TVS Logistics ferries know-how

An acquisition strategy is helping the company add new capabilities

The $7.2-billion TVS Group is widely seen as a conservative conglomerate that follows a steady approach to growth. But one of the group companies, TVS Logistics Service Ltd, is proving to be an exception by pursuing an aggressive acquisition strategy. Over the next three years, the company has set a target of $3 billion in global revenues (including $1 billion from India), mainly on the back of overseas acquisitions.
 
The implementation of the goods and services tax (GST) is expected to boost the logistics sector and TVS Logistics believes it would be one of the beneficiaries, given that it is armed with global know-how and has a deeper understanding of local market.
 
There are two business models in logistics — one is asset-based and the other is knowledge-based which could be a major differentiator in terms of value add for customers, according to R Dinesh, managing director, TVS Logistics. In the last 10 years, the firm has invested $100-120 million to acquire new capabilities.
 
For example, the acquisition of UK-based Multipart helped the company gain expertise in management of aftermarket warehouses while US firm MESCO has helped it add core competence in the tool manufacturing supply chain. These acquisitions also added big brands such as BMW, Siemens and Coco-Cola to the company’s list of clients and helped add verticals such as IT and telecom to its portfolio.
 

R Dinesh, Managing director, TVS Logistics

While acquiring new capabilities, TVS Logistics had to tweak a few of the solutions to better meet logistical requirements of its Indian clients. The company trained its 120 personnel in the UK and 50 people in the US. “Prior to the implementation of the GST regime, we were either viewed as a labour contractor or transporter. We did not have a chance to offer our entire services in India,” says Dinesh. Now, TVS Logistics is seen as a supply chain partner. Post-GST, the company sees a huge opportunity in utilising global capabilities to power its India operations.
 
For example, TVS Logistics has been transporting engines for a manufacturer from a plant in south to one in north. The company used to transport 190 engines by truck with packaging, which took 72 hours. After implementing new capabilities, it is able to devise a collapsible packaging and nesting of the engine to prevent it from shaking. It is able to transport 384 engines in the same truck, reducing transport costs by half. Thanks to the restructured packaging, it also saves in packaging costs and has been able to achieve zero damages to the products. The value additions, the company says, has met customers’ needs to the extent that they are entrusting TVS Logistics with all inter-plant engine transport.
 
An example of its effect is the dip in the company’s revenues from one client from Rs 10 crore to Rs 5 crore, as it was transporting more engines with the same truck. However, Dinesh explains, “This is where our mindset is different. I said we will do the job in Rs 5 crore, but pay me Rs 5.5 crore, of which Rs 50 lakh will be my profit. The customer will happily do so because he is saving Rs 5 crore on account of the value addition.”
 
Another example involves assembling components for an engine used for gensets. Customers tend to buy small components from various sources compromising on the quality and the brand. TVS Logistics  applied for a manufacturing licence and bought, stocked and delivered these components to clients. Dinesh says by tailoring the technology for nearly a year to suit Indian conditions by rewriting procedures of the IT system, TVS Logistics is now getting more orders as against 30 per cent business’ orders earlier.
 
TVS Logistics is open to partnerships with infrastructure providers and truck operators. This, along with GST, will help the company scale its business. “Instead of saving 72 hours of delivery time, can we make it 30 hours of delivery time and 30 hours of stocking time as against 10 days? That is the kind of value that we are looking to provide to clients now,” says Dinesh.
 
TVS Logistics aims to close the year with global revenues of Rs 6,900-7,000 crore. India contributes about 30 per cent of the turnover. Five years ago, over 90 per cent of its revenues came from automotive. This has come down to 35 per cent, with the firm diversifying into industries including FMCG, technology, telecom and petrochemical.
 
TVS Logistics has established global centres of excellence in Madurai and the US, with two more (UK and Singapore) in the pipeline. The Madurai centre will focus  on building apps and solutions, the UK centre will work on contract logistics, the US centre on production and inbound supply chain, and the Singapore facility will look into freight forwarding solutions.
 
Ratings agency Icra, which has revised its outlook from negative to stable for TVS Logistics, has observed that its diversified capabilities and verticals across geographies reduce concentration risks on any single model or location. An asset-light strategy with fleet and warehouses taken on rent and cash balances in several investee companies has helped support its subsidiaries’ sustenance, although constrained within respective entities given the different regulatory structures in various geographies.