| Shreyas Shipping and Logistics Limited | ||||
| Rating upgraded to ‘CRISIL A-/Stable’ | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of Shreyas Shipping and Logistics Ltd (SSLL) to 'CRISIL A-/Stable' from 'CRISIL BBB+/Stable’.
The rating action factors the improvement in SSLL’s operating and financial performance in the last two fiscals, and expected sustenance of the same in the near to medium term. The company’s operating margin improved from 12.1% in fiscal 2021 to 44.4% in fiscal 2022, driven by higher freight charter rates. In line with CRISIL Ratings’ expectation, SSLL has benefited from steady cash flows with the long-term framework chartering agreement (FCA) with Unifeeder ISC FZCO (Unifeeder; a subsidiary of DP World). DP World is headquartered in the United Arab Emirates (UAE) and is among the world’s leading port terminal operators. Higher freight rates coupled with optimum utilisation of fleet capacity has resulted in SSLL maintaining its scale in fiscal 2022 despite selling its domestic feedering business to Unifeeder in June 2021, while operating margins improved substantially with the low margin business moving out. While margins are expected to moderate as a consequence of rationalisation of charter rates over the near term, the company will continue to benefit from high revenue visibility and steady cashflows with the long-term FCA with Unifeeder. Unifeeder’s strong market position and wide global customer base will help limit business volatility, as 97% of container tonnage volume will be deployed by Unifeeder.
The improved business risk profile is buoyed by sound financial metrics, as reflected in comfortable total outside liabilities (TOL) to tangible networth (TNW) ratio of below unity over the last five fiscals. TOL/TNW has further improved to 0.45 time as of March 31, 2022 from 0.84 time as of March 31, 2021 with higher accretion to net worth in fiscal 2022. The debt protection and coverage metrics remain strong, driven by healthy operating profitability. The financial risk profile is expected to remain healthy even with moderation in profitability as well as after factoring in part debt-funded capital expenditure (capex) of about Rs 300 crore for new vessel purchases and dry-docking expenses over next three fiscals.
The rating continues to reflect SSLL’s established market position in the shipping business, steady cash flow from the long-term FCA with Unifeeder, healthy financial risk profile, and operational and financial synergies from association with 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 For arriving at the rating, 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 a fleet of 13 vessels (11 container and 2 dry-bulk [DB]) having total capacity of 22,000 twenty-foot equivalent (TEU), for container vessels, and gross registered tonnage of 2,80,000 metric tons (MTs). While the company has an ageing fleet, with average fleet age of 21 years, the risk is largely mitigated with timely dry-docking of vessels and purchase of new vessels, as per requirement and market dynamics. Further, the company has a strong legacy of more than three decades in owning and operating ships.
Steady cash flow from long-term FCA SSLL benefits from high revenue visibility and steady cash flow with the long-term FCA with Unifeeder. Unifeeder’s strong market position 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 97% of the container tonnage volumes would be deployed by Unifeeder. SSLL’s revenue and cash flow would be steady over the medium term, driven by receipt of 50% of payments upfront on a quarterly basis.
Healthy and improving financial risk profile The company’s financial risk profile has improved as reflected in SSLL’s strong debt protection and coverage metrics. The financial metrics remain sound, with TOL/TNW of below unity in the last five fiscals. The leverage has further improved from 0.84 time as of March 31, 2021 to 0.45 time as of March 31, 2022. Interest coverage ratio was more than 19 times in fiscal 2022 and is expected at above 10 times over the medium term. While the net cash accruals (NCA) to total debt improved to 1.13 times as on March 31, 2022 from 0.71 time as on March 31, 2021, it is likely to moderate given the partly debt-funded capex plan and expected moderation in margins. However, NCA to adjusted debt is expected to remain comfortable at above 0.7 time over the medium term. The financial risk profile is expected to remain healthy after factoring in part debt-funded capex of ~Rs 300 crore for new vessel purchases and dry-docking expenses over next three fiscals. This would be supported by healthy cash generation and part funding of capex from internal accruals.
Operational and financial synergies from association with 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 Transworld 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 latter’s liquidity.
Weakness: Modest scale of operations Despite divestment of feedering business to Unifeeder, SSLL’s annual revenue is lower by only 8%, due to higher freight rates coupled with 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 an improved balance sheet and sizeable liquid surpluses, SSLL purchased two DB vessels in fiscal 2022 to take advantage of good growth prospects and favourable charter rates. These vessels have been successful deployed since December 2021 adding to company’s revenue.
Exposure to volatility in spot charter rates and intense competition The company has chartered 10 of its 11 container vessels under the FCA to Unifeeder while one vessel is chartered externally. The two DB vessels purchased in fiscal 2022 have also been chartered externally. While the FCA with Unifeeder provides stability to cash flows, 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 Unifeeder. 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 (forex) rates. However, this risk is partially mitigated by a natural hedge as most of company’s borrowings are in foreign currency or by use of derivate instruments. |
Liquidity: Adequate The company’s liquidity profile is adequate as reflected in unencumbered cash and bank balances of Rs 31 crore as on June 30, 2022, excluding debt service reserve account of Rs 23 crore and liquid investments of Rs 55 crore. The cash accruals are expected to be adequate to meet annual debt repayment obligations of Rs 60-95 crore and part-fund the capex through fiscals 2023 to 2025. SSLL has capex of ~Rs 300 crore planned over the next three fiscals for dry-docking and purchase of new vessels. SSLL is also expected to maintain liquid surplus of Rs 40-50 crore on a steady-state basis. Timely financial support from the Transworld group is expected to continue, in case of any exigency. |
Outlook Stable SSLL will continue to benefit from its long-term FCA with Unifeeder 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 Trust in Nhava Sheva, Maharashtra. Post-sale of its containerised domestic coastal and EXIM feeder shipping business to Unifeeder, the company follows an asset-heavy business model with owning and long-term chartering of vessels. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)
*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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