Private Equity (PE) funds are sharpening their focus on the warehousing and logistics sector, with leading international funds now scouting for big deals. Standard Chartered PE is the latest fund looking to invest in this vertical along with Mumbai-based local real estate company, Shapoorji Pallonji, according to people in the know.
Other than that, Xander and GIC are among a clutch of foreign funds that are looking to make a beeline. Recently, Singapore-based Ascendas-Singbridge Group also formed a $600 million joint venture with Firstspace Realty to enter the industrial logistics and warehousing market. Canada Pension Plan Investment Board (CPPIB) joined hands with IndoSpace for $500 million last month. Everstone, the fund that has a stake in IndoSpace is currently raising its third fund for an estimated $500 million to increase its footprint, according to company officials.
The interest of PE funds in the logistics sector assumes significance because a couple of year back this sector attracted just two investment deals, amounting to approximately Rs 1,400 crore, according to JLL, India. Since then, just between Warburg Pincus, Ascendas, CPPIB, Brookfield and the Wanda Group, the investments are more than $1400 million, making the sector one of the hottest industry for foreign capital. A slew of industrial projects were also announced backed by China and Japan last year. For instance, the China Fortune Land Development Company Private (CFLD), Neemrana Japanese Investment Zone, Mandal Becharaji Japanese Investment Zone and SUPA.
Things started moving in favour of the warehousing industry in 2015 as political campaigns such as “Make In India” gained ground and talks around implementation of GST gathered steam. “These factors did nudge fund managers to assess warehousing as a potential avenue for investment but the main catalyst has been the consumption push led by the e-commerce sector,” said Rajesh Jaggi, managing partner (real estate), Everstone Capital Advisors. Echoing his thoughts, a research report published by Knight Frank India last year said that while demand from the traditional brick and mortar will continue to grow at a steady pace, it is expected to double in case of e-tail in the next four years, resulting in an annual growth of 19% between 2016 and 2020.
Everstone recently sold majority stake in IndoSpace to CPPIB. Without divulging details, Jaggi confirmed the exit has been profitable. According to the Knight Frank report, “Investment in warehousing can provide an opportunity of realizing returns in the range of 10%–24% per annum to investors willing to explore this sector.”