Kotak Realty Fund is looking to invest close to Rs 200 crore in setting up a joint venture (JV) company with the DRS Group, a third-party logistics (3PL) company based out of New Delhi. The new entity, DRS Warehousing (South), will build and operate almost six warehouses in the southern region of India. “This is a special purpose vehicle (SPV) that we have formed for warehouse construction and management,” said a senior DRS Group official requesting anonymity.

The DRS Group is expected to have a 25% stake in the JV, while Kotak Realty Fund will hold the majority. According to sources close to the development, each warehouse will more than 2,00,000 sq feet and four warehouses will be completed before December, 2008.

“We have shortlisted a few places such as Hosur, Hyderabad, Jalagaon and Hubli where the warehouses will come up while the process of land identification for the other two warehouses is on,” added the official.

In 2007, Kotak Mahindra Bank’s Private Equity Group had invested almost Rs 100 crore ($22.5 million) in the DRS group. The second Invesment is significant and comes at a time when both investors and 3PL companies are investing heavily in warehousing and logistics segment. PE players have invested close to $90 million in the sector till date.

Earlier this year, the DRS Group had entered into another JV with Merrill Lynch to build eight warehouses in North India. Merrill Lynch, the majority stake holder, had invested close to Rs 300 crore in the JV. The DRS Group has already begun construction of warehouses at Jaipur, Delhi, Nashik and Ambala.

By 2008, 3PL service providers such as TNT, Transport Corporation of India (TCI), Blue Dart, Gati and Safexpress, are looking to create more than 25 million sq ft of warehousing space in India. Analysts believe that the segment alone will see investments of almost Rs 2,000 crore in the next three years.

With the phasing out of Central Sales Tax (CST), manufacturers need not manage their own warehouses and can comfortably outsource it to a third party. Earlier, in order to prevent being taxed under CST, manufacturers had to maintain multiple warehouses to show movement of goods from one company warehouse to another. Today, they are more than willing to outsource it to a warehouse management company and concentrate on their core business.

On the supply front, 3PL service providers are more than willing to invest in warehouses because of substantially higher margins in warehousing than any other segment of supply chain management.

Transportation of goods, across road, rail, air or sea, for instance, has profit margins at best not more than 20%. However, warehouses offer net margins on EBITA around 35% to 40%.

Source: Economic Times