| Shreyas Shipping and Logistics Limited | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
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| This Rating Rationale is published solely to update the bank-wise facility details as provided by the rated entity; other sections are same as the previous Rating Rationale dated August 19, 2021. |
Detailed Rationale CRISIL Ratings’ rating on the long-term bank facilities of Shreyas Shipping and Logistics Limited (Shreyas) continues to reflect established market position in the shipping business, steady cash flow from the long-term FCA with Unifeeder, moderate-though-improving financial risk profile and expected financial support from the Transworld group. These strengths are partially offset by modest scale of operations and partial susceptibility to fluctuation in charter rates and intense competition in the global shipping industry.
Operating income grew 6.6% on-year to Rs 264 crore in the first half of fiscal 2022, with earnings before interest, tax, depreciation and amortisation (EBITDA) margin improving to 30.2% as compared to 6.4% during the corresponding period previous fiscal. The improvement reflects favourable demand supply dynamics and all-time high charter rates as well as healthy uptick in business volumes this fiscal. With the completion of feedering business sale, the company’s revenues are lower since the second quarter of this fiscal. EBITDA margin is expected to be healthy double digit this fiscal backed by the framework chartering agreement (FCA) with Unifeeder ISC FZCO (Unifeeder) for most of its fleet. Unifeeder’s strong market position and wide global customer base will help limit business volatility, as 97% of tonnage volume will be deployed by Unifeeder. Furthermore, the financial risk profile is expected to remain healthy after factoring in debt-funded capex of about Rs 325 crore for new vessel purchase and dry-docking expenses over two fiscals. |
Analytical Approach For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of Shreyas, and a joint venture (Shreyas - Suzue Logistics (India) Pvt. Ltd) because of its considerable operational and financial linkage.
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 Established market position The company is one of the leading shipping companies in India, with a fleet of 11 vessels having total capacity more than 22,000 TEUs and average age of 22 years. The company has a strong legacy of more than three decades in owning and operating ships.
Steady cash flow from long-term FCA Shreyas now benefits from high revenue visibility and steady cash flow with the long-term FCA with Unifeeder. Unifeeder’s strong market position in the global charter-hire market and strategic focus on India provides Shreyas access to wide global customer base for EXIM as well as domestic cargo. The FCA has de-risked the cargo volume risk and reduced geopolitical risks of operating in a particular geography, as 97% of the tonnage volumes would be deployed by Unifeeder. While there would be a reduction in revenue as the agreement with Unifeeder provides two-third earnings before interest and taxes to Shreyas, the revenue and cash flow would be steady over the medium term. Furthermore, there would be no foreign exchange (forex) risk, 50% of which would be received upfront.
Moderate and improving financial risk profile Adjusted gearing was 0.5 time as on March 31, 2021, and improved to 0.3 time as on July 1, 2021, with repayment of working capital debt from sales proceeds generated from stake sale of Avana. Gearing is likely to remain adequate over the medium term, after factoring in capex plan of Rs 325 crore for purchase of new vessels and dry-docking over two fiscals, supported by healthy cash generation and part funding from liquid surpluses. Interest coverage ratio was more than 5 times in fiscal 2021 and is expected at above 8 times over the medium term. Debt to earnings before interest, tax, depreciation and amortisation improved to 3.02 times in fiscal 2021 from 5.72 times in fiscal 2020, and should moderate in fiscal 2022, given the partly debt-funded capex plan.
Also, the asset-heavy business model continues to impact the return on capital employed; the metric improved to about 11% in fiscal 2021 (3% in fiscal 2020) and should remain at 10-15% over the medium term.
Expected financial support from the Transworld group Founded by Mr R Sivaswamy in 1977, the Transworld group operates in India, the Middle East, Sri Lanka, the US and Europe. The group offers a spectrum of shipping logistics services, including feeder (vessel-owning companies), coastal container shipping and logistics solutions. Furthermore, the group is likely to provide timely financial support to its subsidiaries during any exigency, as witnessed in fiscal 2020, when the group purchased a vessel from Shreyas and leased it back to cushion the latter’s liquidity.
Weaknesses Modest scale of operations With divestment of feedering business to Unifeeder, revenue of Shreyas could decline by 30-35% to less than Rs 400 crore from fiscal 2022. While the revenue generated will now be less volatile due to the FCA, scale has moderated from earlier levels. That said, with an improved balance sheet and sizeable liquid surpluses, Shreyas is likely to go in for opportunistic purchase of bulk cargo vessels to take advantage of the good growth prospects and favourable charter rates. Successful deployment of newly acquired vessels can provide a fillip to revenue.
Exposure to volatility in spot charter rates and intense competition The company has chartered 10 of its 11 vessels under the FCA to Unifeeder while one vessel is chartered externally. While the FCA with Unifeeder provides stability to cash flow, the spot charter rate varies based on trade volumes, availability of ships and containers as well as demand and supply conditions. Shreyas remains therefore partly vulnerable to downturns in the shipping cycle and pricing volatility, and this can increase with addition of new vessels, if not chartered to Unifeeder. Furthermore, intense competition may continue to restrict pricing power with suppliers and customers, thereby constraining operating profitability. The company is also susceptible to fluctuations in forex rates on externally hired vessels. This risk is partially mitigated by a natural hedge as the borrowings are in foreign currency. |
Liquidity: Adequate Shreyas has liquid surplus of Rs 140 crore as on July 1, 2021, which is expected to part fund its capex requirement and for exigencies. The company has capex of Rs 280 crore planned in fiscal 2022 for purchase of new vessels and dry-docking, which will be largely be debt funded. The additional debt would be long-term and low-cost foreign currency borrowing, thereby resulting in lower annual debt servicing obligation. Cash accrual is expected to be adequate to meet debt repayment obligation of Rs 51 crore in fiscal 2022 and about Rs 70 crore in fiscal 2023. Shreyas is expected to maintain liquid surplus of Rs 40-50 crore on a steady-state basis. Timely financial support from the Transworld group is expected to continue, in case of any exigency. |
Outlook: Stable Shreyas will continue to benefit from its long-term FCA with Unifeeder and maintain its moderate and improving financial risk profile, despite high capital intensity. |
Rating Sensitivity Factors Upward Factors
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About the Company Shreyas was set up in 1994 by the late Mr R Sivaswamy to own and operate vessels for container feeder operations between Indian and international container trans-shipment ports. The company has diversified into logistics, transportation, warehousing and distribution services. It was the first to provide coastal trans-shipment services at several domestic ports, including Jawaharlal Nehru Port Trust in Nhava Sheva, Maharashtra. Post sale of its containerised domestic coastal and EXIM feeder shipping business to Unifeeder, the company follows an asset-heavy business model with owning and long-term chartering of vessels.
The company reported operating income and profit after tax (PAT) of Rs 264 crore and Rs 77 crore, respectively, for the first half of fiscal 2022, as against Rs 248 crore and PAT of Rs 2 crore for the corresponding period of last fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Swapped both interest and principal with foreign currency |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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