Growing Role

PE participation increasing in the logistics sector

India’s logistics sector has been a favoured investment avenue for both domestic and foreign private equity (PE) firms. Increasing demand from the e-commerce, fast moving consumer goods, third-party logistics, consumer durables and manufacturing sectors along with a need for larger-sized warehouses have opened up the segment for organised, institutional players. The sector has been on the radar of institutional investors due to policy game changers such as the Make in India initiative, implementation of the goods and services tax (GST), and grant of infrastructure status to the logistics sector. Rising incomes and internet penetration resulting in an e-commerce boom are also driving the growth of the logistics industry, particularly the warehousing market and express delivery services. While the warehousing segment has received an investment of over $3.4 billion in the past three-four years, there has been growing PE interest in the transportation segment as well. Meanwhile, technology-focused logistics ventures have also become lucrative propositions for investors.

PE trends

Logistics companies have, in the past, often been funded by debt sources such as term loans. In recent times, though, equity has played an important role in meeting their financing requirements. Investment experience in the past few years has shown that the bulk of the investments have gone to third-party logistics companies and transportation logistics providers.

During the period 2013-14 to 2018-19 (till February), there were a total of 53 deals valued at Rs 97 billion in the logistics space. Activity peaked in 2016-17 with 13 deals garnering an investment of around Rs 45 billion. Fund infusion of Rs 10 billion by Canadian institutional investor Caisse de dépôt et placement du Québec (CDPQ) in TVS Logistics Services and an investment of around Rs 8 billion by Warburg Pincus in Stellar Value Chain Solutions were some of the big-ticket deals driving PE activity in 2016-17.

The momentum continued in 2017-18 and 2018-19 (till February) with 10 and 12 deals, respectively, being struck. Deal values, however, remained low, ranging between Rs 10 billion and Rs 17 billion in both fiscal years, due to smaller-sized deals. Some of the noteworthy ones are the acquisition of a 98 per cent stake by Samara Capital and Xponentia Fund Partners in Spoton Logistics for Rs 7 billion and an investment of Rs 3.22 billion by SAIF Partners and Warburg Pincus in Rivigo Services, among others.

Burgeoning interest in warehousing and express delivery

Within the logistics sector, things started moving in favour of the warehousing industry as initiatives such as Make in India gained ground and the GST was implemented. Developers today are focusing on the development of large-scale, technologically advanced warehouses, unlike earlier when small warehouses were set up in various states. Large warehouse assets are attracting PE firms as they can deploy larger amounts in fewer assets, thus making asset monitoring easier. Moreover, well-performing assets fetch a better valuation when monetised through real estate investment trusts. PE players, including Brookfield Asset Management and Warburg Pincus, have been among the most active investors in the warehousing space.

More recently, the main catalyst for the logistics sector has been the consumption push led by the e-commerce sector. A notable trend has been the rising interest of PE players in the supply chain side. Companies at the growth stage are raising funds from venture capitalists and via seed funding. In the past two-three years, there have been multiple rounds of funding in companies such as Ecom Express, Delhivery, BlackBuck, Wow Express, etc.

Tech-enabled start-ups offer opportunities

New-age logistics startups have begun to attract increasing investments too. With the internet disruption, as more and more small and large businesses are seeking to leverage technology to move their goods, the digital freight logistics sector has become attractive to investors. For instance, in April 2018, Nexus Venture Partners invested Rs 130 million in Pando, a digital logistics company. In the same month, Accel Partners invested Rs 400 million in digital freight forwarder, Cogoport. Recently, Lightspeed invested an undisclosed sum for a minority stake in Freight Tiger, a logistics software provider for freight forwarders. Meanwhile, during the on-going fiscal year, investments have been made in logistics start-ups such as Locus, Hey Deedee, Loadshare, and Mojro, among others.

Investments via partnerships/platforms

A number of global investors have been eying the country’s logistics space and have entered into partnerships with domestic real estate developers to invest, develop and manage logistics facilities across the country. Last year, the National Investment and Infrastructure Fund joined forces with DP World for a $3 billion infrastructure platform for ports, terminals and logistics. The joint venture company, Hindustan Infralog, in its first transaction has acquired a 90 per cent stake in Continental Warehousing.

Besides, in October 2017, Ivanhoé Cambridge and the QuadReal Property Group partnered with LOGOS India to form the LOGOS India Logistics Venture, which will invest up to $800 million in logistics facilities in select cities. The $800 million investment comprises the $400 million equity capital infused by Ivanhoé Cambridge and QuadReal Property Group and another $400 million of debt finance that is yet to be raised. LOGOS India is a joint venture (between Macquarie-backed Logos Property Group and Singapore’s Assetz Property Group) set up to invest and develop logistics assets.

A more recent instance is Everstone Capital’s partnership with global logistics services provider GLP to launch a $500 million joint investment vehicle which will invest in non-real estate logistics including warehouse technology, express logistics and last-mile delivery.

Outlook

With the growing Indian economy and changing business outlook, the scope of the logistics industry has broadened from the rudimentary transportation of goods to include end-to-end supply chain solutions, including warehousing and express delivery. Warehousing has emerged as an attractive asset class for investors. Joint ventures, and mergers and acquisitions are abundant  in the segment. The development of the Delhi-Mumbai industrial corridor and dedicated freight corridors and the expansion of the road network have improved the prospects for the segment. Meanwhile, the e-commerce boom will continue to keep investor interest high in express delivery companies.

The Make in India initiative and increased infrastructure spends will give an impetus to the manufacturing and allied sectors. This will automatically translate into a higher demand for logistics and warehousing. With the implementation of GST, the logistics sector will move towards becoming more organised. This will certainly see PE interest in logistics going up. The government’s stimulus to formalise the sector by granting it infrastructure status will also drive investments as companies in the logistics and warehousing segments will be able to access funds at lower cost, longer tenors and enhanced limits. As a result, the logistics industry is on the path of unprecedented growth and this is resulting in heightened investor confidence.

Ishita Gupta

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