| Shreyas Shipping and Logistics Limited | ||||
| Rating downgraded to 'CRISIL BBB+/Stable' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL has downgraded its rating on the long-term bank facilities of Shreyas Shipping and Logistics Limited (Shreyas Shipping) to 'CRISIL BBB+/Stable' from 'CRISIL A-/Stable'. |
| Analytical Approach |
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CRISIL has applied its parent-notch-up framework to factor in support from Transworld Holdings Ltd (Transworld). |
| Key Rating Drivers & Detailed Description |
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Strengths: * Established market position The company is a pioneer in the coastal shipping and container feeder business in India, with a track record of over a decade. It is the leading player on India's coast (with market share of 50-55%), and enjoys a competitive advantage as it offers multi-modal container cargo transportation by sea, rail and road. The associate company, Avana Logistek Ltd (Avana; rated 'CRISIL BBB+/Stable/CRISIL A2'), provides last-mile connectivity for customers that belong to the coastal container segment. Services are also being offered on the east coast from fiscal 2016. Container cargo and feeder services have been expanded from the eastern coast to Jebel Ali Port, Dubai. The company has also increased its fleet over the years to improve service frequency and reduce fleet age. As on December 31, 2019, the total fleet capacity was 24,519 TEU with an average age of 19.5 years, as against 16,117 TEU with an average age of 19 years in fiscal 2017. * Increasing revenue diversification In coastal shipping, the company has traditionally operated on the west coast through its Pix 1 and SMILE services. In these services, coastal cargo is shipped from Mundra in Gujarat to Kochi in Kerala, and called on Pipavav and Hazira ports in Gujarat along the route. The two vessels deployed on this route offer a weekly services. The company has a dominant position in the Pix 1 service, with market share of 50-55%. Services commenced from west to east coast (Pix 2) from fiscal 2016. Under East Coast Container (coastal) service, the cargo is shipped from Krishnapatnam in Andhra Pradesh to Kolkata. Furthermore, during fiscal 2020, the company started to provide a service to the Chittagong port in Bangladesh from the eastern ports of India. * Expected financial support from the Transworld group Founded by Mr R Sivaswamy in 1977, the Transworld group has a presence in India, the Middle East, Sri Lanka, the US, and Europe. Today, the group offers a spectrum of shipping logistics services, including feeder (vessel-owning companies), non-vessel owning common carrier (NVOCC) operations, coastal container shipping (through Shreyas Shipping and Avana), and logistics solutions. Furthermore, Transworld's management is expected to provide strong and timely support to its subsidiaries in the event of an exigency as witnessed in fiscal 2020, wherein the group has purchased a vessel from Shreyas Shipping and leased it back so as to provide liquidity cushion. Weaknesses: * Moderate financial risk profile The adjusted gearing was about 0.7 time as on March 31, 2019, and is likely to remain moderate over the medium term, despite capital expenditure (capex) plans of about Rs 80 crore in fiscal 2022 for replacing older vessels with higher capacity new vessels. The operating performance is expected to remain moderate in fiscal 2021, considering the overall slowdown in global trade amid the Covid-19 pandemic. Net cash accrual is expected to remain under pressure, while debt repayment remains high at about Rs. 50 crore, per fiscal in the medium term. However, financial support from the Transworld group is expected to continue over medium term. * Susceptibility to volatility in spot charter rates and intense competition The company has currently chartered 3 out of its total 12 vessels. The charter rate increases or decreases based on the demand-supply mechanism. Out of three vessels which are presently given on charter, two vessels are for long term contract with fixed charter rate and third vessel is on time charter to a Main Line Operator with one year contract, with renewable option which also carries fixed charter rate for year. Further during fiscal 2020, with the additional tonnage deployment by TCI Seaways, the freight rates became more competitive thereby impacting the company's realisation. Hence, the company is vulnerable to downturns in the shipping cycle, pricing volatility and competition. Further, intense competition may continue to restrict the scalability of operations and limit the pricing power with suppliers and customers, thereby constraining profitability. Low Sulphur Oil cost accounts for 32-35% of the total revenue; hence, a slight variation in price could adversely impact the operating performance in event of volatility in spot rates. Moreover, on account of high feeder and bunker cost, the operating profitability margin has been volatile at 12-22% in the four fiscals through 2019 (21% in fiscal 2018). The company is also exposed to fluctuation in foreign exchange (forex) rates, as about half its revenue is forex denominated. This is partially offset by a natural hedge as the borrowings are in foreign currency. * Exposure to risks associated with container traffic growth in India The business is directly linked to growth in container traffic; of the total volume handled, Indian coastal cargo accounts for 50-55% and global export-import (EXIM) the rest. Susceptibility to risks related to any steep fall in EXIM trade, leading to sub-optimal utilisation of the fleet, persists. |
| Liquidity Stretched |
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Cash accrual and the cash and bank balance are modest. Net cash accrual is expected to remain under pressure, while debt repayment is high at about Rs 50 crore per fiscal in the medium term. The unencumbered cash balance was Rs 12 crore as on December 31, 2019. The company has moderate capex plans of around Rs 80 crore in fiscal 2022, which will be mainly debt-funded. The working capital facilities are primarily converted to foreign currency demand loans, which are fully drawn down. Nevertheless support from the group will provide some support to the overall credit profile. |
| Outlook: Stable |
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CRISIL believes Shreyas Shipping will continue to benefit from an established market position. |
| Rating Sensitivity factors |
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Upward factors * Sustained revenue growth with improvement in the operating margin, leading to net cash accrual of above Rs 70 crore per fiscal * Improvement in the debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio to below 2.5 times * Improvement in the credit risk profile of the Transworld group Downward factors * Weaker-than-anticipated operating performance, leading to net cash accrual of below Rs 45 crore per fiscal * Deterioration in the capital structure due to large, debt-funded capex or a stretch in the working capital cycle * Weakening of the credit risk profile of the Transworld group or change in support stance |
| About the Company |
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Shreyas Shipping was set up in 1994 by the 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. Operations are managed by Mr Ramesh S Ramakrishnan (chairman) and Capt Vivek Kumar Singh (managing director). The associate company, Avana, provides last-mile connectivity for customers that belong to the coastal container segment. |
| Key Financial Indicators | ||||||||||||||||||||||||
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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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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