Deccan Transcon Leasing coming with IPO to raise Rs 65.06 crore

Deccan Transcon Leasing 

• Deccan Transcon Leasing is coming out with an initial public offering (IPO) of 60,24,000 equity shares in a price band Rs 102-108 per equity share.
• The issue will open on September 13, 2024 and will close on September 18, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 10.20 times of its face value on the lower side and 10.80 times on the higher side.
• Book running lead manager to the issue is Unistone Capital.
• Compliance Officer for the issue is Khushboo Gautam.

Profile of the company

Deccan Transcon Leasing provides end-to-end solutions for freight & shipping services which include domestic logistic of tank containers, Tank fleet management solution, custom clearance and transportation, Non-Vessel Operating Common Carriers (NVOCC) services. The company is primarily engaged in providing tank containers on lease and logistic & supply chain solutions to clients in various sectors. The company specializes in the transportation of bulk liquids and hazardous chemicals, primarily utilizing tank containers as a mode of transport. One of its key strengths lies in its extensive agency network, built over years of experience in the industry. This network provides it with access to shippers worldwide, enabling it to cater to the logistics needs of clients across the globe.

Additionally, the company has established a strong network of partners with global coverage, apart from its own Subsidiary and Associate company, allowing it to provide complete, end-to-end logistics solutions. Having all tank container services under one roof enables it to offer services tailored to meet specific customer needs. As of July 31, 2024, more than 100 customers have been associated with it for longer than 3 years. The company has served more than 884 customers in the last one year.

The company’s Promoters Karthika Menon, Jaidev Menon Parath and Miriyala Shekhar have wide experience in shipping and logistics industry. In recent years, it has diversified its operations to include box container and Flexi bags. As on May 31, 2024, its fleet size is more than 2500 tank containers and 750 TEUs of box containers. It is a team of more than 84 skilled professionals. The company’s team of technical experts ensures that it adheres to the highest safety standards and cargo compatibility regulations in the industry. They guide it on the specific modifications required for the safe transportation of dangerous goods in tank containers, whether it be by sea, rail, or road.

Proceed is being used for:

• Funding capital expenditure requirements towards procurement of Tank Containers
• Funding working capital requirements of the company
• General corporate purposes

Industry Overview

According to the Ministry of Shipping, around 95% of India's trading by volume and 70% by value is done through maritime transport. In November 2020, the Prime Minister, Mr. Narendra Modi renamed the Ministry of Shipping as the Ministry of Ports, Shipping and Waterways. India has 12 major and more than 200 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The Indian ports and shipping industry play a vital role in sustaining growth in the country’s trade and commerce. India is the sixteenth-largest maritime country in the world with a coastline of 7,516.6 kms. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain, and operate ports, inland waterways, and inland ports.

In FY24, all key ports in India handled 817.97 million tonnes (MT) of cargo traffic, a 4.45% increase from 784.305 million tonnes in FY23. India's merchandise exports in FY23 were at $451 billion from $417 billion in the previous year. The Government has taken several measures to improve operational efficiency through mechanisation, deepening the draft and speedy evacuations. India plans to establish a new shipping company to expand its fleet by at least 1,000 ships in the next decade, aiming to reduce freight costs and capture more revenue from increasing trade, with joint ownership by state-run oil, gas, and fertilizer companies, along with the state-run Shipping Corporation of India and foreign companies, targeting a reduction of at least one-third in foreign freight outgoings by 2047.

Increasing investment and cargo traffic point towards a healthy outlook for the Indian ports sector. Providers of services such as operation and maintenance (O&M), pilotage and harbouring and marine assets such as barges and dredgers are benefiting from these investments. The capacity addition at ports is expected to grow at a CAGR of 5-6% till 2022, thereby adding 275-325 MT of capacity. Domestic waterways have found to be a cost-effective and environmentally sustainable mode of freight transportation. The government aims to operationalise 23 waterways by 2030. As part of the Sagarmala project, more than 574 projects worth $82 billion (Rs 6 lakh crore) have been planned for implementation between 2015 and 2035. In Maritime India Summit 2021, the Ministry of Ports, Shipping and Waterways identified a total of 400 projects worth $31 billion (Rs 2.25 lakh crore) investment potential.

Pros and strengths

Long standing business track record: The company provides end-to-end solutions for freight and shipping services since 2007, it has successfully established a track record of providing services of more than 5,000 customers. The company’s supply chain relationships, internal processes, network of sales offices and its integrated operations contribute significantly to enable it to complete its projects efficiently and in a timely manner. The company’s comprehensive offerings include domestic logistics for tank containers, Shipping & Freight Forwarding, as well as tank fleet management solutions since incorporation. It primarily serves customers in industries such as Chemicals, Pharmaceuticals, Fast Moving Consumer Goods (FMCG), Agriculture, and others, with a heightened emphasis on Specialty Chemicals and Petrochemicals.

Global Coverage through network of agents: The company’s global coverage is a significant asset, made possible by its vast network of agents spread across 40 countries. This network ensures that it can offer its services on a truly global scale, providing local expertise and support to its clients, regardless of their location. The company has entered into agency agreement with different logistics service providers in different locations and countries. The company has entered into mutual cooperation or agency agreements with agents located in regions like Europe, Asia and Oceania, South America, Africa and USA, for their logistics business under an agency relationship for inward and outward movement of the cargo as well as performing all required operations and documentation work for the cargo movement between the above-mentioned regions.

Ability to provide end-to-end logistics solutions: The company has strong partnerships with experienced partners who have extensive knowledge in handling hazardous shipments in tank containers as well as Box containers. These partners provide comprehensive infrastructure and resources for customs clearance, inland transportation, storage, cargo handling and repair services, ensuring that it can offer a full range of services to its clients. 

Risks and concerns  

Substantial revenue comes from limited customers: The company is primarily engaged in providing tank and box containers on lease and freight & shipping services to clients in various sectors. It is dependent on its top five and ten customers which includes associate company (King Star Freight Private Limited) and one of group company (Deccan Orient Line Company Limited). For the financial years ended March 31, 2024, financial years ended March 31, 2023 and March 31, 2022 its top ten customers accounted for around 51.06%, 59.03% and 55.53% of its total revenue from operations. The loss of one or more of these significant or key customers or a reduction in the amount of business it obtains from them could have an adverse effect on its business, results of operations, financial condition and cash flows. 

Freight & Shipping business is largely dependent on customers engaged in the Chemical & petrochemical Industry: The company’s primary source of revenue comes from the chemical and petrochemical industry and related chemical product businesses. For the fiscal years 2024, 2023 and 2022, it derived approximately 94.27%, 97.87%, and 98.90% of its revenue, respectively, from providing freight and shipping services to customers in the chemical sector. Any adverse impact or slowdown in this specific industry could lead to significant disruptions, including a reduction in its customer base, delays, and payment defaults. This, in turn, would negatively affect its revenue, business operations, and financial results. Additionally, such disruptions could damage its reputation within the shipping industry and hinder its business growth.

Stiff competition: The company’s primary source of revenue comes from the chemical and petrochemical industry and related chemical product businesses. For the fiscal years 2024, 2023 and 2022, it derived around 94.27%, 97.87%, and 98.90% of its revenue, respectively, from providing freight and shipping services to customers in the chemical sector. Any adverse impact or slowdown in this specific industry could lead to significant disruptions, including a reduction in its customer base, delays, and payment defaults. This, in turn, would negatively affect its revenue, business operations, and financial results. Additionally, such disruptions could damage its reputation within the shipping industry and hinder its business growth.

Outlook

Deccan Transcon Leasing offers tank containers on lease and logistic and supply chain solutions to clients in various sectors. The company offers comprehensive freight and shipping solutions, including domestic tank container logistics, tank fleet management, customs clearance and transportation, and NVOCC services. With a global footprint, the company can offer its 129 services to clients across various continents and economic regions. Moreover, Latest solutions in logistics technology, such as advanced tracking systems, placing service orders, digital platforms for customer interaction and transaction processing. On the concern side, the company depends on certain key customers for its revenues which include its associate company and group company. A decrease in the revenues it derives from them could materially and adversely affect its business, results of operations, cash flows and financial condition. Moreover, the company derives majority of its revenue from leasing and freight and shipping services. In the event it is unable to increase or effectively manage its services under the said services, it could have an adverse impact on the company’s business and results of operations.

The company is coming out with a maiden IPO of 60,24,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 102-108 per equity share. The aggregate size of the offer is around Rs 61.44 crore to Rs 65.06 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations in the Financial year 2023-24 is Rs 15,255.71 lakh, which represents Rs 2,703.95.40 lakh or 15.06% decrease compared to the previous financial year's revenue of Rs 17,959.66 lakh. The major driver for the decrease in revenue from operations was due to decline in Sea Freights rates during FY 2023-2024 even though there was increase in fleet volume. The profit after tax (PAT) for the financial year 2023-24 reached Rs 1,181.89 lakh, marking a notable increase from Rs 855.70 lakh in the financial year 2022-23. In the financial year 2023-24, PAT constituted 7.69% of the total revenue, in contrast to 4.74% in the fiscal year 2022-23.

The company’s ability to serve a wide customer base is a result of its experience working with clients in various industries, giving it a strong competitive edge. Its approach involves tailoring solutions for specific customers and studying their operations to offer comprehensive logistics solutions. Its senior management and skilled employees are dedicated to managing existing accounts while also seeking new business opportunities. With its diverse industry exposure and the connections of its senior leadership, it has access to numerous potential clients across different sectors. In addition to reaching out to new clients, the company aims to grow revenue and margins by expanding the services it provides to current clients. As its clients expand, it plans to grow alongside them by offering a wider range of services, reaching new geographic areas, and supporting their new product lines.