Investment in the temperature-controlled logistics industry in India is expected to grow at an average 20-25 per cent annually as the segment begins to look more attractive to private equity
and real estate
Snowman Logistics, ColdEX Logistics
and DHL Express
are some of the organised players in the temperature-controlled logistics industry dominated by unorganised players.
“Since this industry stands on a low base of investment, there is ample scope for growth here starting from warehousing to value-added services,”said Gopal R, global vice-president, supply chain and logistics transformation practice, Frost & Sullivan. “Private equity
funds that had underinvested in this segment in the past are now coming into the industry with a longer, 7-10 year, horizon,” he added.
The industry typically comprises temperature-controlled warehouses and transportation with little value addition. It draws its investments largely from logistics players. Private equity
firms have refrained from having a strong investment presence because the industry demands high capital investment with no quick return on investment.
players present in the warehousing industry are also eyeing temperature-controlled logistics for deeper and long-term presence. “Warehousing infrastructure is critical and, in fact, at the heart of the temperature-controlled logistics industry. Real estate companies
that are into warehousing are also keen to put up cold storage facilities,” said Gopal.
With real estate
and private equity
firms targeting different parts of the temperature-controlled business for investment, a new partnership pattern is beginning to emerge within the industry. A typical logistics company looks to high net worth individuals or private equity
firms for infrastructure and real estate companies
“This industry is growing at a satisfactory level, but this cannot be a money multiplier option. This is a capex-heavy sector and returns are not overnight. Long-term players make fairly good money,” said Sunil Nair, chief executive officer at Snowman Logistics.
Snowman Logistics reported a loss of Rs 2.22 crore in 2016-17 with its return on capital employed a negative 0.23. This is for the first time since its listing in 2014 that the company has posted a loss.
Though investment is set to pick up in this segment and growth projections are promising, industry executives said, “Companies
have still not figured out in terms of active customer acquisition and, therefore, the pace of investment will be cautious,” said Gopal.