Will­ing to in­vest long term cap­i­tal

With GST and 100 per cent FDI, the In­dian ware­hous­ing sec­tor is at­tract­ing in­ter­est from stake­hold­ers will­ing to put a long-term cap­i­tal. Bal­birs­ingh Khalsa, Na­tional Di­rec­tor – In­dus­trial, Knight Frank In­dia, gives an in­sight on the re­turn dy­nam­ics in th

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The Gov­ern­ment of In­dia has de­fined ‘lo­gis­tics in­fra­struc­ture’ to in­clude a mul­ti­modal lo­gis­tics park com­pris­ing an In­land Con­tainer De­pot (ICD) with a min­i­mum in­vest­ment of `50

Crore and min­i­mum area of 10 acres, cold chain fa­cil­ity with a min­i­mum in­vest­ment of `15

Crore and min­i­mum area of 20,000 sqft and/or a ware­hous­ing fa­cil­ity with a min­i­mum

`25 in­vest­ment of Crore and min­i­mum area of 100,000 sqft; in­sti­tu­tional play­ers will not in­vest in un­or­gan­ised and small ware­houses. They gen­er­ally in­vest or set up large ware­houses and pro­fes­sion­ally run lo­gis­tics parks. Cur­rently, the new fa­cil­i­ties that are be­ing built by in­sti­tu­tional play­ers are gen­er­ally of large sizes, big­ger than the min­i­mum re­quire­ments as spec­i­fied above and hence, they would stand to ben­e­fit from the in­fra­struc­ture sta­tus.

IN­CREAS­ING IN­STI­TU­TIONAL IN­VESTOR IN­TER­EST

In­vestors had started tak­ing cog­nizance of the op­por­tu­ni­ties in this sec­tor much be­fore the gov­ern­ment could im­ple­ment the re­forms such as im­ple­men­ta­tion of GST and grant­ing in­fra­struc­ture sta­tus to lo­gis­tics in­dus­try in­clud­ing ware­hous­ing. Ware­hous­ing in­vest­ment ac­counted for around 26 per cent of the to­tal pri­vate eq­uity (PE) in­vest­ments into real es­tate dur­ing Jan­uary 2014–Jan­uary 2018. Around USD 3.4 bil­lion (`22,100

crore) of in­sti­tu­tional cap­i­tal has flown into this sec­tor dur­ing this pe­riod. The ac­tual size of cap­i­tal move­ment would be higher, as these num­bers only cover the ma­jor in­vest­ments by or­gan­ised play­ers. New de­vel­op­ments or green­field projects ac­counted for 67 per cent of the to­tal in­vest­ments fol­lowed by 27 per cent for ac­qui­si­tion of com­plete projects.

EQ­UITY IRR FOR DEVEL­OP­MENT PROJECTS

Ear­lier, due to the un­or­gan­ised na­ture of the in­dus­try the eq­uity IRR for a devel­op­ment project was low. De­mand for large ware­hous­ing spa­ces is likely to see steady in­crease as oc­cu­piers are now look­ing to move out of their smaller ware­houses and con­sol­i­date their ac­tiv­i­ties in larger fa­cil­i­ties, which are presently in short sup­ply com­pared to the de­mand. As more and more com­pa­nies stream­line their lo­gis­tics net­works, it would be ob­served that un­or­gan­ised play­ers or smaller or­gan­ised play­ers would con­sol­i­date, giv­ing ac­qui­si­tion op­por­tu­ni­ties to large play­ers. The in­dus­try is ex­pected to wit­ness a struc­tural shift over the next 3-5 years. (The views ex­pressed are solely of the au­thor. The pub­li­ca­tion may or may not sub­scribe to the same.)

Na­tional Di­rec­tor – In­dus­trial Knight Frank In­dia Bal­birs­ingh Khalsa

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