Stock tip:- Scripscan:Shreyas Shipping & Logistics Ltd Traded in:Nse-bse CMP:RS.89 Target:RS150 Duration:3-5 months Percentage return:85%
Stock tip:-
Scripscan:Shreyas Shipping & Logistics Ltd
Traded in:Nse-bse
CMP:RS.89
Target:RS150
Duration:3-5 months
Percentage return:85%
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 containerized
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 containerized 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.
FINANCIAL S & 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.