By Shraddha Nair and P.R. Sanjai of MintWarburg Pincus India Pvt. Ltd, the private equity fund that has deployed $2.5 billion in India, invested $100 million in logistics firm Continental Warehousing Corp. (Nhava Sheva).
Continental is part of the NDR Group, which has one of the largest warehousing networks in India with 6.5 million square feet of storage area in 70 locations.
The fresh infusion of funds will be used to build more warehouses. Continental plans to build terminals in Hyderabad, Ahmedabad and Panipat by the end of the financial year, said Amruthesh Reddy, executive director of the Chennai-based company.
"Since the capital requirement is intensive," Continental aims to go public in the next 18 months to two years.
The company, previously, had raised funds from private equity firms Aureos India Advisers Pvt. Ltd, ePlanet Ventures and IL&FS Investment Managers Ltd (IIML). Warburg's investment comes after one of the early investors exited the deal, while the other two have sold part of their stakes. Mr. Reddy declined to give specifics.
"We have been following the logistics space in India for many years now," said Vishal Mahadevia, managing director, Warburg Pincus. The company also has invested in Gangavaram Port Ltd and IMC Ltd, a bulk liquid-storage company.
"Logistics is a very large market but due to bottlenecks in infrastructure, the cost of logistics is very high," Mr. Mahadevia said.
The government's plan to implement the goods and services tax was another reason for the investment, he added. The tax is expected to level state taxes and obviate the need for multiple warehouses, resulting in the emergence of large warehousing hubs in key locations.
There's a huge demand for storage space, according to a report by consulting firm KPMG India Pvt. Ltd, which estimates that an additional 120 million square feet of warehousing space will be needed by 2012 to bridge the demand-supply gap.
"Several leading companies and logistics services providers have already set up these large warehouses, but many more are in desperate need of capital and knowhow from investors and operators to capitalize on the opportunity," said Gagan Seksaria, associate director, and Chandan Choubey, a senior analyst at consulting firm KPMG in a December report.
Uday Palsule, director at Pune-based Spear Logistics Pvt Ltd, called it a sensible investment by Warburg Pincus, considering the trade potential and need for dry ports. Shipping lines, exporters, importers and logistics companies want dedicated infrastructure to move their cargo by rail to various ports, he said.
Private equity investments in the logistics space declined from 17 transactions worth $491 million in 2008 to 10 deals worth $182 million in 2009, according to Venture Intelligence, which tracks such investments in India. In 2010, there have been 11 transactions worth $245 million, so far.
Spark Capital was the financial adviser to Warburg Pincus on this transaction.
Courtesy: www.livemint.com
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