| Shreyas Shipping and Logistics Limited | ||||
| Rating Reaffirmed | ||||
| 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 reaffirmed its 'CRISIL A-/Stable' rating on the long-term bank facilities of Shreyas Shipping and Logistics Limited (SSLL).
CRISIL Ratings takes note of the announcement made by one of the shareholder and promoter, Transworld Holdings Ltd (Acquirer) of SSLL signifying its intention of acquiring all the equity shares held by public shareholders. Consequent to the said acquisition, SSLL will delist the equity shares from BSE Ltd and National Stock Exchange of India Ltd. SSLL’s board approved the proposed voluntary delisting proposal on May 24, 2023, subject to shareholder’s consent. The proposed acquisition would enable the Acquirer along with the promoters to obtain full ownership of SSLL and is expected to enhance SSLL’s operational, financial and strategic flexibility including but not limited to corporate restructurings, acquisitions, exploring new financing structures, including financial support from the promoter group.
The acquisition of equity shares from public shareholders will be conditional upon shareholder’s approval wherein the number of votes cast by public shareholders in favour of delisting proposal is at least two times the number of votes cast against it, and receipt of statutory/regulatory approvals. Funding for the acquisition is expected to be brought in by the Acquirer and no outflows towards it are expected from SSLL. Further, the proposed voluntary delisting process is likely to take around 6-9 months to conclude, on receipt of necessary approvals. No change is expected in company’s operations or business strategy post delisting. Consequently, the development is not expected to have any material impact on SSLL’s credit risk profile.
The company acquired three container vessels (SSL Godavari, SSL Thamirabarani and SSL Kaveri) in the last quarter of fiscal 2023, for ~Rs 325 crore funded through a debt-to-equity mix of 3:1, as replacement for three of its ageing vessels - SSL Kochi, SSL Chennai and SSL Ganga. SSLL acquired these vessels following a change in strategy and prevailing market dynamics. The average fleet age reduced to 19.1 years (from 22 years) as the age of all three new vessels is less than 18 years old. These vessels also have higher capacity of 2,350 twenty-foot equivalent (TEU) than the vessels being replaced, which is likely to result in higher charter revenue. The incremental debt for this acquisition moderated the debt coverage metrics, however, they remain healthy. Further, SSLL is expected to maintain unencumbered cash and bank balances of Rs 80-100 crore in the near to medium term in addition to ~Rs 55 crore of fixed deposits (FDs) for debt service reserve account (DSRA) and other lien-marked FDs.
The operating margin improved to 50.9% in fiscal 2023 from 44.4% in fiscal 2022, driven by higher freight charter rates. SSLL has benefited from steady cash flow with the long-term framework chartering agreement (FCA) with Transworld Feeders Pvt Ltd (TFPL). TFPL is a group concern of Unifeeder ISC FZCO (Unifeeder), which in-turn is a subsidiary of DP World. DP World is headquartered in the United Arab Emirates and is among the leading port terminal operators in the world. Higher freight rates coupled with optimum utilisation of fleet capacity resulted in SSLL maintaining its scale in fiscal 2023. Operating margins are likely to moderate over the medium term with the expected rationalisation of charter rates. Nevertheless, the company will continue to benefit from high revenue visibility with the long-term FCA with TFPL; all the three recently acquired vessels have already been chartered to TFPL.The strong market position and wide global customer base of Unifeeder will limit business volatility, as the entire container tonnage volume will be deployed by TFPL.
The rating continues to reflect established market position of SSLL in the shipping business, steady cash flow from the long-term FCA with TFPL, healthy financial risk profile, and operational and financial synergies from association with the Transworld group, having extensive experience in shipping and logistics. These strengths are partially offset by modest scale of operations, susceptibility to fluctuation in charter rates and intense competition in the global shipping industry. |
Analytical Approach CRISIL Ratings has taken a standalone view of the business and financial risk profiles of SSLL. |
Key Rating Drivers & Detailed Description Strengths: Established market position The company is one of the leading shipping companies in India, with strong legacy of more than three decades in owning and operating ships. It has a fleet of 14 vessels (12 container and 2 dry-bulk [DB]) including SSL Ganga). The fleet has total capacity of 26,085 TEU, for container vessels, and gross registered tonnage of 3,21,500 metric tonne. Average fleet age reduced to 19.1 years with the acquisition of three new vessels. Further, the ageing fleet risk is largely mitigated with timely dry-docking of vessels, as per requirement and market dynamics.
Steady cash flow from long-term FCA SSLL benefits from high revenue visibility and steady cash flow with the long-term FCA with TFPL. Strong market position of Unifeeder in the global charter-hire market and strategic focus on India provides SSLL access to wide global customer base for export import (EXIM) as well as domestic cargo. The FCA has de-risked the cargo volume risk and reduced geopolitical risks of operating in a particular geography, as the entire container tonnage volumes would be deployed by TFPL. Revenue and cash flow would be steady over the medium term, driven by receipt of 50% of payments upfront on a quarterly basis.
Healthy financial risk profile, albeit moderation The financial metrics remain sound, with total outside liabilities to tangible networth (TOL/TNW) of below unity in the last five fiscals. However, the debt coverage metrics have moderated with the incremental debt of ~Rs 244 crore availed for the acquisition of new vessels. The TOL/TNW ratio moderated to 0.66 time as on March 31, 2023 from 0.45 time as on March 31, 2022. The net cash accruals (NCA) to total debt and interest coverage ratios have also moderated to below 0.5 time and 14.4 times respectively, for fiscal 2023, from 1.13 times and 19.1 times, respectively, in the previous fiscal, given the debt-funded capex and moderation in margins.
Despite the moderation in debt coverage metrics, the financial risk profile is likely to remain healthy after factoring in part debt-funded capex of ~Rs 300 crore for new vessel purchases (depending on market dynamics) and dry-docking expenses over next three fiscals (fiscal 2024-2026). This would be supported by healthy cash generation and part funding of capex from internal accruals.
Operational and financial synergies from association with the Transworld group Founded by Mr R Sivaswamy in 1977, the Transworld group operates in India, the Middle East, the United States of America, Europe and Sri Lanka. The group offers a spectrum of shipping logistics services, including feeder (vessel-owning companies), coastal container shipping and logistics solutions. Furthermore, the company derives operational and financial synergies from its association with the group. The group had provided financial support in the past, when it purchased a vessel from SSLL in fiscal 2020 and leased it back to cushion the liquidity of SSLL.
Weaknesses: Modest scale of operations Despite recent rationalisation in charter prices, SSLL’s revenue declined by ~7% in fiscal 2023, owing to higher freight rates prevailing in the first half of the fiscal and optimum utilisation of fleet capacity. While the revenue in the future years is likely to vary (depending on the prevailing charter rates), it will now be less volatile due to the FCA that ensures volume deployment. Additionally, with acquisition of higher capacity vessels in fiscal 2023, the revenue visibility has improved; all three vessels have already been chartered to TFPL as part of the long-term FCA.
Exposure to volatility in spot charter rates and intense competition The company has chartered all its 12 container vessels (including SSL Ganga, expected to be sold in the first quarter of fiscal 2024) under the FCA to TFPL. The two DB vessels purchased in fiscal 2022 have been chartered externally. While the FCA with TFPL provides stability to cash flow, the spot charter rate varies based on trade volumes, availability of ships and containers as well as demand and supply conditions. SSLL therefore remains partly vulnerable to downturns in the shipping cycle and pricing volatility, and this can increase with addition of new DB vessels, not covered under the FCA with TFPL. Furthermore, intense competition may continue to restrict pricing power with suppliers and customers, thereby constraining operating profitability. SSLL is also susceptible to fluctuations in foreign exchange rates. However, this risk is partially mitigated by a natural hedge as most of borrowing is in foreign currency or by use of derivate instruments. |
Liquidity: Adequate Liquidity should remain supported by unencumbered cash and bank balances of Rs 94 crore as on March 31, 2023, excluding DSRA and other lien marked FDs of Rs 55 crore. The cash accruals are expected to be adequate to meet annual debt repayment obligations of Rs 110-120 crore and part-fund the capex through fiscals 2024 to 2026. SSLL has capex of ~Rs 300 crore planned for the next three fiscals for dry-docking and purchase of new vessels. SSLL is also expected to maintain liquid surplus of Rs 80-100 crore on a steady-state basis. Timely, need-based financial support from the Transworld group is expected to continue. |
Outlook: Stable SSLL will continue to benefit from its long-term FCA with TFPL and maintain its healthy financial risk profile, despite high capital intensity. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company SSLL was incorporated in 1988 by late Mr R Sivaswamy to own and operate vessels for container feeder operations between Indian and international container trans-shipment ports. The company has diversified into logistics, transportation, warehousing and distribution services. It was the first to provide coastal trans-shipment services at several domestic ports, including Jawaharlal Nehru Port Authority (‘CRISIL AAA/Stable’) in Nhava Sheva, Maharashtra. Post-sale of its containerised domestic coastal and EXIM feeder shipping business to TFPL, the company follows an asset-heavy business model with owning and long-term chartering of vessels. |
Key Financial Indicators
*These financials are not comparable with the previous year as detailed notes to accounts are not available | ||||||||||||||||||||||||
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
*Swapped both interest and principal with foreign currency |
| 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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