Profile of the company
Incorporated in 2006, the company, Maheshwari Logistics is engaged in providing logistics services, supplying of non-coking coal, manufacturing of kraft paper and trading in a variety of papers. The company has its registered office and paper manufacturing facility situated at Gujarat. It has 6 branch offices which are situated at Gujarat and Rajasthan. Set up by Maheshwari and Kabra Group, the company offers a diversified business model, covering three different sectors ranging from logistics services to fuel to paper. The experience and trade relations developed by its promoters and management have been one of the key instrumental factors in the growth of the company. With the vision and dedication of its management, the company has been able to accomplish a revenue growth of more than 80% in past 5 years and achieve a turnover of more than Rs 600 crore during financial year 2015-16.
The company started out with logistics services and over the years has developed a strong clientele network in the sector. The company primarily offers full truck load freight services to large and medium size companies mainly across the state of Gujarat and Rajasthan. It has also extended its logistics arm in state of Maharashtra and Madhya Pradesh. The company uses its own trucks as well as hires third party transportation services for carrying out its logistics operations. The company has also set up a full maintenance workshop for all its vehicles at Nimbahera and Jamnagar. The company’s goods transportation services serves a broad range of industries, with its customer belonging to cement, paper, textiles, fertilisers, etc. industries.
Along with logistics services, the company ventured into trading of non-coking coal. It procures coal either through direct imports or through high seas purchases from other importers. It has also installed a screening plant at Vapi for sizing imported as well as indigenous coal for its customers who have specific requirement of sized coal. It is the company’s endeavour to supply different varieties of coal to meet the necessary requirements of its customers who are operating in diverse industries.
Proceed is being used for:
The Indian logistics industry was valued at an estimated $130 billion in 2012-13. It has grown at a CAGR of 16% over the last five years. The industry comprises the following main segments: - Freight and passenger transportation via road, rail, air and water, and Warehousing and cold-storage. The contribution from the movement of goods including freight transportation and storage is about 90 percent. Aggregate freight traffic is estimated at about 2-2.3 trillion tonne kilometres. Road dominates the mode of freight transport mix and constitutes about 60 percent of the total freight traffic. Rail and coastal shipping account for about 32 percent and 7 percent, respectively, while the share of inland waterways transportation and air is less than 1 percent each. Service sector comprises various industries, which in tura have numerous sub-classes or products. One such major industry in the overall service sector is Logistics Industry, which in turn encompasses various components one of them being Third Party Logistics (3PL) Industry.
The Indian paper industry accounts for about 3% of the world's production of paper. The estimated turnover of the industry is Rs 50,000 crore ($8 billion) approximately and its contribution to the exchequer is around Rs 4,500 crore. The industry provides employment to more than 0.5 million people directly and 1.5 million people indirectly. Most of the paper mills are in existence for a long time and hence present technologies fall in a wide spectrum ranging from oldest to the most modern. The mills use a variety of raw material viz. wood bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc. In terms of share in total production, approximately 24% are based on wood, 65% on recycled fibre and 11% on agro-residues. The geographical spread of the industry as well as market is mainly responsible for regional balance of production and consumption. The per capita paper consumption in India at a little over 13 kg, is way behind the global average of 57 kg. India is the fastest growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with the economic growth. The futuristic view is that growth in paper consumption would be in multiples of GDP and hence an increase in consumption by one kg per capita would lead to an increase in demand of 1 million tonnes.
Pros and strengths
Large fleet of owned vehicles: The company provides FTL services to its customers through its broad network of branches as well as through a network of independent third party transportation service providers that it has developed a relationship with over the years. As on date of the prospectus, the company has its own fleet of more than 70 vehicles. Further, the company has association with many third party transportation service providers thereby providing it an access to more than 1,000 trucks. With access to such high number of vehicles, the company is able to take up and execute large orders and serve large sized companies. The company has been regularly catering to some of the recognised companies in cement and paper sector with its transportation services. Further, the company has a full maintenance set up for all vehicles in Nimbahera and Jamnagar. The company also has its in house mechanics to ensure timely service as well as faster uptime of its vehicles resulting into provision of efficient services to all its clients and adhering to all safety norms. Its regular and periodic preventive maintenance measures ensure longer vehicle life and provide a higher degree of performance reliability. These facilities reduce expensive on-road repairs and out-of-route trips and minimize downtime due to breakdown, repairs and resulting service interruptions.
Owned manufacturing facility for kraft papers: The company has recently ventured into manufacturing of kraft papers in 2015 with acquisition of business from Daman Ganga Recycled Resources LIP and entering into a Plant & equipment operating tripartite agreement with Daman Ganga Paper and Daman Ganga Recycled Resources LLP. This facility is spread over 45,000 square metres and is equipped with requisite plant and machineries. At the time of acquisition, it had an installed capacity of 54,000 mt p.a. The company then invested significant resources in up-gradation and modernization of plant & machinery and were successful in enhancing the capacity to 75,000 mt p.a. The company feels that it shall be able to create sufficient demand for its product and make optimal use of its installed capacity in due course of time. It also has in house accommodation facilities for some of its labourers.
Widespread logistics network: At present, the company has 6 branch offices across state of Gujarat and Rajasthan to ensure smooth flow of its logistics operations. The company’s branch offices help it to consolidate and distribute its consignments in a better manner. These offices also help it in booking of clients at times. This operating model also enables it to cater to a wide range of customers and maximise its FTL freight revenue per operating vehicle.
Risks and concerns
Geographical constraints: The company generates major sales from its customers situated at Gujarat and Rajasthan. Such geographical concentration of its business in these regions heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. The company may not be able to leverage its experience in Gujarat and Rajasthan region to expand its operations in other parts of India and overseas markets, should the company decide to further expand its operations. The company’s inability to expand into areas outside Gujarat and Rajasthan market may adversely affect its business prospects, financial conditions and results of operations. However, the company has started extending its operations in other regions such as Maharashtra, Madhya Pradesh, etc. but it is yet to scale its operations in such regions. While the company has requisite expertise and vision to grow and mark its presence in other markets going forward, investors should consider its business and prospects in light of the risks, losses and challenges that it may face and should not rely on its results of operations for any prior periods as an indication of its future performance.
Working capital requirement: The company’s business is working capital intensive. A significant portion of the company’s working capital is utilized towards trade receivables. The company intends to continue growing by expanding its business operations. This may result in Increase in the quantum of current assets particularly trade receivables. The company’s inability to maintain sufficient cash flow, credit facility and other sources of fund, in a timely manner, or at all, to meet the requirement of working capital could adversely affect its financial condition and result of its operations.
Limited operating history in paper manufacturing business: The company was incorporated in 2006 and has been engaged in the business of logistics services and trading of coal and paper. In 2015, with an available business opportunity, the company ventured into manufacturing of Kraft paper by entering into a business transfer agreement between Daman Ganga Recycled Resources LLP and the company, and as per the tripartite Job work cum Plant and Equipment operating agreement dated May 3, 2016 executed between Daman Ganga Papers Limited, Ws Daman Ganga Recycled Resources LLP and the company. Given the company’s limited operating history in paper manufacturing business, it may not have sufficient experience to address the risks frequently encountered by early stage companies, including its ability to successfully complete its orders or maintain adequate control of its costs and expenses. Given the fragmented nature of the industry in which it operates, it often does not have complete information about its competitors and accordingly it may underestimate supply in the market. If the company is unsuccessful in addressing such risks, the company’s business may be materially and adversely affected. Accordingly, investors should consider its business and prospects in light of the risks, losses and challenges that the company faces as an early-stage company and should not rely on its results of operations for any prior periods as an indication of its future performance.
Maheshwari Logistics is engaged in providing logistics services, supplying of non-coking coal, manufacturing of kraft paper and trading in a variety of papers. It offers a diversified business model, covering three different sectors ranging from logistics services to fuel to paper. As on date, the company majorly covers state of Gujarat & Rajasthan and has started exploring state of Maharashtra and Madhya Pradesh. On the concern side, the company generates its major portion of sales from its operations in certain geographical regions especially Gujarat and Rajasthan. Any adverse developments affecting its operations in these regions could have an adverse impact on its revenue and results of operations, also the company has recently ventured into manufacturing of Kraft paper.
On performance front, the company’s operating income for the FY16 was Rs 60160.39 lakh as compared to Rs 53348.60 lakh during the FY15, showing an increase of 12.77%. The growth was on the back of introduction of manufacturing of kraft paper as a business activity and increased in the company’s logistic income. Moreover, the company’s Profit after Tax (PAT) increased to Rs 692.19 lakh in FY16 from Rs 584.36 lakh for the FY15, showing an increase of 18.45%. This increase was on the back of increase in the company’s business operation. The company has a sanctioned load of 2,500 KVAH for its manufacturing facility. It suffers a significant high electricity cost in view of its consumption requirements at its manufacturing facility. To strategically lower its electricity costs, it intends to install a power turbine at its manufacturing facility. This plant shall enable the company to reduce its operating costs per unit and offer its product at better prices, overall leading to improved profit margins. Further, the company shall also be able to enhance its capacity utilization with the installation of such power turbine plant.