SICAL LOGISTICS LIMITED
ANNUAL REPORT 2008-2009
At first glance, it would seem that 2008-09 was a disappointing fiscal for
Sical, with FY09 top-line and bottomline were down from year-ago levels.
The fall continued into the first quarter of FY10; that too has seen a drop
in year-on-year performance.
Our financial results, however, should be seen against the dark backdrop of
the current global slowdown.
Like it has been for enterprises the world over, the second half of fiscal
2008-09 onwards has been a tough, rough time for Indian businesses. For
providers of logistics solutions, a direct play on global and domestic
trade, the worst recession since World War 2 has been particularly painful.
The macro factor
There may be no better measure of the reach and depth of the global
economic slowdown than the fortunes of the shipping industry, which moves
nearly 90% of global trade.
On 20 May 2008 the Baltic Dry Freight Index (BDI), which gauges the cost of
shipping resources including iron ore, cement, grain, coal and fertilizer
across the world, recorded 11,793 points, its highest level since its
introduction in 1985. In less than 7 months, on 5 December 2008, the BDI
was at 663 points, its lowest in 22 years, and down 94% from its all time
high. The daily rental rate for the largest bulk carriers plunged from over
USD 200,000 to less than USD 3,000 in early December, a staggering 99%
As of end-March 2009, 485 container ships totaling 1.42 million TEUs
(twenty foot equivalent units) capacity idled, accounting for 11.3% of the
global fleet, surging from 70 ships of 150,000 TEUs in late October 2008.
In 2005, the average day rate for the biggest container ships was USD
38,500; as I write to you, that rate is down to about USD 6,000. For some
time, freight rates for containers shipped from Asia to Europe have fallen
to zero for the first time since records began, underscoring the dramatic
collapse in trade since the world economy buckled in October.
The World Trade Organisation (WTO) recently forecast that global trade in
2009 will drop by an average of 9%, the sharpest fall since World War 2.
Amid all this gloom, we refused to buckle under and kept our chins up. We
ensured that revenue was only marginally down, and we actually increased
our operating profit and margins.
To offset the expected drop in container logistics volumes, we focused on
bulk logistics-this business involves mostly domestic volumes-in the later
quarters of FY09, improving our operations efficiencies and getting our
marketing to cross-sell our integrated logistics value proposition
We consider the resultant improvement in our bulk logistics business as a
major takeaway from FY09.
The business climate might have been extremely tough; it was also an
opportunity for Sical to showcase its differentiated, optimized offering.
The fact that we actually increased our margins shows that customers will
pay, and pay well, if they see value.
Sical's confident show amid the all-pervading gloom has been helped in no
small measure by key appointments at the top.
In May 2009, two major appointments were made to Sical's board: Karthik
Menon as Vice-Chairman and LR Sridhar as Managing Director.
The appointments signaled the board's commitment to bring in, at the
ownership and management levels, strong performers with a track record of
strategic, management, and operational success.
Karthik Menon, who joins the board in a non-executive and honorary
capacity, has been, without doubt, the strategist and driving force behind
Sical's successful business and organizational structuring, set in motion
in 2005-06. Given his stellar record not only with Sical, but with the
promoter group's various companies, the board sees Mr Menon in the role of
a facilitator to enhance shareholder value.
LR Sridhar has a track record of consistent delivery that inspires
confidence. In less than three years of joining us, he transformed the
container logistics business (Sical Distriparks) from an underachieving
division into one of Sical's most significant businesses. He was given
charge of the bulk logistics business less than a year ago; his focused
approach to operations and business development has resulted in
profitability margins in that segment as well.
This annual report's cover is a tribute to Mr Sridhar and the contribution
of container logistics-steered by Mr Sridhar-towards realizing our vision
of being India's dominant solutions provider of integrated multi-modal
logistics solutions for bulk and containerized cargo.
We remain confident
We are beginning to see some modest signs of stability coming back to the
global and domestic economic order.
The global container industry is showing signs of improving in the second
quarter of this year after more than nine months of a sharp downward trend,
recent reports suggest.
While container volumes continue to be a source of worry, the various
Indian ports are reporting good volumes for bulk cargo.
Our core bulk logistics business is for coal and iron ore with a mix of
cement, fertilizer, and liquid bulk. Coal handling continues uninterrupted
as electricity from power plants is an essential commodity in today's
urbanized environment. Iron ore has seen a slowdown as well as huge price
dips with the Chinese imports on hold. Cement is slow, in keeping with the
slowdown in realty, but fertilizer movement might be stable this year.
Sical Multimodal and Rail Transport Ltd, our container rail services
company, is now operating from nine locations across India. Currently, four
rakes are operating on the north-south corridor and east-central corridor.
We plan to increase it to about six rakes, dependent on load factors.
None of our plans is on hold; we have focused investments into lower
gestation cycles for quick payback even if at lower margins. Cash flow
management is a key focus.
Annually, we move nearly 570,000 standard cargo containers and 22 million
tonnes of bulk cargo, more than any other third-party logistics provider in
As our infrastructure assets come into play over the next few fiscals,
Sical's mission of becoming an end-to-end supply chain enabler will start
With your encouragement and support, we look forward to strong value-led
growth for all our stakeholders: investors, customers, business partners,
bankers, and, indeed, Indian industry as a whole.