strategic alliances that provide related logistic services. This year company has expanded its liquid storage capacity and the revenue from the expanded capacity is expected to be added up in coming years. (b) Warehouse Storage Business :This vertical of the company is performing consistently and has achieved around 20%+ EBDTA growth CAGR for past few years. Company in the middle of complete Business Transformation and in last 12-14 quarters it has established itself as one of the leading warehouse and service provider in M.P. Further, your company is poised to generate even higher annual profitability in the financial year 2024-25. Construction of three new warehouses was completed in last year and the revenue also started from those warehouses. The revenue impact of the same will be seen in H1 of financial year 24-25. The company has not only enlarged the product portfolio to include storage of various non-agri products but also has successfully started construction of customized warehouse for the prospective customers. This will enable the company to utilize the facilities efficiently, unlock the potential value, from time to time, due to better economies of scale and visibility in the growing space with better connect with the existing and potential consumer base. Company is gearing up to counter the prevailing challenges and convert these to opportunities, which has resulted into diversified portfolio of customer and visible growth in revenue.

This will entail investments, strengthening of the existing systems, strategic partnerships/alliances etc. to cater to growing supply chain dynamics. The competition in this industry is, however, increasing due to many factors including technological factors, capacity orientation, efficiency in costs, dynamic changes in the needs of user industry apart from seasonality. Your company is aware of the changing nature of the storage industry and reviewing action plans to be constantly relevant to the user industry and facilitate value addition.

(c) Renewable Energy: Your Company has 10.8 MW wind power project which has been in operations for around 14 years and the project is Debt free. Also a 14.7 MW wind project in successful operation in its 100% subsidiary. In this project also the debt is reduced to less then 40% of initial sanction and the generation and revenue is at par with the expectations with clear visibility of next 17 years. Both the projects are running successfully. With seasoned and experienced team and good network, your company is now exploring opportunity to enter into Solar power as well.

Government policies have always played very important role. Despite that the policies are progressive in the infrastructure segment owing to various factors including infrastructural needs, demand supply gap, economic growth, technological advancement to achieve operational/cost efficiencies and equitable view towards various stakeholders, the Company is keenly tapping the private market to minimize the risks associated with changes in government policies. Still the portion of business which is being done with Government brings in the risk of delayed payment. Company is concerned with duty structure of the imported edible oil which changes the business dynamics even when there is slightest change in the duty structure. The management reviews the potential risk factors on an ongoing basis and appropriate measures are taken to mitigate the risks. Construction costs have increased due to rising material prices such as crude oil, steel, aluminum, cement, labour, equipment rental costs, and costs of plumbing and fixtures. Additionally, Covid-19 has caused a significant shift in construction costs, resulting in slightly higher material costs and supply chain disruptions.

The Companys internal control systems are adequate and ensure that all corporate policies are strictly adhered to and that transparency is maintained at all levels and functions throughout the organization. Systems have been put in place at all levels to ensure optimum usage of resources and to minimize risks across all activities undertaken by the Company. The internal control systems are designed to ensure the safety of all assets of the Company and also to ensure that all transactions are carried out as per the documented policies, guidelines and procedures. Detailed framework of internal financial controls and adequacy thereof is included in the Directors Report.

Your Company is focused towards the energy conservation at macro as well as micro level. Its renewable energy business is already generating approximately 40 million green energy units (including generation of subsidiary company) which is sufficient to light up around 15000 homes for a year. Further, at micro level and as a continuous process company is actively pursuing towards reducing its carbon footprint by way taking small measures including but not limiting to usage of only 5 star rated components/equipment in office space.

1) Debtors Turnover ratio has reduced in financial year 2023-24 as compared to the previous year due to better recoveries.

2) Inventory turnover ratio has increased in financial year 2023-24 as compared to previous year due to lower turnover & increase in inventory carried.

3) Interest coverage ratio has increased in financial year 2023-24 as compared to the previous year due to higher profit.

4) Current Ratio has increased in financial year 2023-24 due to decrease in current liabilities.

5) Debt Equity ratio has improved in financial year 2023-24 due to preferential issue of equity shares and repayment of debt.

6) Operating profit margin has improved during the financial year 2023-24 as compared to previous year due to better capacity utilisation.

7) Net Profit Margin has increased during the financial year 2023-24 due to higher profit.

8) Return on net worth has increased in financial year 2023-24 as compared to the previous year due to higher profit.

The detailed analysis of operations and financial results is provided in the Directors Report. The financial statements have been prepared in accordance with notified Ind AS. The detailed segment-wise performance is given in Note No. 50 to the stand alone financial statements of the Company. There were no material changes/developments in human resources requirement during the year under review.