Global private equity firm Warburg Pincus and Bengaluru-based real estate developer Embassy Group are in an advanced stage of discussions to form a joint venture for setting up warehouses, which will require an initial investment of $130 million (about Rs 832 crore), two people familiar with the development said.
Warburg will invest $100 million (about Rs 640 crore) while the remaining will be Embassy’s contribution, sources added. With this JV, Embassy is set to enter the business of warehousing. The funds will go towards land acquisition and cost of construction.
To begin with, the JV company will set up warehouses in Chennai, Pune and Bengaluru to primarily serve the warehousing needs of the automobile industry. Industry experts, however, added that since Embassy already serves large e-commerce tenants like Flipkart in its commercial buildings, the new warehouses could also serve the requirements of the e-commerce industry in a big way.
“There are hardly any organised players in the warehousing sector, which is the gap Embassy is looking to fill. There will be a lot of emphasis on technology to manage these warehouses,” one of the sources said. FE could not ascertain what return expectations the companies have from the joint venture.
Emails sent to both Warburg Pincus and the Embassy Group seeking a response on the deal remained unanswered till the time of going to press.
Since the Modi government came to power in May 2014, several PE funds have shown a strong interest in the infrastructure and logistics space (including warehousing) on the back of the government’s renewed focus on incentivising the manufacturing sector, according to a Grant Thornton report.
Jaideep Ghosh, partner and head (transport and logistics), KPMG, said that logistics and warehousing in India is largely fragmented, which leaves a lot of room for Indian corporates and multinational companies to enter the segment. “The GDP growth expectations, policy decisions like ‘Make in India’ and growth envisaged in the airports, ports and road segments will drive logistics and warehousing space in India,” Ghosh said.
India’s warehousing requirement is expected to grow at an annual average rate of 9% to 1,439 million sq ft in 2019 from 919 million sq ft in 2014, according to global property consulting firm, Knight Frank. In a report titled “India Logistics and Warehousing Report 2014”, Knight Frank said that the additional demand for warehousing space is estimated at around 104 million sq ft till 2015 and will entail investments of R15,000-16,000 crore per year. Knight Frank, however, pegged return on investment in the warehousing industry to be between 12% and 20%.
Incidentally, Warburg Pincus announced an investment of R850 crore in a logistics firm, Ecom Express, on June 3.
“There is a significant need for logistics capacity in India to serve the requirements of the e-commerce industry, and businesses are seeking reliable service providers who can scale up with them,” Viraj Sawhney, managing director of Warburg Pincus India had said after the announcement of the deal.