Cold storage firms eyeing hot business

MAMUNI DAS VISHWANATH KULKARNI New Delhi/Bangalore | Updated on August 14, 2014

Industry to see compound annual growth rate of 20%, says business research firm

Logistics companies, such as Gati and Snowman, are planning to raise capital to fund expansion of cold chain facilities, as they expect higher demand for temperature-controlled freight services and warehousing.

With exports of meat and poultry products growing and demand for processed food and dairy products rising, the logistics industry expects a jump in demand for such services.

Gati plans to divest a part of its cold chain business segment – Gati Kausar – to a private equity player in the next few weeks, Sanjeev Jain, Director-Finance, Gati Ltd, said.

“We plan to divest a small equity component in Gati Kausar to a financial investor,” said Jain, declining to share the details. Gati Kausar has already drawn up plans to invest about ₹120 crore over three years to set up about 10 cold chain warehouses.

Snowman Logistics, a subsidiary of Gateway Distriparks Ltd (GDL), is also planning an initial public offer by September-end to fund its capacity expansion. It is looking to set up six temperature-controlled warehouses and two ambient warehouses in six cities – Mumbai, Cuttack, Pune, Chennai, Vishakapatnam and Surat – entailing an investment of ₹142 crore.

Organised sector

According to the draft red herring prospectus filed by GDL with the Securities Exchange Board of India, less than 10 per cent of India’s produce passes through cold chains. Moreover, service providers in the industry are fragmented.

The prospectus estimates that the current share of organised players is only around 6-7 per cent in the warehousing segment, while it is 15-20 per cent in temperature-controlled transportation.

What is also raising demand for cold chain services is not only an increase in the movement of perishable horticultural and agri-produce, but also pharmaceutical, dairy, poultry and meat product exports, as well as the fast-growing quick service restaurants. Against an overall market growth of around 10 per cent, organised outsourced services are expected to grow at around 20 per cent a year.

According to ValueNotes, a business research firm, the cold chain industry in India is currently valued at ₹24,500 crore ($4 billion) in 2012-13 and has been growing at over 18 per cent for the past three years. ValueNotes estimates that the industry will be worth approximately ₹52,000 crore ($10 billion) by 2016-17, growing at compounded annual growth rate of over 20 per cent.

For instance, Container Corporation of India (Concor), the only company that moves meat products between Dadri in National Capital Region and Mumbai for export to West Asia by container trains, plans to expand its warehousing capacity.

Expecting a higher demand for cold chains, Concor also plans to set up a reefer facility in a year in Dadri, the company’s inland container depot, said P Allirani, Director-Finance, Concor. Concor’s subsidiary, Fresh and Healthy Enterprises Ltd (FHEL), which has cold chain warehouses, also hires road trailers to transport apples to Ahmedabad, Bangalore, Chennai, Kolkata, Bhubaneswar, Calicut and Guwahati. Another player, Transport Corporation of India (TCI) says its cold chain business has been stable in the last few years. The company employs 40 reefer trucks to serve pharma, dairy products and food services. The company is looking to add new trucks this year, said Vineet Agarwal, Managing Director, TCI.

However, Agarwal said a lot of capacity has been added in the cold chain truck market, which has led to subdued freight rates. “We need to achieve economies of scale and arrive at better pricing,” he added.

Published on August 14, 2014

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