Shreeji Translogistics Ltd Management Discussions.

OVERVIEW

Our Company, Shreeji Translogistics Limited (earlier known as Shreeji Transport Services Private Limited), is a Pan-India surface logistics and parcel delivery service provider. With more than four decades of experience in freight management, logistic solutions and warehousing services, our Company has made significant progress along the highways of India. The Company has grown into an integrated national logistical solution provider, catering a wide range of logistical requirements from Import-Export Container Movement to Bonded Trucking Movements. The various types of services provided by the Company include Full Truck Load Transport Services, Parcel and Part Truck Load Services/ less than Truck Load (LTL), Import- Export Services and Bonded Trucking Services

INDUSTRY STRUCTURE, DEVELOPMENT AND OPPORTUNITIES

The Indian logistics sector is primarily categorized into four segments comprising:

1. Transportation (Road, Rail, Air, Water-ways)

2. Warehousing (Container Freight Stations and Inland Container Depots)

3. Freight Forwarding

4. Value Added Services

Currently, the Indian logistics sector is on a big growth tide. This is an improvement over the Compound Annual Growth Rate (CAGR) of 7.8 per cent at which the industry grew during the last five years. The logistics industry of India is currently estimated to be around US$ 160 billion. The growth of Indian ecommerce during the last five years has immensely boosted the prospects of logistics sector. This is further complemented by the implementation of GST, which streamlined the state-wise tax structure and ensured seamless movement of goods. According to Economic Survey 2017-18, the Indian logistics market is expected to reach about US$215 billion in 2020, growing at a CAGR of 10.5 per cent.

The last couple of years have seen significant development of this industry which reflected in the global rankings. According to the Global Ranking of the World Banks 2016 Logistics Performance Index, India jumped to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance. The report also showed that Indias logistics sector has improved its performance on all the six parameters used in the ranking.

There are multiple factors that are driving this sector towards growth and boom. The growth of logistics is two sided led by demand and supply.

The demand led growth is strengthened with the economic recovery and benefits from implementation of GST. According to ICRA, post GST implementation the savings in terms of truck turnaround time has been approximately 18-20 per cent. Also, the outsourcing of non-core activities like warehousing and associated activities to integrated players is leading to strengthen the organised players, which in turn is good for the industry in long term. Development of logistics related infrastructure, like dedicated freight corridors, logistics parks, free trade warehousing zones and container freight stations, are expected to improve efficiency.

The supply led growth drivers include improvement in logistics infrastructure, integrated logistics and birth of numerous logistics start-ups, especially tech led start-ups. According to an industry expert, "Techenabled startups have a huge scope to grow as well drive the growth of the sector. Not only they are attracting heavy investments, they have the potential to make export procedures hassle-free by reducing unnecessary paperwork, in turn reducing delays in delivery."

At present, the logistics sector is dominated by transportation, which has over 85 per cent share in value terms. Its share is set to remain high for the next few years. The remaining 15 per cent share is accounted for by storage.

The Indian logistics sector provides a livelihood to over 22 million people, which in the next couple of years is expected to grow significantly. Equipping the sector with the latest digital technologies and automation in operations would lead to a 10 percent decrease in indirect logistics costs, placing India in good stead with countries like the US, China and Japan when it comes to both domestic as well as international trade.

The logistics sector is set to transform in the coming years. In 2017, the Ministry of Commerce and Industry set up a new logistics division, which will aim to develop a logistics IT backbone, increase jobs in the sector from 22 million to 40 million in 2019, and bring down logistics cost to less than 10 per cent of GDP from the 14 per cent by 2022.

The division has also introduced the Integrated Transport and Logistics Policy that includes the construction of 50 economic corridors, 35 logistics parks and 10 intermodal stations. This will evolve centralised strategic networks for shipment distribution rather than rely on inefficient direct route operations.

The Integrated Policy will help remove hierarchies and interactions with multiple agencies, effective monitoring and a complete tech-driven approach can help Indias logistics sector leapfrog into becoming one of the most promising sectors of the Indian economy.

The policy aims at preparing a proper integrated logistics plan. The new logistics division within the department of commerce is working on this national integrated plan, with the objective to identify and iron out any existing bottlenecks and gaps in the industry.

This is good news for the sector. It will also encourage tech-enabled startups in the logistics sector as they will be able to provide seamless movement of goods across the country. Such constructive steps, if taken frequently and with solid intention, leveraging the best of technology, can surely develop a strong, efficient logistics sector, empowering the Indian economy to achieve the goals it has set for itself.

SEGMENT-WISE PERFORMANCE

Full Truck Load Transport service is the Companys core business and in this space, the Company has been a trusted name for Time-Bound Deliveries. Bonded Trucking Service, which was a new concept introduced in India in the year 2000, was initially started by the Company in the year 2002, wherein the Company handles import-export cargo of various national and international airlines from many air cargo complexes.

The Companys operational infrastructure for the goods transportation business has a growing network of offices, franchise offices/depots/ agency offices, spread across the various regions of the country, which serves as strategic transhipment hubs for operations. The Company owns and operates a strong fleet of commercial vehicles consisting of 250 owned trucks and more than 500 outsourced trucks. The Company operates different types of trucks on the basis of design and size along with varying capacities. Our Container Trucks are used for transportation of parcels, white goods, FMCG, etc. while our Platform Trucks are mainly used for import export containers, and also for transportation of heavy duty goods like automotive parts and machineries.

RISKS, CONCERNS AND THREATS

Inspite of growing at a rapid pace, the Indias logistics industry has its challenges.

Cohesion is still lacking in Indian logistical growth. Smaller, unorganized players still eat up a large segment of the customer base, setting a lower benchmark for operations while influencing pricing as well. The inefficiency of these players has even encouraged ecommerce players such as Amazon to develop their own cutting-edge logistical fleet, equipped with drones and RFID/sensor-based technologies that optimise the entire process. Such a trend enhances competition for the dedicated logistics players, and since the Company has been able to incorporate digitised processes, we are confident we will be able to thrive through this onslaught.

Existing infrastructural and cost inefficiencies need to be addressed as well. The state of the countrys infrastructure has been on the radar of policy makers and the business industry for some time, but there has traditionally been a lack of a single ministry to regulate the logistics sector and an absence of coordination between central and state governments. As a result, the roads, ports and airports in some areas continued to struggle to keep up with the countrys rapid economic growth. This means moving products from factory to warehouse or from a port to a customer might continue to be a laborious process and even creates bottlenecks in growth.

Logistics costs have a significant bearing on exports. It is estimated that slashing logistics costs by 10 per cent could widen exports by five to eight per cent. Steep logistics costs in India vis-a-vis other nations have been a vexing issue. Logistics costs as a percentage of the countrys GDP is 13-14 per cent. Going ahead, the logistics costs as a share of the GDP is expected to decline, led by initiatives like the implementation of goods and services tax (GST), investments in road infrastructure, development of inland waterways and coastal shipping, and the thrust on dedicated freight corridors.

At present, the Indian logistics industry is highly fragmented and unorganised. Owing to the presence of numerous unorganised players in the industry, it remains fragmented, with the organised players accounting for approximately 10 per cent of the total market share. With the consumer base of the sector encompassing a wide range of industries, including retail, automobile, telecom, pharmaceuticals and heavy industries, the logistics industry has been increasingly attracting investments in the last decade.

Doing business in India can be tough with the intricate web of central and state based taxes pertaining to logistics. Although the Goods and Services Tax (GST) implemented in 2017 has cleared up most of these replacing 17 state and federal taxes and 33 different cess, it is still tricky to navigate. For instance, the GST does not have one tax rate, but six slabs, so taxpayers have to file multiple returns. Under the regime too, more services are subject to tax, such as services in relation to transport of goods outside India where the service provider and recipient are located in India.

Despite being known as tech innovators globally, Indias own digital industry is limited by its current information technology (IT) infrastructure. The slow network speeds and outdated hardware and software lead to high costs and underperformance.

There are a lot of possible ways to address these issues, of which the integration of the logistics value chain and adoption of digital technologies are two chief components, sewn together within an overarching framework of a National Logistics Policy.

The Company competes against the competitors by effectively ensuring consistent service quality and timely services at competitive prices, thereby strengthening its brand over the years. The Company believes that its large network and comprehensive service offering as well as its established reputation will enable it to compete effectively in the market.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate internal audit and control system commensurate with its size and nature of business to ensure operational efficiency, accuracy and promptness in financial reporting and compliance of various laws and regulations. The Audit Committee of the Board of Directors reviews the Internal Audit Report and the adequacy and effectiveness of internal controls periodically.

FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

The consolidated performance of the Company for the financial year ended 31st March, 2019 is as follows:

The Service Turnover of the Company was Rs. 12320.81 Lac during the year under consideration as compared to Service Turnover of Rs. 10861.48 Lac during the previous year, representing an increase of about 13.44%.

The depreciation and amortisation expense was Rs. 349.01Lac, as against Rs. 394.34 Lac during the previous year. The finance cost was Rs. 351.44 Lac as against Rs. 311.91 Lac during the previous year.

The consolidated net profit after tax for the year is Rs. 387.36 Lac, representing an increase of around 27.50% from the previous year.

KEY FINANCIAL RATIOS

Ratio 2017-18 2018-19 % Change Explanation for Change
Return on Net Worth 15.13 16.16 6.81 Higher Net Profit

There are no significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in other key financial ratios, like Debtors Turnover, Inventory Turnover, Interest Coverage Ratio, Current Ratio, Debt EquityRatio, Operating Profit Margin (%) or Net Profit Margin (%), therefore, details and explanation for the same have not been given.

HUMAN RESOURCE DEVELOPMENT

As on 31st March, 2019, the Company has employed 413 employees based in different locations across the country, majority of which are located at our registered office and regional offices. Additionally, the Company employs casual labourers and temporary labourers on daily wages for loading / unloading of the goods according to its requirements. Administrative employees play an important role in our centralized support services such as load planning, accounting, information technology, business development and human resource functions. The Company has developed a decentralized senior management structure in order to ensure timely decision making which is key to our operations.

The recruitment, training and retention of qualified drivers are essential to the Companys growth and to meet the service requirements of the customers. In order to keep the drivers motivated, the incentive schemes are provided on a monthly basis and include incentives based on distance travelled, fuel efficiencies and meeting delivery and / or route schedules

FUTURE BUSINESS OUTLOOK

With increasing road infrastructure, the Company intends to expand the Cargo Business. The Company also intends to set up warehouses in western regions of India to gain advantage of increased demand for warehousing facilities by the customers for storage of their cargo/ goods. The Company also intends to enter into temperature controlled services and ambient distribution business segment i.e. the Company plans to own refrigerated freezer trucks and arrange for the transportation of the customers products from point of sourcing through Reefer Vehicles or ambient distribution vehicles.

CAUTIONARY STATEMENT

Statements in the Management Discussion & Analysis describing the Companys objectives, projections, estimates and expectations may constitute "forward looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied.