Velox Shipping and Logistics Ltd Management Discussions

1. Macro-Economic Environment:

The global economy demonstrated outstanding resilience in navigating supply chain disruptions and economic challenges in 2023-24 despite major geopolitical volatilities, stemming from events such as the Russia-Ukraine conflict, the Red Sea crisis and heightened tensions between Israel-Palestine. The projected world trade growth for 2025 stands at 3.6%, below the historical average of 4.9%, owing to ongoing trade distortions and geo-economic fragmentation. Escalating geopolitical tensions, coupled with extreme weather events, continue to be the major risks affecting the momentum of growth. Moreover, tough financial conditions also factor in as risks to global trade and industrial production. However, a significant realignment in trade flows across regions presents a strategic opportunity for India, potentially boosting its economic growth.

According to IMF, global economic growth is projected at 3.1% in 2024, while marginally moving up to register 3.2% in 2025. Despite an anticipation of strong resilience in the US and several large emerging markets, the forecast for 2024-25 remains below the historical average of 3.8%. Several factors contribute to this tempered outlook, including elevated central bank policy rates aimed at fighting inflation, and the withdrawal of fiscal support amidst high debt weighing on economic activity, and low productivity growth. On the other hand, most of the regions are witnessing a faster- than-expected decline in inflation, attributed to the resolution of supply-side issues and implementation of stricter monetary policies. In line with this trend, the global inflation is anticipated to drop to 5.8% in 2024, and further to 4.4% in 2025 indicating that risks to world growth are majorly balanced.

According to IMF, global recovery remains slow as there are growing regional divergences leaving little margin for policy error. The Red Sea crisis infused significant levels of instability within the business landscape and its impact on trade volumes will be evident in 2024-25. Higher shipping and insurance costs, combined with delayed arrival of shipments will continue to disrupt global value chains, thereby further squeezing margins.

2. Overview of the Indian Economy:

The Indian economy remains a bright spot amidst global uncertainties, displaying a positive outlook for the coming years. India is poised to be the fastest growing economy among the major G20 nations. As an affirmation to Indias growing acceptance as a major economic super power, global rating agency Moodys raised Indias GDP growth forecast for calendar year 2024 to 6.8%. The improvement in the growth estimate is attributed to the robust economic performance of the country, evident in the real GDP growth forecast at 7.6% for 2023-24. Domestic demand, particularly investment, is expected to continue as the prime growth driver of the Indian economy, buoyed by the sustained levels of business and consumer confidence. Three capabilities helped India boost its

ability to create unique goods and services, that include technology infusion, focus on niche & complex manufacturing, and emphasis on exports. Indian economy exhibited strong performance in 2023, with substantially higher levels of capital formation being the growth enabler. However, the response from private sector remains inadequate despite the Governments sustained push. In addition, there is decline in the participation of foreign direct investors, affecting capital landscape. Notwithstanding these challenges, the Indian economy is set to grow on the strength of financial sector and other structural reforms. Going forward, Government should prioritise reforms in the areas of skilling, learning outcomes, health, energy security, reduction in compliance burden for MSMEs, and gender balancing in the labour force, to further propel the trajectory of growth.

The Interim Union Budget for 2024-25 is expected to open new avenues with a significant 11.1% increase in capital expenditure for infrastructure, amounting to ^11,11,111 crores. This substantial investment is projected to boost roads, bridges, airports, and other vital facilities, thereby improving connectivity and efficiency. Such developments are foundational for ramping up productivity and competitiveness. The expansion of the National Highway (NH) network by 60% from 91,287 km in 2014 to 1,46,145 km in 2023 remains a key driver of growth with its extended outreach. This phenomenal development is instrumental in enhancing accessibility even in the remotest parts of the country, contributing substantially to improving national connectivity. Moreover, substantial investments in infrastructure projects created numerous direct and indirect job opportunities, playing a crucial role in driving economic growth.

3. Outlook:

The Indian freight and logistics market is poised for substantial growth, projected to surge at an annual rate of 8.8% to reach a staggering USD 483.43 billion by 2029. Key drivers propelling this growth momentum includes the burgeoning e-commerce and online retail sectors, Governments adoption of logistics services through favorable policies, and advancements in technology. The industry landscape is diverse, comprising startups, SMEs, global corporations, and domestic firms. Road transportation is the dominating segment within the industry, alongside significant contributions from air, sea, and rail transportation, especially for international logistics. Technology- driven logistics companies and digital platforms are revolutionizing the sector, enhancing customer experiences, efficiency, and transparency amidst shifting consumer preferences and economic initiatives.

The industry has undergone a transformative shift, going beyond its traditional role of mere transportation and storage to embrace predictive planning, analytics, value-added services, and end to end product management, among others. Vital to the smooth flow of goods domestically and internationally, the sector now provides a host of value-added services, including packing, labelling, inventory management, and transportation, bolstered by technological solutions, including warehouse and transportation management systems. It is noteworthy that despite advancements, Indias logistics costs remain high at 14% of GDP compared to the BRICS average of 11%, resulting from inadequate multi and intermodal transportation systems. However, initiatives like the Goods and Services Tax (GST), Gati Shakti programme, infrastructure enhancements, and automation successfully improved the efficiency of the sector. Customised

transportation and warehousing services, including contract logistics, B2B express, last-mile distribution, and freight forwarding, are essential offerings in this evolving landscape.

In our country, the Make in India initiative of the Government fuels the growth of contract logistics market, ably supported by the sustained focus of Indian manufacturing industry on enhancing core competencies and cost efficiency, leading to outsourcing of supply chain management. Expert service providers, offering end-to-end solutions, encompassing documentation, tracking, warehousing, and legal compliance, are increasingly being trusted by the manufacturers. These providers emerged as strategic partners, offering tailored services to cater to the manufacturers unique needs for efficiency and technological integration. The contract logistics market is anticipated to achieve a CAGR of approximately 8-10%, reaching a market value of ^ 24,00,000 crores by 202526. Despite its burgeoning potential, the market remains highly fragmented, with the top 10 players accounting for only 15% of the market share.

Regional players dominate the landscape, providing transactional services in transportation and storage. We believe that as the industry matures over the next few years, there will be a significant shift from pure-play transportation and warehousing services towards sophisticated, high-value and integrated logistics solutions.

Similarly, the B2B express market is thriving with an expected 15% CAGR, well-positioned to reach ^ 24,000 crores by 2026. Unlike contract logistics, this segment is more organised, with major players commanding 70% of the volume. The segments growth is further fuelled by increasing demand for direct-to-consumer services, omni-channel fulfilment solutions, and high adoption by MSMEs and small brands. The freight forwarding market, estimated at ^ 45,600 crores, is forecasted to register an 8% CAGR by 2024-26. Key industries contributing to this sector include food processing, pharma, engineering, textiles, chemicals, and automotive. Moreover, on account of the Governments push towards infrastructure development, the Atmanirbhar Bharat vision for attaining self-reliance in manufacturing, growing imports and exports, combined with the rising adoption of China+1 manufacturing strategy by major companies are expected to drive the steady momentum of the market over the medium to long term.

Lastly, the last-mile delivery market in India witnessed rapid growth in recent years, clocking a 25% CAGR, with a projection to reach ^ 36,500 crores by 2026. Driven by the growth of e-commerce and the increasing demand for faster and more efficient delivery services, the market is scaling new heights. In addition, the Government of Indias focussed initiatives, including Open Network for Digital Commerce (ONDC), Make in India, Digital India, and Skill India are expected to boost the segment. Despite the surge, last-mile still remains the most expensive component of supply chain, highly complex in nature with high service level requirements.

4. Key Government Initiatives:

In India, logistics cost as a percentage of GDP stands at approximately 14%, substantially higher than those in developed countries, ranging between 7-8%. This higher cost is driven by certain inefficiencies within the industry, including lower transportation speed, higher transit inventory, theft and damages, and a skewed modal mix. Currently, road accounts for nearly 70% of transportation by volume, while rail, ocean, and air collectively consisting of the remainder. The Indian Government launched several plans, such as National Logistics Policy (NLP), and PM Gati Shakti National Master Plan (NMP) to revolutionise logistics sector. Moreover, game-changing initiatives like Unified Logistics Interface Platform (ULIP) and ONDC focus on enhancing efficiency, reducing bottlenecks, and positioning Indian logistics sector as an attractive global partner, propelling the country closer to its ambitious goal of achieving a USD 5 trillion economy goal.

National Logistics Policy

The NLP aims to cut logistics cost by half to be near global benchmarks by 2030 by reducing the cost of logistics from 14-18% of GDP to global best practices of 8%. The key building blocks of the policy are Digital Integration System, ULIP, Comprehensive Logistics Action Plan, and E-Logs (Ease of Logistics Services), among others.

Open Network for Digital Commerce (ONDC)

ONDC is an initiative designed to promote open networks for all aspects of exchange of goods and services over digital or electronic networks. It is to be based on open-sourced methodology, using open specifications and open network protocols independent of any specific platform. ONDC is expected to make e-commerce more inclusive and accessible for consumers.

Multi-Modal Logistics Parks (MMLP)

The MMLP represents a holistic approach to integrating different modes of freight transportation, including highways, railroads, and inland waterways. Designed to provide several capabilities, the MMLPs offer freight gathering and distribution along with seamless intermodal freight transportation. Additionally, users are set to receive value-added services including custom clearances and IT services, as well as storage and warehousing solutions. A total of 35 multi-modal logistics parks with a capital budget of Rs. 50,000/- crores are planned across the country.

Gati Shakti

PM Gati Shakti Masterplan was launched by the Government of India in 2021 with the purpose of creating a world-class, seamless multi-modal transport network in India. Since its inception, 13 State

logistics policy have been notified and uploaded on Department for Promotion of Industry and Internal Trade website.

Dedicated Freight Corridors

This project involves the construction of the Eastern and Western Dedicated Railway Freight Corridors (DFCs), having a cumulative length of over 3,000 km. It aims to drive down overall logistics cost by improving the average speed of rail freight trains, optimising freight capacity per trip, and establishing seamless connectivity with ports for faster freight movement. The objective is to decongest high density rail routes and facilitate modal shift from road to rail and to coastal shipping, thereby reducing carbon footprint in logistics.

Bharat Mala Pariyojana

Under Phase-I of Bharat Mala Pariyojana, a robust plan was outlined for the development of a total of 34,800 km of National Highway infrastructure. As of December 2023, significant strides were made in this direction, with 76% of the planned length, equivalent to 26,418 km, awarded for construction, and approximately 15,549 km already completed. Progress on the project was delayed due to the Covid-19 pandemic as well as issues related to cost overruns and land acquisition. Despite these challenges, it is expected to be completed by 2026.

Sagarmala programme

Sagarmala programme is underway to reduce logistics cost for domestic and EXIM trade by harnessing Indias long coastline and navigable waterways. There are 839 projects, worth investment of nearly Rs.5.8 lakh crores, aimed to be undertaken for implementation under the Sagarmala Programme, out of which, 241 projects worth approximately Rs.1.22 lakh crores have already been completed.

Production-Linked Incentive Scheme

The PLI scheme is a major policy initiative by the GOI with an outlay of approximately Rs.1.97 lakh crores in subsidies and incentives to boost manufacturing across 13 critical sectors. As of June 2023, 733 applications were approved across 14 sectors with expected investment of Rs.3.65 lakh crores. Noteworthy is the inclusion of 176 MSMEs among the PLI beneficiaries, representing a varied range of sectors, including bulk drugs, medical devices, pharma, telecom, white goods, food processing, textiles, and drones.

5. Industry Structure and Developments:

Velox Industries Limited (Target Company) was originally incorporated as Nirbhoy Exports Limited on February 21, 1983 under the Companies Act, 1956 vide certificate of incorporation issued by the Registrar of Companies, Mumbai. Subsequently, the name of the Company was changed to Khatau Exim Limited and has obtained a fresh certificate of incorporation dated January 23, 1985. Further, pursuant to the Shareholders resolution passed through Postal Ballot, the name of the Company was changed to Velox Industries Limited and had obtained a fresh certificate of incorporation dated May 15, 2012 as issued by the Registrar of Companies, Mumbai.

The Company is now engaged in the business of carrying on all or any of the trades and business of freight contractors, carriers, shippers, shipping agent, agents of operators of shipping lines consolidation and multi model transport operations. Earlier the Company was engaged in food industry.

6. Opportunities and Challenges:

Opportunities

Opportunity to offer multi-modal services to our customers

The Gati Shakti Masterplan, unveiled by the Government, is aimed at reducing systemic inefficiencies and optimising logistics cost to make it competitive and at par with advanced global economies. As a part of that plan, there is a significant impetus to enable seamless inter-modal freight movement. Consequently, we are witnessing linkages of ports, rail and road through the hub and spoke model; and creation of logistics parks around Dedicated Freight Corridors (DFCs). Several companies are exploring alternative modes of transportation, using rail, inland waterways, or sea/ coastal shipping to drive down their overall logistics costs. We strive to constantly evaluate the scope of expansion of these services to customers across other sectors as well.

Opportunity to expand air cargo freight

With around 150 operational airports spread across India, a remarkable opportunity beckons us in the air cargo freight sector to ensure faster movement of goods to far-off destinations. This extensive network of airports enhances accessibility and connectivity, facilitating swift transportation of goods across vast distances.

Challenges

Slowdown in e-commerce network expansion

E-commerce companies are consolidating warehousing space due to volatile volume, and overcapacity, while experiencing stagnation in the annual order volume for 2023-24. There is high pricing pressure in this segment leading to slowdown.

Pricing pressure from customers

Rising input costs, stemming from increase in commodity and crude oil prices, made most of our customers focus on cost rationalisation. This led to increased pricing pressure in contract logistics and last-mile delivery. To address this challenge, we are focusing on value addition and driving cost- optimisation initiatives across the organisation.

7. Segment wise Performance:

Presently, the Company operates in only one segment i.e. logistics sector.

8. Financial Performance and Analysis:

The Financial statements of the Company have been prepared in accordance with Indian Accounting Standard (Ind AS) notified under the Companies (Indian Accounting Standards) Rules 2015 as amended from time to time by the Ministry of Corporate Affairs (MCA), the provisions of Companies Act, 2013, and guidelines issued by the Securities and Exchange Board of India (SEBI). Financial statements of the Company are prepared under the historical cost convention except for the certain financial assets and liabilities measured at fair value as mentioned in applicable accounting policies.

(Amount in Lakhs)

Particulars	FY 2023-24	FY 2022-23
Revenue from Operations	25.00	-
Other Income	15.67	-
Total Revenue	40.67	-
Total Expenses	22.70	15.36
Earnings Before Interest, taxes and Depreciation & Amortization	17.96	-15.36
Earnings Before Interest & Tax	17.96	-15.36
Profit Before Taxation	17.96	-15.36
Tax Expense	0.01	-
Net Profit/ (Loss For the year)	17.95	-15.36

9. Risk & Concerns:

We operate in a highly fragmented yet expansive market. A market which is on the cusp of transformational changes that affect a large number of people, including those from socioeconomically backward sections of society. This continuously drives us to strengthen our risk governance framework for business sustainability. Our Board of Directors takes direct responsibility for establishing, developing, and reviewing our risk management framework that encompasses policies, processes, and mechanisms to identify, manage, and mitigate risks, while spotting new growth opportunities. The Board sets our risk appetite, identifies areas for risk mitigation, and establishes implementation processes. We put in place an elaborate organisational structure to help businesses proactively capture and report risks on a regular basis.

Key Risks Faced by Our Business	Description	Management Approach
Cost Escalation Risk	Rising input costs, driven by inflationary pressures, may affect business margins	1. We focus on scaling up volumes to achieve economies of scale and foster resource sharing among subsidiaries to attain synergistic gains. 2. We boast a robust management team who remains committed to diligently pursue direct cost-saving projects to optimise operational expenses.
Competition Risk	New-age start-ups, with advanced technological solutions may act as disruptors for the Company	1. We continue to integrate advanced technological solutions to ensure we stay at the forefront of innovation in logistics. 2. We chart our M&A strategy to build tech-based partnerships with new-age companies. 3. We maintain the right degree of penetration and volumes within our target markets.
Customer Concentration Risk	Concentration of our business with a few particular accounts or within a particular sector may impact our performance if unforeseen challenges affect those clients or the sector.	1. We are constantly diversifying our portfolio of services with value-additions, enabling us to target a wider base of customers. 2. We initiate continuous interaction and engagement with our customers to gather timely insight into their business requirements and gauge their strategic thinking in terms of their business continuity plans

 

Internal Risk	Our business is human capital intensive. Situations adversely affecting the health and wellbeing of our people stand to impact our operations. It is equally important that our workforce demonstrates the appropriate skill level in order to drive efficient output.	We uphold continuous investments in skill upgradation programmes for our people, especially with a view to empower them within a technology- first environment. We boast the industrys best safety practices and standardised protocols to reduce the margin of error.
Strategy Risk	Our ability to predict emerging risks and opportunities are critical to our success in driving our business profitably and identifying the right partnerships as well as customer segments.	We are harnessing a detailed and comprehensive business continuity plan as part of our risk management framework, in line with our organisational goals and priorities.

10. Internal Control Systems and Their Adequacy:

The management of the Company is committed to ensure effective internal control systems, commensurate with the size and the complexity of the business. The adequate and effective internal controls, established by us, seek to achieve Companys compliance and reporting objectives. The Companys internal control environment provides assurance on efficient conduct of operations, security of Assets, prevention and detection of frauds/errors, accuracy and completeness of accounting records, timely preparation of authentic financial information and compliance with applicable laws and regulation. The controls are deployed through various policies and procedures, which are periodically revisited to ensure that they remain updated with the changes in the business environment. Moreover, these polices and processes are regularly evaluated by internal and statutory auditors, with suggestions to further strengthen them and enhance their efficacy shared with respective process owners, following which requisite changes are made. The Audit Committee reviews the adequacy and effectiveness of our internal control environment and monitors the implementation of audit recommendations.

11. Developments in Human Resources:

During the year, the Company welcomed Mr. Debashis Mukherjee has been appointed as a Managing Director, Mr. Sushil Sindhkar as a Non-Executive Director, Mrs. Shobha Rustagi and Mrs. Vani Ramesh Alva as Non-Executive Independent Director.

Mr. Debashis Mukherjee is a Technician Engineer from the Institution of Engineers (India) having more than 3 decades of Experience in the trade, Liner activities, both Sales and Operations fields. He brings a wealth of experience to the Company, enhancing the Boards expertise and diversifying its perspectives.

Mr. Sushil Sindhkar has a verifiable 28-year track record of meeting/ exceeding revenue & profitability goals, by consistently delivering organic growth and increasing customer value and, using it as a key to building winning teams and client/ partner relationships - in several geographically diverse markets & multiple industries.

The Company encourages the employees to upgrade their knowledge and skills. The training sessions on various working parameters are conducted in routine apart from allowing employees for outside specialized training, wherever required.

Cautionary Statement:

The above Management Discussion and Analysis contains certain forward-looking statements within the meaning of applicable security laws and regulations. These pertain to the Companys future business prospects and business profitability, which are subject to a number of risks and uncertainties and the actual results could materially differ from those in such forward looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties, regarding a fluctuation in earnings, our ability to manage growth, competition, economic growth in India, ability to attract and retain highly skilled professionals, time and cost over runs on contracts, government policies and actions with respect to investments, fiscal deficits, regulation etc. In accordance with the Code of Corporate Governance approved by the Securities and Exchange Board of India, shareholders and readers are cautioned that in the case of data and information external to the Company, no representation is made on its accuracy or comprehensiveness though the same are based on sources thought to be reliable. The Company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect in future or update any forward-looking statements made from time to time on behalf of the Company.