Scripscan:Shreyas Shipping & Logistics Ltd
Quote:This note has been penned by my elder brother Ram,who also happens to be a member of mine.He is an amazing research guy and counts in my list superior to many renowned analysts.With assimilation of my thoughts,here's the quintessence.
Note:As you all know,am bullish on the entire logistics sector.Previously recommended the likes of Gati,TCI and Balmer lawrie of the world.Its the time for Shreyas now.
Company: Shreyas Shipping & Logistics Ltd (SSLL) is a dominant multimodal container logistics operator using land-sea-land route. Their claim is they are No.1 Coastal Operator in India with 51% market share, in handling domestic coastal cargo. It is also the India's largest container feeder vessel owning and operating company & first co to link all key ports of India for containerised trade.Shreyas begun in 1994 as a container feeder operator between Indian ports and international container transshipment ports. A few years back they crafted a niche business model, by giving more focus to domestic container logistics using land-sea-land route, covering: transportation, warehousing, distribution, airfreight, sea & air freight forwarding and parcel services.
It has two subsidiaries:
1). Shreyas Relay Systems Ltd (100%)
2). SRS Freight Management Ltd (51.1%)
CONTAINER FEEDER SERVICES:The principal co SSLL operates this service vertical. Container Feeder Service covers carriage of containers of Main Line Container Operators from Indian Ports to proximal well equipped International Container Transshipment Terminals like Dubai, Colombo & Singapore.
Today India’s 70% of the Indian containerised cargo is usually transshipped in:
1). Singapore and the Malaysian ports of Port Tanjung Pelepas and Port Klang for importers and exporters using the Indian east coast.
2). Middle East ports such as Jebel Ali, Khor Fakkan and Salalah for Indian west coast origins/destinations.
3). Colombo (Sri Lanka) for both west coast and Bay of Bengal ports.
The need for feeder service is:As only few Indian terminals provides the depth & facilities for operating main line vessels hence all other ports need assistance of feeder vessels to carry out the containerized trade.Main line operators unable to service all ports due to size, cost and volume constraints.To bridge the gap and provide connectivity to all ports.High land transport cost demands more feeder connectivity between the ports in India
The customers for Feeder Service are the Main Line Operators (MLO) and their basis of selection of a feeder operator hinges on factors such as frequency of sailings, experience of feeder operator, suitability of their vessels and their integrity & consistency of operations. Shreyas being pioneers in Feeder Service in the Indian Subcontinent enjoy excellent rapport with almost all Main Line Operators in India.
Multimodal Logistics Services:Shreyas Relay Systems (SRSL) provides scheduled round the clock seamless, door-to-door, domestic, multimodal container transportation solutions incorporating the Road-Rail-Sea-Air route. It offers a tailor-made solution to suit the needs of the customer.SRS also offers regular Domestic & Regional Liner Services to various ports in Indian Sub Continent, South East Asia & Middle East, by way of slot agreements with various operators through own container fleet.SSLL and SRSL business models complement each other—depending upon the market condition, they interchange the vessel deployment. SSLL’s shipping adds value to its logistics business in a way similar to companies using aircrafts for cargo movement.
They offers services to various ports given below:
Indian Sub Continent: Colombo / Karachi / Male / Nhava Sheva / Mundra / Cochin / Tuticorin / Chennai
South East Asia: Singapore / Port Klang
Middle East Continent: Jebel Ali / Bandar Abbas / Muscat / Sharjah / Abu Dhabi / Doha
As part of the multimodal operations, SRS also offers customized land transport solutions to all industries and product segments, using a fleet of owned & leased trailers fitted with GPS to enable Trace and Track.SRS has strategic alliances with CONCOR and other private Container Train Operators in Railway network. Using this, it offers varied rail based container service to the different segments and types of cargo across the country, to meet the customers multimodal requirements.
Key multimodal clients of SRS includes: JSW Ispat Steel Ltd, Vedanta Aluminium Ltd, Sterlite Industries Ltd, Bharat Heavy Electricals Ltd, Galaxy Surfactants Ltd, Indian Steel Corporation Ltd, Ashapura Minechem Ltd, Reliance Industries Ltd, Kajaria Ceramics Ltd, TRF Ltd, Bhushan Steel Ltd, RAK Ceramics Ltd, Cochin Minerals & Rutile Ltd, Star Bentonite, Ankur Chemfood Ltd, ITC Agri Business Division Ltd, Bansal Group, Cargill India Ltd, Bagadia Brothers Pvt Ltd, HNG Glass Ltd, Gujarat Guardian Ltd, Saint Gobain Glass Ltd, Food Corporation of India.The company has a strong brand recognition and respect among potential clients and peers, because of its leadership in identifying and successfully executing new opportunities.In a recent development, for the first time Food Corporation of India (FCI) has been permitted by Union Govt to transfer food grains by sea route from Andra Pradesh to Kerala. SRS secured the contract to move 20,000 tons of food grains per month using multimodal logistics. This contract is expected to add to topline & bottomline substantially going forward.
Freight Forwarding Services:SRS Freight Management Ltd, leveraging its own domestic network & through the parent Transworld Group’s global network spread over Europe, USA, Middle East, Far East and Indian sub-continent offers the customers with complete Freight Forwarding and Supply Chain Management Services (SCM) around the globe. It associated with organizations: ACCA, IATA, WCA & FFA.The value added services like Cargo Consolidation, Custom Clearance, Bonded Trucking, Air Charter Operations, Warehousing & Distribution and Door to Door services offers customers a single window solution.
Rich assets:Presently, the Company owns & operates six container ships:
• MV OEL Kochi (1,725 TEUs)
• MV OEL Kutch (1725 TEUs)
• MV OEL Shreyas (1280 TEUs)
• MV OEL Trust (1050 TEUs)
• MV OEL Victory (501 TEUs)
• MV OEL Mumbai (1613 TEUs)
Trucking fleet:TATA Prima 4028 - 12 Nos, TATA 4018 - 5 Nos, TATA 3518 - 35 Nos, LEYLAND 4023 - 5 Nos, LEYLAND 4019 - 13 Nos.Have own 100+ Heavy Commercial Vehicles & operates many more leased trucks and trailers as per business requirements.Tanker movements and operations.Trained and experienced drivers who have undergone driving training program
Warehousing space:Covered space – 0.6 million sq.ft.Open space – 0.7 million sq.ft.The co is actively adding up to the warehouse capacity through a mix of owned and leased facilities.
Warehousing locations:Kandla,Ahmedabad,Cochin,Tuticorin,New Delhi and Mumbai.
Facilities:Loading Unloading Bay (Platform),Fork Lifts,Pallet Trucks,Bulk Storage Racks,Trolleys.Other equipments and facilities that can be provided on request as per commodity-cargo requirements.Computers with Internet connection for online Warehouse Management.Trained Staff and Laborers and 24 hours security.SRS also owns a large inventory more than 6200 quality containers of 20' / 40' HC / 40 RHC—consists of Dry, Special, Reefer and Tank Containers.Management is highly skilled with domain knowledge & expertise which along with massive network established over long period of time - is a great asset in itself.As on 31.3.2014, the co employs 30 shore staffs & 126 floating staffs besides many temporary staffs.
Management: Shreyas is part of Dubai based shipping conglomerate TRANSWORLD GROUP, which has 25 years of experience in the shipping industry. Promoters own 73.29% of the small equity base of 2.2 core shares outstanding. They respects &never diluted equity.The $800-million annual turnover group operates through 15 subsidiary companies including: Orient Express Lines, Balaji Shipping, Shreyas Shipping and Logistics, Shreyas Relay Systems, Albatross Shipping among others. It has more than 1,700 employees on payroll, spread across nine locations in the GCC, 28 cities in India and one office in the United States.It operates a fleet of 27 ships, including 12 container ships and 15 feeder vessels.The group has been growing at a year-on-year rate of 15-20 per cent over the last few years despite the downturn, cashing in on Dubai's central location as the region's biggest transshipment and re-export hub.They maintains excellent relations with DB World, Dubai which owns the Vallarpadam ICTT, Kochin.
Unique business model:Shreyas traditionally had two businesses – vessel charter and feeder services. Revenue from these businesses were exposed to fluctuations in international freight and charter rates, which were determined by the Howe Robinson Container Index (HRCI).Shreyas Shipping & Logistics Ltd realized the impact of the fluctuation in price realization and formulated a new business model to remain immune to international pricing and generate steady cash flows. It re-positioned itself as a pure logistics company, in addition to feeder and regional service.
THE NEW DOOR TO DOOR Model:
• Container sent to clients premises for loading
• Cargo loaded in containers, sealed and transported to nearest port
• Coastal shipping to port of destination
• Container discharged at port, transported to client's premises and cargo delivered
It also offering this service in Door to Port, Port to Port, Port to Door models.
ADVANTAGES OF USING SRS SERVICE:-
• Door-to-Door service
• Customized solution for each client
• Own ships, containers and trailers
• Special containers like Open Top/Flat Rack of all sizes
• Web based cargo, container and vehicle tracking system
• Fixed day schedule departure and arrival service
Governement push:Unfortunately so far, it’s all hiccups in terms of Govt policies and implementation for costal shipping.About half a dozen groups/committees formulated for the promotion of coastal shipping in India over the past 2 decades, such as: Afzalpurkar Committee (1993), Pinto Committee (1997), Kakkar Committee (1999), Tenth plan Sub Group (2002), Tata Communication System Study (2003) and Eleventh plan Sub-Group (2007) etc. Though Government has formally accepted a number of recommendations given by them, adequate implementation is yet to happen.But all this set to change with new initiatives of Modi Government —now, coastal shipping have increasingly become the focus of attention in India.Govt has envisaged an ambitious plan to grow the Indian shipping fleet from 12 million GT to 40 million GT by the year 2020.Many State Governments also now trying to divert cargo from road to costal shipping, to reduce road congestion and accidents.The Kerala Government recently announced a policy providing financial and fiscal incentives to encourage movement of goods by sea. The Minister of Ports K. Babu said that Kerala is the first State to offer a subsidy of Rs.1 for a consignment of one tonne for a distance of 1 km. He pointed out that Government had constituted a coastal shipping promotion fund with an allocation of Rs. 3 crore.
Containerization-boon to coastal shipping:Huge waves of changes have been taking place in the shipping industry, particularly in the container shipping trade, globally and in India too.In the present globalized economy, container is at the centre point of a highly automated system for moving goods from anywhere to anywhere, with minimum cost and complication.Containerization of cargo is one of the key trends expected to drive Indian coastal shipping to higher levels—it’s share has been growing steadily in coastal shipping, from 14.8% in FY04 to 20.6% in FY14.Impressive growth rate of about 22% (excluding 2008-09) in container traffic & container demand in India is forecast to grow about 21 million TEUs by 2020.Presently, the containerization level of general cargo that can be containerised is only 68% in India against the international levels of around 80%. Further increase in containerization of bulk cargo is expected over the next few years and this increased penetration of containerization is expected to push domestic traffic volumes to higher levels.Of late with Modi, India is poised to becoming the most preferred destination for manufacturing outsourcing in the world, offering greater potential for containerization.As observed, the future of maritime trade is expected to be containerized cargo!
GST Trigger:What GST means for logistics? A single national market, seamless movement of goods across state borders, emergence of hub&spokes distribution model, increased outsourcing of logistics, emergence of new models such as 3PL, 4PL etc— a big volume booster by all means.In GST regime, more companies will outsource logistics to 3PL players—at present, 3PL accounts for just 9-10% of total logistics in India against 57% in developed countries.And finally, GST could be live here in next 9-12 months. It would bring a 15-20% cost advantage immediately and more business for logistics players over time.Not only for logistics, the positive vibe of GST will be felt across the board. It alone can lift GDP 1-2%, really big deal for a growth starving nation.
FINANCIALS & VALUATIONS:After successfully recasting the business model, SSLL posted a 35% CAGR in topline over last 5 years to Rs.488 crores in FY2014. This commendable performance comes without any increase in debt levels or working capital—indicates co is cash-flow positive & no-nonsense people are running the business well & they try to keep asset light as much as possible.Net Debt to Equity ratio is at a modest 0.6.SSLL is posting big losses over last 2 Qs because of booking losses on selling old ships and buying new to modernize fleet—a one off event. Otherwise it would be in green.Also normally for a shipping logistic company, the first two quarters (Q1 & Q2) are difficult because of the monsoon and storms. Q3 and Q4 would be usually better.With healthy topline growth & changing business dynamics, it will charter into profit zone soon.Management is confident of EBITDA margin @ 12-13% & net margin @ 6-8% over time.For Shreyas, fuel expenses are the biggest cost item amounting upto 22-25% of topline. Now with crude on a sustainable easing trend—of late Brent below $100—it would prove to be a big relief on this front.Mcap is Rs.150 crores with reported cash flows of 42crs for last fiscal 13-14.I mean a quality logistics company quoting at less than 4 times its trailing cash flows makes it one heck of a buy.Even at a MCap to Sales ratio of 0.3, the stock is going very cheap.Stock also at a discount to BV of RS.63.Its tough to lose money from this counter.A 7 odd times trailing cash flows gives me my target price.
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Note: The above is not a research report but assimilation of information available on public domain and it should not be treated as a research report.
Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”
Disclosure: It is safe to assume that I might have shreyas in my portfolio and hence my point of view can be biased.Readers should consult registered consultants before making any investments.