Rating Rationale
September 24, 2018 | Mumbai
North Eastern Carrying Corporation Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.88 Crore
Long Term Rating CRISIL BBB-/Stable (Reaffirmed)
Short Term Rating CRISIL A3 (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities of North Eastern Carrying Corporation Limited (NECCL) at 'CRISIL BBB-/Stable/CRISIL A3'.

The ratings continue to reflect the company's established position in the road freight transport segment and comfortable networth and leverage. These strengths are partially offset by exposure to intense competition in the logistics industry, decline in scale of operations, susceptibility to pricing pressure and overall level of economic activity; and average liquidity.

Key Rating Drivers & Detailed Description
Strengths
* Established position in the road freight transport segment: NECCL is a reputed player in the domestic freight transportation business, specialising in the full truckload (FTL) segment. Experience of over four decades has enabled the company to provide reliable transport services to players across diverse industries; thereby partially offsetting risks related to fluctuating revenue flow due to adverse economic cycle in any particular industry.

* Comfortable networth and leverage: Networth was Rs 77 crore as on March 31, 2018, while estimated total outside liabilities to adjusted networth (TOLANW) ratio was 0.86 times. Networth (expected at over Rs 80 crore in fiscal 2019) and TOLANW ratio are expected to remain steady over the medium term.

Weaknesses
* Exposure to intense competition and decline in scale of operations: The road freight transport industry is highly fragmented because of low entry barrier. Although roadways are the most preferred mode of transport in the country, users still have an edge in pricing power due to intense competition, even among large fleet transport operators. Further, the company also recorded a dip in the operating income to Rs 384.8 crore from Rs 548.4 crore on account of the impact of goods and service tax and company's focus towards higher margin customers.

* Susceptibility to pricing pressure and overall level of economic activity: The road freight transport sector is largely dominated by small players due to low entry barrier. Furthermore, limited scope for service differentiation leads to a modest operating margin (3.6-4.2% over the four fiscals through 2018).

* Average liquidity: Bank limit utilisation was high at 96% during the 12 months ended June 2018. Net cash accrual is likely to be Rs 9.3 crore and Rs 11.5 crore against debt repayment of around Rs 7.5 crore and Rs 4.8 crore in fiscals 2019 and 2020, respectively.
Outlook: Stable

CRISIL believes NECCL will continue to benefit from its promoters' extensive experience in the road freight transport business and established customer relationship. The outlook may be revised to 'Positive' if higher-than-expected profitability or revenue leads to significant improvement in financial risk profile, particularly liquidity. The outlook may be revised to Negative if there is a further decline in the revenues or operating margins in current quarter or over the medium term, or if larger-than-expected debt-funded capital expenditure adversely affects the net cash accruals and the overall capital structure.

About the Company

Set up as a partnership firm in 1968 by Mr J R Jain and reconstituted as a limited company in the late 1990s, NECCL provides freight transportation services to bulk and retail customers, largely in the FTL segment; and other services such as warehousing and packing. The company is listed on the National Stock Exchange and the Bombay Stock Exchange.

Key Financial Indicators
As on/for the period ended March 31 Unit 2018 2017
Revenue Rs crore 384.8 548.4
Profit After Tax (PAT) Rs crore 3.8 5.6
PAT Margins % 1.0 1.0
Adjusted Debt/Adjusted Networth Times 0.70 1.14
Interest coverage Times 2.2 2.3

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon
Rate (%)
Maturity Date Issue
Size
(Rs.Cr)
Rating Assigned with Outlook
NA Cash Credit NA NA NA 35 CRISIL BBB-/Stable
NA Working Capital Term Loan NA NA Aug-2020 25 CRISIL BBB-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 22 CRISIL BBB-/Stable
NA Bank Guarantee NA NA NA 5 CRISIL A3
NA Working Capital Demand Loan NA NA NA 1 CRISIL BBB-/Stable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  83.00  CRISIL BBB-/Stable      31-08-17  CRISIL BBB-/Stable  26-05-16  CRISIL BBB-/Stable  23-03-15  CRISIL BBB-/Stable  CRISIL BBB-/Stable 
                    18-03-15  CRISIL BBB-/Stable   
Non Fund-based Bank Facilities  LT/ST  5.00  CRISIL A3      31-08-17  CRISIL A3  26-05-16  CRISIL A3  23-03-15  CRISIL A3  CRISIL A3 
                    18-03-15  CRISIL A3   
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 5 CRISIL A3 Bank Guarantee 5 CRISIL A3
Cash Credit 35 CRISIL BBB-/Stable Cash Credit 35 CRISIL BBB-/Stable
Proposed Long Term Bank Loan Facility 22 CRISIL BBB-/Stable Proposed Long Term Bank Loan Facility 22 CRISIL BBB-/Stable
Working Capital Demand Loan 1 CRISIL BBB-/Stable Working Capital Demand Loan 1 CRISIL BBB-/Stable
Working Capital Term Loan 25 CRISIL BBB-/Stable Working Capital Term Loan 25 CRISIL BBB-/Stable
Total 88 -- Total 88 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for rating short term debt

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