Supporting the logistics movement

LEAP has the potential for higher revenue but environmental concerns will pose challenges

Two years ago, online furniture shopping firm Pepperfry.com was looking for pallets, the flat wooden structure used to keep packages stable during transit, of a unique size and specifications. Goods are first loaded on to a pallet, which helps the loading and unloading of goods during transit. Pallets help machines pick up and load goods tied up to it, reducing the manual effort in the process, saving cost and speeding.

The pallets available did not meet the requirements of the company. Then a start-up approached the firm and offered pallets with the desired specifications, ending its supply chain difficulties, says Ashish Shah, chief operating officer and founder of Pepperfry.com. 

The start-up is LEAP (Leading Enterprise in Advanced Pooling) India. The Mumbai-based company was founded in July 2013, and is in the supply chain solutions business, of offering pallets on rent and pooling equipment such as wooden pallets, plastic containers, wooden boxes and metal wire mesh. Its clients are Daimler, Mahindra, Lucas-TVS Ltd, Tata Cummins, Visteon, Honda, Toyota, Tata, Fiat, LG, Cargill, VulcanXpress, Pepperfry, Mondelez International, Blue Dart, Abbott, Carlsberg, Pernod Ricard and United Breweries.

The company has 600,000 pallets, nearly 200 employees, warehouses of four million square feet, operations in 54 cities and 522 touch points.

Sunu Mathew, founder of the company, approached more than 40 investors three years ago but a majority of them fended him off. Not the one to give up, Mathew raised around $3 million in May last year from Mayfield Fund and Rishabh Mariwala, and $13 million  in a Series-B round from IndiaNivesh Growth Fund, Sixth Sense and TCI Ventures, along with existing investors in January this year.

He is also enthused by the prospects that might come with goods and services tax, which will increase the demand for warehouses in the country. In order to bring in efficiency in the supply chain, scaling up these warehouses seems difficult without the usage of pallets. This is what LEAP specialises in. 

The start-up says it is the largest entity in the segment it offers. So far, the company has raised equity worth Rs 115 crore and debt of Rs 60 crore. The company plans to raise another round of debt, of Rs 150 crore.

Inception

A gold medalist in in Business Management, the Faculty of Management Studies, Institute of Rural Management (FMS-IRM), with experience in sales and supply chain with multinationals, Mathew always had entrepreneurial aspirations. He started a courier in Mumbai named 'Hind Courier' in 1998 and, on average, it was making a net profit of Rs 17,000 a month.

However, he left the business to join the cosmetics major L’Oreal, and became the company’s national logistics manager. Later, he joined CHEP, an international company dealing in pallet and container pooling services, and was instrumental in building its business in 2008. 

In 2013, Mathew decided to start LEAP India. The business had a good potential and companies in the market did not tap it, Mathew says.

LEAP’s competence lies in managing assets and inventories, and addressing logistics challenges. It provides end-to-end solutions to its clientele for movement of products.

Pallets have a life of 20 years and each pallet will break-even in 2.5-3 years.

It has strategically aimed at very few, but strategically important, companies as its clientele helped it to attract other customers.  The company says its valuation has increased three times in the past 12-18 months and investors are betting in the company. 

“They are also fairly well-connected in the business and they were able to procure things really well. I find them a really a customer-centric company,” said Shah.  Though the company has been making profits, no senior person spends more than Rs 3,000 on a journey by plane. 

The market 

A report compiled by Persistence Market Research had forecast that the pallets market in India would be valued at $971.9 million (Rs 6,223.1 crore) by the end of 2016. The manufacturing and warehousing sectors in India will be instrumental in the growth of the pallets market, while environmental concerns such as deforestation will impact its future. Not just wooden pallets, pallets made of sturdy polymer materials, metals and alloys could face restrictive environment policies in India. 

The key players in the India pallets market include Swift Technoplast Pvt. Ltd, Mekins Group, Schoeller Arca Time Material Handling Solutions, Total Pack, Saraswati Engineering Ltd, DNA Packaging Systems, Doll Plast Pallets and JIT Wood Packaging, apart from LEAD India. 

The India pallets market is highly fragmented, with the unorganised sector accounting for a larger share of it. Key players focus on launching products and forming strategic alliances and joint ventures, said the report. 

Way forward 

The company, expected to close the financial year with a revenue of about Rs 50 crore, has set a target of Rs 175 crore by 2019-20. The start-up says it will increase the number of foldable containers to 45,000 from 15,000 and the number of pallets from 600,000 to 1.5 million. 

With new funding coming in, the company will utilise the money to strengthen its team and develop an asset pooling service in this largely unorganised market.

Expert Take

Girish V S

Pallets and reusable packaging business is well established in developed countries, reducing the cost of supply chain management and environment pollution. For instance, Hindustan CocaCola is using pallets in their factory and that has reduced the time of loading from eight hours to 30 minutes. 

Globally about 1.3 billion pallets are expected to be available by 2017. In India, it is at a nascent stage.

Supply chain cost as an overall component is 13-14 per cent of the price, while in the developed nations it is about eight per cent. The trend that could drive reusable packaging in India is multinational majors. They can insist on reusable packages for two reasons — cost savings and to address environment concerns.

LEAP India is into pallets and reusable container business. Success of LEAP’s model depends upon its ability to convince people to use pallets. Indian companies are yet to address the supply chain management issues as they are busy addressing manufacturing inefficiencies.

Sunu Mathew understands the sector very well and he has addressed the operational issues with his experience in CHEP. Starting from a lower base, his ability to grow becomes much higher. He has a high amount of goodwill among customers.

The initial growth prospect for a company like LEAP is they should be able to double their business every year for almost next five-six years. If it can be an early adopter of the global trends in India, they can go long way.

Girish V S, executive director, Institute of Supply Chain and Management Pvt Ltd