| Shreyas Shipping and Logistics Limited | ||||
| Rating Reaffirmed | ||||
| 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 reaffirmed its 'CRISIL A-/Stable' rating on the long-term bank facilities of Shreyas Shipping and Logistics Limited (Shreyas Shipping). |
| Analytical Approach |
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CRISIL has applied its parent-notch up framework to factor in support received by Shreyas Shipping from Transworld Holdings Ltd (Transworld). |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position 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 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), 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. Shreyas Shipping has also increased its fleet capacity over the years to improve service frequency. As on March 31, 2019, total fleet capacity was 24,519 TEUs, as against 23,143 TEU capacity a year ago. * Increasing diversification of revenue profile with new route additions In coastal shipping, Shreyas Shipping has traditionally operated on the west coast through its Pix 1 and SMILE service. In these service, coastal cargo is shipped from Mundra (Gujarat) to Cochin (Kerala), and called on Pipavav and Hazira ports in Gujarat 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. Under ECC service, the cargo is shipped from Krishnapatnam (Andhra Pradesh) to Kolkata. The company has initiated new routes between east coast of India to Colombo in fiscal 2019 and plans an additional route to Bangladesh in fiscal 2020. * Adequate financial risk profile Adjusted gearing was 0.7 time as on March 31, 2019, and is likely to remain low at below 1 time over the medium term, driven by gradual repayment of term debt, and moderate capital expenditure (capex) plans of about Rs 40 crore per annum. Cash accrual, expected at over Rs 60 crore per annum over the medium term, should be sufficient to cover the yearly maturing debt of Rs 45-65 crore. * Strong parentage Founded by Mr R Sivaswamy in 1977, the Transworld group operates 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 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 during an exigency. Weaknesses * Susceptibility to variations in bunker costs and feeder rates, and intensifying competition Since cost of procuring bunker oil accounts for 25-30% of the total revenues, even a slight variation in price could adversely impact the business. Further, intense competition may continue to restrict the scalability of operations and limit the pricing power with suppliers and customers, thereby constraining profitability. Continuing fleet additions have created an oversupply in the market and a decline in road freight rates, leading to pressure on coastal shipping freight rates and the overall operating performance of the industry. Hence, the operating margin has fluctuated between 11% and 36% during the five fiscals through 2018 (11% in fiscal 2019). The company is also exposed to fluctuation in foreign exchange rates (forex), as about half its revenue is forex denominated. This is partially offset by natural hedge as its borrowings are in foreign currency. * 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. |
| Liquidity |
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Liquidity is adequate as reflected in sufficient cash accrual and cash balances vis-a-vis debt obligation and moderate cash and bank balance. The company is expected to generate adequate annual cash accrual of over Rs 64 crore and Rs 77 crore to meet its debt repayment obligation of Rs 54 crore and Rs 50 crore in fiscals 2020 and 2021, respectively. Additionally, the company has unencumbered cash balances of Rs 19 crore, as on March 31, 2019. The company has moderate capex plans of Rs 40 crore over the next 12 to 18 months will be primarily debt-funded. With about 80% debt-funding for the capex, the liquidity is expected to remain adequate over the medium term. The working capital facilities are primarily converted to foreign currency demand loan which are fully drawn down. |
| Outlook: Stable |
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CRISIL believes Shreyas Shipping will continue to benefit from an established market position. The outlook may be revised to 'Positive' if significant ramp-up in operations and fleet optimisation leads to a sustainable increase in profitability and capital structure. Conversely, the outlook may be revised to 'Negative' if lower-than-expected profitability or capacity utilisation, or larger-than-expected, debt-funded capex weakens the financial risk profile. |
| 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 Mumbai based 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). |
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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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