| Avana Logistek Limited | ||||||
| Long term rating upgraded to 'CRISIL A+ / Stable'; Short term rating reaffirmed; Ratings removed from 'Watch Positive' | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has removed its ratings on the bank facilities of Avana Logistek Limited (Avana) from 'Rating Watch with Positive Implications' and upgraded the long-term rating to ‘CRISIL A+' from ‘CRISIL A’ while assigning a 'Stable' outlook. The short term rating has been reaffirmed at ‘CRISIL A1’.
CRISIL Ratings had placed the ratings on watch following an intimation by the company regarding acquisition of Transworld Feeders Pvt. Ltd (TFPL, a group entity of Unifeeder ISC FZCO [Unifeeder; a subsidiary of DP World]), in Nov- 2022, for a consideration of Rs 365 crore. The acquisition was funded entirely by cash. In Nov- 2022, Avana sold its entire stake in Avana Global FZCO (Avana Global; a wholly owned subsidiary of Avana) to Unifeeder for a consideration of Rs 200 crore and booked a profit of Rs 65 crore on the transaction, leading to an increase in the company’s cash reserve to Rs 366 crore, which was utilised to fund the acquisition of TFPL.
The sale and purchase transactions were undertaken to separate Unifeeder’s domestic and global business units, thus, optimising administration and eliminating cost. TFPL provides its slot to avana thereby facilitating transportation for the sea-leg and avana has acquired TFPL to optimise its operations and administration. TFPL is engaged in the domestic feedering business. Domestic cargo contribution of Avana accounts for about 90% of TEUs (twenty-feet-equivalent units) handled by TFPL.
Performance for the new consolidated entity, i.e., Avana (domestic business) and TFPL, is significantly better than the erstwhile entity, i.e., Avana’s domestic and global businesses. Consequently, credit risk profile of Avana has strengthened post-acquisition of TFPL, given healthy profitability and strong net worth of TFPL with no debt housed under the entity. Operating margin for the new entity was 24.2% for fiscal 2022 against 7.9% for the erstwhile entity as operating margin for the domestic businesses is better than the global business; operating margin was 22.5% in fiscal 2023 for the new entity. The improvement in profitability comes along with maintenance of scale of operations with revenue for new consolidated entity for fiscal 2023 at Rs 1758 crore against Rs 2023 crore for the erstwhile entity in fiscal 2022 (revenue for the new entity is estimated at Rs 1349 crore for fiscal 2022).
Financial risk profile for the new entity remains healthy with total net worth for the new entity was Rs 549 crore for fiscal 2022 against Rs 272 crore for the erstwhile entity; Total net worth for fiscal 2023 stood at Rs. 779 crore for the new consolidated entity with minuscule debt of Rs. 15 crore. The company has strong liquidity and financial flexibility with fund-based limit has remained unutilised since the acquisition by Unifeeder and unencumbered cash balance of ~Rs 232 crore as on March 31, 2023.
While the company has completed the acquisition of TFPL, approvals for merger of Avana and TFPL are still pending. The management is in the process of seeking approval from the committee of creditors (CoC), following which an application will be made to the National Company Law Tribunal for final order for merger. The process is expected to be completed in fiscal 2024, subject to timely receipt of approval from the CoC.
The ratings continue to reflect the strong position of Avana in the domestic coastal container services segment, and healthy financial risk profile. The ratings also factor in the strong business, managerial and financial support from Unifeeder, given the strategic importance of Avana as a non-vessel operating common carrier (NVOCC). These strengths are partially offset by volatility in operating margin and exposure to intense competition in the logistics business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Avana and TFPL given the commonality of the businesses, same management and financial linkages between the two companies.
CRISIL Ratings has also applied its parent notch-up framework to factor in support from DP World (through Unifeeder).
Unsecured loans from Unifeeder FZCO have been treated as debt, as the loans are interest-bearing at market rates, non-deferrable, non-cumulative and have fixed maturities of five years until August 2025.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Healthy financial risk profile for new consolidated entity Financial risk profile for the new entity remains healthy with total net worth for the new entity was Rs 549 crore for fiscal 2022 against Rs 272 crore for the erstwhile entity; Total net worth for fiscal 2023 stood at Rs. 779 crore for the new consolidated entity with minuscule debt of Rs. 15 crore. The company has strong liquidity and financial flexibility with fund-based limit has remained unutilised since the acquisition by Unifeeder and unencumbered cash balance of ~Rs 232 crore as on March 31, 2023.
Strong position in the domestic coastal container services sector Avana is a leading player in the domestic coastal services segment, with a market share of around 50%, primarily on the west coast. Shreyas Shipping Logistics Ltd (SSLL; rated CRISIL A-/Stable) used to provide coastal services on the east coast for which Avana offered the last-mile connectivity to customers. Subsequently, the coastal services business of SSLL was acquired by Unifeeder through Transworld Feeders FZCO and TFPL on July 1, 2021. TFPL provides its slot to avana thereby facilitating transportation for the sea-leg and avana has acquired TFPL to optimise its operations and administration. Domestic cargo contribution of Avana accounts for about 90% of TEUs handled by TFPL.
Strong operational and financial support from parent, Unifeeder Through Unifeeder, DP World has become a global leader in container feedering operations. The Unifeeder group is an integrated logistics company with the most comprehensive and well-connected feeder network and the rapidly growing shortsea business in Europe, Middle East and Asia and the wider Indian subcontinent, with connectivity to more than 150 ports. Being a DP World subsidiary, Unifeeder benefits from its strong positioning in the global market. Headquartered in the UAE, DP World is among the world’s leading port terminal operators. Since its inception in 1972, the group has steadily evolved from a local port operator in UAE, to a global supply chain solutions provider, backed by a vast network of 127 business units across 51 countries in six continents.
In India, DP World operates six port terminals, which handle nearly 26% of the regional volume. It also acquired Continental Warehousing, a leading multimodal logistics company and KRIBHCO Infrastructure Ltd, an operator of inland container depots (ICDs) and private freight terminals (PFTs). The asset-light operations of Avana and its track record of almost two decades provided a strategic fit to Unifeeder, including the export-import (EXIM) feedering and NVOCC operated in India through Avana Global. Unifeeder has now taken over Avana Global, to separate the domestic and global business units for an administrative benefit. Avana has acquire TFPL, which is the domestic feedering business of Unifeeder. Through Unifeeder, DP World is likely to extend strong and timely need-based support to Avana, given that Mr Rizwan Soomar, chief executive officer and managing director of DP World for the subcontinent, is one of the four board members.
Weaknesses: Volatility in operating margin The company undertakes road and rail transportation to ensure last-mile delivery to customers. Risk inherent in the competitive road and rail transportation segments continues to strain cash accrual and profitability. Operating margin was exceptionally high in fiscal 2022 & 2023, due to a sharp rise in shipping rates, because of macroeconomic factors, including the global shortage of containers and ships. The margin also remains susceptible to economic downturns as any slowdown in economic activity impacts global trade and thereby, the business volume.
Increasing competition in the logistics industry The logistics industry is highly fragmented and unorganised because of low entry barriers. While large players provide end-to-end logistics solutions, small players only provide few services. Besides, commoditised nature of services such as freight forwarding and customs clearance leads to intense competition and price wars. This is partially offset by the strong market share of Avana, over 50%, particularly in coastal shipping. Intense competition and a challenging environment had impacted profitability in fiscals 2017 and 2019. |
Liquidity: Adequate Net cash accrual for the new consolidated entity exceeded Rs 350 crore in fiscal 2023 and is expected to remain healthy over the medium term. This will aid accretion to liquid surplus after meeting the nominal capital expenditure (capex) and working capital requirement. The fund-based limit has remained unutilised since the acquisition by Unifeeder. The company plans to incur nominal annual capex in line with its asset-light business model. Cash and cash equivalents stood at ~Rs 232 crore as on March 31, 2023. |
Outlook: Stable The Avana group will continue to benefit from its strong operational linkages with, and financial support from being part of, DP World. The group is also expected to follow an asset-light strategy, ensuring limited reliance on debt and maintain an adequate financial risk profile. |
Rating Sensitivity factors Upward factors • Sustained growth in business performance with consistently increase in revenue by 12%-15% per annum and maintaining the operating margins. • Substantial improvement in working capital management expected to strengthen the financial risk profile, along with the continued asset-light business model • Improvement in credit risk profile of DP World
Downward factors • Weaker-than-anticipated business performance, as indicated by deterioration of operating margin below 18% • Any large, debt-funded capex or stretched working capital cycle straining the financial risk profile, especially debt protection metrics • Change in stance of support or material deterioration in the credit quality of DP World |
About the Company Incorporated in 1994, Avana became a subsidiary of Unifeeder effective from July 01, 2021, after it acquired the stakes of the Transworld group (71%) and SSLL (29%). It is the logistics and NVOCC arm of the parent operating in India. The company is an integrated logistics solutions provider, offering customised and end-to-end solutions for the domestic market. The domestic segment mainly provides coastal container services and road and rail transport. The international segment, Avana Global, has been sold to Unifeeder & the company has acquired TFPL, another Unifeeder entity, which is in domestic feedering business in November 2022.
For the fiscal year 2023, profit after tax (PAT), was Rs 340 crore on consolidated operating income of Rs 1,758 crore against PAT of Rs 216 crore on consolidated operating income of Rs 1,349 crore for the previous fiscal, respectively. |
Key Financial Indicators
*TFPL is operational from fiscal year 2022 |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
*as on March 31, 2023; TFPL has been acquired in November 2022 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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