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Private equity (PE)/venture capital investment in logistics space has dropped to $32.94 million in 2014 (January-May 20), as compared to $166.53 million a year ago - registering a drop of around 80 per cent.
In the last five years, 2011 saw the highest PE investment into the sector at $288.32 million. Experts link the drop to economic slowdown, as this sector is linked to economy.
The other factors include drop in freight volume in ports, increase in cost of capital, perceived risk by PEs and increase in the duration of return from investments. Besides, PE investors are finding it difficult to get funding, and those financial institutions, which are willing to lend are doing so at a higher cost.
The logistics sector reported five deals, with a total value of $32.94 million in 2014, as compared to six deals with a total value of $166.53 million in 2013, according to VCCedge.
Some of the major deals reported in logistics space in 2014, so far, include Kedaara Capital investment of $32.86 million in Mahindra Logistics in March, followed by Lightbox Ventures I in Reverse Logistics, Agnus Capital LLP in Delyyer Retail Network. Ubida Solutions and AutoRaja Mobility Solution also attracted PE interest.
After Mahindra deal was announced Sunish Sharma, managing partner of Kedaara Capital, was quoted saying, "Third party logistics is one of the most attractive sub-segments of the Indian logistics industry. It is growing rapidly, driven by the recognition of efficiencies and competitive advantages added by integrated 3PL service providers and the growth of the underlying Indian economy. Mahindra Logistics is uniquely positioned to leverage these tail winds given its scale, differentiated capabilities and high quality professional management team."
While echoing Sharma's view on the Indian Logistics Industry's prospects, Anand Narayan, senior managing director, Creador Advisors India Private Limited said he is not surprised that investment flow is coming down considering overall PE investments has been coming down due to various factors. "Logistics industry is connected with economy, when economy improves investment flow to the sector will also improve."
Quoting a McKinsey study, Deloitte said, "Inefficiencies in logistics infrastructure costs the Indian economy an extra $45 billion, 4.3 per cent of the gross domestic product, every year. The study also warns a 2.5 times growth in freight traffic demand by 2020 (compared with 2010 levels) will strain India's infrastructure further."
However, such high demand prospects also presented an opportunity for logistics companies in India, said Deloitte.
The Planning Commission has budgeted for an initial logistics infrastructure investment of Rs 4.1 trillion over the 12th Five Year Plan period (2012-2017), double that proposed under the 11th Five Year Plan (2007-2012).
Dull macroeconomic conditions have weighed on the risk appetite of lenders. Such conditions have distressed developers, whose balance sheets felt greater stretch on low liquidity and cash flows compared with earlier years. This was further complicated by changes in project viability in many cases as initial traffic projections were deemed over estimated, said Deloitte.
