MANAGEMENT DISSCUSSION AND ANALYSIS (As per clause 49 of listing agreement) INDIAN ROAD TRANSPORT INDUSTRY The long-distance road transport industry in India in order to identify inefficiencies that could reduce the benefits to be derived from the large investments now being made by the Government in the nation's highway infrastructure. The road transportation industry has been the most significant constituent of the Indian logistics industry. However, the segment continues to struggle to cater to the country's size and widely sbrad consumption hubs. The road transport and logistics market is one of the key sector of growth of the Indian Economy. India has an extensive road network and provides amenity to millions of people every day, thus road transport is one of the important ingredients for the social and economic development of the country. India has the third largest road network in the world stretching 4.24 million kilometers in length out of which approx 32% is single lane, 56% is double lane and rest is four of more lane standard. The country had approximately 2.00 lacs km of national (state & national) highway. The significance of transportation is relative to the economy and the population of a country; India being the world's second fastest growing economy and being the second largest populated, transportation plays a crucial role in its economic development and sustainable growth. OPERATION AND FUTURE OUTLOOK (ABOUT NECC) North Eastern Carrying Corporation Limited, part of NECC Group, is a leading giant founded in 1984, the Company started the business of core transportation & carriage of goods in FTL and Parchoon segment in 1999-2000. Since then it never looks back and achieved its target turnover for the Financial Year 201415. During the period the Company had not only enhances its turnover but also its client base and its fleet. The Company currently operates through its 200 (approx) branches and 800(approx) employee base. The Company provides carriage of both FTL (Full Truck Load) and Parchoon products throughout four corners of India, Nepal and Bhutan. FTL clients include big giants of FMCG, beverage and electrical industries while textile & hosiery, FMCG, Auto & Motor parts Pharma and chemicals sectors is the parchoon client. The Company's strategy is well thought of and in line with domestic market trend and industry. The Company is growing its traditional parchoon market and simultaneously sbrading and picking the FTL market segment. The new clients have been introduced and associated with our services. The Company is broadening and condensing its market through out the Indian subcontinent, Nepal and Bhutan. OPPORTUNITIES & THREATS Historically, road freight in India has increased since its 1950-51 level of 6 billion tonne kilometers (BTKMs) to 1,086 BTKMs in 2009-2010, witnessing a CAGR of 9.21 percent during this period. However, the market scenario is uncertain in future, given the uncertainly in global and domestic economies. Hence, several possible scenarios have been considered to plot market projections for the next few years. While the optimistic scenario assumes GDP growth of 6.1 percent — implying a freight CAGR ~ 7.6 percent — the optimistic scenario assumes a GDP of 9.0 percent, implying a freight CAGR ~ 9.6 percent. The resulting road freight opportunity is estimated to range from about 1,300 BTKMs in 2012-13 to more than 2,000 BTKMs in 2016- 17. As said above, the Indian Road transport industry is on a tremendous growth path which leaves many opportunities and threats which determine the Company's growth: Opportunities • Increased demand of 3PL (third party Logistics). The improving infrastructure and rising focus on core business operations will lead the future growth of the Indian 3PL. • Infrastructural Development Investment policies of Central & State governments shall result in higher growth opportunity for transportation business. • Expected increase in freight during 2010-2020. • Successful completion of National Highways Projects shall open up new venues and improved service quality. • The satellite watch over fleets through GPRS system shall also enhance the timely and prompt delivery of consignments to the prospective clients. • ERP system under development shall, after its installation, improve the quality of documentation, records, billings etc. • The increased fleets shall ease the operation. • Online system will increase the efficiency and effectiveness towards decision making and accountability towards the clients which develops healthy relations with clients. Threat • Competition from local and multinational players. • Damages, accident and theft are matter of concern during voyage. • Natural disturbance inform of floods, cyclone, landslides in major parts of India. • Due to above two conditions, the claims from clients increases and inflow of revenue decreases and finally resulted into long legal litigation. INTERNAL CONTROL SYSTEM The Company has in place adequate internal control systems commensurate with its size and nature of business. These systems provide a reasonable assurance in respect of providing financial and operational information, compliance with applicable statutes and safeguarding of assets of the Company. These systems ensure that transactions are executed in accordance with specified policies and resources are deployed as per the business plans and policies. The Company has an in-house internal audit division and the head of internal audit function reports directly to the Audit Committee to ensure independence of this function. The Internal control team, reviews and evaluates the adequacy and effectiveness of internal control, ensuring adherence to operating guidelines and statutory requirements. This system comprises well documented policies, guidelines and authorization and approval procedures. RISK MANAGEMENT The Indian transport industry is a growing avenue and widely opens for new entrebrneurs. The Company takes a very extensive view of business risk. The Company always keeps itself changing with the changed environment of operation, technology and innovative ideas. The Company has risk management team constituting the professionals and functional specialists who critically examines and audit the adequacy, relevancy, efficiency and effectiveness of the control system, compliance with policies. The Company however faces the following risks: • Competition Risk: This risk arises from more players wanting a share in the same pie. Like in most other industries, opportunity brings with itself competition. We face different levels of competition in each segment, from domestic as well as multinational players. However, NECC has established strong brand goodwill in the market and a strong foothold in the entire logistics value spectrum. • Regulatory Risk: If we are unable to obtain required approvals and licenses in a timely manner, our business and operations may be adversely affected. However, the Government has come up with a number of initiatives to boost the logistics sector and has planned massive investments in the infrastructure sector. As all industry brdictions suggest that this will be the trend in the future as well and given our own experience in obtaining such permissions, we do not expect this risk to affect us materially in the coming years. • Liability Risk: This risk refers to our liability arising from any damage to cargo, equipment, life and third parties which may adversely affect our business. The Company attempts to mitigate this risk through contractual obligations and insurance policies. CONTINGENT LIABILITIES The details of the Company's contingent liabilities has given the Balance Sheet as on 31st March 2015 as attached herewith, CAUTIONARY STATEMENT Statements in the Management Discussion Analysis Report may be forward looking statement within the meaning of applicable securities laws and regulations. Actual results could differ materially from those exbrssed or implied. Important factors that could make a difference to the Company's operation include socio-economic conditions, affection demand/supply and freight rate condition in the market in which Company operates. Changes in govt, regulations, policies and other statutes including tax laws are other incidental factors to the growth of Company. |