Logistics
Content
White Paper On LOGISTICS INDUSTRY IN INDIA
Indian Logistics Sector : Overview Logistics Break up
ƒ The The market size of Indian Logistics sector in 2007 is US$ 9.75 Bn ƒ Out ƒ Out of the total logistics cost, transportation accounts for 39%
Warehousing
Transportation
Inventory & Order Processing
Administration
4%
while warehousing, packaging and inventory contributes 24%. ƒ Roads ƒ Roads dominate the transportationsector‐70% of the total
27% 30%
domestic product moved, followed by Rail at 15% The
organized logistics market is estimated at 6%, 39%
projected to witness CAGR OF 25% by FY11 to become a US$ 15 Bn industry.
Share of Logistics in GDP(%)
18
Logistics cost facilities in India is 13% in 13% of GDP compared compared to infrastructure 11% in Europe and 9% in the U.S. Higher spending
13
11
11
10
is largely attributed to poor infrastructure facilities. Evolution of Logistics 3PL h Services
Outsourcing Outsourcing of logistics to 4PL‐a BPO/KPO providing comprehensive supply chain solutions using 3PL.
Early
l
dd b
Outsourcing of logistics to 3PL, who value add by integrating various standalone logistics services
l
China India i ti C t t ith
Companies manage their own logistics .Contract with standalone service providers for transportation , shipping, forwarding
EU
l
Japan i ti &
USA t
Companies manage their own logistics & own assets such as vehicles, warehouse‐ houses, etc.
Indian Logistics Sector : Overview Logistics Break up
ƒ The The market size of Indian Logistics sector in 2007 is US$ 9.75 Bn ƒ Out ƒ Out of the total logistics cost, transportation accounts for 39%
Warehousing
Transportation
Inventory & Order Processing
Administration
4%
while warehousing, packaging and inventory contributes 24%. ƒ Roads ƒ Roads dominate the transportationsector‐70% of the total
27% 30%
domestic product moved, followed by Rail at 15% The
organized logistics market is estimated at 6%, 39%
projected to witness CAGR OF 25% by FY11 to become a US$ 15 Bn industry.
Share of Logistics in GDP(%)
18
Logistics cost facilities in India is 13% in 13% of GDP compared compared to infrastructure 11% in Europe and 9% in the U.S. Higher spending
13
11
11
10
is largely attributed to poor infrastructure facilities. Evolution of Logistics 3PL h Services
Outsourcing Outsourcing of logistics to 4PL‐a BPO/KPO providing comprehensive supply chain solutions using 3PL.
Early
l
dd b
Outsourcing of logistics to 3PL, who value add by integrating various standalone logistics services
l
China India i ti C t t ith
Companies manage their own logistics .Contract with standalone service providers for transportation , shipping, forwarding
EU
l
Japan i ti &
USA t
Companies manage their own logistics & own assets such as vehicles, warehouse‐ houses, etc.
Maturity Stage Stage India,Vietnam Source: GATI Industry report
China, Indonesia
USA, UK, Japan
Indian Logistics Sector: Key segments
Indian Logistics Market in 2007
Road Freight Market
Express Logistics Market
Size US$ 18.29Bn Industry growth 10‐12% PBIT Margins 2‐ 3% ROCE 12‐ 15%
Container Logistics Market
Size US$ 1.73Bn Industry growth 20 % PBIT Margins 12% ROCE 20‐ 25%
Size US$ 2.44Bn Industry growth PBIT Margins ROCE
Liquid Logistics
Market Size NA Industry growth 15‐ 20% PBIT Margins 50% ROCE 30%
Container Haulage Market
Size
US$ 1.34Bn Industry growth 15% PBIT Margins 25% ROCE 30%
CFS/ICD
Market
Size
US$ 0.61Bn Industry growth 15% PBIT Margins 25% ROCE 15%
MTO Market Size US$ 0.49Bn Industry growth 8% PBIT Margins 5‐ 6% ROCE 25%
Source: TCI, GATI & All Cargo
Indian Logistics Sector: Key segments(Cont’d) & the Dominant Players
Road Freight •
Higly Intensive
• Entry
Express • Asset intensive • Asset light
•
• Entry
barriers: Low
barriers: High
• Low profitability
High in document business
needs: ‐Low service cos t ‐Non time se‐ nsiti ve
Customer needs: ‐Cost efficiency ‐High time sensitiv e •
Blue Dart Gat
CFS
MTO
• Asset intensive
Bulk Liquid • Asset
Asset Intensive fragmented • Entry
•
•
Competiti on: High at key gateway ports
• Customer
• Customer
needs: ‐Scheduled
needs: ‐Quick
barrier: High
•
Competiti on: High
• Customer
needs: Network
turnaround time strengths Service quality CONC OR
• Entry
barriers: Low
•
haulage: Dominate d by CONCOR
servic es ‐Strong ICD netwo rk
• Entry
barriers: Medium
Competition : Low in rail, high in road • Rail
•
Competition:
• Cutomer
Container haulage
Competiti on: Low
• Customer
needs: ‐Port connectivity . Integrated service offerings
Transport Corporation
Gateway Distriparks
All Cargo
Aegis
fragmented
L
fi
bili
R il hl
C
i i
Indian Logistics Sector : Demand side Growth Drivers India’s share in world Trade •
At present, India’s share in foreign trade is 1 %.
• The growth‐oriented annual review to the Foreign Trade Policy will boost Indian exports and
help the country achieve the ambitious target of 5 % share in world trade by 2020.(Source: CII Survey)
India's Import‐Export(in US $ Million)
25000 0 20000 0 15000 0
6384 3
7815 0
11151 8353 7 6
13842 8
149166 161960 21%
10000 0
21089 5
28%
83536
103091
Total Import
112637
5000 0 0 2003‐2004
2004‐2005
2005‐2006
2006‐2007
Growth in Export Growth in Import Total Export
2007‐2008
Source: Commerce Ministry
Growth in manufacturing sector is a trigger for Indian Logistics Industry
Source: GOI
Indian Logistics : Demand Side Growth Drivers ƒ
Automobile Market India has emerged as one of the most preferred destinations for MNCs to outsource their manufacturin g activities: and for India, a multi‐billion dollar opportunity. • Third party logistics providers will play a greater role in the automotive industry in the future thanods merely transporting
goods. They will be required to provide end‐to‐end supply chain logistics services for which they will have to develop requisite competencies and asset‐based networks. • Automobile manufacturers such as Hyundai, Nissan and Renault, and others such as the Nippon Yusen Kaisha (Japan) and the GBA Group (UK) are
also themselves constructing a multi‐level car park facility inside the Chennai port — a port out of which over 100,000 cars are currently exported. The Rs 500 million facilities to park around 6,000 cars are likely to come up in the next few months at the Chennai port's existing North Quay.
ƒ
Electronic Goods market • Technology drives exports sky high. Driven by a low‐cost, highly‐educated and skilled workforce, more and more multinational manufacturers are
setting up Indian operations. Other massive producers, like Nokia, ABB and Siemens, have all committed to Indian manufacturing.
Pharmaceutical Market • India's pharmaceutical industry is one of the fastest growing sectors in Indian economy with an average annual growth rate of 11.42 percent during
2001‐2007. The industry crossed $ 6.5 billion in 2007. Indian pharmaceutical industry has the potential to reach $ 25 billion by 2010. • Logistics is regarded as a crucial part of the pharmaceutical industry since the activities are highly time sensitive. In
Source: Mckinsey Report
Indian Logistics : Demand Side Growth drivers(cont’d) Retail Retailing, which today makes up less than 4 percent of the overall market, is expected to grow to $60 Bn & increase the overall retail market by CAGR of 21.8 percent by 2015. Organized retailing is poised to take‐off as: Significant mall development occurs. By 2010, there will be 600 malls and 300 million square feet, respectively.
Reliance plans to open 4,000 stores and hypermarkets with a target of $22.3 billion in sales by 2011
Wal‐Mart and Bharti have form a joint retailing venture.
Pantaloon aims to grow its stake hoping to top $6 billion by 2011 by opening an additional Big ƒ Bazaars . ƒ
Others specialize. M iWoolworths, W ld Tata group, in a joint venture with plans to double outlets by the end of 2009. •RPG •RPG Enterprises plans to open over 450 MusicWorld stores covering 4 million square feet by 2010. •Birla , through its Trinethra acquisition, opened around 220 stores last year alone. •Rahejas plans to add 55 ‘Hypercity’ hypermarkets. Orga nize d re tail penetration 25
in 2007 (%)
22
20 15 10 5
12 9
8
3 5
2
1
1
ƒ The most critical parameter for retail services to succeed is reach as far To possible. retail logistics as
0
ƒ To increase retail penetration logistics will be used on a large scale
Source: Mckinsey Report on Apparel
Indian Logistics : Growth Drivers Demand Side
ƒ Increase in Disposable Income
• The total annual income of Indian households will
Growth in Disposable Income (%) 8 6
increase from approximately 23.5 trillion
4
Indian rupees today to almost 90 trillion
2
Indian rupees in 2025, a 3.8 times rise • Leisure travel is expected to grow at a CAGR of 6.2%
7.4
57 5.7
6
6.4
0 1985‐1995 1995‐2005 2005‐2015F 2015‐2025F
over 2005 to 2025F Source: McKinsey- The Rise of India’s Consumer Market
ƒ Rising Population • India currently has the second largest 2030 when it will reach an estimated 1 6 billion population in the world, but it will
surpass China as the largest by 2030, when it will reach an estimated 1.6 billion. • India’s population will be youngest and
possibly most highly educated in the world. • By 2010, 45 percent of its population will be in the
prime‐spending demographic of 20‐49 years of age
Source: McKinsey- The Rise of India’s Consumer Market
Indian Logistics Sector : Growth Drivers Supply Side
Growth of logistics industry largely depends on infrastructure di d Government f i l h l and d bentryi of i fprivate players d l has availability. spending led to boom in infrastructure development.
Infrastruc ture Developm ent heads
Rail
Road
Airports
Ports s
Rail
Road
Airports
Ports
Indian Logistics Sector : Growth Drivers Supply Side (PORTS) India has 12 major ports and 185 minor ports. 12 major ports handle75 % of the traffic. Following are the 12 major ports and their advantages Kandla: world class, multi‐cargo, driver of economic ƒ
The 12 major ports of India
growth; Mumbai: leading world class, multipurpose city based port in SE Asia; JNPT: India’s premier container port with integrated logistic services; Mormugao: preferred port for the region; New Mangalore: a leading liquid and multi‐cargo port; Cochin: gateway to the West Coast of India; Tuticorin: preferred distribution hub of India; Chennai: futuristic port with a foresight; Ennore: to develop as a mega port, Eastern gateway; Visak : the most preferred port in South Asia; Paradip: cost effective, maximise taxpayers’ funds; Kolkata: major sea‐river gateway, quality services.
35 0 30 0 25 0 20 0 15 0 10 0
50 0
Thro
ugh
NMDP phase I for sprucing major ports
put
investment required US$ 14.8 billion by 2012
per port in MnT ons
Traffic expected to grow @ 10% p.a.
2007‐ 08 2011‐12
Phase II of US$ 4.92 billion for minor
ports
Maritime Development Work is in
progress in 101 projects covering inland waterways
2025‐26
Plan allocation for Department of Shipping increased by 37 per cent to US$ 179 Mn.
Source: Ports Association of India
Indian Logistics Sector : Growth Drivers Supply Side (ROADS ) Indian Road Network
• India
has
largest
the
second
highest
road network‐3.3 million
km. • National Highways‐2% of total road
length of goods US 65 but biili carry 40% t 50000 traffic of India. • US$
65.85
biilion
needed
to
develop 50000 km under NHDP 369000 of roads pgrade • US$ 324.4 billion requiredto develop 369000 km of rural roads & upgrade another East Corridors at 368000km • Golden
Quadrilateral
(GQ)
and
the June’ &North‐ South, by end East‐West 2008 Corridors‐ progressing at the rate of 4.48 kms per day • 96 per cent of GQ to be completed by
June 06 & Corridors by the end of 2008 Source : KRC Weekender
Indian Road Network Program….completion by 2009
Indian Logistics Sector : Growth Drivers Supply Side (RAILWAY)
Indian Railway •
Indian Railways makes 70% of its revenues and most of its profits from the freight sector.
Drivers •
Railways to build cargo terminals in 50
major locations.
•
Privatization of cargo terminals on railway land
•
53 new trains to be introduced & 15,000 freight wagons to be added
•
US$ $ 7.31 billionbto be spent on network expansion US$ 12.1 billion invested in new projects
•
US$ 6.1 billion for technical modernization
•
The dedicated freight corridor (DFC) of the
•
railways is now set to take off. •
Freight charges for petrol and diesel cut by 5 percent
Source : Railway Budget 2008‐09
Indian Logistics Sector : Growth Drivers Supply Side (AIRPORTS) Upcoming Airports ƒ Maharashtra: Sindhudurg & Chakan
ƒ Haryana ƒ Karnataka: Hasan Bijapur, Shimoga, Hasan & Gulbarga ƒ Andhra Pradesh Nellore, Ongole,Tadepallegundem, Bobbilli, Kurnool, Ramgundem & Kothagundam
•
35 currently operational airports to be modernized
•
Expected growth in next 5 years ‐ Passenger 15% & Cargo 20%
ƒ Arunachal Pradesh: Itanagar & Tareay
ƒ Assam: Kourajajham Nagaland: ƒ Sikkim: Pekyoug ƒ Nagaland: Nagal ƒ West Bengal: Dum Dum( Cargo Hub)
• Investment required Rs. 400 billion over next 5 years, out of which 100 billion will be spent for developing Greenfield airports.
Source: www.allheadlinenews.com, January 24,2008
Key Financials of major Logistic Companies in India
Rs. In Essar Shipping Ports & Logistics Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 640.79 856.96 749.51 1036.77 Net Profit 129.55 288.62 185.23 134.04 20.22% 33.68% 24.71% 12.93% Net Profit Margin (%) Aegis Logistics Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 80.80 120.54 154.50 240.35 Net Profit 23.60 30.20 13.08 8.55 29.21 25.05 8.47% 3.56 Net Profit Margin (%) Shreyas Shipping & Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 76.90 96.84 124.11 134.93 Net Profit 7.31 27.00 34.34 29.55 9.51% 27.88 27.67 21.90 Net Profit Margin (%) Gati Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 306.15 359.19 456.12 457.37 14 49 23 36 Net Profit 5.55 14.49 20.07 23.36 1.81% 4.03% 4.40% 5.11 Net Profit Margin (%)
2007‐08E 979.87 174.61 17.82% 2007‐08E 344.99 37.89 10.98 2007‐08E 165.65 21.22 12.81 2007‐08E 403.50 30.21 7.49%
CAGR 11.20%
CAGR 43.75
CAGR 21.15
CAGR 7.15
Key Financials of major Shipping Companies in India
Rs. In crore
Net Sales Net Profit Net Profit Margin (%) Shipping Corporation of Net Sales Net Profit Net Profit Margin (%) Patel Logistics Ltd. Net Sales Net Profit Net Profit Margin (%)
1351.94 467.47 34.58 2003‐04 2932.90 626.99 21.38 2003‐04 118.73 0.33 0.28%
2049.20 816.56 39.85 2004‐05 3396.14 1419.91 41.81 2004‐05 121.12 0.56 0.46%
2281.62 944.04 41.38 2005‐06 3531.02 1042.20 29.52 2005‐06 120.97 0.60 0.50%
1997.5 2497.21 877.89 1409.87 43.95 56.46 2006‐07 2007‐08E 3703.4 3560.01 1014.5 753.61 27.40 21.17 2006‐07 2007‐08E 283.26 300.26 5.27 5.25 1.86 1.75%
16.58
CAGR 4.96
CAGR 26.11
Comments: 1) Aegis logistics, Shreyas Shipping, Patel Logistics, and Patel Logistics are growing at a CAGR above 20%, where as Essar, Great Eastern Shipping, and Shipping Corp. are growing at a CAGR around 12%. 2) Purely shipping companies has greater profit margins at around 30% ‐40%, than purely logistic companies (around 10%‐15%), due to shortage of ports in India leading to higher prices charged by shipping companies and ultimately resulting into higher margins.
Key PE investments in logistics
Investments in logistics is a clear indication that investors see huge growth th l i tipotential i d t in the logistics industry Company Wilson Sandhu Logistics TVS Logistics
Investment in INR
Investor
40 Million Kotak Realities 100 MillionGoldman Sachs
All cargo
2690 Million Blackstone
DRS
1200Million Million Merrill Lynch
Indian Logistics : Key Challenges Geographical Coverage. Lack of distribution channels in India makes it difficult to reach consumers or distribute products nationwide.
Limited infrastructure. has the largest d d physical l h 2000 k hi India h i one ifi ofdiff h road networks d Chiin’ the 30world, 000 yet Th less than half of the roads are paved and less than 2000 km are express highways, a significant difference when compared to China’s 30,000 kims. The poor condition of roads translates directly to shorter vehicle lifespan ,which increases operating costs and reduces efficiency.
Over‐burdened ports. India has a long coastline, but its port system isn’t well utilized. Seventy percent of the seaborne trade is handled by 2 of its 12 major ports, while 185 minor ports go virtually unutilized.
Non‐existent warehouse standards. . While infrastructure covering roads, airports and seaports remain the focus area for investment, warehousing as a facilitator for the agricultural sector has failed to keep pace with rising farm output. There is virtually no complex distribution center set‐up, no standards for suppliers, and little vendor compliance
Unorganized trucking operations. Two‐thirds of fleets have less than five vehicles, making it difficult for shippers to manage the plethora of carriers required to handle shipment volumes.
Limited technology basis. Firms don’t use technology to plan, execute or communicate logistics operations. Only an estimated 30,000 commercial vehicles have tracking systems
Skill Gaps. The core issue is Poor image / lack of attractiveness for new recruits arising from poor working conditions and relatively lesser attractive pay and progression incentives ‐ in turn arising from the fragmented and unorganized nature of the industry
Benchmarking and operating efficiencies Since logistics market is highly unorganized it brings in lot of inefficiencies. With entry of international players in Indian logistics market, operating efficiencies and benchmarking with best players will be key to succeed in logistics market
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Indian Logistics Sector : Overview Logistics Break up
ƒ The The market size of Indian Logistics sector in 2007 is US$ 9.75 Bn ƒ Out ƒ Out of the total logistics cost, transportation accounts for 39%
Warehousing
Transportation
Inventory & Order Processing
Administration
4%
while warehousing, packaging and inventory contributes 24%. ƒ Roads ƒ Roads dominate the transportationsector‐70% of the total
27% 30%
domestic product moved, followed by Rail at 15% The
organized logistics market is estimated at 6%, 39%
projected to witness CAGR OF 25% by FY11 to become a US$ 15 Bn industry.
Share of Logistics in GDP(%)
18
Logistics cost facilities in India is 13% in 13% of GDP compared compared to infrastructure 11% in Europe and 9% in the U.S. Higher spending
13
11
11
10
is largely attributed to poor infrastructure facilities. Evolution of Logistics 3PL h Services
Outsourcing Outsourcing of logistics to 4PL‐a BPO/KPO providing comprehensive supply chain solutions using 3PL.
Early
l
dd b
Outsourcing of logistics to 3PL, who value add by integrating various standalone logistics services
l
China India i ti C t t ith
Companies manage their own logistics .Contract with standalone service providers for transportation , shipping, forwarding
EU
l
Japan i ti &
USA t
Companies manage their own logistics & own assets such as vehicles, warehouse‐ houses, etc.
Indian Logistics Sector : Overview Logistics Break up
ƒ The The market size of Indian Logistics sector in 2007 is US$ 9.75 Bn ƒ Out ƒ Out of the total logistics cost, transportation accounts for 39%
Warehousing
Transportation
Inventory & Order Processing
Administration
4%
while warehousing, packaging and inventory contributes 24%. ƒ Roads ƒ Roads dominate the transportationsector‐70% of the total
27% 30%
domestic product moved, followed by Rail at 15% The
organized logistics market is estimated at 6%, 39%
projected to witness CAGR OF 25% by FY11 to become a US$ 15 Bn industry.
Share of Logistics in GDP(%)
18
Logistics cost facilities in India is 13% in 13% of GDP compared compared to infrastructure 11% in Europe and 9% in the U.S. Higher spending
13
11
11
10
is largely attributed to poor infrastructure facilities. Evolution of Logistics 3PL h Services
Outsourcing Outsourcing of logistics to 4PL‐a BPO/KPO providing comprehensive supply chain solutions using 3PL.
Early
l
dd b
Outsourcing of logistics to 3PL, who value add by integrating various standalone logistics services
l
China India i ti C t t ith
Companies manage their own logistics .Contract with standalone service providers for transportation , shipping, forwarding
EU
l
Japan i ti &
USA t
Companies manage their own logistics & own assets such as vehicles, warehouse‐ houses, etc.
Maturity Stage Stage India,Vietnam Source: GATI Industry report
China, Indonesia
USA, UK, Japan
Indian Logistics Sector: Key segments
Indian Logistics Market in 2007
Road Freight Market
Express Logistics Market
Size US$ 18.29Bn Industry growth 10‐12% PBIT Margins 2‐ 3% ROCE 12‐ 15%
Container Logistics Market
Size US$ 1.73Bn Industry growth 20 % PBIT Margins 12% ROCE 20‐ 25%
Size US$ 2.44Bn Industry growth PBIT Margins ROCE
Liquid Logistics
Market Size NA Industry growth 15‐ 20% PBIT Margins 50% ROCE 30%
Container Haulage Market
Size
US$ 1.34Bn Industry growth 15% PBIT Margins 25% ROCE 30%
CFS/ICD
Market
Size
US$ 0.61Bn Industry growth 15% PBIT Margins 25% ROCE 15%
MTO Market Size US$ 0.49Bn Industry growth 8% PBIT Margins 5‐ 6% ROCE 25%
Source: TCI, GATI & All Cargo
Indian Logistics Sector: Key segments(Cont’d) & the Dominant Players
Road Freight •
Higly Intensive
• Entry
Express • Asset intensive • Asset light
•
• Entry
barriers: Low
barriers: High
• Low profitability
High in document business
needs: ‐Low service cos t ‐Non time se‐ nsiti ve
Customer needs: ‐Cost efficiency ‐High time sensitiv e •
Blue Dart Gat
CFS
MTO
• Asset intensive
Bulk Liquid • Asset
Asset Intensive fragmented • Entry
•
•
Competiti on: High at key gateway ports
• Customer
• Customer
needs: ‐Scheduled
needs: ‐Quick
barrier: High
•
Competiti on: High
• Customer
needs: Network
turnaround time strengths Service quality CONC OR
• Entry
barriers: Low
•
haulage: Dominate d by CONCOR
servic es ‐Strong ICD netwo rk
• Entry
barriers: Medium
Competition : Low in rail, high in road • Rail
•
Competition:
• Cutomer
Container haulage
Competiti on: Low
• Customer
needs: ‐Port connectivity . Integrated service offerings
Transport Corporation
Gateway Distriparks
All Cargo
Aegis
fragmented
L
fi
bili
R il hl
C
i i
Indian Logistics Sector : Demand side Growth Drivers India’s share in world Trade •
At present, India’s share in foreign trade is 1 %.
• The growth‐oriented annual review to the Foreign Trade Policy will boost Indian exports and
help the country achieve the ambitious target of 5 % share in world trade by 2020.(Source: CII Survey)
India's Import‐Export(in US $ Million)
25000 0 20000 0 15000 0
6384 3
7815 0
11151 8353 7 6
13842 8
149166 161960 21%
10000 0
21089 5
28%
83536
103091
Total Import
112637
5000 0 0 2003‐2004
2004‐2005
2005‐2006
2006‐2007
Growth in Export Growth in Import Total Export
2007‐2008
Source: Commerce Ministry
Growth in manufacturing sector is a trigger for Indian Logistics Industry
Source: GOI
Indian Logistics : Demand Side Growth Drivers ƒ
Automobile Market India has emerged as one of the most preferred destinations for MNCs to outsource their manufacturin g activities: and for India, a multi‐billion dollar opportunity. • Third party logistics providers will play a greater role in the automotive industry in the future thanods merely transporting
goods. They will be required to provide end‐to‐end supply chain logistics services for which they will have to develop requisite competencies and asset‐based networks. • Automobile manufacturers such as Hyundai, Nissan and Renault, and others such as the Nippon Yusen Kaisha (Japan) and the GBA Group (UK) are
also themselves constructing a multi‐level car park facility inside the Chennai port — a port out of which over 100,000 cars are currently exported. The Rs 500 million facilities to park around 6,000 cars are likely to come up in the next few months at the Chennai port's existing North Quay.
ƒ
Electronic Goods market • Technology drives exports sky high. Driven by a low‐cost, highly‐educated and skilled workforce, more and more multinational manufacturers are
setting up Indian operations. Other massive producers, like Nokia, ABB and Siemens, have all committed to Indian manufacturing.
Pharmaceutical Market • India's pharmaceutical industry is one of the fastest growing sectors in Indian economy with an average annual growth rate of 11.42 percent during
2001‐2007. The industry crossed $ 6.5 billion in 2007. Indian pharmaceutical industry has the potential to reach $ 25 billion by 2010. • Logistics is regarded as a crucial part of the pharmaceutical industry since the activities are highly time sensitive. In
Source: Mckinsey Report
Indian Logistics : Demand Side Growth drivers(cont’d) Retail Retailing, which today makes up less than 4 percent of the overall market, is expected to grow to $60 Bn & increase the overall retail market by CAGR of 21.8 percent by 2015. Organized retailing is poised to take‐off as: Significant mall development occurs. By 2010, there will be 600 malls and 300 million square feet, respectively.
Reliance plans to open 4,000 stores and hypermarkets with a target of $22.3 billion in sales by 2011
Wal‐Mart and Bharti have form a joint retailing venture.
Pantaloon aims to grow its stake hoping to top $6 billion by 2011 by opening an additional Big ƒ Bazaars . ƒ
Others specialize. M iWoolworths, W ld Tata group, in a joint venture with plans to double outlets by the end of 2009. •RPG •RPG Enterprises plans to open over 450 MusicWorld stores covering 4 million square feet by 2010. •Birla , through its Trinethra acquisition, opened around 220 stores last year alone. •Rahejas plans to add 55 ‘Hypercity’ hypermarkets. Orga nize d re tail penetration 25
in 2007 (%)
22
20 15 10 5
12 9
8
3 5
2
1
1
ƒ The most critical parameter for retail services to succeed is reach as far To possible. retail logistics as
0
ƒ To increase retail penetration logistics will be used on a large scale
Source: Mckinsey Report on Apparel
Indian Logistics : Growth Drivers Demand Side
ƒ Increase in Disposable Income
• The total annual income of Indian households will
Growth in Disposable Income (%) 8 6
increase from approximately 23.5 trillion
4
Indian rupees today to almost 90 trillion
2
Indian rupees in 2025, a 3.8 times rise • Leisure travel is expected to grow at a CAGR of 6.2%
7.4
57 5.7
6
6.4
0 1985‐1995 1995‐2005 2005‐2015F 2015‐2025F
over 2005 to 2025F Source: McKinsey- The Rise of India’s Consumer Market
ƒ Rising Population • India currently has the second largest 2030 when it will reach an estimated 1 6 billion population in the world, but it will
surpass China as the largest by 2030, when it will reach an estimated 1.6 billion. • India’s population will be youngest and
possibly most highly educated in the world. • By 2010, 45 percent of its population will be in the
prime‐spending demographic of 20‐49 years of age
Source: McKinsey- The Rise of India’s Consumer Market
Indian Logistics Sector : Growth Drivers Supply Side
Growth of logistics industry largely depends on infrastructure di d Government f i l h l and d bentryi of i fprivate players d l has availability. spending led to boom in infrastructure development.
Infrastruc ture Developm ent heads
Rail
Road
Airports
Ports s
Rail
Road
Airports
Ports
Indian Logistics Sector : Growth Drivers Supply Side (PORTS) India has 12 major ports and 185 minor ports. 12 major ports handle75 % of the traffic. Following are the 12 major ports and their advantages Kandla: world class, multi‐cargo, driver of economic ƒ
The 12 major ports of India
growth; Mumbai: leading world class, multipurpose city based port in SE Asia; JNPT: India’s premier container port with integrated logistic services; Mormugao: preferred port for the region; New Mangalore: a leading liquid and multi‐cargo port; Cochin: gateway to the West Coast of India; Tuticorin: preferred distribution hub of India; Chennai: futuristic port with a foresight; Ennore: to develop as a mega port, Eastern gateway; Visak : the most preferred port in South Asia; Paradip: cost effective, maximise taxpayers’ funds; Kolkata: major sea‐river gateway, quality services.
35 0 30 0 25 0 20 0 15 0 10 0
50 0
Thro
ugh
NMDP phase I for sprucing major ports
put
investment required US$ 14.8 billion by 2012
per port in MnT ons
Traffic expected to grow @ 10% p.a.
2007‐ 08 2011‐12
Phase II of US$ 4.92 billion for minor
ports
Maritime Development Work is in
progress in 101 projects covering inland waterways
2025‐26
Plan allocation for Department of Shipping increased by 37 per cent to US$ 179 Mn.
Source: Ports Association of India
Indian Logistics Sector : Growth Drivers Supply Side (ROADS ) Indian Road Network
• India
has
largest
the
second
highest
road network‐3.3 million
km. • National Highways‐2% of total road
length of goods US 65 but biili carry 40% t 50000 traffic of India. • US$
65.85
biilion
needed
to
develop 50000 km under NHDP 369000 of roads pgrade • US$ 324.4 billion requiredto develop 369000 km of rural roads & upgrade another East Corridors at 368000km • Golden
Quadrilateral
(GQ)
and
the June’ &North‐ South, by end East‐West 2008 Corridors‐ progressing at the rate of 4.48 kms per day • 96 per cent of GQ to be completed by
June 06 & Corridors by the end of 2008 Source : KRC Weekender
Indian Road Network Program….completion by 2009
Indian Logistics Sector : Growth Drivers Supply Side (RAILWAY)
Indian Railway •
Indian Railways makes 70% of its revenues and most of its profits from the freight sector.
Drivers •
Railways to build cargo terminals in 50
major locations.
•
Privatization of cargo terminals on railway land
•
53 new trains to be introduced & 15,000 freight wagons to be added
•
US$ $ 7.31 billionbto be spent on network expansion US$ 12.1 billion invested in new projects
•
US$ 6.1 billion for technical modernization
•
The dedicated freight corridor (DFC) of the
•
railways is now set to take off. •
Freight charges for petrol and diesel cut by 5 percent
Source : Railway Budget 2008‐09
Indian Logistics Sector : Growth Drivers Supply Side (AIRPORTS) Upcoming Airports ƒ Maharashtra: Sindhudurg & Chakan
ƒ Haryana ƒ Karnataka: Hasan Bijapur, Shimoga, Hasan & Gulbarga ƒ Andhra Pradesh Nellore, Ongole,Tadepallegundem, Bobbilli, Kurnool, Ramgundem & Kothagundam
•
35 currently operational airports to be modernized
•
Expected growth in next 5 years ‐ Passenger 15% & Cargo 20%
ƒ Arunachal Pradesh: Itanagar & Tareay
ƒ Assam: Kourajajham Nagaland: ƒ Sikkim: Pekyoug ƒ Nagaland: Nagal ƒ West Bengal: Dum Dum( Cargo Hub)
• Investment required Rs. 400 billion over next 5 years, out of which 100 billion will be spent for developing Greenfield airports.
Source: www.allheadlinenews.com, January 24,2008
Key Financials of major Logistic Companies in India
Rs. In Essar Shipping Ports & Logistics Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 640.79 856.96 749.51 1036.77 Net Profit 129.55 288.62 185.23 134.04 20.22% 33.68% 24.71% 12.93% Net Profit Margin (%) Aegis Logistics Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 80.80 120.54 154.50 240.35 Net Profit 23.60 30.20 13.08 8.55 29.21 25.05 8.47% 3.56 Net Profit Margin (%) Shreyas Shipping & Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 76.90 96.84 124.11 134.93 Net Profit 7.31 27.00 34.34 29.55 9.51% 27.88 27.67 21.90 Net Profit Margin (%) Gati Ltd. 2003‐04 2004‐05 2005‐06 2006‐07 Net Sales 306.15 359.19 456.12 457.37 14 49 23 36 Net Profit 5.55 14.49 20.07 23.36 1.81% 4.03% 4.40% 5.11 Net Profit Margin (%)
2007‐08E 979.87 174.61 17.82% 2007‐08E 344.99 37.89 10.98 2007‐08E 165.65 21.22 12.81 2007‐08E 403.50 30.21 7.49%
CAGR 11.20%
CAGR 43.75
CAGR 21.15
CAGR 7.15
Key Financials of major Shipping Companies in India
Rs. In crore
Net Sales Net Profit Net Profit Margin (%) Shipping Corporation of Net Sales Net Profit Net Profit Margin (%) Patel Logistics Ltd. Net Sales Net Profit Net Profit Margin (%)
1351.94 467.47 34.58 2003‐04 2932.90 626.99 21.38 2003‐04 118.73 0.33 0.28%
2049.20 816.56 39.85 2004‐05 3396.14 1419.91 41.81 2004‐05 121.12 0.56 0.46%
2281.62 944.04 41.38 2005‐06 3531.02 1042.20 29.52 2005‐06 120.97 0.60 0.50%
1997.5 2497.21 877.89 1409.87 43.95 56.46 2006‐07 2007‐08E 3703.4 3560.01 1014.5 753.61 27.40 21.17 2006‐07 2007‐08E 283.26 300.26 5.27 5.25 1.86 1.75%
16.58
CAGR 4.96
CAGR 26.11
Comments: 1) Aegis logistics, Shreyas Shipping, Patel Logistics, and Patel Logistics are growing at a CAGR above 20%, where as Essar, Great Eastern Shipping, and Shipping Corp. are growing at a CAGR around 12%. 2) Purely shipping companies has greater profit margins at around 30% ‐40%, than purely logistic companies (around 10%‐15%), due to shortage of ports in India leading to higher prices charged by shipping companies and ultimately resulting into higher margins.
Key PE investments in logistics
Investments in logistics is a clear indication that investors see huge growth th l i tipotential i d t in the logistics industry Company Wilson Sandhu Logistics TVS Logistics
Investment in INR
Investor
40 Million Kotak Realities 100 MillionGoldman Sachs
All cargo
2690 Million Blackstone
DRS
1200Million Million Merrill Lynch
Indian Logistics : Key Challenges Geographical Coverage. Lack of distribution channels in India makes it difficult to reach consumers or distribute products nationwide.
Limited infrastructure. has the largest d d physical l h 2000 k hi India h i one ifi ofdiff h road networks d Chiin’ the 30world, 000 yet Th less than half of the roads are paved and less than 2000 km are express highways, a significant difference when compared to China’s 30,000 kims. The poor condition of roads translates directly to shorter vehicle lifespan ,which increases operating costs and reduces efficiency.
Over‐burdened ports. India has a long coastline, but its port system isn’t well utilized. Seventy percent of the seaborne trade is handled by 2 of its 12 major ports, while 185 minor ports go virtually unutilized.
Non‐existent warehouse standards. . While infrastructure covering roads, airports and seaports remain the focus area for investment, warehousing as a facilitator for the agricultural sector has failed to keep pace with rising farm output. There is virtually no complex distribution center set‐up, no standards for suppliers, and little vendor compliance
Unorganized trucking operations. Two‐thirds of fleets have less than five vehicles, making it difficult for shippers to manage the plethora of carriers required to handle shipment volumes.
Limited technology basis. Firms don’t use technology to plan, execute or communicate logistics operations. Only an estimated 30,000 commercial vehicles have tracking systems
Skill Gaps. The core issue is Poor image / lack of attractiveness for new recruits arising from poor working conditions and relatively lesser attractive pay and progression incentives ‐ in turn arising from the fragmented and unorganized nature of the industry
Benchmarking and operating efficiencies Since logistics market is highly unorganized it brings in lot of inefficiencies. With entry of international players in Indian logistics market, operating efficiencies and benchmarking with best players will be key to succeed in logistics market
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