(The following statement was released by the rating agency)
March 01 - Fitch Ratings has affirmed India-based MJ Logistics Services Limited’s (MJLSL) National Long-Term Rating at ‘Fitch B+(ind)’ with a Stable Outlook. The agency has also affirmed the rating on MJLSL’s outstanding bank term loan of INR354.5m at ‘B+(ind)'.
The ratings reflect MJLSL’s reliance on a single customer, at around 40% of total revenue, and its weaker-than-expected operating performance. Despite significant improvement in utilisation levels of its warehouses, high interest cost led the company to a wider net loss of INR38m in the financial year ended March 2011 (FY10: net loss of INR30m).
The wider loss came despite the company operating at almost 100% utilisation in all its warehouse locations. Revenue almost doubled to INR244m and EBITDA margins turned positive at 11.45% (FY10: -17.99%; FY09: -15.67%) but nevertheless were lower than Fitch’s expectations. Leverage was high at 9.15x although this is expected to improve significantly in the next one to two years as EBITDA margins continue to improve.
The ratings continue to draw comfort from the company’s existing and new relationships with reputable clients, improved financial performance in FY 11 and FY12 and quality facilities available at the warehouses.
For the 10 months ending 31 January 2012 MJLSL reported revenue of around INR236m with an EBITDA margin of around 16.5%. The net loss for the same period stood at INR17m.
Negative rating action may result from a decline in occupancy rates and higher-than-expected operating expenses coupled with debt-led capex causing continuation of the adjusted net leverage (net debt/ EBITDAR) above 7x on a sustained basis. Improved operational efficiency and profitability resulting in adjusted net financial leverage under 4.5x on a sustained basis may be positive for the ratings.
MJLSL was incorporated in 2005 as a limited company. The company is engaged in third-party logistics with service offerings spanning across transportation, warehousing and distribution to various clients. MJLSL currently owns a warehouse at Palwal, Faridabad. The company also manages around 500,000 sq ft of leased warehousing space at different locations. The company proposes to expand both its ambient and cold storage warehousing space at Palwal in FY13 which would lead to a substantial increase in capacity.