Infra status for logistics sector: Benefits could vary across segments

The extent of benefits the logistics sector will get from acquiring infrastructure status will vary from segment to segment even as lower borrowing costs for the players will come down.

“With the cost of borrowing coming down, areas like air cargo terminals and express truck terminals, which found no place in infrastructure earlier, could see sizeable investment,” says Chander Agarwal, managing director of TCI Express.

TCI Express, a subsidiary of parent Transport Corporation of India, is a specialist and leader in express distribution in the country. “For the express industry, the current average cost of borrowing is 7 per cent and is expected to come down by 200 basis points. This will lead to investments growing multiple times, bringing in quality and standardisation in operations,” Agarwal said.

TCI Express, which has plans to put in Rs 400 crore over the next five years, could increase its investment, keeping in mind growing opportunities coupled with lowered borrowing costs.

Meanwhile, the domestic cold chain sector, which received infrastructure status in 2012, is not expected to see any major change, say experts. 

Snowman Logistics, Coldstar Logistics, and ColdEX, among others, are part of the cold chain segment in India.

In warehousing, where private equity funding has been gathering pace, there could be a renewed interest from public sector banks (PSBs), insurance companies, and pension funds. Earlier, the three lending avenues had less exposure to the logistics industry since the sector was not regulated.

Allcargo Logistics, Blue Dart, Container Corporation, DTDC, Navkar Corporation, and DHL are among the warehousing companies in the country. Within the warehousing industry, industrial warehouses stand to gain more from infrastructure status. Agri-based warehouses already enjoy this benefit. However, margins for both kinds of warehouses will improve going ahead.

“Agri-based warehouses, which enjoy priority lending, due to infrastructure status will see the 23 per cent GST (goods and services tax) getting eliminated and borrowing for material handling equipment becoming cheaper,” said Hitesh Avchat, senior manager, Care Ratings.

Agriculture warehouse demand is catered for predominantly by government enterprises and the unorganised market. For industrial warehouses, benefits are across all ends, including cheap funding and lower borrowing for material handling, he said.

Most industry executives say that with infrastructure status for the logistics industry, interest rates will be lowered while GST implementation will facilitate business in the long run.