Eredene Capital plc is an independent investment company which specialises in investing in Indian infrastructure with a focus on ports, logistics and transportation. Nikhil Naik discusses a range of issues related to logistics in India in an interview with Jibran Buchh.
The Ministry of Shipping aims to triple merchandise exports from $225 billion in 2010 to $750 billion by 2017. However, growth has been constrained by inadequate investment in port infrastructure.
We are very positive on infrastructure in India and see it as an opportunity for stable and dependable returns. In our opinion, India remains an attractive growth story. We see ports and logistics as less capital intensive and having significantly lower risk than some other infrastructure sectors. These sectors will continue to get money from investors who are cautious about their investments.
How do you foresee development of logistics infrastructure in the 12th Plan?
Investment in logistics in India is estimated to grow annually at 10 per cent. India’s logistics market revenues were expected to touch $90 billion in 2011. As per our forecast, the Indian logistics industry will generate revenues of $200 billion by 2020.
Are hurdles in infrastructure development discouraging investment in port projects?
There is a continuing infrastructure supply deficit in India. To keep up growth, India needs to build and upgrade infrastructure, including ports. We are not expecting any slowdown in flows into port infrastructure.
How much investment do you expect in upgradation of warehousing infrastructure?
Warehousing infrastructure in India is still woefully lagging behind global standards. The Indian consumer is still not willing to pay the price for quality and this results in low standards and a lack of consolidation. This has resulted in a drag on better operators coming in. However, we see consolidation happening medium term and this will in turn improve quality and governance.
But, warehousing infrastructure, qualitatively and quantitatively, is highly inadequate.
This situation will have to improve. The Indian customer knows he wants quality and he is slowly but steadily displaying a willingness to pay for it. We see this as a positive development and one that will provide an impetus to the sector.
Only 8 per cent of India’s current 1,800 million sq. ft of warehousing space is owned and operated by organised players. Do you see the share increasing?
Yes. With improvement in quality, implementation of GST and given the scale of warehousing required, there will be consolidation. Warehousing has not seen much private investment due to uncertainty and poor return on investment. We view traditional warehousing as a real estate investment. This sector is affected by the high cost of land and poor rental yields. In all our projects we are operators and thus do not face this situation.
Logistics cost in India is amongst the highest globally.
Logistics cost in India is 13-14 per cent of GDP, compared to 8-9 per cent in developed economies. This presents a huge opportunity for the logistics sector to provide a real benefit to industry. Many customers have their own logistics divisions unlike their overseas counterparts. The introduction of GST will bring in a positive change in terms of consolidation and quality improvement.
What are your investment plans?
We have nine investments in the logistics and ports sectors. Many were early stage and they are now coming good. We have three investments in marine container logistics like Sattva CFS & Logistics Pvt. Ltd, one investment in third-party logistics, one investment in a port services company, one investment each in Apeejay Infralogistics Pvt. Ltd and a port terminal development, and two real estate investments.