MANAGEMENT'S DISCUSSION AND ANALYSIS Industry Structure and Developments Coastal Shipping The importance of Coastal Shipping in India has increased manifold in the past few years. India lies in geographical proximity to important shipping routes which gives a natural advantage to the country's shipping. Moreover, shipping is no longer an isolated mode of transport but forms a part of an intermodal transport chain linking other transport modes. Given its inherent advantage of a vast coastline, India can prove to be an effective transhipment hub. In fact, it is now evident that coastal shipping has the potential to drive transhipment at Indian ports which would enhance the price competitiveness of the Indian exports. In order to give an impetus to the development of coastal shipping in India, the Ministry of Shipping organized the Maritime India Summit, 2016, which was its maiden flagship initiative. This Summit gave an extensive platform to the shipping fraternity to explore business opportunities at large. It is said that a robust maritime sector with strong and efficient port infrastructure can prove to be a strong catalyst of economic growth. The Ministry has therefore also launched the ambitious Sagarmala Project which endeavors to transform the Indian shipping sector. This project includes modernisation of ports and islands, setting up of coastal economic zones, new major ports and fish harbours. During the year 2015-2016, the container throughput handled at major ports in India was 123 million tonnes which a growth of 3% over the brvious fiscal. In fact, these ports cumulatively handled 8.2 million 20 teus units compared with 7.96 million teus. During 2015-16, Mormugao recorded highest growth in traffic 41.2% followed by Chidambaranar (13.7%), Kolkata Dock System (9.2%), Kandla (8.2%), Haldia Dock Complex (8.1%), Paradip (7.6%), Kamarajar (6.5%), Cochin (2.3%) and JNPT (0.4%). In terms of total tonnage for the current year, major ports saw cargo volumes grow 4.31 % in fiscal 2015-16 to 606.4 million tons from 581.34 million in the brvious year. Kandla demonstrated a record-setting annual volume of 100 million tons, followed by Paradip, at 76.4 million tons; JNPT, at 64 million tons; Mumbai, at 61 million tons; Visakhapatnam, at 57 million tons; and Chennai, at 50 million tons, according to the collected data. Logistics India has made significant footmark in global economic arena in past decade, our economy is projected to grow to 7.5 per cent by 2020. This projection is mainly based on 'Make in India' initiative to boost manufacturing production and investments in infrastructure and information technology for improving productivity. With focus on boosting production and improving productivity plans, economic pundits and entrebrneurs are optimist about our future growth prospects. According to United Nations and MAPI (Manufacturers Alliance for Productivity and Innovation) research, India ranks 9th for world production share (1st China, 2nd USA and 3rd Japan). The 'Make in India' initiative, while boosting India's industrial production, will call for increase in transportation activities. Transportation cost for manufacturing industry is critical, as it is part of the cost of production of the goods. The objective for manufacturers is to bring this cost to minimum so that the economy can derive maximum benefit. Based on 'Logistic Performance Index (4th edition)', released by 'World Bank' indicated that India's ranking has slipped from 39th to 54th rank. This ranking is crucial because Logistics performance and trade facilitation are strongly associated with trade expansion, export diversification, attractiveness to foreign direct investment, and economic growth. With respect to logistics cost (per cent) to GDP, according to World Bank Data, Logistics industry cost contributes to around 9 per cent of the world GDP for developed countries, whereas Indian logistics industry cost contributes to 13 per cent of our GDP Most commonly used transportation modes in India are 'Road Logistics' almost 60 per cent (heavily congested) and 'Rail Logistics' almost 33 per cent (full utilized); accounting to over 93 per cent, which are already overburdened and it is unlikely to keep up with the pace of our future growth demands. Presently there are 177 interstate check posts and 268 toll barriers on national highways. In India, a truck can cover only 250-400 km per day compared to 700-800 km in developed countries. According to Planning Commission Report, in a given year, a truck on Indian roads can cover 60K -1 Lacs km, while in the US, a truck can travel up to 4 Lac km a year. Also, World Bank has estimated that trucks delays at checkpoints costs our economy anywhere between INR 900 Cr to INR 2,300 Cr. Outlook on opportunities Coastal shipping India is naturally blessed with a long coastline of over 7,500 kms and home to 14,500 kms of navigable waterways to movement of mechanized vessels. The country has 13 major ports and more than 180 minor ports sbrad across 9 maritime states which can play a vital role in maritime transport & trade and are the economic drivers for the country and regions. However, coastal shipping brsently accounts for only 7 per cent of overall cargo movement in India. Promotion of coastal shipping is essential due to the potential economic and social benefits it could confer. Hence it is important to address issues such as route development, capacity additions, and incentives by reduction in fuel bill, logistic cost, impact of land congestion & pollution on national economy and the environment. The Ministry of Shipping has taken due cognizance of the same and is intervening to simplify procedures to enable ease of doing business. Numerous initiatives have been declared during the year making Indian coastal shipping quite competitive with other countries. The Sagarmala project initiated by the Ministry envisages port-led development including development of Special Economic Zones, FTWZs, rail, road, and water connectivity with the hinterland, with linkages to tourism & other related sectors, port-led industrialization, port based urbanization, coastal tourism, coastal shipping, fisheries, recreational activities. In fact, major ports are undertaking studies to deepen the draft to 18 meters to handle large and modern vessels. Logistics Growth prospects for the Indian logistics sector looks promising in 2016 with support from numerous Government initiatives in the areas of trade and industry promotion, logistics infrastructure development, and tax reforms. In addition to this, the booming e-commerce sector is likely to support strong growth in the warehousing segment. Dedicated freight corridor, increased port connectivity, and proposed auto hub are likely to increase share of railways in land transport. Despite economic uncertainties, the Indian logistics sector is likely to grow above 6% in 2016. Government initiatives to promote the manufacturing sector and exports are likely to increase the demand for logistics functions. Trade with Asia, Europe, and North America are likely to remain the major drivers for freight forwarding and transportation companies in the region. Major investments by both the public and private sectors in the last five years on infrastructure, technology upgrades, and expansion of sea and airport facilities, and a dedicated logistics corridor in the rail network are likely to strengthen the Indian logistics infrastructure. The booming e-commerce market in India is bringing in new opportunities for Logistic Service Provider. The evolving business model(s) in this space focuses on containing logistics and delivery costs. Outlook on Threats, Risks and Concerns Shipping Despite the untiring efforts invested by the Ministry, a lot remains to be done for the Indian coastal shipping. It continues to face hurdles at various stages. A major one being availability of adequate bunkering facilities. Inadequate bunkering infrastructure at most minor/intermediate ports acts as an hindrance to coastal shipping. Another concern is the unavailability of attractive financing options for procurement of coastal vessels. This adds to the operating costs of the Company thereby bringing down the possibility of a level playing field with foreign competitors. The last mile connectivity in case of coastal shipping is economically viable only if the producers/consumers of the shipped goods are within a distance of around 100 Km from the loading/unloading point at the port side. This last mile connectivity often proves to be a challenge in India driving up the overall cost of transportation via coastal shipping. Availability of dedicated infrastructure will go a long way in promoting coastal shipping as a mode of freight transportation. Logistics India continues to have inherent challenges. The basic challenge being poor infrastructure. There is insufficient integration of transport, warehousing and information technology facilities. There is a real dearth of manpower that is skilled that can support this sector as it grows. The GST Bill, though it would make the functioning of the sector smoother, has still not been passed through. Also, there is a shortage of investment in research and development capability. For a sector to innovate and consistently reinvent itself as is necessary for a growing sector, R & D should be an integral part of the endeavor. The logistics sector, despite its many limitations, is slated for significant growth in 2016 and indeed the coming years. It remains to be seen whether this growth will be structured in a way to ensure sustainability in the sector's operations. For logistics players, exciting times with many changes lie ahead. By positioning themselves well, players can ride the crest of the wave of changes to grow and become more profitable. Internal control systems and their adequacy The philosophy we have with regard to internal control systems and their adequacy has been formulation of effective systems and their strict implementation to ensure that assets and interests of the Company are safeguarded; checks and balances are in place to determine the accuracy and reliability of accounting data. The Internal Audit, an independent appraisal function to examine and evaluate the efficiency and effectiveness of the internal control system, appraises periodically about activities and audit findings to the Audit Committee, Statutory auditors and the Top Management. Internal audit ensures that systems are designed and implemented with adequate internal controls commensurate with the size and operations; transactions are executed and assets are safeguarded and deployed in accordance with the policies, existence of adequacy of internal controls in all existing policies and procedures. Performance review of Shreyas Human resources As on 31st March, 2016, the Company had 32 shore staff and 228 floating staff. The relations between the employees and the Company remained cordial throughout the year. The Company continues to focus on the safety, training and development of the employees. Cautionary statement Statements in this report describing the company's objectives, projections, estimates and expectations may be forward looking statements, within the meaning of applicable laws and regulations, based on beliefs of Shreyas' Management. Such statements reflect the Company's current views with respect to the future events and are subject to risks and uncertainties. Many factors could cause the actual result to be materially different from those projected in this report, including amongst others, changes in the general economic and business conditions, changes in the currency exchange rates and interest rates, introduction of competing services, lack of acceptance of new services, and changes in business strategy. Shreyas does not intend to assume any obligation to update any forward-looking statements or information, which speak as of their respective dates reflecting circumstances arising after this date or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. For and on behalf of the Board of Directors S. Ramakrishnan Chairman & Managing Director Place : Mumbai Date : 26th May, 2016 |