Proposal for FDI in retail spurs demand for allied services.
Thinklink Learning, a Delhi-based start-up focusing on training people with different skill sets for the entire supply chain management space, is at present in talks with a couple of international funds and a domestic venture fund for early stage funding. In the road transport space, India Equity Partners recently picked a controlling stake in TNT Express. Mumbai-based road transport operator DLR logistics is also negotiating with a few investors for growth funding, according to people familiar with the development.
Private Equity (PE) interest in the space surrounding big retail such as road transport and skill development has seen a sudden spurt of interest following a recent Cabinet nod for foreign direct investment (FDI) in retail. True, the government move has been kept in abeyance, but activity has picked up. In fact, a few such companies in the so-called logistics service providers (LSP) space are close to sealing funding deals.
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Experts say the fine print of the cabinet proposals has put the spotlight on back-end infrastructure. According to Manish Saigal, national industry head (transport & logistics) of KPMG India, the new FDI policy will make an impact on back-end integration. “This activity would be largely outsourced LSP, covering warehousing, primary and secondary transportation, international logistics and other value-added activities to supplement efficiency of the supply chain,” he notes. “The focus on this area has been emphasised by the ruling that specifies a minimum 50 per cent investment in back-end infrastructure.”
Saurabh Goyal, chief executive with Thinklink Learning, is upbeat. “We are looking to close the deal by early January and rollout our first centre by February,” he told Business Standard. Goyal is planning to set up separate training facilities for blue-collar workers and white-collar skills for graduates. White-collar skills include training in operations such as purchasing, storekeeping and sales. Blue-collar skills include driving and maintenance of vehicles. DLR Logistics officials were not available for comment.
According to reports, National Skills Development Corporation has estimated a shortage of 20 million skilled workers in the retail space.
Experts say funding has remained a key problem in the sector, whose potential is of little doubt. “The key problem is that the aspirants for such training lack the finance to undertake such courses,” notes Sujan Hajra and Atul Thakkar of Anandrathi Research. “The organised financial system also does not extend such funding due to high transaction cost for such small loans and the lack of bankable collateral.”
At present, corporate groups like ITC, Shopper’s Stop and Future Group’s have developed in-house skill development facilities to cater to captive needs. Analysts say such initiatives will provide the much needed push for the sector. “As the scale of such training increases, vocational training is likely to take off in a major way,” says Hajra and Thakkar in their report titled ‘Indian Education-$45 billion private education opportunity’.
Similarly in the road transport space, a lot of family-owned operators have a dominant position. But, with the entry of multi-nationals, there is a requirement for the sector to get more organised. There is a lot of scope for these companies operating with traditional business models, to optimise operations and improve margins, say experts. PE funds sense this as an opportunity to create value in such firms.
According to Nikhil Naik, chairman of Eredene Infrastructure, a PE fund focused on India’s infrastructure companies, FDI proposals in retail will benefit the organised logistics sector as it is expected that MNC operators will require better professionalism in the sector. “Besides liberalisation in retail will incrementally increase the volumes required in the business and this will fuel an expansion in the sector,” he adds.
Experts say multinational corporations continue to show a lot of interest in the logistic space. “Policy paralyses, fragmentation of the sector in India, lack of price elasticity for quality service are some of the concerns,” notes Naik. “The sector needs a galvaniser such as the GST or retail FDI to increase interest and spur investment.”
