Rating Rationale
August 30, 2018 | Mumbai
Shreyas Shipping and Logistics Limited
Rating Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.416 Crore
Long Term Rating CRISIL A-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL A-/Stable' rating on the long-term bank facilities of Shreyas Shipping and Logistics Limited (Shreyas Shipping).
 
The rating continue to reflects the company's established market position in the coastal shipping and container feeder business, increased revenue diversification, strong parentage, and adequate financial risk profile. These strengths are partially offset by susceptibility to volatility in feeder rates and bunker costs, and exposure to intensifying competition, particularly on traditional routes.
 
Operating income grew over 40% year-on-year, to Rs 538 crore in fiscal 2018, driven by increase in fleet, healthy demand, and improved utilisation. Increase in fleet and improved demand also led to an upsurge in volumes, to 4.48 lakh twenty feed equivalent units (TEUs) in fiscal 2018 from about 3.31 lakh a year earlier. However, volume growth was low at 6% in the first quarter of fiscal 2019. Profitability declined to 10% in the first three months of fiscal 2019, as against 23% for the corresponding period the previous year, due to increase in competition, stagnant demand, and rise in fuel costs. The company is planning to rationalise its fleet through time charter of vessels and change the fleet capacity on service routes, depending on demand. This is expected to improve capacity utilisation and profit margin to recover to about mid-teens over the medium term.
 
Financial risk profile is adequate. Adjusted gearing was about 0.6 time as on March 31, 2018, and is likely to remain low over the medium term, despite capital expenditure (capex) plans of about Rs 130 crore in fiscals 2019 and 2020. About Rs 55 crore of the total capex is already expended for purchase of SSL Krishna; the remaining is for buying two vessels, one as replacement for SSL Kolkata, which caught fire in June 2018. Since both SSL Kolkata and cargo were insured, there has been no major impact on financial risk profile. Cash accrual is expected to be sufficient to cover annual repayments of Rs 40-60 crore. Improvement in operating margin, however, will continue to be monitored.

Analytical Approach

CRISIL has applied its parent-notch up framework to factor in support from Transworld.

Key Rating Drivers & Detailed Description
Strengths
* Established market position in the coastal shipping and container feeder business
Shreyas Shipping is a pioneer in this business in India, with track record of over a decade. It is the leading player in coastal container movement on India's western 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), provides last-mile connectivity for customers that belong to the coastal container segment. Services are being offered on the east coast, too, from fiscal 2016 onwards. Container cargo and feeder services have been expanded from the eastern coast to Jebel Ali Port, Dubai. Shreyas Shipping has also increased its fleet over the years to improve service frequency and reduce fleet age. As on June 30, 2018, total fleet capacity was 25,663 TEUs and average age of 18 years, as against 16,117 TEU capacity and average age of 19 years the previous year.
 
* Increasing diversification of revenue through addition in routes being serviced
In coastal shipping, the company has traditionally operated on the west coast through its Pix 1 service. In this service, coastal cargo is shipped from Mundra in Gujarat to Tuticorin in Tamil Nadu, and called on Pipalav and Hazira ports in Gujarat and Kochi along the route. The two vessels deployed on this route offer a weekly service. 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.
 
* Adequate financial risk profile
Replacement of SSL Kolkata and purchase of two vessels require capex of about Rs 130 crore over the next 12-18 months. Of this, SSL Krishna was purchased in the first quarter for about Rs 55 crore. The capex will be funded through about 80% debt and the rest via accrual. With this, the average age of the fleet is expected to decrease to about 17 years. Despite purchase of new vessels, gearing is expected to remain adequate at less than 1 time over the medium term.
 
* Strong parentage
Founded by R Sivaswamy in 1977, the Transworld group has presence in India, Middle East, Sri Lanka, the US, and Europe. Today, the group is present across 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.
 
Weakness
* Susceptibility to volatility in bunker costs and feeder rates, and intensifying competition
Susceptibility to volatility in the price of bunkers, which account for 25-30% of the total revenue, persists. Shreyas Shipping is also exposed to increasing competition in the domestic industry: continuing fleet additions have created an oversupply in the market and a decline in road freight rates, leading to significant pressure on coastal shipping freight rates and the overall operating performance of the industry. Operating margin, as a result, has fluctuated between 14 and 36% in the four years ended fiscal 2018 (21% in fiscal 2018).
 
* Exposure to risks associated with slow growth in container traffic 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.
Outlook: Stable

CRISIL believes Shreyas Shipping will continue to benefit from its established market position in the coastal shipping and domestic logistics business over the medium term. The outlook may be revised to 'Positive' if significant ramp-up in operations leads to sustained improvement in profitability and capital structure. The outlook may be revised to 'Negative' if lower-than-expected profitability or capacity utilisation, or larger-than-expected debt-funded capex weakens capital structure or debt protection metrics.

About the Company

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 managing director).

For the first three months of fiscal 2019, revenue was Rs 151 crore and profit after tax (PAT) Rs 6 crore, as against revenue of Rs 118 crore and PAT of Rs 19 crore in the corresponding period of the previous fiscal.

Key Financial Indicators
As on/For the period ended March 31 2018 2017
Revenue Rs Cr 538.0 370.2
Profit after tax Rs Cr 92.0 4.1#
PAT margin % 17.1 1.10#
Adjusted debt/adjusted networth Times 0.62 0.76
Interest coverage Times 9.6 5.9
#After factoring in loss on sale of vessel of Rs 23.19 crore

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. Crore)
Rating Assigned
with Outlook
NA Cash Credit NA NA NA 52.00 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 1 NA NA 31-Mar-24 9.80 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 2 NA NA 15-Jan-23 24.43 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 3 NA NA 01-Jan-22 15.71 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 4 NA NA 30-Mar-21 15.43 CRISIL A-/Stable
NA Foreign Currency Term Loan '5 NA NA 3-Mar-24 16.34 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 6 NA NA 30-Mar-21 7.64 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 7 NA NA 28-Jul-24 17.19 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 8 NA NA 24-July-20 24.38 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 9 NA NA 31-Oct-24 40.12 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 10 NA NA 27-Sept-24 22.35 CRISIL A-/Stable
NA Foreign Currency Term Loan ' 11 NA NA 6-Jul-23 19.90 CRISIL A-/Stable
NA Proposed Long Term Bank Loan Facility NA NA NA 75.45 CRISIL A-/Stable
NA Line of Credit NA NA NA 30.00 CRISIL A-/Stable
NA Buyer`s Credit NA NA NA 45.26 CRISIL A-/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  416.00  CRISIL A-/Stable      05-09-17  CRISIL A-/Stable  17-06-16  CRISIL A-/Negative  20-05-15  CRISIL A-/Stable  CRISIL BBB+/Stable 
            22-03-17  CRISIL A-/Watch Developing           
Non Fund-based Bank Facilities  LT/ST          22-03-17  CRISIL A2+/Watch Developing  17-06-16  CRISIL A2+  20-05-15  CRISIL A2+  CRISIL A2 
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
Buyer`s Credit 45.26 CRISIL A-/Stable Cash Credit 40 CRISIL A-/Stable
Cash Credit 52 CRISIL A-/Stable Foreign Currency Term Loan 129.57 CRISIL A-/Stable
Foreign Currency Term Loan 213.29 CRISIL A-/Stable Proposed Long Term Bank Loan Facility 214.67 CRISIL A-/Stable
Line of Credit 30 CRISIL A-/Stable Rupee Term Loan 31.76 CRISIL A-/Stable
Proposed Long Term Bank Loan Facility 75.45 CRISIL A-/Stable -- 0 --
Total 416 -- Total 416 --
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 Consolidation

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