ABC LOGISTICS LTD [ABC LOGISTICS LTD is a large, domestic 3PL ( Third Party Logistics ) company. With a sales turnover of approx Rs 1000 Crores in 2010, it employed close to 300 people directly across its 22 offices ‘throughout India and 7 representative / franchisee offices internationally. Part of a major Indian ‘Broup, ABC Logistics has been a pioneer in the Logistics industry in India. Overtime, the parent Group aided the growth of ABC by developing it as a 4 PL company {in-house 2PL) for its large engineering business. In 2010, this 4PL business accounted for almost 50% of ABC's revenue, the rest being equally divided between the IT/ITES centric People Transportation business and Supply Chain Business for clients in the automotive, retail, telecom, consumer goods, and pharmaceutical Industries. ABC's client lst includes the Who-s Who from the chosen industries. ‘The Logistics Industry - A Brief Background : Annexure 1 Supply Chain management ( SCM ) , connecting sources of inputs with processing / manufacturing and distribution / consumption centers, drives efficiencies in the inventory and quality of raw ‘materials/components as well as finished goods. In india cost of Logistics is a high 13% as compared to 8% in US. Historically, companies have managed their supply chain through in- house departments. Since the last decade, however, @ growing realization of the strategic significance of supply chain management has led to companies outsourcing their supply chain to specialist 3 PL companies. In 2008, per KPMG, the penetration of 3PL companies in India was a meager 6%. Typically, 3 PL companies follow an asset light model wherein they contract with Shipping / Transport / Warehouse companies / firms and other service pre Ioeurtder, couner congas, covancr rag sce Ai aS (CGEPRISRGRGBERIESSRROUEN's ted to cents giving them the derogatory tag "Trucker with a Tie “. Progressvely, Clients started valuing the economies of scale, expetize led efficiencies, IT based visibility in thir supply chain etc which MNC and quality Domestic 3 PL companies were beginning to provide. Hence, dynamic and progressive 3 PL companies started upgrading thelr relationships from a mere vendor ta a differentiated business associate / partner. In fact, the international 3 PL companies present in India were beginning to corner business of MNC companies based on such differentiated offerings ( JIT delivery to factories, for example ) and a partial performance linked compensation. Gains from sophisticated enterprise wide IT solutions like Transaction management, Transport management, Warehouse management, Fleet management etc, High end warehouses incorporating state of the art software and equipment, and Multi modal transportation are some of the value propositions associated with this transformation of 3PL companies from “Trucker with a Tie “to “a Strategic Weapon’. Of the total logistics spend in India in 2008, 51% was spent on transportation, 45% in storage, and. 4% on management. ‘The growth drivers for the Logistics industry are many : (i) Increasing domestic demand stemming from organized retail growth, and India becoming a manufacturing hub; (i) implementation of VAT ‘and phasing out of CST leading to warehouse restructuring; (il) growth in outsourcing of logisti operations; and (iv) entry of new players and integrated offerings by existing players. The leading domestic 3PL companies are AFL Logistics, Gatl, TCI , Safe Express, All Cargo, TVS. International players like DHL Exel, Agility, Linfox, Toll, Ceva, Schenkr, Kuhne Nagel . Copyright 2010 : Sujit Kumar, Delhi‘The entire value chain accounts for a significant amount of Capex ( vehicles, warehouses, IT ) and Working Capital ( to fund imbalances in cash fiow ). People skills and relationships count for a lot. Margins are under constant pressure. The more enlightened clients, however, are ready to share gains in efficiencies with their 3 PL partners. Strategic Challenges Faced by ABC's Top Management Financial highlights ( Annexure 2,3 ) and Organization structure ( je 5, Annexure 1) attached. {In 2010, the Board of ABC Logistics concluded that it needed to migrate from the tag of a" Trucker with a Tie " to that of "a Strategic Weapon “ for its clients in order to compete and grow profitably in the rapidly evolving 3PL sector in India's logistics industry. Towards this end, it determined the need for significant capital investments. The Group's holding company took a policy decision to dilute a significant minority stake in favor of a Strategic Partner / Private Equity to fund such a plan. It has mandated the M.D suitably Le develop a growth strategy and funding plan , and secure such funding. However, the M.0's various attempts at equity dilution met with a lukewarm response. While ‘approaching a Strategic Consulting firm for help in the matter, the M.D of ABC had this to say "The Group holding company is targeting @ valuation upwards of Rs 1000 Crores at the time of dilution. Sources of capital that | have interacted with have balked at this valuation glven current financials. | have been given 3 years by the Board in which to bring ABC to this valuation level. Over the years, | have put together a committed team . A better understanding of aspects of accounting and financial management relevant to them would have been a big help. My clients have stayed with me through thick and thin and would value enhanced services in future. The business associates in the transport and warehousing verticals have never let us down , the committed capacity being 120,000 vehicles and 3m sft of warehousing space. With some help, | zm sure they would understand land grow into a strategic relationship with ABC. Approx 25,000 people are engaged in ABC's value chain including indirect employment. Recently, a few of my competitors { TVS Logistics being one ) secured PE investment. The downturn ‘caused by Lehman crisis has compounded the situation. How doi get there 2” Copyright 2020 : Sujit Kumar, DelhiABC Logistics : Financial Highlights [GR in Lakhs) [Particulars ‘Actuals | Actual | Actual | Budget Projections F-2007 | F-2008 | F-2009 | F-2010 | F-2011 | F-2012 income From Operations [People Transportation 14662|_24,026 [23,818 | 31,000] 38,750| 48,438 [Supply Chain Management 5937| 10,001] 15,157] 20,500[ 31,775| 47,663, international = 367 520 4,200 2,400 4,200 [Group Co 7725] 29,382 | 35,938 | 43,500 | 50,025] 57,529 Total Operating Income 38,324 | 60,776 | 75,433 | 96,200 | 122,950 | 157,829, People Transportation Tm eed] 2,073 | ——«2,697 349 4,359 [Supply Chain Management 461 w5[ 1387 7,896 3,098 4,885 international "| 54 33 123, 246 at [Group Co 473} 687 1044 1,239 7425 1,639) Gross Margin 2157| 3,360] 4,548| 5,955] 8, 799[ 14,314 (Overheads 134i 2200 3328] 4292 | a2 5699) [EBITDA 838] 1791 1244 1736| 3287] 5649) [Depreciation & Amortisation 32 i a8 | 24 600] 636 linterest Expenses 64 28 135] 459] 705| 647) [Provision for Tax | a 245 323 72 1523] PAT 722, 850] 446 529) 1270] 7843 | [Shareholders fund 1119) 273 3194 5719] 6543 3388] Borrowed fund 803 72644] 1024] 4665) 6888 3620) |Working Capital 1654] 360 2651] oat 98iT 8576