PE firms bullish on logistics sector

As many as four deals were sealed in January.

The logistics sector has finally found some takers in India. Private equity investors are making a beeline for investing in supply-chain systems in India and are betting on the robust pace of Gross Domestic Product (GDP) growth.

After Blackstone, one of the largest PE players, invested in Allcargo, the perception towards this sector has been changing though slowly, say industry officials.

The sector, which has largely been underowned and underrated among all other sectors has suddenly discovered a new-found interest for PE participation. 
 

PAST INVESTMENTS
PE fund name	Amount	Target
IDFC PE Fund II	Rs 110 crore	Sical Logistics
Kotak PE	Rs 100 crore	DRS Logistics
Sidbi Venture Capital	$2.2 million	Direct Logistics
Reliance Capital	Rs 50 crore	BLR India
New Vernon	$13.3 million	Allcargo Movers
IDFC PE	$10 million	Delhi Assam Roadways

To put things in perspective, four deals were sealed in just one month i.e January.

Even though the sector is attracting huge investments, logistics stocks have underperformed in the market. Some of these stocks have even given negative returns last year, especially when market was going through a bull phase.

Companies such as Gateway Distriparks and Concor plunged by 15 and 4 per cent respectively during last year.

Even Allcargo Global which received a $60 million investment from Blackstone has given negative returns of 28 per cent.

Says Hitesh Kuvelkar, associate director, research, First Global Securities, "It is true that these stocks have not done well in the market. But, it is mainly because of cost-push inflation in this sector.

"Increase in petrol and diesel prices is having an adverse impact on these stocks, eroding their margins. Crowding up of more players will result in consolidation in the future. The investments that have been made in this sector will start giving returns only after a period of time."

Adds Rahul Khanna, director, Clearstone Venture Advisors, "It may be that these companies have significant debt on their books. These stocks seem to have been punished because they are not a momentum play like stocks in many other sectors. Moreover, all these companies are long-term stories, one has to wait and watch for value to emerge."

His firm has recently invested $4 million in Elbee Express, a express courier and cargo service provider.

"Elbee is not an asset intensive company. It is an end-to-end solutions provider, so it doesn't have to stretch its balance sheet, which made us go for it," said Khanna.

He asserts that lot of investments in this sector were overdue. "This is the best time to get into India as it is starting off its growth story via enormous infrastructure investments," he said.

Other investments that have been made in this sector recently include Bennett Coleman & Company Ltd into Airex Logistics and Express Services, Tata Capital into Quick Jet Cargo and Merrill Lynch into Om Logistics.

Last year, Kotak Mahindra Private Equity pumped 100 crore into DRS Logistics and IDFC's Private Equity Fund II invested Rs 1.1 billion in Sical Logistics.

Pinakiranjan Mishra, partner, Retail and Consumer Products Practice at Ernst & Young says, "With the entry of large corporations and global giants, the retail sector is expected to witness consolidation, disintermediation, increased cooperation amongst supply chain stakeholders, augmented logistical outsourcing and use of technology for optimal resource utilisation and greater customer satisfaction."

Experts estimate express logistics to grow at a rate of 25-30 per cent.

The growth rate of sector as a whole is expected to grow at a multiple to GDP growth.