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Logistics firms are in sharper focus today on the radar of private-equity (PE) firms in India.
This year, there has already been two deals. Zephyr Peacock and Singapore-based Credence Partners agreed to invest $17 million in 20Cube Logistics last week.
Last month, Everstone Capital put in Rs 220 crore in New Delhi-based Transpole Logistics. Financial services firm Avendus Capital was the advisor in this deal.
Avendus Executive Director Ritesh Chandra speaks to Business Line on why PE funds are showing interest in logistics firms.
Excerpts:
Why this increased interest in logistics firms?
There have been deals worth about $300 million by PE funds in the past 15 months in the logistics space. This sector was highly disorganised some years ago, with regional players calling the shots. Now, increasingly the move is towards one vendor which will handle the entire spectrum of logistics services. And this is leading to emergence of larger players as integrated solution providers.
Q. You mean third-party logistics (3PL) players are emerging?
No, for 3PL services to take deep roots in India, it will take some more time — we have not yet got there. But logistics players are surely heading the 3PL way.
Do you think PE funds will continue to invest in logistics firms?
Yes, especially with the unrolling of the GST (Goods and Services Tax) regime, which will be a game changer for the logistics sector. It will totally change the warehousing economics, with regional warehouses emerging due to uniformity of tax. Logistics firms will have to come out with new solutions and value-added services — and they are working towards this.
Are you advising new deals in this sector?
We are currently working with players engaged in domestic distribution and a player involved in the cold-chain logistics segment.
What kind of valuations are logistic firms getting?
Valuations in such deals are in two parts — one asset-based valuation such as for container-freight stations or warehouses. There is strategic value of these assets as replicability is very tough. These assets typically get priced at strategic premiums on the basis of their size and location. By and large, most general logistics firms transactions happen between 9 to12 times EBITDA (earnings before interest, taxes, depreciation and amortisation, or operating profit).
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