Shreyas Shipping & Logistics Ltd. – A coastal shipping story!

Stock Opportunities
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Shreyas Shipping, a transworld group Co. is not a conventional shipping Co. Being mainly into Indian coastal shipping, it is largely unaffected by the movement of the world Contex time charter shipping Index.

Transporting goods by sea is at least twice as cheap when compared to other modes like road & rail. It is also hugely environment friendly by reducing both the traffic as well as pollution on the roads. What has been lacking is adequate infrastructure, something that is set to change with the Govt.’s ambitious Sagar Mala project which will give a huge fillip in developing new ports as well as other infrastructure around it. Shreyas is set to be a major beneficiary as coastal shipping gains momentum.

The potential for coastal shipping is tremendous. In addition to its regular business, the Co. recently tied up with RINL for the transportation of its steel products from its factory to its warehouses in different parts of the country. Attaching a note which also throws more light on the Co’s fleet & types of ships.

The Co. has been doing well in the current year, having added three more ships taking its current tally to 13. The full impact of this will be seen in Q4. Its operating margins are around 20% & the mgt. is quite optimistic of maintaining them. Q3 was marginally impacted with the new ships gradually being deployed. It could do Sales & PAT of about 635 Crs & 85 Crs respectively for 2018-19 on a stand alone basis.

The Co. had a fully owned subsidiary Shreyas Relay Systems Ltd., which was the logistic arm looking at end to end connectivity for its customers. Last year, Relay acquired the business of Balaji Shipping, another company of the same promoters, based out of UAE in exchange of 70% stake in Shreyas Relay Systems, thereby making Shreyas Relay an associate. This could potentially be a win-win for both as Balaji, which owns containers, runs a very successful asset light model business (does not own ships). Shreyas’ gains from its 30% stake in Relay could be twice its last year’s gains of 6 crs when it was fully owned. The consolidated PAT for the Co. for 18-19 could be in the vicinity of 100 crs. The Co. trades at a current market cap at about 1100 crs.

The Promoters merging Balaji Shipping with Shreyas through Relay is perhaps being done with an eye on the market cap as from now on profits from Balaji will also be indirectly reflected in the Co. The promoters hold a high 73.25% stake in the Co. This was perhaps why Balaji could not be merged with the Co. directly as the promoter stake would have gone beyond the stipulated 75%. Perhaps at higher valuations, the promoters may merge both the Co’s, & dilute equity at higher levels.

The main concern to the story is the pace at which the infrastructure for rapid growth of coastal shipping can be developed. Another concern is that coastal shipping as a concept is only gradually gaining traction. These concerns however are not coming in the way of the Company’s performance in the current year as also in the foreseeable future as is evident from the results of the last few qtrs.

(in Cr.) 17-Dec 17-Sep 17-Jun 17-Mar 16-Dec FY 16-17
Income Statement
Revenue 140.73 123.51 117.86 95.97 96.68 370.16
Other Income 2.6 0.93 1.43 2.27 0.26 5.12
Total Income 143.32 124.44 119.29 98.24 96.94 375.28
Expenditure -118.3 -99.34 -95.03 -106.89 -79.21 -352.3
Interest -3.79 -2.67 -2.75 -2.44 -2.6 -9.96
PBDT 25.03 25.11 24.26 -8.65 15.13 22.98
Depreciation -6.03 -5.26 -4.63 -2.49 -5.87 -17.56
PBT 19 19.85 19.63 -11.14 9.26 5.42
Tax -0.14 -0.15 -0.46 -0.51 -0.17 -1.35
Net Profit 18.86 19.7 19.17 -11.65 9.09 4.08
Equity 21.96 21.96 21.96 21.96 21.96 21.96
EPS 8.59 8.97 8.73 -5.3 4.14 1.86
CEPS 11.33 11.37 10.84 -4.17 6.81 9.85
OPM % 17.78 20.33 20.59 -9.01 18.34 6.21
NPM % 13.4 15.95 16.26 -12.13 9.4 1.1

Attaching the AR of the Co. for better insights into the Co.’s working.

Disc: Invested & looking to add.

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Here’s a link to some recent developments in the Co. / group. making it more customer centric.

Another recent development is the change of name of its associate Shreyas Relay Systems Ltd. to Avana Logistek Ltd. Perhaps a precursor of things to come. There is a buzz in the market that the Shreyas and / or Avana may be looking at fund raising in the not too distant future.

Coastal shipping is gradually but surely gaining traction in India.


One only needs to see other countries with any meaningful coastline to get an idea about the size of opportunity. On a recent visit to Croatia, I discovered the cost of travel by sea from say Split to Dubrovnik was less than half then that by road with many people travelling to work on a daily basis. Coastal shipping can potentially add a lot of value the the lives of people living in these coastal towns.

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Hello sir, even after good set of numbers, stock seems to be correcting. One reason seems to be increasing crude prices to impact their margins. Would like to know your views on it.

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Yes, Q4 numbers were indeed very good & the Co. has negotiated the purchase of another vessel which also indicates traction in the business. I think the stock is correcting in line with the general market weakness towards mid caps. At the investor meet post the results, the mgt. indicated about a 15 to 20% growth in the top line for the current year.

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Hi
I was trying to understand your logic because in back of my mind, I read somewhere that Some company in India has sold two ships which have completed its lifecycle and were not making expected profits as coastal shipping freight rates have not been healthy due to increased competitive intensity.
Could you please help to connect the dots with some data on freight rates and recent supply demand scenario
Kind Regards
Jose

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Hi Jose,
It will help if you could dig out which is the company in question that has sold the ships due to non viability. If they were sold due to their life cycle getting over then its another matter.

Going by the numbers, Shreyas seems to be operating with decent profitability. The three vessels bought earlier in the year seem to be absorbed. That said the coastal shipping business itself is at a nascent stage & traffic is not a given simply because it is cheaper to transport by sea as it requires some kind of a mindset change. Transporting by trucks means that smaller quantities (truck load) can be transported in one go. There is also the issue of distance between two destinations by road vis-a-vis by sea, that would determine viability. Distance between say Mumbai to Kolkata would be far lesser by road than by sea, & would also quicker.That said, Shreyas performance has shown that coastal shipping is here to stay & its demand can only go in one direction.

Attaching the press release issued by the Co. post its Q4 results which sheds more insights into the working of the Co. & the sector as a whole.

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Hi Rajeev ji,

Shipping Ministry ahs allowed foreign carriers to transport animal and agri related goods in the coastal shipping space, without having to obtain special licences. This seems to be a dampener for Shreyas… Additionally, please check on the news articlec, where trans-shipment from Singapore and Jebel-Ali is slated to reduce, which would further impact Shreyas Shipping… Your views on these two issues…

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Hi

It’s there in a report by Motilal Oswal on Allcargo. May be they have their specific viewpoints.
Also we have to dig on the impact on coastal sea freight by container freight rail network and cost comparisons if possible to assess the potential in India specific scenario

Kind Regards
Jose

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Hi Ankit,
The press release (attached with the earlier post) also addresses this issue of foreign ships being permitted into coastal shipping. The Co. feels that this would not have an impact on its working. We will have to wait & see the results of the next few quarters to know whether the Co. is simply putting up a brave front or indeed there is more to the business than just getting the permission to operate!

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As mentioned in an earlier post, Avana Logistek, an associate of Shreyas Shipping has filed a draft Red Herring Prospectus with SEBI for its maiden Public issue. It gives vital insights to the working of the sector as a whole.
Here is the link to it.
https://www.sebi.gov.in/filings/public-issues/jun-2018/avana-logistek-limited_39297.html

This development is potentially likely to re-rate Shreyas Shipping as so far the value of its investment in Avana was not being recognised.

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hI @RajeevJ are you still tracking Shreyas Shipping and Logistics Ltd…the stock has witnessed severe correction in the month of August…could this be a reason for such a drastic fall…https://timesofindia.indiatimes.com/city/kolkata/doomed-ships-sister-bears-kolkatas-lifeline-to-kerala/articleshow/65555879.cms

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Shreyas shipping came out with poor Q1 results, largely due to higher bunker (Fuel) rates that are usually passed on the customers with a lag. Going forward the results ought to be better as the industry comes to terms with the new normal.

For me what was disappointing was that the Co. organised an analyst meet on May 25th, when 2/3rd of the Q1 quarter was done, so it was well aware of the slow down. Yet, it chose to put up a brave front & painted a very rosy picture of the business. It was totally unnecessary & uncalled for, & reflected poorly on the mgt. This could, in some measure, also be responsible for the hiding the share has recd. post the results.

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The crash in crude prices augur well for Shreyas as it directly brings down the bunker rates, which affected Q2. That said, perhaps it is prudent to wait for December qtr results & make sure!

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Carriers are also planning to pass this on via a low Sulphur surcharge or via increasing BAF as early as Jan/Feb 2019… However due to typical over supply in the industry, they may only succeed partially. If they do, it should shore up profitability in short term as IMO low sulphur ruling kicks in only 2020.

What one needs to ask Management is what, if any, Capex is needed to upgrade the vessels and how do they plan to manage the operating cost increase.

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Does anyone know, how strong is the balance sheet of parent Transworld group?

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There are news reports of DP World Ltd. , a global operator is at an advanced stage of buying out both Shreyas Shipping & Logistics Ltd & its subsidiary Avana Global Lgistec Ltd.

The stock meanwhile is languishing at less than .5 times book. It’s 13 vessels are all in good shape & there is no reason as to why the business should be sold below its book value. In fact, logically it should be sold at a substantial premium as Shreyas Shipping is the market leader with over 90% stake in the EXIM trans shipment trade and over 50% of domestic container business.

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As per BSE filing, seems to be some sort of complex deal where the Listco receives 200 cr which will help retire part of debt and in return charters all vessels to the DPW arm. Anybody joined the investor call today?