Consolidation, integrated infrastructure is the need of the hour

Written by R Ravichandran | Updated: Jan 29 2010, 04:18am hrs
The logistics industry, estimated at $20 billion, is expected to grow at a CAGR of around 15% over the next few years. Driven primarily by outsourcing, the industry will witness a paradigm shift in warehousing as well as third-party logistics (3PL). In an interview with R Ravichandran of FE, R Dinesh, managing director, TVS Logistics Services Ltd, an arm of TVS group, said the company hopes to grow in domestic as well as overseas operations through organic and inorganic routes. Excerpts:

How do you see the overall growth opportunities in short as well as long terms in the logistics industry in India

The logistics industry is estimated to be around 13-14% of the GDP. It is estimated around $20 billion in 2010 and expect to witness a compounded annual growth rate (CAGR) of around 15%. The transportation part of supply chain contribute around 70-75%, warehousing related supply chain around 25-20% and the balance by the 3PL and 4PL modes.

What are the driving factors for growth of this industry in India

The logistics business is driven by outsourcing of the business from the existing concept of doing by themselves. The need for the outsourcing is driven by primary growth of the logistics business which comes from the buoyancy in the economy, which, in turn, is represented by the increase in GDP.

Customers themselves are looking for increasing the operational efficiency to the near perfect delivery expectations and all these at the reduced cost. Hence consolidation becomes the need of the hour. However, some of the existing customers cannot do this consolidation successfully on their own. There is also a need for creating integrated infrastructure which some of the exiting customers cannot afford to.

How organised is this industry

The industry is highly unorgansied and there are only few organised companies operate in this space.

Moreover, all these companies operate on the lower side of the supply chain and work in the physical part of the supply chain.

What are the growth prospects of TVS Logistics over the next few years

TVS Logistics is one of the few companies which provides end-to-end supply chain with plug and play model. Currently, TVS Logistics is consolidating in the auto vertical and in the discreet component manufacturing industry, covering both domestic and global supply chain. Traditionally, the transportation segment of the supply chain is outsourced and hence this market is growing based on the growth of the economy.

However, the warehousing and the 3PL show paradigm shift in the outsourcing concept and hence we expect to grow at a faster rate compared to other segments. TVS Logistics is expected to have consolidated revenue of around Rs 1,000 crore this year. Through both organic and inorganic growth, the company has plans to achieve Rs 2,000 crore in the next two to three years.

Will you depend purely on acquisitions to grow, going forward

TVS Logistics has been growing organically at the rate of 35% CAGR in the past five years till the economy had hit the downturn. Even during the last year and the current year, TVS Logistics has shown positive growth where as others registered negative growth.

What are your overseas expansion plans and what will be their impact

We have been planning to grow in the global market based on the anchor customer. Our plan remains same and has not been impacted by the downturn. We have now consolidated our business in the UK. We shall plans to consolidate our business in the US through our existing joint venture. We are also proposing to enter into Brazil and China in the next two years.

Tell us about your investment plans for the near term.

Based on organic and inorganic growth plans, the business will need infusion of Rs 500 crore in the next two years. This will be managed through internal accruals as well as the borrowed funds.

You have plans to list the Company. When do you think the same will happen

Yes. TVS logistics has plans to enter into IPO and expect the same in the next two to three years.