MANAGEMENT DISCUSSION AND ANALYSIS  

INDUSTRY OVERVIEW

Indian Railways recorded a moderate growth of 4.18% in originating freight loading in 2014-15 as compared to 2013-14. Originating containerized cargo transported by Rail increased from 43.6 million tonnes in 2013-14 to 48.83 million tonnes in 2014-15 reflecting a growth of around 12%. The level of Inland penetration of containers from Ports to Hinterland was around 19%, which is at a lower side mainly due to high costs and poor turn-around. The containers handled at all Ports of the Country registered a healthy growth of 10.33%, from around 10.45 million TEUs in 2013-14 to around 11.53 million TEUs in 2014-15. Mundra and Pipavav Ports registered growth of 19.39% and 15.45% in container handling respectively in 2014-15, as compared to 2013-14. The largest container handling port of the Country, JN Port recorded an increase of 7.45%, from 4.16 million TEUs in 2013-14 to 4.47 million TEUs in 2014-15. On the West Coast, Hazira Port shows good prospects in the coming financial year, with CONCOR starting services to this Port. On the East Coast, Krishnapatnam Port recorded an increase of around 62% in Container handling from around 56,000 TEUs in 2013-14to around 91,000TEUs in 2014-15.

In the above mentioned external business environment, your Company continued to be the 'lead player' due to sustained and improved performance carrying 36.18 million tonnes of containerized cargo during the FY 2014-15, up from 32.93 million tonnes carried in 2013-14. Your Company achieved its highest ever throughput of 3.11 million TEUs in the year

2014-15. Your Company also continued to place great emphasis on providing total logistics solutions to its customers by expanding the business in all segments of transport value chain, both in EXIM and Domestic sector. Emphasis was also on optimal utilization of infrastructure with complete cost control, combined with strategy on expansion into other segments of value chain with overall objective of making logistics services effective, efficient and competitive. At the same time, your company continued with its plan for setting-up of 15 new Multi-Modal Logistics Parks (MMLPs) within 12th five year plan period for providing seamless connectivity and one stop solution to its customers.

EXIM & DOMESTIC BUSINESS

During 2014-15, the EXIM Container Traffic handled at major ports and the private ports of Mundra, Pipavav and Krishnapatnam Port increased by 10.33%, as compared to 2013-14. Your company recorded a growth of 11.01% in EXIM handling from 2.36millionTEUsin2013-14to2.62millionTEUsin2014-15.

In terms of tonnage, the increase in EXIM originating loading was 14.39% from 25.72 million Tonnes in 2013-14 to 29.42 million tonnes in 2014-15. With stiff competition from PCTOs, it is a big challenge to retain and increase our market share and growth. Your Company is fully brpared to meet these challenges by taking innovative steps in marketing and meeting Customer's expectations of reliable and cost effective services.

The total traffic handled in Domestic segment was 489,371 TEUs in 2014-15, as against 507,183 TEUs in 2014-15 i.e. a decrease of 3.51%. The Domestic booking also reduced by 3.63% from 252,482 TEUs in 2013-14 to 243,315 TEUs in 2014­15. The primary reason for reduction in Domestic business was diversion of roling stock in 2nd and 3rd quarter from Domestic to Exim to take care of increased import pendencies during these quarters, followed by increase in rail freight by Indian Railways in December 2014, followed by another hike in quick succession from 1st March 2015. The situation was further aggravated by decrease in the diesel prices resulting in fall in road transportation rates. All these factors resulted in shifting of domestic cargo from Rail to Road in 4th quarter. Thus, overall, the domestic handling went down by 3.51 %.

As a result of the above physical performance, during the year under review the company has achieved a gross turnover of ^5,944.44 crores as against Rs.5,356.27 crores in the brvious year, reflecting an increase of 10.98%. Further, the EBITDA Margin of the company during 2014-15 was Rs.1,667.26 crores which was Rs.1,473.58 crores in the brvious year, shows an increase of13.14%.

Inspite of the circumstances mentioned above, your company has been able to surpass the ambitious targets set in the Memorandum of Understanding signed with the Government and is expected to be rated as Excellent.

INTERNAL CONTROLSYSTEMS

CONCOR has robust Internal Systems and processes in place for smooth and efficient conduct of business and complies with relevant laws and regulations. A combrhensive delegation of power exists for smooth decision making. In order to ensure that all checks and balances are in place and all internal control systems are in order, regular and exhaustive internal audits are conducted by experienced firms of Chartered Accountants in close co-ordination with company's own internal audit Department. A well defined internal control framework has been developed identifying key controls and audit firms certify the appropriateness of internal controls. Internal audit firms directly report to the Management at higher level. Reports of the auditors are reviewed, compliances are ensured and the reports along with the compliances are put up to Audit & Ethics committee periodically.

SECURED AND UNSECURED LOANS

No secured and unsecured loans were taken during FY 2014-15.

An amount to the tune of Rs.734.21 crores was capitalized during the year. The main additions were on account of construction of Terminal Infrastructure, purchase of Wagons/ Handling equipments, etc.

WAGONS

During the year under review 765 BLC and 235 BVZI brake van wagons were added to the existing fleet of CONCOR owned wagons, increasing the holding of High Speed Wagons to 11,754. Total wagons (BLC+BLL+BFKN+BVZI) holding has gone upto 13,111 as on 31.03.2015.

INVENTORIES

The company, being a service company, does not have stock in trade. The inventory is rebrsented by stores and spares kept by the company for maintenance of its own equipments.

SUNDRY DEBTORS

Sundry debtors are 0.71 % of the operating income of the year. Provision for doubtful debts, wherever considered necessary, has been made. 

CASH AND BANK BALANCE

The company keeps majority of its cash & bank balances in short term fixed deposits with the banks. These cash reserves have been retained for financing the expansion plans as well as investments in JVs as perthe capex. plan of the Company.

INCOME

Income from operations has grown by 11.82% over FY2013-14. Between the two business segments i.e. EXIM & Domestic, EXIM segment contributes the major share of freight revenues. Increase in business volumes and successful induction and running of High Speed Wagons have been the main reasons for the company's growth.

EXPENSES

Terminal and other service expenses have increased by 9.05% over FY2013-14. The increase in direct expenses in the current year is due to rise in corresponding operating income and increase in rail freight expenses.

OTHER EXPENSES

The other expenses have increased by 17.09% over FY 2013-14.

EMPLOYEE REMUNERATION

The employee cost has grown by 27.86% over FY 2013-14 which is on account of annual increments, promotion, increase in dearness allowance, provision for employee benefits, etc. 

FOREIGN EXCHANGE EARNING & OUTGO

During the year the total Foreign Exchange outgo on account of various business related activities, including import of stores and capital goods was Rs.2,011.99 lakhs which has shown a decrease of80.06% over the brvious year.

TAXATION

Current and deferred income tax provision for the year have been made in accordance with the provisions contained in Income Tax Act, 1961 and Accounting Standard 22, "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India (ICAI). Accordingly, current and deferred income tax provisions have been worked out as Rs.301.10 crores and Rs.(54.20) crores respectively.

As per 'Guidance Note on Accounting for credit available in respect of Minimum Alternate Tax under the Income Tax Act, 1961 issued by ICAI, income tax provision for current year has been worked out after availing MAT credit of Rs.39.28 crores. Unabsorbed MAT credit as at year end stands NIL.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES

Review & rationalisation of HR polices in line with the organisational requirements is a continuous process in CONCOR. We strive for maximum good of maximum number. CONCOR recruits fresh graduates and experienced professionals both from different modes of recruitment for CONCOR and its subsidiaries. Compassionate employment to the wife of deceased employee (01: last FY) is provided as a welfare measure. Welfare measures also include combrhensive medical facilities at discounted rates with nominated Hospitals for both indoor and outdoor treatments of employees. Post retirement Medical Scheme (PRMS) has also been extended with wider scope of coverage to superannuated employees. House Building Advance at minimum interest rates (7.5% -simple interest) which is further lowered to 50% after 10 years of continuous service. Interest free multipurpose advance, computer advance and first vehicle advance are also provided to the employees.

Rebrsentation and conducting the organisation matters before various authorities judicial, quasi-judicial etc. with a view to safeguard the interest of the organisation is done by the company.

RISK MANAGEMENT

The company has an elaborate Enterprise Risk Management (ERM) framework in place. As a part of implementation of the

ERM framework, the company has constituted a core Risk Management Committee (RMC) comprising seven core functional areas of the company. The RMC has been entrusted with the responsibility to identify and review the risks and formulate action plans and strategies for risk mitigation. The main function of RMC is to monitor various risks and to examine the adequacy of risk management policy and practices adopted by the company, and also to initiate action for mitigation of risks arising in operations and other key functional areas of the company. All the terminal heads of the operating units are required to regularly define the effectiveness or non-effectiveness of control /action plan formulated to mitigate the same. The ERM reports are also evaluated bythe RMC in its quarterly review and top ten risks are identified bythe RMC which are put up for scrutiny of Audit & Ethics committee and Board of Directors. During the year, after amendments in clause 49 of the Listing Agreements, the RMC has been re-constituted the particulars of which are stated in the Corporate Governance Report.

OPPORTUNITIES & THREATS

Your company is an undisputed leader in the field of Multi-modal Transport in India with the largest available network of "state-of-the-art" intermodal terminals across the country providing an unparalleled reach and penetration, combined with a strong brsence at almost all container handling ports. It has strong financials and highly committed team of experienced and skilled manpower with in-depth knowledge of multi modal logistics business. Availability of fairly large fleet of rolling stock (especially high-speed BLC/BLL wagons), specialized container handling equipment, customized owned/leased containers and fully computerized commercial operations with internet based customer and customs interface provides it a strong competitive advantage in availing opportunities for further growth.

The overall prospects of growth of the business of your company are impacted by various factors including the environment in which it operates. The growth of the port throughput, though picking up in 2014-15 as compared to the last two years of a mere around 2% per annum, has not resulted in commensurate volume growth of hinterland traffic due to over dependence on some specific rail corridors for Exim Business which are getting increasingly saturated. This constraint, along with the constraints imposed by adverse import/export flows, and increased rail haulage tariffs is motivating shipping lines to set up CFSs/ICDs in port towns to curtail hinterland movement of boxes. There is also increasing competition from private players who have flexibility to resort to discriminatory/restrictive pricing and services which is against the ethics of your company. 

Last, but not the least important, is the fact that the improved road infrastructure in the country coupled with falling diesel prices is facilitating direct road transfers of both EXIM and domestic cargo with competitive transit times and costs, despite the environmental and energy advantages associated with rail transport.

Despite all these constraints, your company is well poised to tap the new business opportunities arising from potential growth in EXIM container volumes and the likely increases in container traffic due to development of Western Dedicated Freight Corridor (Western DFC). Accordingly, it has already taken lead in developing six logistics parks along the upcoming Western Dedicated Freight Corridor and its feeder routes. Similarly, developments of freight terminals at vantage locations along the Eastern DFC are also being planned. Its initiative to use the terminal capacity for promoting double stack movement between hinterland and gateway ports of Gujarat have helped increase rail collections and make its services competitive.

The putting back of Indian Economy on high growth path with lesser bottlenecks in creation of infrastructure is bound to result in additional transport demands. This, coupled with the anticipated changes in profile of traded goods -from intermediate to finished goods, is bound to increase the opportunities for containerization in domestic market. Added to this, the development of DMIC/DFC and Amritsar-Kolkata Industrial Corridor, and the large number of Industrial Parks, SEZs etc. by State Governments offer your company the excellent opportunity of being the Logistics Partner for the States/Ports through arrangements of mutual benefits. Already, a lot of ground has been covered by your company towards this which will pave the way for future creation of requisite capacities, hence becoming a magnet for development of industry inconsonance with the infrastructure being developed by the company.

FUTURE OUTLOOK

For 2015-16, your company is determined to achieve higher growth rates both in EXIM as well as Domestic segments despite the slight dampener in the form of increased haulage rates.

For EXIM segment, the growth owing to continued improvement in external demand for Indian exports should also help address imbalance issues, hence leading to increased hinterland penetrations. Double stack movement from the fast growing North Western ports Pipavav and Mundra is likely to help increase of the rail coefficient of container movement and hence benefit your company.

CONCOR also hopes to generate higher incomes from value added activities such as special purpose warehousing, palletization, inventory management of commodity of customers, etc. By continuing to provide such innovative business solutions to customers your Company also hopes to tide over the challenges faced by Domestic business in the last quarter of 2014-15 owing to the haulage hikes.

STRATEGY TO MEET THE CHALLENGES

Against the backdrop of the outlook brsented above, your company has formulated a strategy for taking the growth of volumes & revenues further up irrespective of the challenges of an increasingly competitive market. The broad strategy includes:

d Setting up of Multimodal Logistics Parks at vantage locations along the freight corridors and at major industrial estates.

d Diversification into operation of Private Freight Terminals (PFTs) and offering road bridging solutions.

d Providing innovative3PLsolutionstothecustomers.

d Further Diversification into the air cargo business.

d Use of technology such as e-transaction for minimizing transaction costs to the customers.

d Strategic CSR - as a means of payback to the society while at the same time ensuring all inclusive growth of your company's internal and external stakeholders which should benefit company by way of improved stakeholder commitment. These initiatives also cover activities on environment protection and conservation, including renewable energy the particulars of some such initiatives is stated under CSR activities carried out bythe company during the year.

CAUTIONARYSTATEMENT

Statements in the Directors' Report and Management Discussion & Analysis, describing the Company's objectives, projections and estimates, expectations, brdictions etc. may be "forward looking statements" within the meaning of the applicable laws and regulations. Forward looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Actual results, performances or achievements may vary materially from those exbrssed or implied due to economic conditions,