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PEs bet big on transport and logistics firms

Despite the policy brouhaha, private equity players are still gung-ho about the transport and logistics industry. The last two months have witnessed almost seven PE deals worth more than $100 million in this space.

“There was a time when no one would have given even a cigarette to a transporter but today people are investing in our companies,” says DRS Group joint MD Ramesh Agarwal. So, what makes this hitherto down-in-the-dumps industry interesting now? A proposed CST phase out, investments in infrastructure and technology as well as jump in manufacturing outsourcing are driving the demand for logistics solutions.

Integrated logistics players offering a wide distribution network, technology and warehousing facilities are likely to be the key beneficiaries of higher logistics outsourcing by corporates. According to the Kotak Institutional Equities report on logistics, integrated players are investing in distribution networks, technology and warehousing facilities, which would enable them to grab market share from unorganized players and witness 33% CAGR in revenues in FY06-08.

On the back of this wave, PE players have also made big bets on this sector. These players are looking at investing in any sector that subsitutes the use of public goods by Indian enterprise. In essence, any private transport and logistics company that frees the small and medium enterprises from relying on public utilities and increases efficiencies.

“We are looking at investing in sectors that reduce infrastructure bottlenecks. Efficient logistics will reduce transaction costs and make Indian companies competitive price-wise,” says Luis Miranda, president amd CEO, IDFC Private Equity. Incidentally, IDFC was the only PE player to jointly bid with GMR for the Delhi Airport privatisation project.

Recently, IDFC invested $25 million in Sical Logistics after investing $10 million in Delhi Assam Roadways Corporation Limited, a Delhi-based transport provider. “The logistics space and infrastructure segment has got more visibilty on account of the manufacturing success in India. Each breed of money is for a specific form of investment, for us PE will help grow as a inter-modal logistics solution provider,” says Karthik Menon, director, Sical Logistics, Chennai-based integrated logistics company.

Sical has plans with the PE funds, first to divest its non-logistics businesses which include trading, services, refractory, auto, drums, agri-bio products, specialty chemicals, flexible shafts and coffee plantation undertakings.
“Around 12-14% growth in manufacturing and huge consumption in retail makes the sector exciting. We have focussed on moving goods because of the improving road infrastructure,” says Nitin Deshmukh, head Private Equity, Kotak Mahindra Bank which recently invested $22.5 million in the DRS Group, a Delhi-based integrated logistics service provider.

The group has utilised the funds towards increasing its presence in various segments such as road transportation, parcel services, packers & movers, warehousing and third party logistics.
“The logistics industry is witnessing a radical shift. While earlier, service providers would concentrate on a single segment, we have realised that we want to create our presence across all segments of the supply chain,” says Mr Agarwal of DRS Group.

Source : Economic Times

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