Ever expanding verticals among logistics firms is turning the sector lucrative for PE investors  Continuous flow of funds has been a major concern for logistics firms operating in the country. The situation further worsened during the global financial meltdown, when business shrank drastically causing logistics firms to incur huge losses. However, with the market reviving post-recession, logistics activities are gaining momentum and if recent developments are to be believed, the road ahead looks bright for logistics operators in the country. The sector has gained significant attention of private equity (PE) firms. In fact ports, warehouses and container freight stations have witnessed significant PE investments in the last few years. Some of the leading PE firms that have invested heavily in the sector in 2009 include India Value Fund, Fung Capital and BTS Investment Advisors Ltd and many more are expected to join the bandwagon this year.
Factors boosting PE investment in the sector
The sector turning lucrative for PE firms has not happened overnight. Several factors made the sector lucrative for PE firms. Existence of several verticals within the logistics sector happens to be a driving force behind PE firms’ interest in the sector. The industry is divided into various domains such air freight, rail freight, third-party logistics, reverse logistics etc and hence the scope of profit increases to a great extent. Apart from ports, warehouses etc, free warehousing trading zones, allowing duty free storage of imported goods, and cold chain facilities, used to store perishable food items, are also attracting significant investment from PE firms.
With significant increase in the number of logistics firms in the last decade and the sector sending signals of high growth rates in the coming years, PE firms have started considering this sector lucrative enough to bet upon. Moreover, several mergers and acquisitions taking place in the sector since the last few years have also encouraged PE investors.
PE investments have also been boosted by rapid industrialisation and growth in sectors such as retail and manufacturing, which has resulted in movement of goods in bulk, thereby fuelling the growth of the logistics sector.
Logistics sector benefiting from PE investments
Logistics firms are reaping huge benefits from the investments made by these PE firms. Apart from ensuring continuous flow of huge bucks, the same has helped the sector to improve upon its existing infrastructure and upgrade the same. Weak infrastructure leads to increase in logistics costs and investment made by PE firms is expected to play a big role in improving it. Resultantly, Indian logistics firms will be able to offer world-class services and match global standards in the coming days.
However, in order to attract more PE investment it is absolutely vital for integration in the sector as currently the Indian logistics market is highly fragmented. Few players are controlling the market stakes and therefore it is high time that other firms particularly the small and mid-sized ones are given opportunities to expand and help in the upliftment of the sector. Innovative business models need to be evolved by logistics firms so that PE firms become keener to invest in the sector.
Ms Madhubala, proprietor of Duropack, a mid-sized logistics firm in New Delhi |
