August 28, 2019

Spoton Logistics Private Limited: [ICRA]BBB+(Stable) and [ICRA]A2 assigned

Summary of rating action

Current Rated Amount
Instrument* Rating Action
(Rs. crore)
Long Term-Cash Credit 28.00 [ICRA]BBB+ (Stable); Assigned
Long Term-Invoice Discounting 10.00 [ICRA]BBB+ (Stable); Assigned
Short Term-Bank Guarantee 0.51 [ICRA]A2; Assigned
Long Term/Short Term- Unallocated 11.49 [ICRA]BBB+ (Stable)/[ICRA]A2; Assigned
Total 50.00
*Instrument details are provided in Annexure-1

Rationale
The assigned ratings favourably factor in Spoton Logistics Private Limited’s (Spoton) healthy revenue growth over the
years supported by healthy increase in freight volumes handled and increase in average realisations. The ratings also
factor in the company’s established position in the less-than-truck load express road logistics segment, its asset light
model of operations, long term contract with its customers with fuel pass-through clauses and its pan India service
network. The ratings also consider its diversified client base spread across industries resulting in reduced dependence on
business from any particular client or industry. The ratings also derive comfort from the extensive experience of SLPL’s
senior management in the express road logistics segment, having worked with established players such as TNT, Aramex,
Safex, Blue Dart in the past, and the funding support from Samara Capital Partners, the primary investor in the company.

The ratings, however, are constrained by the expected moderation in Spoton’s coverage indicators and cash flows owing
to the sizeable interest and debt repayment obligations to arise over near to medium term, post Spoton’s merger with its
holding company, Vankatesh Pharma Private Limited (VIPL). The aforesaid obligations correspond to the term loan of Rs.
135.0 crore availed by VIPL for funding the acquisition of Spoton. The ratings also consider the susceptibility of the
company's profitability to the vulnerability of its revenues to economic slowdown and variations in trade volumes,
especially given the stiff competition from several established companies in the industry. Further, the company is
exposed to the risk of shift in customer preferences to integrated logistics service providers; however, ICRA takes note of
management’s initiatives to diversify its services portfolio. SLPL’s ability to continue to innovate and meet the evolving
customer requirements will remain key over the long term.

Outlook: Stable
ICRA believes that SLPL will continue to benefit from the extensive experience of its senior management, diversified
industrial presence, strong and diversified customer base and asset light model with pan India presence. The outlook
may be revised to ‘Positive’ if any substantial growth in revenues and profitability strengthens its financial risk profile.
The outlook may be revised to ‘Negative’ if cash accruals are lower than expected or any material stretch in working
capital cycle weakens liquidity.

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Key rating drivers

Credit strengths
Healthy revenue growth driven by growth in the freight volumes handled and improvement in average realisations:
Over last five years the company’s revenues grew at a healthy CAGR of 17.9%, reaching Rs. 600.4 crore in FY2019 as
compared to Rs. 264.1 crore in FY2014. The 28.2% revenue growth in FY2019, was primarily driven by increase in
freight volumes handled by the company to 631,339 MT in FY2019 from 511, 628 MT in FY2018, recording a growth of
23.4%. The revenue growth was also supported by improvement in average sales realisations which increased to Rs.
9509.7 per MT as compared to Rs. 9155.2 per MT recording a growth of 3.9%.

Asset light model of operations: The company has an asset light business model with 100% of its fleet hired from a
network of truck vendors/operators. This model helps the company to reduce its fixed costs and gives the company
the flexibility to scale up or scale down its operations, in line with the economic cycles.

Established and diversified customer base: The company has established relationships with its top customers which
has helped SLPL to secure repeated business from them. SLPL’s top clientele comprises renowned companies like
Reliance Supply Chain Solutions Limited, Bosch Limited, Samsung India Electronics Private Limited, Philips Electronics
India Limited, Nissan Motor India Private Limited, SKF India Limited, ABB Limited, and 3M India Limited. SLPL has a
diversified customer base with top five customers contributing only 12.9% of revenues in FY2018 and 13.1% of
revenues in FY2019. This is likely to insulate the company’s revenues against loss of any customer(s) providing stability
to revenues.

Revenues diversified across industries: The company derives major portion of its revenues from the engineering
sector, which contributed 32.4% of the revenues in FY2019. This was followed by lifestyle contributing around 12.6%,
pharmaceuticals contributing around 11.0% and electronics contributing around 10.0% of the company’s revenues.
The revenue being spread across industries mitigates the impact of any industry-specific downturn.

Hub-and-spoke operating model with pan India geographical network ensures optimum utilisation of resources:
SLPL operates through a hub-and-spoke operating model that entails the consolidation of goods (small
parcels/consignments) from multiple locations (service centers) at the transit-hubs and re-distribution thereof to their
respective destinations. This networking model ensures significant cost savings, rationalisation of routes covered by
vehicles and optimum utilisation of resources including vehicles and manpower. The company has a pan India service
network with 16 major transit hubs, 13 depots and 252 service centers covering 18000+ postal codes.

Credit challenges
Significant debt repayments obligations to be assumed by the company over the near term: Spoton does not have any
sizeable debt on its book as on March 31, 2019. As a result, the capital structure and coverage indicators are very healthy
at present. However, the holding company, Vankatesh Pharma Private Limited, had availed a term loan of Rs. 135.0 crore
from Piramal Capital and Housing Finance Limited for funding the acquisition of Spoton Logistics. Going forward, Spoton
is expected to get merged with the holding company and the debt will be serviced from its operational cash flows.
However, the exact quantum of debt that would get transferred during the merger, is yet to be finalized. The addition of
debt and the corresponding interest and principal repayment obligations are expected to moderate its capital structure
and coverage indicators to some extent, going forward.

Susceptibility of revenues to economic slowdown and variations in trade volumes - The performance of the freight
forwarding industry is linked to global economic activities, which impact the trade volumes, especially given the stiff
competition amid the highly fragmented industry structure. Any slowdown in domestic and global manufacturing/

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industrial activities, due to weak economic conditions or restrictive trade policies, can have a negative impact on the
company's revenues and its cash flows. However, its asset light model of operations mitigates the risk to some extent.

High competitive intensity in express logistics business - The road express segment has always been characterised by
high competitive intensity, with the presence of a several established companies in the segment, which may constrain
the company’s revenues and margins in the long term; however, entry barriers in the express logistics are significantly
high, which limits threat of any new entrants. Maintaining its superior service standards and providing innovative
solutions to the evolving customer requirements will be keys for SLPL to expand its market position.

Liquidity position
The liquidity position of company is comfortable as reflected by low working capital utilisations and healthy cash and
bank balances. As on March 31, 2019, Spoton had a cash and bank balance of Rs. 17.7 crore and Vankatesh Pharma
Private Limited has a cash and bank balance of Rs. 8.9 crore. ICRA also takes note of the future cash outflow towards
interest and principal repayments and towards regular capital expenditure over near to medium term. Nonetheless, its
cash accruals will be adequate to support debt repayments and the expected scale of capex over near to medium term.

Analytical approach
Analytical Approach
Applicable Rating Methodologies
Parent/Group Support
Consolidation / Standalone
Comments
Corporate Credit Rating Methodology
Not Applicable
ICRA has taken a consolidated view of Spoton Logistics Private Limited and its
holding company Vankatesh Pharma Private Limited, owing to the strong
financial linkage between them, and the proposed merger of the two entities
over the near term

About the company

Spoton Logistics Private Limited (Formerly known as Startrek Logistics Private Limited), was established in November
2011, with the acquisition of TNT’s† domestic road express business by India Equity Partners. Subsequent to the
transaction, PE firm India Equity Partners held a stake of around 98% in Spoton Logistics while the company’s
management owned the rest. In 2019, India Equity Partners exited the business and a consortium of investors led by
Samara Capital acquired Spoton Logistics.

Spoton Logistics Private Limited provides business to business express road logistics services on a pan India network with
more than 18,000 postal codes, through a network of 16 major transit hubs, 13 depots and 252 service centers. It
provides logistic services to various sectors such as Engineering, Automotive, Lifestyle, Electronics and Electricals,
Pharmaceuticals, Agriculture, FMCG, Chemicals etc.

In FY2019, the company reported a net profit of Rs. 5.1 crore on an OI of Rs. 600.4 crore compared to a net profit of Rs.
27.0 crore on an OI of Rs. 468.4 crore in the previous year.

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Key financial indicators (Standalone)
FY2018 (Audited) FY2019 (Provisional)
Operating Income (Rs. crore) 468.4 600.4
PAT (Rs. crore) 27.0 5.1^
OPBDIT/ OI (%) 8.2% 7.1%
RoCE (%) 36.9% 4.2%

Total Debt/ TNW (times) 0.2 0.0

Total Debt/ OPBDIT (times) 0.4 0.1
Interest Coverage (times) 25.1 24.3
^Includes one-time extraordinary expenses of Rs. 30.8 crore towards employee bonuses and merchant banking fee

Status of non-cooperation with previous CRA: NA

Any other information: None

Rating history for last three years:

Chronology of Rating History for the
Current Rating (FY2020) past 3 years
Amount Date Date & Date & Date &
Instrument Amount
Outstanding as &Rating in Rating in Rating in Rating in
Type Rated FY2020 FY2019 FY2018 FY2017
on March 2019
(Rs. crore)
(Rs. crore) Aug 2019 - - -
[ICRA]BBB+
1 Cash Credit Long term 28.00 - - - -
(Stable)
Invoice [ICRA]BBB+
2 Long term 10.00 - - - -
Discounting (Stable)
Bank
3 Short term 0.51 -- [ICRA]A2 - - -
Guarantee
[ICRA]BBB+
Long term/
4 Unallocated 11.49 (Stable)/ - - -
Short term
[ICRA]A2

Complexity level of the rated instrument:

ICRA has classified various instruments based on their complexity as “Simple”, “Complex” and “Highly Complex”. The
classification of instruments according to their complexity levels is available on the website www.icra.in

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Annexure-1: Instrument Details
Date of Amount
Maturity Current Rating and
ISIN No Instrument Name Issuance / Coupon Rate Rated
Date Outlook
Sanction (Rs. Crore)
NA Cash Credit - - - 28.00 [ICRA]BBB+ (Stable)
NA Invoice Discounting - - - 10.00 [ICRA]BBB+ (Stable)
NA Bank Guarantee - - - 0.51 [ICRA]A2
[ICRA]BBB+ (Stable)/
NA Unallocated - - - 11.49
[ICRA]A2
Source: Spoton Logistics Private Limited

Annexure-2: List of entities considered for consolidation analysis

Company Name Ownership Consolidation Approach
Vankatesh Pharma Private Limited Parent of the rated entity Full Consolidation

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ANALYST CONTACTS
K Ravichandran Nikhil Mathew
+91-44-4596 4301 +91-80-4922 5569
ravichandran@icraindia.com nikhil.mathew@icraindia.com

R Srinivasan Piyush Mathur

+91-44-4596 4315 +91-80-4922 5563
r.srinivasan@icraindia.com piyush.mathur@icraindia.com

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
jayantac@icraindia.com

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
communications@icraindia.com

Helpline for business queries:

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

info@icraindia.com

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited
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For more information, visit www.icra.in

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