Warehousing firms see Covid impact ‘temporary’; expects growth back in short-to-medium term

Private equity (PE) investments in India’s warehousing & logistics segment almost dried up during January-May 2020 to a mere $57 million (around Rs 428 crore) compared to $1.51 billion (about Rs 11,350 crore) a year-ago, as investors turned cautious due to Covid-19, which mauled an already subdued economy.

Even though PE firms are in wait and watch mode due to the pandemic which clouded economic outlook as businesses are recalibrating operations, warehousing players and analysts termed it a “temporary disruption” with growth to return in the short-to-medium term. However, its chairman & managing director, Shishir Baijal said, “Despite the economic slowdown and pandemic, warehousing remained largely resilient recording growth of 44% CAGR in last three years. Demand has especially been strong from industries like 3PL, e-commerce, FMCG and pharmaceutical, which is expected to continue in FY21”.

Allcargo Logistics, a leading player in domestic warehousing space, also pointed out that the present situation is a small setback as demand for storage will continue to increase.

“Already on a strong growth path at over 20% Y-o-Y absorption last year, demand is now felt even more due to need of a robust infrastructure and capacity creation in the entire supply-chain of which warehousing is an important component,” All Cargo Logistics & Industrial Parks COO R K Narayan told FE.

India is likely to emerge as a preferred alternate destination for large number of MNCs seeking to relocate manufacturing activities and diversify their supply chains outside China. Indian warehousing and industrial space stands to make windfall gains if many of these firms decide to set up base here, he added.

Kunal Moktan, CEO of PropShare Capital, a commercial real estate investment platform, said domestic warehousing was extremely fragmented and unorganised, where large manufacturers used to work with small players or had captive warehouses. However, with e-commerce boom and increased efficiency demands on manufacturers, specialised 3PL and e-commerce players are getting into renting and owning warehouses.

“We have seen several large institutional players investing in warehousing like Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and PE players like BlackStone and Warburg Pincus. Besides, developers like Embassy, Hiranandani and Purvankara as well as Ascendas and Indospace (GLP) have started investing,” he added.

In short term, Ashim Sharma, group head Nomura Research Institute Consulting & Solutions, said, “There will be initial hiccups like construction delay for next few months due to Covid, however, warehousing and storage segment is on favourable footing thanks to sharp demand growth for essential items.

In medium term, however, operations may witness significant changes, with increasing automation in material handling and use of warehouse management systems to cut dependence on human labour. It will not only change operations, but also improve operating margins and may attract more investors, he noted.

Source: https://www.financialexpress.com/industry/warehousing-pandemic-hit-private-equity-investors-prefer-to-wait-and-watch/2035154/