Continuing with more annual report reading, this is one of cleanest and simple AR I have read. To add, impressive performance history, a good company to keep on watch list in double digit growing logistic space.
Notes from AR 2020
Company Introduction:
- Company is express logistic provider which provides fast, reliable, on demand, integrated, door to door movement of shipments
- Came in existence through demerger of TCI XPS from transport corporation of India limited.
- Provides integrated logistics solutions to customers covering 708 districts, 800 branches, 28 sorting centers, 40000+ pickup and delivery points, 500 express routes, 2500 feeder routes and 5000+ containerized vehicles
- Hub and spoke distribution model
- Services offered are domestic surface express, domestic air express, international air express, reverse express and e-commerce express
- Present in sectors like automotive, pharma, IT hardware, textile, retail and e-commerce
- Technology involves barcoding and RFID, hand held transmission, app-based service offering and GPS enabled vehicles
- Diversified customer base across corporate and SMEs with none of customers contributing more than 3% of receivables
- Asset light business model with strong balance sheet (does not own any vehicles)
- Revenue up from Rs 663 crore to Rs 1036 crore in 5 years and PAT up from Rs 28 crore to Rs 90 crore in 5 years with PAT margin improving from 4.29% to 8.6%
- Return on capital consistently around 40%
Key business updates and annual review:
- Business process includes collection, transportation and distribution. Collection includes shipper, pick up, warehousing, collection.
- 5 lakh square feet of new sorting capacity added in Gurgaon and Pune
- Company moved towards 100% paperless supply chain bringing in more efficiency
- Implemented centralized vendor management system
- Company has been recognized as a “Great place to work”
- 70 new branches opened in 2019-20
- Digital booking replaced manual booking
Financial Performance:
- Topline growth of 0.8% YoY at Rs 1033 crore sales and Rs 89 crore PAT growth at 22% YoY
- Stable margin profile is attributed to higher capacity utilization, operational efficiency and efficient working capital management
- Rs 80 crore of cashflow from operations generated and Rs 32 crore of capex deployed towards increasing automation and adding more sorting centers
- Rs 4 rs per share of dividend to be given
- Employee cost increased by 10% to attract top talent and retain existing performers
- Despite of high growth in salary expense, company could maintain margins by effective control on other operating expenses
Market Trends:
- Technology adoption is likely to create and accelerate new opportunities in transportation, warehousing and freight forwarding segments
- Logistic sector is expected to grow at 10% CAGR in next 5 years which is currently at $215 billion industry
- Indian express logistics industry is 2% of worldwide express logistic industry and expected to grow at 17% till 2023
- Challenges are lack of infrastructure, integrated logistic network, slow adoption of technology and lack of skilled man power
- Currently, logistic cost is 13-14% of GDP which is high relative to 8-10% in advance economies
- National logistic policy and multimodal logistic park policy to fuel growth in long term
- In 2019, air cargo traffic turned negative for the first time since 2012 with 3.3% decline which is steepest since 2009
Guidance:
- Will continue to occur meaningful capital expenditure towards sorting centers to drive operational efficiencies and reduce turnaround time
- FY20-21, at least Q1 is going to be impacted due to covid
Other Points:
- 67% shares held by promoter, 6.7% by MFIs, 2.7% by FPIs and 15% by retail. MFIs share increased from 3.1% to 6.7% where as FPIs and retail reduced.
- Management remuneration has good share of variable commission though remuneration is on the high side being 11%
- 5% employee salary growth, 17.6% managerial salary growth
- Total 2905 employees
- Company maintains good risk management practices by identifying receivables in various risk buckets and negligible amount in moderate risk bucket
- No single customer accounted for more than 3% of receivables
Risks and Open Questions:
- Why cash balance is low if company has been good cash profit generator. Need to study historical cash utilization of company
- Freight expense constitutes 70% of expense and it is very important to have control over this cost to maintain margins
- Rent is other higher cost item apart from freight and employee expenses
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