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PE investments into the sector saw 43 per cent growth in 2012 at $280.87 million against $195.26 million in the previous year. According to experts, the sector has been able to attract more PE investors because freight business has shown signs of stabilisation and the sector has witnessed a rise in opportunities for growth.
In 2012, the sector witnessed 14 deals, up from 10 deals in 2011. In 2013, the sector has till date attracted $58.01 million in two deals, including PE-firm Everstone Capital Advisors' Rs 220-crore (around $40.8 million) investment for a significant minority stake in Transpole Logistics, according to data from VCCEdge.
Some of the other notable deals concluded in the past two years include Warburg Pincus' $100-million investment in Chennai-based Continental Warehousing in April 2011, General Atlantic's $104-million investment in Fourcee Infrastructure Equipments Pvt Ltd in January 2012, Mauritius-based Nalanda India Equity Fund's $41.05-million investment in Great Eastern Shipping, the $53-million fund infusion by KKR and Goldman Sach in TVS Logistics Services, and New Silk Route's $40-million fund infusion in VRL Logistics Ltd in April 2012.
According to a PE sector expert, logistics is expected to be one of the top five sectors to attract PE investments in India in the near future. According to him, the average deal size would be in the range of $20-25 million.
Ritesh Chandra, executive director of Avendus Capital recently told in an interview that while the sector used to be disorganised with regional players taking control of each operations, that trend is currently changing towards one player handling the end-to-end logistics services for a customer. PE firms expect there will be a lot of activity in the logistics sector, thanks to foreign direct investment in multibrand retailing and introduction of goods and services tax regime, which would change the current system of logistics, among others.
In this context, logistics companies will have to come with new solutions and new value-added services, according to experts.
The sector offers good free-cash flow, and a higher growth rate. In terms of turnover, too, the sector is healthy, experts say. R Dinesh, managing director of TVS Logistics Services Limited, which raised $53 million from KKR and Goldman Sachs in April 2012, said the logistics companies require capital if it is growing at 10-20 per cent a year and one of the two major options available for fund raising is from PEs.
Apart from capital, PE players bring their networking capabilities, forex, opening to a new country and new customers for the investees. Besides, the sector witnessed some good exits, attracting the investors towards the better performing players in the sector.
According to Venture Intelligence Data, Mayfield's exit from Fourcee Infrastructure in January 2012 at a deal amount of $34 million is one of the highest since 2010. The fund exited with 6.72x.
In 2012, some of the major exits include Eredene Capital from Sattva CFS & Logistics with 5.9x at a deal amount of $1.7 million in January and TVS Capital exited with 2.29x with a deal size of $2 million from TVS Logistics Services in April.
However, there were very few investments in the sector in the past two years, particularly compared with the fair share of investments the segment attracted in last six to eight years, according to Manish Saigal, head of transportation and logistics at KPMG.
He added, "There have been a few investments in the last couple of months, but many more should have happened in the meantime, if the sector was attracting the investment in the pace it required to be," said Saigal. "There is still a mismatch in valuation expectation."
However, companies which are in niche segments, with strategically placed terminals or assets and good profitability, still attract investment. The deals that happened recently were of this kind and even those deals were in discussion for long period, said Saigal.
According to a recent Cushman & Wakefield report, the Indian logistics industry is expected to grow at 15-20 per cent annually, touching revenues of $385 billion by 2015. The potential shows that the industry would also see an increased amount of PE investments in future.
