Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities and fixed deposits of CJ Darcl Logistics Ltd (CJ Darcl) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil A’.  Short term rating has been reaffirmed at ‘Crisil A1’.

 

The revision in outlook factors in the strong business risk profile and the improving financial risk profile of CJ Darcl. The company has an established market position in the full truck load (FTL) segment. Going forward, the scale up in the multi-modal transportation business, via rail containers, warehousing, air and sea cargo, freight forwarding etc., will be a key growth driver. Share of FTL may decline to around 65% over the next 2-3 years, from around 75% in fiscal 2024, with expected increase in share from other segments, mainly rail and warehousing.

 

Revenue has recorded a compound annual growth rate of nearly 14% over the five fiscals through March 2024, supported by higher demand from all end-user segments. Financial risk profile is healthy, driven by improvement in profitability, with increase in owned fleet, operating leverage and share of other segments, fetching a higher margin. Operating margin should sustain at 4.5-5% in the medium term. The rating also seeks comfort from the operational, financial and managerial support provided by CJ Logistics Corporation, headquartered at South Korea (CJL, owns 50% equity stake in CJ Darcl). These strengths are partially offset by the large working capital requirement and exposure to intense competition in the road freight industry or any change in policy of the container trains business.

 

For the first half of fiscal 2025, the company has achieved revenue of Rs 2,452 crore and operating margin of 4.4%, driven by strong demand from the steel and fast-moving consumer goods (FMCG) sectors. For the full fiscal, the company is expected to achieve revenue of over Rs 5,100 crore and operating margin of 4.6-4.7%.

 

Revenue has grown 9% year-on-year (y-o-y) to Rs 4,598 crore in fiscal 2024, supported by higher volume from the FTL and multi-modal segments. Apart from steady growth of 4.5% in the FTL segment (accounting for nearly 75% of total revenue), the rail segment recorded strong growth of 34.5% (around 19% of total revenue) in fiscal 2024. Other segments contributed to nearly 6% of revenue in fiscal 2024, and their share is likely to increase with a gradual scale up. The operating margin improved to 4.7% in fiscal 2024, from 3.8% in fiscal 2023, with a higher share of owned fleet within the FTL segment and increasing revenue contribution from the rail segment.

 

The financial risk profile remains healthy, marked by networth of over Rs 720 crore and gearing of one time projected as on March 31, 2025. Debt protection metrics should be healthy with interest cover and net cash accrual to adjusted debt ratios of 4 times and 0.2 time, respectively, in fiscal 2025. Cash equivalents were around Rs 23 crore as on March 31, 2024 and around Rs 6 crore as on September 30, 2024. Liquidity is supported by the sanctioned fund-based working capital limits of Rs 600 crore, which was utilised at an average of 66% over the 12 months through November 2024.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of CJ Darcl and its subsidiaries. These companies operate in same line of business, under common promoters and have strong business and financial linkages.

 

Crisil Ratings has also applied the criteria for notching up standalone ratings of companies, based on expectation of strong support from CJL, both on an ongoing basis and in the event of distress.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Leadership position in the FTL segment and extensive experience of the promoters in the road transportation industry: CJ Darcl is the largest player in the domestic FTL segment, backed by pan-India presence and access to over 8 lakh trucks through a network of vendors. It has a large and diversified client base with a longstanding relationship across industries. It is also supported by over four decades of Darcl promoter’s experience in the road transportation industry, strong relationships with key customers and significant involvement of the 2nd generation of the promoter family. The Korean partner (CJL) is also involved in strategic decision-making and reviews performance on an ongoing basis. They provide technological support for the company’s warehousing & distribution business and have also provided a stand-by line of credit (SBLC) as security for debt facility. They are expected to continue the managerial, financial and technological support to the company in the medium term.

 

Operating margin has sustained in the range of 3.5-5.0% through various economic cycles over the past decade. The margin rose to 4.7% in fiscal 2024, driven by higher share of owned fleet within the FTL segment, and increasing revenue contribution from the rail segment that fetches a higher margin. The margin should remain healthy at 4.5-5% in the near to medium term.

 

• Asset-light model of operations: The company operates on an asset-light model with a mix of owned and hired fleet (85-90%). It has own fleet of over 1,600 vehicles and meets the balance requirement by hiring trucks on a need-basis, which has led to better operating efficiency. This model has helped  maintain comfortable leverage in the highly capital-intensive road freight transportation business, apart from providing more financial flexibility. This has also allowed the company to easily ramp up operations. 

 

• Healthy financial risk profile: Financial risk profile is marked by networth of over Rs 720 crores with gearing of 1 time expected as on March 31, 2025. Total outside liabilities to tangible networth (TOL/TNW) ratio is expected to remain around 1.5 times as on March 31, 2025. Debt protection metrics should be healthy with interest cover and net cash accrual to adjusted debt ratios of 4 times and 0.2 time, respectively, in fiscal 2025, and are likely to improve in medium term.

 

The company plans to incur capital expenditure of around Rs 150 crore in fiscal 2025, towards purchase of new vehicles (FTL) and containers (rail segment). This will be funded by a mix of debt and cash accrual. Yet, financial metrics will remain comfortable, supported by strong performance and healthy cash accrual.

 

Weaknesses:

• Exposure to intense competition in the road freight transport segment: The domestic road freight transport industry is highly fragmented because of low entry barriers. Although the company is the market leader in the FTL segment, its market share in the domestic road freight transport industry is less than 1%. Competition has intensified in recent times with the entry of new-age start-ups, which are leveraging their advanced technological capabilities to garner market share.

 

• Large working capital requirement: The industry is largely working capital intensive. CJ Darcl’s fleet mainly comprises hired vehicles. When hiring a vehicle, the company makes around 70% of payment upfront, and the rest on delivery of the consignment. As bills are raised only after delivery, receivables tend to stretch to 60-80 days. The working capital requirement is primarily funded through the bank limit.

 

• Change in policy of the Indian Railways in the container trains business: The Indian Railways levies rail haulage charges on container train operators for using infrastructure and revises these charges periodically. While the railway segment is performing well, high haulage charges and low revenue per tonne, due to benign diesel prices, have impacted profitability in the past. The railway business is currently carried out, based on a business arrangement with Container Corporation of India Ltd (CONCOR). Sustenance of healthy operating efficiency amid intense competition and pricing pressure remains a key monitorable.

Liquidity: Strong

Expected cash accrual of Rs 160-220 crore should suffice to cover the yearly debt obligation of Rs 90-100 crore. While cash equivalents were modest at Rs 23 crore as on March 31, 2024 and around Rs 6 crore as on September 30, 2024; the company had an unutilised bank limit of Rs 180-200 crore. Fund-based working capital limit of Rs 600 crore was utilised at 66% on an average through the 12 months ending November 30, 2024. The company is expected to maintain undrawn lines of Rs 150-200 crore on a steady-state basis.

Outlook: Positive

Crisil Ratings believes that the business and financial risk profiles of CJ Darcl will remain healthy over the medium term, supported by longstanding client relationships, diversification in revenue profile, CJL’s expertise and sustenance of margin, resulting in higher cash accrual.

Rating sensitivity factors

Upward factors:

• Sustenance of healthy growth in revenue, driven by diversification across other segments viz. rail, warehousing etc. along with steady operating margin, resulting in net cash accruals of Rs 150-160 crore
• Significant improvement in credit risk profile of equity partner, CJL

 

Downward factors:

• Weakening of the financial risk profile with interest cover below 3.5 times on a sustained basis
• Considerable decline in revenue and profitability on a sustained basis
• Moderation in credit profile or change in the arrangement between management of Darcl and CJL, that owns 50% stake in the company

About the Company

CJ Darcl was set up in 1975, as a family-run concern and initially provided road transport services between New Delhi and Assam. In 1986, the firm was reconstituted as a private limited company (Delhi Assam Roadways Corporation Pvt Ltd) and in 1998, as a public limited company. It was renamed Darcl Logistics Ltd (DLL) in 2010.

 

In August 2017, CJL acquired 50% stake in DLL for Rs 310 crore. The existing four promoters, along with their affiliates, continue to hold the remaining stake. The company was renamed as CJ Darcl effective September 13, 2017. It is the largest player in the FTL segment in India, with an owned fleet of over 1,600 vehicles, including trucks, trailers, and tankers. It also owns nearly 3,200 containers. It has more than 185 branches and loads more than 2,500 vehicles per day. The company has a diversified customer profile.

 

About CJ Logistics Corporation

Founded in 1930, CJL is the largest logistics company in South Korea, with presence across 44 countries. It provides a diverse range of logistics services, including supply chain management, shipping, express logistics, and warehousing and distribution. The company re-branded to its present name recently from CJ Korea Express Corporation and is the sixth largest logistics player in the world. It is part of the much larger CJ Group (based in South Korea), which has diversified interests in food, pharmaceuticals, infrastructure and entertainment verticals.

Key Financial Indicators

As on / for the period ended March 31*		2024	2023
Revenue	Rs crore	4,598	4,219
PAT	Rs crore	83	68
PAT margin	%	1.8	1.6
Adjusted debt/adjusted networth	Times	1.1	1.1
Interest coverage	Times	3.7	3.8

*Crisil Ratings-adjusted numbers

Any other information: Not Applicable