It might just well be the next blue-eyed sector in India. With investments in the line of $1 trillion, the logistics sector is definitely gearing up as JVs, PE players, cross-border acquisitions, strategic investments and even universities foray into the hitherto ignored and complex sector.
As the country awaits its first free trade warehousing zone (FTWZ) in Mumbai to start operations from May 23, experts are upbeat this may well transform the landscape of the country. The Indian market is growing and exports are looking up too, reasons Vishwas Udgirkar, executive director with PwC. ?India is touted to be a manufacturing hub and its success will depend upon logistics support. So it?s a logical step to develop the sector. FTWZ and logistics parks will completely change the landscape, as there is a very strong demand for modern warehousing facilities. People are watching the FTWZ rollout very closely, and its success will open floodgates in the sphere,? he adds.
Recently, Vision India Real Estate announced its plans to develop logistics parks in Bangalore and Chennai with an $110-million outlay. The company has reportedly claimed that 60% of the warehouse space in both the parks had already been booked.
KPMG estimates that logistic costs in India contribute to 13% of the GDP while they are only about 8% in developed countries. Reducing logistic costs by 1% of the GDP translates to savings of over $7.5 billion.
Manish Saigal, executive director & head (transportation and logistics), KPMG, explains these figures give a good indication of the level of inefficiency in the sector in India. ?As a lot of logistics will be outsourced, third party logistics will add fuel to the sector. Government investment in infrastructure, coupled with regulations such as GST will help standardise movement. A blessing in disguise will be the entry of MNCs that will bring along their best practices and make it an intensely focused market. And the sheer demand led by a resilient domestic market and exim trade, will naturally make the sector extremely attractive,? he adds. To cash in on the opportunity and augment its freight revenues, Indian Railways is working on a draft policy to expand development of automobile and ancillary hubs and help auto manufacturers carry their traffic by rail in bulk. The hubs will assist in secondary distribution. According to reports, the policy is expected to provide a good opportunity to logistics service providers to invest in special wagons and tie-up with end-users and market their services for transportation of selected commodities.
The latest strategic investment by RIL in Deccan 360, to facilitate a rapid movement of goods across the country, especially the perishables, for Reliance Fresh stores, may well set a precedent for other similar strategic partnerships. Saigal confirms, ?It?s just the beginning. Indian conglomerates will go in for similar tie-ups, as it would help them grow and get a definite edge.?
The sector is already inviting considerable interest from PE players. In 2009, the logistics sector witnessed 11 PE deals valued at $ 215 million. Rohit Madan, research director, VCCedge, says, ?Logistics is a booming sector for PE firms to invest in. It offers stable cash flows and growth rates directly linked to economic growth. Along with good macro indicators, there is tremendous scope for improvement through infrastructure upgrades and consolidation which makes the sector attractive.?
Even cross-border acquisitions are making their way in this sphere. Recently, Aqua Logistics, a third party logistics service provider, announced it would acquire 60% stake in three Hong Kong-based companies for $7.09 million.
Similarly, global companies too are scouting for the Indian logistics market. The latest entrant being, Hitachi Transport System of Japan, which acquried Flyjac Logistics for Rs 246 crore, giving it a firm footing in India.
Third party logistics outsourcing business in India will grow to $90 million by 2012, backed by a buoyant return in manufacturing, retail and real estate, predicts Assocham, adding that at present around 55% of Indian companies are outsourcing logistic services like supply chain management and warehousing. Given the scope of the market, Udgirkar says ?third party logistics has the potential to develop into a full fledged industry on its own?.No wonder then that Gujarat University, Ahmedabad, has taken a cue and just launched two new post-graduate courses in shipping and logistics management and a PG diploma course in coastal resources and infrastructure management.