Fundamental Stock

NORTH EASTERN CARRYING CORPORATION LTD - Equity Research Report
DATE: 07/06/2017
  • COMPANY NAME: NORTH EASTERN CARRYING CORPORATION LTD
  • BSE CODE: 534615
  • NSE CODE: NECCLTD
  • SECTOR: Logistic
  • BUY: 52
  • TARGET: 150
  • MARKET CAPITAL: 261 Cr.
  • FACE VALUE: 10
  • 52 WEEK HIGH/LOW: 31/111
  • BOOK VALUE: 15
  • SHARE PLEDGE : Nil
  • PRICE TO BOOK VALUE: 3.33
  • DESCRIPTION:

    Recommendation: BUY

    Hold for 3 years

    Target: 150 Rs.

     

    Part – 1 Company Overview:

    North Eastern Carrying Corporation Limited is a 48 years old logistic company having 250+ branches across PAN INDIA, NEPAL and operational set up into BHUTAN and BANGLADESH.

    North Eastern Carrying Corporation Limited (NECC) is one of the leading logistic solution providers with offices spread across all over India, Nepal & Bhutan.

     

    NECC at Glance:

     

    • NECC is among top freight forwarding companies in India and one of the best Goods Transport Agencies in India.

     

    • NECC is having own 150 trucks with GPS tracking facility.
    • NECC has proven capabilities in Part Truck Load (PTL) and rail logistics for all types of materials and well entrenched reliable network across India - able to execute individual business needs in an efficient and cost effective manner
    • NECC Caters to Industrial, MNCs and highly regarded entities’ requirement to freight their critical materials throughout as well as outside India.

     

    NECC is equipped with specialized subsidiaries like…

    • NECCLogistics – A dependable logistics Partner,
    • NECCTelecom – Up-to-date Logistics for competitive Telecom Sector &
    • NECCPackers & Movers – Smart Packing & Moving Solutions

     

     

    NECC Shareholding Pattern:

     

    North Eastern Carrying Corporation Ltd - Share holding Pattern

     

    % Share holding

    % Share pledged

    Shareholding of Promoters & Promoters Group

    67.52

    Nil

    Public holding

    32.48

     

    Total

    100

     

     

     

    NECC Business Highlights:

    • NECC was existing having 400 Cr order from Tata Steel and got 50Cr order again from Tata Steel for transportation of their raw materials and mining prodcuts from Joda and Sukinda mines to the Company’s factories situated in Odhisha which to be executed over 4 years by the company. Total order book is 450 Cr.
    • NECC has earlier worked with Rungta Mines Limited in Joda, Odisha and MSPL Limited in Hospet, Karnataka for mining products.
    • Partial truck load Sundry Movement, now contributes 49% of revenues
    • Full truck load grew by 29% during the year
    • Planning to Increase warehousing space from 1.5 Million sq feet
    • Continued focus on improving profitability by moving away from non-profitable clients

     

    Office and Warehouse:

     

    Booking offices across the country and Nepal, servicing multiple routes with warehousing

    • 250 offices across 28 states and 4 countries- India, Nepal, Bhutan and Bangladesh

     

    Warehousing of 1.5 million sq feet - includes owned and leased under management

    • Warehouses are multipurpose catering to Bulk, FMCG, Holding Intermediates, Steel, amongst others
    • Access to 1.5 mnsq of open warehousing – 50% owned & 50% leased
    • Emphasis on increasing open warehousing capabilities through lease
    • Flawless Logistics Management Solutions backed by dependable warehousing and 3PL-services based on advanced trouble-shooting capabilities

    Services:

    • NECC is providing logistic service for
    • Small consignments retail booking

     

     

    • Bulk movements

     

    • Full truck load services

     

    • Storage facility

     

    • PTL/Parcel load movement

     

    • Project Over dimensional consignment (ODC)

     

    • Containerized movement of cargo

     

    • Air Freight Management

     

    • NECC working with leading companies in the FMCG, Paper, Pharma, Automotive, Textile, Chemicals, Steel and Telecom sector
    • Exclusively working with a leading FMCG - MNC Company for transportation of its goods in Nepal
    • NECC is offering various kind of commercial, Industrial & Residential freight not only within the India but also in Nepal, Bhutan and Bangladesh with additional services like 3PL & warehousing solution.
    • NECC provide a broad range of freight management and customized logistics solution backed by automated ERP based software
    • The Company provides carriage of FTL (Full Truck Load) for clients including big giants of FMCG, beverage and electrical industries

     

     

    Operational Outlook:

    • 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 spreading and picking the FTL market segment.
    • The Company is broadening and condensing its market throughout the Indian subcontinent, Nepal and Bhutan.

     

     

    Financial:

    • The Company had reported turnover of Rs. 539.75 Crore (approx.) in the financial year 2015-16 as compared to Rs. 531.93 Crore (approx.) in the financial year 2014-15 through its 200 (approx.) branches and 800 employee base.
    • Hired vehicles contribute to 95% of business and 150 own trucks contribute to 5% of business
    • Top 5 customers contributed 20% of total revenues in FY17 and 22% in Q4FY17 vs 13% in FY16 and 27% in Q4FY16

     

     

     

    Q4FY17 consolidated:

    • Revenue at Rs. 142.02 crore down by 3.14% over Q4FY16 Rs. 146.63 crore.
    • EBITDA at Rs. 5.52 crore vs Rs. 6.70 crore in Q4FY16, margins at 3.9% • PAT at Rs. 1.50 crore down by 24.62% over Q4FY16 Rs. 1.99 crore • EPS at Rs. 0.3 per share not annualized.

     

    FY17 consolidated

    • Revenue at Rs. 548.69 crore up by 1.66% over FY16 Rs. 539.75 crore
    • EBITDA at Rs. 19.76 crore vs Rs. 21.32 crore in FY16, margins at 3.6%
    • PAT at Rs. 5.60 crore down by 0.71% over FY16 Rs. 5.64 crore
    • EPS at Rs. 1.12 per share

     

     

    Financial Chart:

     

     

     

     

    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.
    • By assuming a GDP of 9.0 percent, implying a freight CAGR ~ 9.6 percent in future, the market scenario will be uncertain in future, can give the uncertainly in global and domestic economies.
    • The resulting road freight opportunity is estimated to 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
    • 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.

     

    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 conditions, the claims from clients increases and inflow of revenue decreases and finally resulted into long legal litigation.

     

     

    RISK MANAGEMENT:

     

    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.
    • 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:

    • Delay to obtain required approvals and licenses in a timely manner, 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.

     

    Liability Risk:

    • Risk refers to liability arising from any damage to cargo, equipment, life and third parties which may adversely affect company business.
    • The Company attempts to mitigate this risk through contractual obligations and insurance policies.

     

     

    About GOOD & SERVICE TAX (GST):

    • The Government of India has been taking several steps to rationalize the tax systems in the country. Among the major initiatives of the past being the introduction of Value Added Tax (VAT) System.
    • Subsequent to the success of the VAT regime, the Government embarked on efforts for implementation of a much more refined and globally preferred tax system known as Goods and Services Tax (GST) in 2007.
    • GST is defined as a ‘nationwide uniform taxation system’ which replaces multiple taxations by central and state governments in a country.
    • The concept is that a specific product or service would have the same level of taxation across the entire country irrespective of being manufactured and sold in different sub-national territories (states).
    • Across the world, GST is the most popular trade tax regime practiced by over 150 countries.

     

    Benefits to Logistics Sector:

    Due to GST

    • Centralization of inventory into larger regional warehouses
    • Move from Local to regional distribution (service levels to areas outside major distribution centers will have to improve)
    • Shift to larger full truckload movements servicing inventory transfers to the larger warehouses
    • Improved travel speeds due to reduction in regulatory delays.

     

    Key drivers for company Growth:

    • GST to have a positive impact on NECC for reducing time translating to better asset sweating
    • Warehouse consolidation to help efficiently transport goods directly from factory to point of destination
    • Increasing focus on setting up Hydro power stations in North East and Bhutan will augur well for NECC
    • Proposing to become a multi modal player with presence in air freight
    • Increasing open warehousing capabilities thereby offering effective service under one roof
    • Growing focus towards the 3 PL (Third party logistics) segment which is presently under serviced
    • Asset light model - large proportion of warehouses leased and vehicles hired

     

     

    Investment Rational:

    1. Positive impact on company business due to suspecting GST implication from 01/07/2017.
    2. Company will finished the Sukinda mine 150 Cr order by December 2018 which will impact on company profit.
    3. Increased Revenue at Rs. 548.69 crore up by 1.66% over FY16 Rs. 539.75 crore
    4. PAT at Rs. 5.60 crore down only by 0.71% over FY16 Rs. 5.64 crore which is good indication that company is maintaining constant healthy profit.
    5. Company is investing working capital/ profit in Capex for business expansion and due to that company is not paying dividend.
    6. More focus on third party logistic service (3PL) and Air freight.
    7. Strong vision of Promoter Group

     

    Recommendation:

    • Peer Company’s stock is running on higher value and this stock is still available at cheaper price.
    • Stock CMP is 51 Rs. and stock is trading at P/E 45 & EPS 1.1, Based on above all points stock may touch 150 Rs. within a 3 years’ time horizon.

     

    Please note:

    • Note: The articles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.

      Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

      Disclosure: It is safe to assume that I might have the discussed companies in my portfolio and hence my point of view can be biased. Readers should consult registered consultants before making any investments.

     

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