Established track record of operations and extensive experience of promoters and management
Incorporated in 2005, SAR Group (SG) is promoted by Mr. Anil Kaul, Mr. Jaiprakash Singh and Mr. Mithlesh Kumar who collectively have over two decades of experience in the shipping and logistics industry. The group provides a wide range of logistic services namely Ocean Freight, Air Freight, Trucking Services, Clearing House Agent, Custom Broking, Warehousing, 3PL and ISO Tank Services and has expanded its presence in the United States of America, Indonesia and Singapore over the years.
The operations of the group are managed by its promoters who are ably supported by a qualified and well experienced senior management team. The extensive experience of the promoters and management has helped the group to establish long and healthy relationship with reputed customers and suppliers including reputed shipping clients over the years. At the back of the stable and repeat orders by the key customers, the revenues have seen a compounded annual growth rate (CAGR) of about 58 per cent over the past three years through FY2022.
Acuité believes that the group will sustain its existing business profile over the medium term on the back of an established track record of operations and its experienced management.

Augmentation in operating performance and business risk profile albeit moderation in revenue
The operating performance of the group has recorded a heathy growth over the last three years with a CAGR growth of 58.20 percent through FY22 led by growth in the increase in demand along with increase in freight prices over the last two years. The total operating income of the group stood at Rs. 1,904.10 Cr in FY22 as against Rs. 732.85 crore in FY21 and Rs. 480.96 crore in FY20. STSPL derives more than 80 percent of the income from ocean freight. Ocean freight has seen a Y-o-Y declined of 30% in FY23 on account of tepid demand in the economy, ease of traffic and surplus of containers. STSPL has recorded Rs. 1,679 crore for 9MFY23 on a consolidated basis. The revenue growth in the current year has been muted on account of the decline in ocean freight. The management however plans to strengthen its business risk profile by expanding its warehousing operations, air freight and ISO tank services. Currently, SG has 2 lakh sq. feet of warehouse that it operates on rent. In the current financial year the group has purchased 7.38 lakh sq. feet of land in Bhiwandi and Talegaon to construct warehouses.
The operating margins of the group have improved gradually over the last three years. Operating margin stood at 4.63 percent in FY22 as against 4.28 percent in FY21 and 3.16 percent in FY20. Such improvement is led by the increase in scale of operations. The PAT margins of the group also saw a subsequent improvement at 3.03 percent in FY22 as against 2.82 percent in FY21 and 2.11 percent as on FY20.
Acuitè believes that the operating performance of the group is likely to remain muted in the near to medium term on account of likely decline in freight rates.

Above average financial risk profile
The financial risk profile of the group is above average marked by healthy networth, low gearing and above average debt protection metrics. The tangible networth of the group stood at Rs. 109.07 crore as on March 31, 2022 as against 50.04 crore as on March 31, 2021 and Rs. 27.96 crore as on March 31, 2021. The Networth has strengthened over the years led by increased accretion of profits to reserves. The management follows a conservative financial policy reflected by its peak gearing levels of 1.18 times as on March 31, 2020. The gearing (Debt/Equity) has improved from its peak level at 0.89 times as on March 31, 2021 and 0.41 times as on March 31, 2022. Such improvement in the gearing is driven by improvement in the net worth of the group coupled with repayment of term loans. Further, the group is expected to avail  additional debt for construction of warehouse in the near term. The group acquired land for construction of warehouses at ~Rs. 40 crore through internal accruals and will incur additional Rs. 40-60 crore for construction of warehouse on such land. SG plans to incur 50% of such capital expenditure through bank loans. Despite the addition to the debt in the gearing of the group is expected to remain low. The TOL/TNW (Total outside liabilities/Tangible Networth) of the group has seen a consistent decline at 1.91 times as on March 31, 2022 as against 2.13 times as on March 31, 2021 and 2.31 crore March 31, 2020. The debt protection metrics of the group are above average marked by DSCR of 11.86 times in FY22 as against 5.91 times in FY21 and 4.06 times in FY20. Interest coverage ratio stood at 19.18 times in FY22 as against 8.40 times in FY21 and 4.31 times in FY20.
Acuitè believes the financial risk profile of the group is likely to remain above average on account of increase in accretion to reserves.

Efficiently managed working capital operations
The working capital operations of the group are efficiently managed marked by GCA days of 54 days in FY22 as against 65 days in FY21 and 54 days in FY20. The GCA days are majorly driven by debtor collection period.  SG provides varied credit period to its customers between 30-90 days depending on the location of the shipment. The debtor collection of the group is efficient marked by debtor days of 45 days in FY22 as against 55 days in FY21 and 46 days in FY20. SG does not own its own fleet of ships or trucks. Ships and Trucks required by the group are taken on rent. The creditor days of the group stood at 20 days for FY22 as against 27 days for FY21 and 24 days for FY20. The working capital management of the group is further strengthened reflected by SG’s low reliance on bank limits. The fund based bank limit utilization stood at 50 percent for 9MFY23.
Acuité believes that the working capital management of the group will continue to remain a key rating sensitivity going ahead.

Exposure to risks related to cyclical and fragmented industry
Approximately 80 percent of SG’s revenue is generated from ocean freight. SG’s operating performance is exposed to the inherent cyclicality of the ocean freight rates. The demand for goods saw an unprecedented surged during the Covid-19 induced lockdown driven by work from home, increased online shopping and the lockdown restrictions. Such unprecedented demand coupled with supply side constrains like container shortages, labour shortages and restrictions at ports led to demand supply mismatch and record high freight rates in FY22. Such high prices have seen a Y-o-Y declined of 30% in FY23 on account of tepid demand in the economy, ease of traffic and surplus of containers. The freight rates are expected to further decline in the near term on account of Russia-Ukraine war and rising inflation and interest rates. Such decline in the freight rates are likely to impact the profitability of the shipping companies in the industry. Further, the industry is marked by presence of large number of organized and unorganized players in the industry. The industry is intensely competitive and fragmented industry because of low entry barriers and moderate capital requirements. The high competitive intensity limits the pricing flexibility and exerts pressures on the margins of all participants.