Indian warehousing set to scale higher growth trajectory

Authored by Jatin Chokshi, Chief Investment Officer, Allcargo Logistics Ltd Warehousing business in the country is poised to hit a purple patch with a bevy of factors chipping in to spur its growth exponentially going forward. The first and foremost was the disruptive change in the policy infrastructure with the evolving logistical space in toe facilitating smooth and fast movement of goods across India. The trending theme of `Make in India’ rolled out by the Government which has all the trappings to upend the manufacturing sector growth gives added acceleration to the growth of industrial infrastructure including the warehousing sector. Further, the looming liquidity scenario makes a strong case for efficient cash flow management at the firm level. This is essential for the business to stay relevant in today’s hyper-competitive market. And managing inventory, which locks up cash in tons, is the chief challenge, pushing firms to shift from plain vanilla storage space to modern warehouses which are akin to pit-shops facilitating end-to-end inventory management in the least possible time. And finally, with India graduating into a less cash, digital (internet) economy, firms are forced to pare costs at all cost to both retain and acquire customers as well as to garner market share by cranking up business volumes. The inter-play of these factors has the industrial real estate in general and warehousing space in particular in a sweet spot of growth. And if the industry forecast is anything to go by the storage space business will grow in double digits for years to come. The size of the Indian logistics sector was estimated to be $180 billion a year ago and is expected to hit the $215 billion mark by 2020. Roughly a quarter of this growth is expected to come from the warehousing sector which has seen a flurry of investors’ activity in recent times. And the credit should go to a slew of pro-business policies kicked off by the government in recent past. A series of tight-fisted regulations such as quality consistency assurance, statutory penalties on non-complaint warehousing facilities along with the need for economies of scale and scope, efficiency in operations, and the arrival of e-commerce giants in the Indian market place are adding tailwinds to the segment. Infrastructure tag to the logistics sector, development of multimodal transport networks and the move to set up industrial corridors and clusters are added attractions for investors. The space is also getting the much needed traction from key user industries such as e-commerce, consumer durable companies and industrial manufacturers. In the evolving scenario, traditional logistics companies are expected to play a pivotal role in spurring growth of warehousing business. It is a truism that big basket investors’ were chary about the warehousing space as a maze of central and state levies and regulations worked virtually as entry barriers. This mindset, however, is fast changing with the rollout of the Goods and Services Tax (GST). The GST disruption also sparked demand for organized warehousing solution providers with specialized investors including funds evincing keen interests. Large chunk of the new investment is going into setting up new facilities while a few are showing interest in acquiring existing assets. A recent study has found that 83% of the investments in warehousing space went into new developments while 10% into ready assets and the balance 7% into combination of ready and under construction assets. Big ticket global investors like Warburg Pincus and Ascendas-Singbridge have been eyeing the growth prospects in the sector by making huge investments. The warehousing sector is, in a way, will act as a key growth driver for industrial and residential real-estate sectors, going forward. The implementation of GST and growth of e-commerce have added momentum to the warehousing and trend will surely have a cascading effect on the demand of commercial and residential sectors.