| CJ Darcl Logistics Limited | ||||||
| Rating outlook revised to 'Positive'; Ratings reaffirmed; Rated amount enhanced for Bank Debt | ||||||
| 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 revised its outlook on the long-term bank facilities and fixed deposits of CJ Darcl Logistics Limited (CJ Darcl) to ‘Positive’ from ‘Stable’ and reaffirmed the rating at ‘CRISIL A-', the short-term rating is reaffirmed at 'CRISIL A2+’.
The outlook revision reflects expectation of improvement in credit risk profile of the company which will be reflected in expansion in operating margin and consequently return on capital employed (ROCE). This will be driven by better in operating leverage along with improvement in utilisation of assets. The financial risk profile of the company should improve with healthier capital structure and comfortable liquidity.
The business risk profile is characterised by the dominant position of the company in the full truck load (FTL) business and scaling in multi-modal businesses of transportation through rail containers, air cargo, sea cargo, warehousing, freight forwarding etc and the same is expected to drive the growth. The company has also recently started operation of the railway sliding at Kalamboli, Maharashtra.
The revenue grew 14% year-on-year (y-o-y), in fiscal 2023, supported by increase in demand from the overall industry. Apart from strong growth in the core segments, the company is also diversifying into new segments like air freight, sea freight (on the eastern seaboard), warehousing, less-than truck load (LTL) and freight forwarding; these segments are expected to scale up in the medium term.
Operating profitability remained flat at 3.9% in fiscal 2023, and it remained supressed due to operation of larger fleet on hire basis. The operating profitability is expected to improve in medium term, with scaling of operations, operating lease model based fleet and other cost control/margin improvement measures being implemented by the company.
The rating also derives comfort from the operational, financial and managerial support from CJ Logistics Corporation (CJL, owns 50% stake). These strengths are partially offset by exposure to intense competition in the road freight industry, change in policy of the container trains business, and large working capital requirement. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of CJ Darcl and its wholly owned subsidiary, Transrail Logistics Ltd (Transrail; ‘CRISIL BBB+/Stable/CRISIL A2’). The two companies operate in the same line of business, have common promoters, and strong business and financial linkages.
CRISIL Ratings has also applied criteria for notching up standalone ratings of companies based on support given expectation of strong support from CJ Logistics Corporation (CJL), that owns 50% holding in CJ Darcl, both on an ongoing basis and in the event of distress.
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: Leadership position in the FTL segment CJ Darcl is the largest player in the domestic FTL segment, with a pan-India presence and access to over 10 lakh trucks through a network of vendors. It has a large and diversified client base with a longstanding relationship across industries.
The company operates on an asset-light model with a mix of owned and hired fleet. Its own fleet of over 1,100 vehicles out of total requirement of around 15,000 vehicles. The balance requirement are met by hiring trucks on a need-based system, leading to operating efficiency.
The operating margin has been sustained at 3.5-5% across economic cycles over the past decade. However, the same is expected to improve to 4.2-4.5% over the near to medium term.
Adequate financial risk profile The financial risk profile, specifically the capital structure and debt protection metrics, has improved post infusion of funds by CJL. Gearing has progressively reduced to around 1.1 times as on March 31, 2023 from 1.91 times as on March 31, 2017. The total outside liabilities to tangible net worth (TOL/TNW) ratio also improved to 1.6 times from 2.3 times over this period. The ratio is expected to gradually improve over the next 2-3 years backed by healthy accruals.
The company is expected to incur capex of ~Rs 100 crore per annum to maintain its own fleet. Further, the company has recently started to arrange the fleet under operating lease model, which is expected to benefit the operating margin in the long run.
Weaknesses Exposure to intense competition in the road freight transport segment The domestic road freight transport industry is highly fragmented because of a low entry barrier. Although the company is the market leader in the FTL segment, its market share in the domestic road freight transport industry is less than 1%. The competition has intensified in recent times with the entry of new-age start-ups, which are leveraging their advanced technological capabilities to garner market share.
Change in policy of the Indian Railways in the container trains business Indian Railways levies rail haulage charges on container train operators for using infrastructure; these charges are subject to periodic revision. While the railway business is currently performing well, high haulage charges and low revenue per tonne due to benign diesel prices had, in the past, impacted profitability. The railway business is now also functioning on an asset-light model with a mix of owned and hired containers. Sustenance of healthy operating efficiency amid intense competition and pricing pressures remains a key monitorable. |
Liquidity: Strong Expected cash accrual of Rs 100-140 crore, should amply cover debt obligation of Rs 80- 85 crores, per fiscal. over the medium term. Cash equivalents were around Rs 20 crore as on March 31, 2023 and unutilised bank lines strongly support liquidity with undrawn limits of more than Rs 100-150 crores. For fiscal 2023, average utilisation of CJ Darcl’s bank lines was 62%. The company has articulated maintaining the undrawn limits at Rs 150-200 crore on a steady state basis. |
Outlook: Positive CRISIL Ratings believes, with improvement in operating margin on a sustained basis, the return indicators and capital structure is expected to improve. Furthermore, dominant position of the company in the industry, diversification to multi-modal businesses, adequate liquidity, and sustained level of debt, the credit risk profile is expected to improve in the medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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About the Company CJ Darcl was set up in 1975 as a family-run concern and initially provided road transport services between New Delhi and Assam. In 1986 the firm was reconstituted as a private limited company (Delhi Assam Roadways Corporation Pvt. Ltd) and in 1988 as a public limited company. It was renamed Darcl Logistics Ltd (DLL) in 2010.
In August 2017, CJL acquired 50% stake in DLL for Rs 310 crore. The existing four promoters along with their affiliates continue to hold the remaining stake. The company got its present name in September 2017.
CJ Darcl is the largest player in the FTL segment in India with an owned fleet of more than 1,100 vehicles, including trucks, trailers, and tankers. It has more than 200 branches and loads more than 2,500 vehicles per day. The company has a diversified customer profile. |
About CJL Founded in 1930, CJL is the largest logistics company in South Korea and has operations in 22 countries. It provides a diverse range of logistics services, including supply chain management, shipping, express logistics, and warehousing and distribution. The company re-branded to its present name recently from CJ Korea Express Corporation, and is the sixth largest logistics player in the world. It is part of the much larger CJ Group (based in South Korea) with diversified interests in food, pharmaceuticals, infrastructure and entertainment verticals. |
Key Financial Indicators
* CRISIL Ratings adjusted number |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Fully convertible with Working Capital Demand Loan and Foreign Currency Loan # Convertible with Bank Guarantee |
Annexure – List of entities consolidated
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| 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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