WhitePaper On LOGISTICSINDUSTRY LOGISTICS INDUSTRY ININDIA

IndianLogisticsSector:Overview
Logistics Break up ThemarketsizeofIndianLogisticssectorin2007isUS$9.75Bn Outofthetotallogisticscost,transportationaccountsfor39% whilewarehousing,packagingandinventorycontributes24%. Roadsdominatethetransportationsector70%ofthetotal domesticproductmoved,followedbyRailat15% Theorganizedlogisticsmarketisestimatedat6%,projectedto witnessCAGROF25%byFY11tobecomeaUS$15Bn industry. witness CAGR OF 25% by FY11 to become a US$ 15 Bn industry LogisticscostinIndiais13%ofGDPcomparedto11%inEurope and9%intheU.S.Higherspendingislargelyattributedtopoor infrastructurefacilities. infrastructure facilities EvolutionofLogisticsServices
Outsourcingoflogisticsto g g 4PLaBPO/KPOproviding comprehensivesupply chainsolutionsusing3PL. Outsourcingoflogisticsto 3PL,whovalueaddby 3PL h l dd b integratingvarious standalonelogistics services 39% 30% Warehousing Transportation Inventory & Order Processing Administration 4% 27%

18 13

ShareofLogisticsinGDP(%)
11 11 10

China

India

EU

Japan

USA

Companiesmanagetheir ownlogistics.Contractwith l i ti C t t ith standaloneserviceproviders fortransportation ,shipping,forwarding

Companiesmanagetheir ownlogistics&ownassets l i ti & t suchas vehicles,warehouse houses,etc.

Early Stage India,Vietnam

Source:GATIIndustryreport

Maturity Stage China,Indonesia USA,UK,Japan

IndianLogisticsSector:Keysegments

IndianLogisticsMarketin2007

RoadFreight
MarketSizeUS$18.29Bn Industrygrowth1012% PBITMargins23% ROCE1215%

ExpressLogistics
MarketSizeUS$1.73Bn Industrygrowth20% PBITMargins12% ROCE2025%

ContainerLogistics
MarketSizeUS$2.44Bn Industrygrowth PBITMargins ROCE

LiquidLogistics
MarketSizeNA Industrygrowth1520% PBITMargins50% ROCE30%

ContainerHaulage
MarketSizeUS$1.34Bn Market Size US$ 1 34Bn Industrygrowth15% PBITMargins25% ROCE30%

CFS/ICD
MarketSizeUS$0.61Bn Market Size US$ 0 61Bn Industrygrowth15% PBITMargins25% ROCE15%

MTO
MarketSizeUS$0.49Bn Market Size US$ 0 49Bn Industrygrowth8% PBITMargins56% ROCE25%

Source:TCI,GATI&AllCargo

IndianLogisticsSector:Keysegments(Contd)&theDominantPlayers

Road Freight Higly fragmented

Express Asset intensive

Containerhaulage Asset intensive

CFS Asset Intensive

MTO Assetlight

Bulk Liquid AssetIntensive

Entrybarriers: Low L Lowprofitability fi bili

Entrybarriers: High C Competition: ii Highin document business

Competition: Low inrail,high inroad

Entry barriers: Medium C Competition: ii Highatkey gatewayports Customerneeds: Quick turnaroundtime

Entrybarriers: Low C Competition: ii High

Entrybarrier: High C Competition: ii Low

R il h l Railhaulage: Dominatedby CONCOR

Cutomer needs: Low service service cost Nontimese nsitive

Customerneeds: Customer needs: Costefficiency Cost efficiency Scheduled Scheduled Hightime services sensitive StrongICD network

Customer needs: Customerneeds: Network Network Port Port strengthsService connectivity. quality Integrated serviceofferings

CONCOR BlueDart lue art Gati TransportCorporation GatewayDistriparks AllCargo Aegis

IndianLogisticsSector:DemandsideGrowthDrivers
Indias share in world Trade At present, Indias share in foreign trade is 1 %. The growthoriented annual review to the Foreign Trade Policy will boost Indian exports and help the country achieve the ambitious target of 5 % share in world trade by 2020 (Source: CII Survey) 2020. India'sImportExport(inUS$Million)
250000 200000 150000 100000 50000 0 20032004 20042005 20052006 20062007 20072008 63843 78150 83536 111517 21% 103091 28% 149166 112637 161960 138428 210895

GrowthinExport GrowthinImport TotalExport Total Export TotalImport

Source:CommerceMinistry

GrowthinmanufacturingsectorisatriggerforIndianLogisticsIndustry

IncreaseincontributioninGDPfromServicesandindustries
Source:GOI

IndianLogistics:DemandSideGrowthDrivers
AutomobileMarket IndiahasemergedasoneofthemostpreferreddestinationsforMNCstooutsourcetheirmanufacturingactivities:andforIndia,amultibilliondollar opportunity. Third party logistics providers will play a greater role in the automotive industry in the future than merely transporting goods They will be required to Thirdpartylogisticsproviderswillplayagreaterroleintheautomotiveindustryinthefuturethanmerelytransportinggoods.Theywillberequiredto provideendtoendsupplychainlogisticsservicesforwhichtheywillhavetodeveloprequisitecompetenciesandassetbasednetworks. AutomobilemanufacturerssuchasHyundai,NissanandRenault,andotherssuchastheNipponYusenKaisha(Japan)andtheGBAGroup(UK)are alsothemselvesconstructingamultilevelcarparkfacilityinsidetheChennaiport aportoutofwhichover100,000carsare currentlyexported. TheRs500millionfacilitiestoparkaround6,000carsarelikelytocomeupinthenextfewmonthsattheChennaiport'sexistingNorthQuay.

ElectronicGoodsmarket Technologydrivesexportsskyhigh.Drivenbyalow cost,highly educatedandskilledworkforce,moreandmoremultinationalmanufacturersare Technology drives exports sky high. Driven by a lowcost, highlyeducated and skilled workforce, more and more multinational manufacturers are settingupIndianoperations.Othermassiveproducers,likeNokia,ABBandSiemens,haveallcommittedtoIndianmanufacturing.

PharmaceuticalMarket India'spharmaceuticalindustryisoneofthefastestgrowingsectorsinIndianeconomywithanaverageannualgrowthrateof 11.42percentduring 20012007.Theindustrycrossed$6.5billionin2007.Indianpharmaceuticalindustryhasthepotentialtoreach$25billionby 2010. Logisticsisregardedasacrucialpartofthepharmaceuticalindustrysincetheactivitiesarehighlytimesensitive.Inaddition,pharmaproductsneed temperaturecontrolledstorageanddistribution. p g

Source: Mckinsey Report

IndianLogistics:DemandSideGrowthdrivers(contd)
Retail Retailing,whichtodaymakesuplessthan4percentoftheoverallmarket,isexpectedtogrowto$60Bn &increasetheoverallretail marketbyCAGRof21.8percentby2015.Organizedretailingispoisedtotakeoffas: Significantmalldevelopmentoccurs.By2010,therewillbe600mallsand300millionsquarefeet,respectively. Relianceplanstoopen4,000storesandhypermarketswithatargetof$22.3billioninsalesby2011 WalMartandBharti have formajointretailingventure. Pantaloonaimstogrowitsstakehopingtotop$6billionby2011byopeninganadditionalBigBazaars. Othersspecialize. Tatagroup,inajointventurewithWoolworths,planstodoubleoutletsbytheendof2009. RPGEnterprisesplanstoopenover450MusicWorld storescovering4millionsquarefeetby2010. RPG E i l 450 M i W ld i 4 illi f b 2010 Birla, throughitsTrinethra acquisition,openedaround220storeslastyearalone. Rahejas planstoadd55Hypercityhypermarkets.
Organized retail penetration in 2007(%) 25 20 15 10 5 0
22 12 9 8 5 3 2 1 1

The most critical parameter for retail services to succeed is reach as far as possible. To increase retail penetration logistics will be used on a large scale

Source: Mckinsey Report on Apparel

IndianLogistics:GrowthDriversDemandSide

Increase in Disposable Income

GrowthinDisposableIncome(%)
8 6 4 2 0 19851995 19952005 20052015F20152025F 5.7 57 6 7.4 6.4

The total annual income of Indian households will increase from approximately 23.5 trillion Indian rupees today to almost 90 trillion Indian rupees in 2025, a 3.8 times rise Leisure travel is expected to grow at a CAGR of 6.2% over 2005 to 2025F

Source: McKinsey- The Rise of Indias Consumer Market

RisingPopulation Indiacurrentlyhasthesecondlargestpopulationin theworld,butitwillsurpassChinaasthelargestby 2030,whenitwillreachanestimated1.6billion. 2030 when it will reach an estimated 1 6 billion Indiaspopulationwillbeyoungestandpossiblymost highlyeducatedintheworld. By2010,45percentofitspopulationwillbeinthe primespendingdemographicof2049yearsofage

Source: McKinsey- The Rise of Indias Consumer Market

IndianLogisticsSector:GrowthDriversSupplySide

Growthoflogisticsindustrylargelydependsoninfrastructureavailability.Government spendingandentryofprivateplayershasledtoboomininfrastructuredevelopment. di d f i l h l d b i i f d l

Infrastructure Development heads

Rail

Road

Airports

Ports

IndianLogisticsSector:GrowthDriversSupplySide(PORTS)
Indiahas12majorportsand185minorports.12majorportshandle75%of thetraffic.Followingarethe12majorportsandtheiradvantages Kandla:worldclass,multicargo,driverofeconomicgrowth; Mumbai:leadingworldclass,multipurposecitybasedportinSEAsia; JNPT:Indiaspremiercontainerportwithintegratedlogisticservices; p p g g ; Mormugao:preferredportfortheregion; NewMangalore:aleadingliquidandmulticargoport; Cochin:gatewaytotheWestCoastofIndia; Tuticorin:preferreddistributionhubofIndia; Chennai:futuristicportwithaforesight; f h f h Ennore:todevelopasamegaport,Easterngateway; Visak:themostpreferredportinSouthAsia; Paradip:costeffective,maximise taxpayersfunds; Kolkata:majorsea rivergateway,qualityservices. Kolkata: major seariver gateway, quality services. The12majorportsofIndia

350 300 250 200 150 100 50 0

ThroughputperportinMnTons

Trafficexpectedtogrow@10%p.a. NMDPphaseIforsprucingmajorports investmentrequiredUS$14.8billionby2012 investment required US$ 14 8 billion by 2012

200708 201112 202526

PhaseIIofUS$4.92billionforminorports MaritimeDevelopmentWorkisinprogressin 101projectscoveringinlandwaterways PlanallocationforDepartmentofShipping increasedby37percenttoUS$179Mn.

Source:PortsAssociationofIndia

IndianLogisticsSector:GrowthDriversSupplySide(ROADS)
IndianRoadNetwork

India has the second highest largest road network3.3 million km. National Highways2% of total road length but carry 40% of goods traffic of India. US$ 65 85 biili needed t d l 50000 65.85 biilion d d to develop km under NHDP US$ 324.4 billion required to develop 369000 km of r ral roads & upgrade another rural pgrade 368000km Golden Quadrilateral (GQ) and the North South, EastWest Corridors South East West Corridors progressing at the rate of 4.48 kms per day 96 per cent of GQ to be completed by June 06 June06 & Corridors by the end of 2008
Source:KRCWeekender

IndianRoadNetwork Program.completionby2009

IndianLogisticsSector:GrowthDriversSupplySide(RAILWAY)

Indian Railway Indian Railways makes 70% of its revenues and most of its profits from the freight sector. Drivers Railways to build cargo terminals in 50 major locations. Privatization of cargo terminals on railway land 53 new trains to be introduced & 15,000 freight wagons to be added US$ 7.31 b ll $ billion to b spent on network expansion be k US$ 12.1 billion invested in new projects US$ 6.1 billion for technical modernization The dedicated freight corridor (DFC) of the railways is now set to take off. Freight charges for petrol and diesel cut by 5 percent
Source : Railway Budget 200809

IndianLogisticsSector:GrowthDriversSupplySide(AIRPORTS)
UpcomingAirports
Maharashtra: Sindhudurg &Chakan Haryana Karnataka: Bijapur,Shimoga, Hasan & Gulbarga &Gulbarga AndhraPradesh Nellore,Ongole,Tadepallegundem, Bobbilli,Kurnool,Ramgundem & Kothagundam g ArunachalPradesh: Itanagar &Tareay Assam:Kourajajham Sikkim:Pekyoug Nagaland:Nagal Nagaland: Nagal WestBengal: DumDum(CargoHub)

35currentlyoperationalairportstobemodernized Expectedgrowthinnext5years Expected growth in next 5 years Passenger15%&Cargo20% InvestmentrequiredRs.400billionovernext5years,outofwhich100billionwillbespentfordevelopingGreenfieldairports.

Source:www.allheadlinenews.com,January24,2008

KeyFinancialsofmajorLogisticCompaniesinIndia

Rs.Incrore EssarShippingPorts&Logistics Ltd. NetSales NetProfit NetProfitMargin(%) AegisLogisticsLtd. NetSales NetProfit NetProfitMargin(%) Shreyas Shipping&Logistics Ltd. NetSales N S l NetProfit NetProfitMargin(%) Gati Ltd. NetSales NetProfit Net Profit NetProfitMargin(%) 200304 640.79 129.55 20.22% 200304 80.80 23.60 29.21% 200304 76.90 76 90 7.31 9.51% 200304 306.15 5.55 5 55 1.81% 200405 856.96 288.62 33.68% 200405 120.54 30.20 25.05% 200405 96.84 96 84 27.00 27.88% 200405 359.19 14.49 14 49 4.03% 200506 749.51 185.23 24.71% 200506 154.50 13.08 8.47% 200506 124.11 124 11 34.34 27.67% 200506 456.12 20.07 20 07 4.40% 200607 1036.77 134.04 12.93% 200607 240.35 8.55 3.56% 200607 134.93 134 93 29.55 21.90% 200607 457.37 23.36 23 36 5.11% 200708E 979.87 174.61 17.82% 200708E 344.99 37.89 10.98% 200708E 165.65 165 65 21.22 12.81% 200708E 403.50 30.21 30 21 7.49% CAGR 11.20%

CAGR 43.75%

CAGR 21.15% 21 15%

CAGR 7.15%

KeyFinancialsofmajorShippingCompaniesinIndia

GreatEasternShippingCompanyLtd. 200304 pp g p y NetSales 1351.94 NetProfit 467.47 NetProfitMargin(%) 34.58% ShippingCorporationofIndiaLtd. 200304 NetSales 2932.90 NetProfit 626.99 NetProfitMargin(%) 21.38% PatelLogisticsLtd. 200304 NetSales Net Sales 118.73 118 73 NetProfit 0.33 NetProfitMargin(%) 0.28%

200405 2049.20 816.56 39.85% 200405 3396.14 1419.91 41.81% 200405 121.12 121 12 0.56 0.46%

200506 2281.62 944.04 41.38% 200506 3531.02 1042.20 29.52% 200506 120.97 120 97 0.60 0.50%

Rs. In crore 200607 200708E 1997.51 2497.21 877.89 1409.87 43.95% 56.46% 200607 200708E 3703.44 3560.01 1014.58 753.61 27.40% 21.17% 200607 200708E 283.26 283 26 300.26 300 26 5.27 5.25 1.86% 1.75%

CAGR 16.58%

CAGR 4.96%

CAGR 26.11%

Comments: Comments: 1)Aegislogistics,Shreyas Shipping,PatelLogistics,andPatelLogisticsaregrowingataCAGRabove20%,whereasEssar,Great EasternShipping,andShippingCorp.aregrowingataCAGRaround12%. 2)Purelyshippingcompanieshasgreaterprofitmarginsataround30%40%,thanpurelylogisticcompanies(around10%15%),due toshortageofportsinIndialeadingtohigherpriceschargedbyshippingcompaniesandultimatelyresultingintohighermargins.

Key PEinvestmentsinlogistics

Investmentsinlogisticsisaclearindicationthatinvestorsseehugegrowthpotentialin thelogisticsindustry th l i ti i d t Company Wilson SandhuLogistics TVS Logistics Allcargo DRS InvestmentinINR Investor

40Million Kotak Realities 100 Million GoldmanSachs 2690Million Blackstone 1200 Million Merrill Lynch MerrillLynch

IndianLogistics:KeyChallenges
GeographicalCoverage. LackofdistributionchannelsinIndiamakesitdifficulttoreachconsumersordistributeproducts nationwide. Limitedphysicalinfrastructure. Indiahasoneofthelargestroadnetworksintheworld,yetlessthanhalfoftheroadsare pavedandlessthan2000kmareexpresshighways,asignificantdifferencewhencomparedtoChinas30,000kims.Thepoor d dl h 2000 k hi h i ifi diff h d Chi 30 000 ki Th conditionofroadstranslatesdirectlytoshortervehiclelifespan,whichincreasesoperatingcostsandreducesefficiency. Overburdenedports. Indiahasalongcoastline,butitsportsystemisntwellutilized.Seventypercentoftheseaborne tradeishandledby2ofits12majorports,while185minorportsgovirtuallyunutilized. Nonexistentwarehousestandards. .Whileinfrastructurecoveringroads,airportsandseaportsremainthefocusareafor investment,warehousingasafacilitatorfortheagriculturalsectorhasfailedtokeeppacewithrisingfarmoutput.Thereis virtuallynocomplexdistributioncentersetup,nostandardsforsuppliers,andlittlevendorcompliance Unorganizedtruckingoperations.Twothirdsoffleetshavelessthanfivevehicles,makingitdifficultforshipperstomanage theplethoraofcarriersrequiredtohandleshipmentvolumes. Limitedtechnologybasis. Firmsdontusetechnologytoplan,executeorcommunicatelogisticsoperations.Onlyan estimated30,000commercialvehicleshavetrackingsystems estimated 30,000 commercial vehicles have tracking systems SkillGaps.ThecoreissueisPoorimage/lackofattractivenessfornewrecruitsarisingfrompoorworkingconditionsand relativelylesserattractivepayandprogressionincentives inturnarisingfromthefragmentedandunorganizednatureof theindustry Benchmarking and operating efficiencies Since logistics market is highly unorganized it brings in lot of inefficiencies. With entry of international players in Indian logistics market, operating efficiencies and benchmarking with best players will be key to succeed in logistics market

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