Domestic cold chain industry struggles to keep up volumes
The need for sizeable investment, coupled with a strategy to capture volumes, is constraining the cold chain business despite the market thrown open by the Covid-19 vaccination drive.
Industry officials are of the view that pharma cold chains alone could grow at a compound annual growth rate (CAGR) of about 20 per cent, while for the non-pharma segment, it could be 15 per cent for the next few years.
The cold chain industry in India, however, is fragmented and has only few organised players catering to both the pharma and non-pharma segments such as confectionaries and fruit and vegetables.
Gati Ltd, an old player in the logistics business, sold its cold chain business, Gati Kauser, to a private equity player in May. This came at a time when the business had started to look up.
“For the next three-five years, cold chain capacity will fall short of demand for both the pharma and non-pharma segments since in the last four-five years, a lot of players exited. Private equities want to double money in five years but that is not possible in cold chains,” Sunil Nair, chief executive officer at Snowman Logistics, told Business Standard. According to Nair, the key to this business lies in its scale, which is possible through investment in capacity.
“This has to come with a wellchalked-out strategy, which allows cost overheads to be optimised over a period of time,” he said.
“Technology requirement, along with service offers, is strong in this segment. It needs compliance and skill,” said Kunal Agarwal, director of Kool-ex, a pharma cold chain logistics service provider.
The company has the largest refrigerated (reefer) truck fleet of 450. Most players, however, have 2030 reefer trucks, keeping the industry parched for capacity.
Coldrush Logistics, Coldman Logistics, and Radhakrishna Foodland are other players in the cold chain market looking to grow in the coming years.
“Demand for vaccines is not the sole reason for growth in the pharma segment. There is a shift happening in FDA (Food & Drug Administration) norms in which a lot of drugs that are stored and transported in normal dry trucks will have to move to the cold chain. This is leading to strong volume visibility in the pharma cold chain logistics,” said Nair.
Snowman Logistics is looking to invest ~425 crore over the next three years. Of this, ~200 crore would be to increase pharma capacity. The company has 10 per cent of its revenue coming from the pharma segment, which it plans to take to 18-20 per cent over the next few years.
Alongside, pandemic-induced lockdowns are leading to consumers stocking up perishable items. This creates more demand for cold chain logistical service.
“Even for confectioneries, companies are using cold chain logistics over dry open truck transportation, leading to shift in volumes in the non-pharma category,” Nair added.
Industry officials say changes to the Food Safety and Standards Authority of India Act have led to volume shifts from the unorganised to organised segment of cold chains and since 2016 there has been at least 30 per cent capacity addition year-on-year with currently all the installed cold chain capacities utilised fully.
Still, the cold chain business is considered unattractive because it does not yield adequate returns.
“If you do not own the refrigerated business you cannot be in the cold chain business because the concept of leasing reefer trucks is not developed in the country. Hence it made sense to exit this business,” said Bala Aghoramurthy, deputy managing director at Gati Ltd.
Compared to similar geographies like Thailand, Malaysia and China, Indian players are perhaps making just about 1-2 per cent profit adjusted after tax (PAT) as against 10-15 per cent PAT in those countries. This is because the domestic cold chain industry needs serious price revision, said industry officials.