Comprehensive Pack

Warehousing

1
• Overview :3

• Segments :7

• Industrial Warehousing : 19

• Agricultural Warehousing : 26

• Key Success Factors and Risks : 30

• Key Policies : 47

• Demand and Supply : 61

• Sector Outlook : 71
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 Overview

3
Warehousing - an integral part of supply chain infrastructure

• Warehousing involves the storage of goods and merchandise in order to protect the quality
and quantity of the stored product.
• It is an integral part of the logistics value chain, facilitating the collection, storage, sorting
and dissemination of goods.

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Warehousing - Vital link in supply chain

• For the purpose of this report, warehouses implies storage facilities created for storing
agricultural produce and industrial products such as pharmaceutical, cement, FMCG, IT
hardware etc.
• However, temperature controlled warehouses and container freight stations are outside the
scope of this report.
• Warehouses refer to storage facilities where the goods are stored until they are dispatched
to the customers/end-user.
• The time lag between production and consumption of goods necessitates to have
warehouses for temporary storage of goods.

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Warehousing - Vital link in supply chain

• For instance, certain goods are produced only during a particular season but consumed
throughout the year.
• Similarly, certain goods are produced throughout the year but demanded only during a
particular season.
• Thus, warehouses play an important role in maintaining the quality of the product and
minimize wide fluctuations in the price of goods.
• Additionally, value-added activities such as packaging, sorting, grading, kitting, bar
coding, reverse logistics etc.
• can be carried out at the warehouse. Modern warehouses equipped with latest IT systems
can also track inventory, order management, product data management, storage
management etc.
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 Segments

7
Major segments in warehousing

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Agricultural Warehousing
• Agricultural warehousing involves storage of agricultural products such as food grains,
cereals, oil seed, sugar, pulses, spices, fruits & vegetable (short period) etc..
• In India, a significant share of agricultural warehousing requirement is for meeting the
needs of public distribution system of the government.
• The other key users of agricultural warehousing space are traders, manufacturers,
commodity exchanges etc.
• The activities carried out at the agri-warehouses include handling, sorting and grading of
procured produce, disinfestation and fumigation services to maintain the quality of the
product and protect it from pests and rodents etc.
• Additionally, a number of agriwarehousing players provide value-added services such as
agri finance, collateral management, lab testing and certification, weighing, information
services
9 etc.
Key entities involved in warehousing business in India

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Industrial Warehousing
• Industrial warehousing caters to the logistics requirement of sectors such as FMCG,
consumer durables, organized retail, cement, automotive and pharmaceuticals.
• In India, industrial warehousing is largely unorganized in nature.
• However, organized warehousing is expected to gain share on account of increase in 3PL
players' penetration, increase in outsourcing of logistics activities etc.
• Also after implementation of GST the organized players are expected to have the
advantage over non-organized players as GST has an in-built incentive of self-policing.
• As input tax credit will be available for all taxes paid earlier in the value chain, companies
will require evidence of compliance from the preceding links to claim set-offs.
• Thus, they will prefer sourcing inputs from compliant firms.
• This could increasingly bring unorganised players under the tax net, thus reducing their
price
11 competitiveness versus organized ones.
Activities involved in warehousing process

12
Value-added services provided by a warehouse

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Value-added services provided by a warehouse
• Modern industrial warehouses are equipped with latest IT (Information technology)
systems that help in improving the productivity and efficiency.
• These warehouses effectively act as inventory control centers, helping to maintain
inventory in accordance to demand for a particular product.
• The inventory management systems deployed at the warehouses helps to reduce inventory
costs and also assists the manufacturer in planning production with respect to the inventory
available in the warehouses
• The following are the advantages of inventory management systems deployed at the
warehouses Ascertains stock requirements and automatically sends purchase requisites,
Provides timely notice of delivery dates and warnings of overdue shipments,

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Value-added services provided by a warehouse
• Inventories received are automatically booked to specific warehouses and locations with
the goods receipt vouchers automatically generated, and Just-in-time process increases the
efficiency of the supply chain by reducing stock levels to a minimum level that sustains
production or distribution rates.
• Inventories are stored in a warehouse with a replenishment rate that is optimized with the
consumption rate. Buffer stock, stock-outs and rework are virtually eliminated.

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Value-added services provided by a warehouse

• Additionally, 3PL service providers are increasingly handling the service and repair
centers of large multinational corporations.
• The other value added services provided by industrial warehouse players include
packaging, labeling, reverse logistics, quality checking, kitting etc..

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Warehousing sector map

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Warehousing sector map
• Most warehouses are based on the ownership model, wherein promoters own the
warehouse.
• Instead of purchasing land and developing the required facilities, a few entities, particularly
in the organized sector, prefer to acquire the land on lease.
• Tie-ups could be in the form of leasing the land on a long-term lease basis and developing
the facility, or leasing built-to-suit premises from a development company on a long-term
lease. This allows players to increase their presence in the business without investing
substantial capital.
• Warehouse management in India largely follows the clearing and forwarding (C&F) model.
Typically, warehouses in India are depots or stocking points managed by agents for
companies on a contractual basis.
• Companies
18 use these depots to facilitate the transfer of goods between stock points.
 Industrial Warehousing

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Industrial warehousing is largely unorganized; Agri-warehousing is
dominated by government entities

• The industrial warehousing segment in India is highly fragmented, with the unorganised
players comprising an estimated 80-85 per cent share of the total warehousing space.
• As a consequence, there is severe price competition among players.
• On the other hand, public sector players dominate agricultural warehousing space.
However, private sector participation is expected to increase in coming years

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Industrial Warehousing

• The industrial warehousing segment in India is highly fragmented, with the unorganized
players estimated to account for about 80-85% of warehousing space.
• The presence of large number of players has resulted in intense competition within the
segment.
• The warehouses of unorganized players are typically godowns with little or no automation
in handling. On the other hand, the organized players operate warehouses which have
mechanized handling facilities such as forklifts, reach stackers etc.
• which bring about efficiency in handling. Besides, they have modern IT infrastructure such
as ERP (Enterprise Resource Planning), warehouse management system etc which enables
the customer to manage inventory, manage orders, details of product etc.

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Industrial Warehousing

• The organized players also offer value added services such as sorting, grading, kitting,
labeling etc.
• Therefore, the organized players are able to attract higher rentals as compared to
unorganized players.

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Share of organized vs unorganized players (industrial warehousing)

Source: Industry, Crisil Research

23
Share of organized vs unorganized players (industrial warehousing)
• Industrial warehousing demand to grow 6-8% compound annual growth rate (CAGR) over
FY18 to FY23.
• Growth of key sectors such as automobiles (especially auto components), consumer
durables, e-commerce, fast moving consumer goods (FMCG), and organized retail will
propel warehousing demand.Growing propensity of companies to outsource logistic
activities, increasing penetration of third party logistic players and expected implementation
of Goods and Services Tax (GST) will enable faster growth for the organized players and
resultant increase in penetration.

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Industrial warehousing space attracting global players
• Till a decade ago, private participation was limited in the warehousing sector because of
heavy capital requirement, long gestation periods, poor infrastructure and complex tax
structure.
• However, during the last decade, the scenario has changed with increased economic activity,
accelerated infrastructure development and growth in organised retailing, which in turn, has
encouraged organised players to set up warehousing facilities.
• Global logistics companies such as Gazeley Broekmen, CH Robinson, Kerry Logistics,
Real Term FCH, have entered Indian market in the past few years. In 2016, Kerry Logistics
acquired a 50% stake in Chennai-based company Indev Logistics Pvt Ltd.

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 Agricultural Warehousing

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 Agricultural Warehousing
• Agricultural warehousing segment is dominated by public sector players

• The agricultural warehousing space is dominated by government agencies such as Food

Corporation of India, Central Warehousing Corporation and State Warehousing
Corporations.
• These government agencies account for about 70 per cent of agricultural warehousing
capacity.
• The agricultural warehousing capacity was estimated to be about 135 - 145 MMT in fiscal
2018.

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Composition of agricultural warehousing capacity

Source: Industry, Crisil Research

28
Composition of agricultural warehousing capacity
• The key private companies in the agricultural warehousing space are National Bulk
Handling Corporation Ltd, National Collateral Management Services Ltd, Star Agri
Warehousing, Shree Shubham Logistics, Sohan Lal Commodity Management and Adani
Agri Logistics.
• The customers for the private players include farmers, traders, manufacturers, commodity
exchanges, banks and government agencies.
• The private sector players have scientific storage facilities and provide other related services
such as agri financing, collateral management, etc.

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 Key Success Factors and Risks

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Key Success Factors
• Location
• Location plays an important role in the success of a warehouse. Warehouses situated near
industrial hubs or consumption centers, and close to highways, ports, railway stations hold
an advantage.
• However, the land cost in these locations is high and the labor is also costlier, resulting in
companies to setting up warehouses at a distance from these hubs.
• For companies, the right location that is able to support services economically is vital for
success and better returns.
• Warehousing lease rentals vary across locations.

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Bhiwandi attracts high rentals on account of its connectivity with
consumption center (Mumbai)

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 Optimal usage of storage facilities

• Optimization of warehouse space in terms of height, length and breadth helps the company
generate higher revenues and also provides an avenue to reduce prices and remain
competitive.
• Warehousing players would benefit if the players invest in design strategies to effectively
utilize storage space.
• Value-added services
• As the warehousing industry is dominated by the unorganized segment, companies that use
warehousing services are generally aware of the basic rentals in a particular region.
• Hence, the ability of an organised player to charge a premium on storage services is
limited.
• However, by providing value-added services, warehousing players are able to differentiate
themselves from their competitors, and can charge a premium while attracting customers
and
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increasing revenues.
Achieving scale by automation
• The only way to be successful in the warehousing business is to fully utilize the
warehousing space.
• Manual labour can restrict warehouse companies from achieving scale.
• By implementing systems like warehouse management system to monitor stock at the
warehouse, and usage of superior material handling equipment such as conveyers, forklifts
and cranes, players can reduce time and increase efficiency, and also increase the scale of
operations.

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Achieving scale by automation
• The only way to be successful in the warehousing business is to fully utilize the
warehousing space.
• Manual labour can restrict warehouse companies from achieving scale.
• By implementing systems like warehouse management system to monitor stock at the
warehouse, and usage of superior material handling equipment such as conveyers, forklifts
and cranes, players can reduce time and increase efficiency, and also increase the scale of
operations.

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Key Risk factors
• Non-renewal of leases
• In case of warehouses operated on a leased basis, the players may be subject to a risk of
non-renewal of leases.
• Inability to renew the leases in a timely manner and on favorable terms can affect business
operations.
• Production
• The agricultural warehousing players are dependent on the production and consumption of
agri-commodities for the utilization of warehousing space.
• For instance, poor crop production due to inclement weather conditions may affect the
availability of agricultural commodities and result in lower utilization levels for the agri-
warehousing players.
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Damage to goods/commodities
• Agricultural products like foodgrains, cereals, pulses etc stored in the warehouses are
susceptible to pest attack.
• Therefore, the warehousing service providers have to ensure that disinfestation services are
carried out at regular intervals to avoid damage to the agri-commodities.
• Further, adequate care has to be taken while storing agri-products which have a short shelf
life.

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Lack of mechanized handling facilities
• The lack of mechanized handling facilities and adequate IT infrastructure can result in
inefficiency in operations.
• In case of industrial warehousing, manual-handling of certain goods such as television,
mobile phones and other brittle products can result in a damage to the product.

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Risk factors

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Risk factors
• Short Tenure: Majority of customer contracts typically have a tenure ranging from one to
three years.
• Further, some of contracts may be terminated by clients with or without reasons by giving
short notice and without compensation, which may adversely affect utilization and in turn
revenues.
• Further, if contracts are not renewed it may adversely affect the operations of company.
• Increasing competition: Warehousing industry in India is largely fragmented with
unorganized players occupying ~83% volume share in the industrial warehousing industry.
• Increased competition from unorganized players leads to intense pressure on rentals.
• Unorganized players largely have Reinforced Concrete Cement structures, with rentals in
the range of Rs 10-14 per sq ft.
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Risk factors
• On the other hand, organized players have modernized Pre Engineered Buildings
warehouses, which command higher rentals largely in the range of Rs 16-22 per sq ft.
• However, Organized players also provide value-added services such as packaging, kitting,
labeling, in-plant line and store feed, inventory and order management, dedicated help desk,
IT-enabled warehouse and transport management systems, which enable them to charge
more rentals compared to unorganized players.
• Challenges in land acquisition and trained manpower: Procurement of land in a strategic
location with clear title and proper approvals is still a key challenge for new entrants.
• For instance in Bhiwandi, acquiring clear land titles is a major issue.
• Demand is expected to shift from Old Bhiwandi on account of reclassification and land
issues.
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Risk factors
• Lack of existing clear land classifications in Indian cities and reclassification of land are
major concerns as far as the development of warehouse zones are concerned.
• With land values rising in the last three to five years, availability of affordable land is
another concern for the industry.
• Also different states have different rules regarding agricultural land acquisition, which
creates entry barriers and leads to serious cost and time implications.
• For instance in Ghaziabad, due to stringent land laws, conversion of land use from
agriculture to industrial takes much longer compared with the NH-8 cluster in Haryana.
• However, if the land is meant for commercial use, it can be easily used for warehousing.
• Lack of availability of trained manpower due to low incentives and benefits also possess a
major challenge for the industry.
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Risk factors

• Poor connectivity: The government is connecting key warehousing hubs across India with
industrial corridors and dedicated freight corridors to improve road and rail infrastructure
across the country.
• In India, majority of freight movement is via roads.
• Efficient warehousing operations require proper supporting infrastructure that includes a
good national highway network, interstate roads and congestion-free city roads, port
connectivity, railway sidings, etc.

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Risk factors
• For instance Haryana is expected to be a major consolidated hub in post GST scenario in
comparison to Ghaziabad on account of:
• Haryana’s central location in NCR, easy land availability, relatively cheap cost of land, its
status as a key consumption market and connectivity with the Golden Quadrilateral make it
a preferred location.
• Moreover, the interior regions of Haryana such as Faridabad, Manesar and Kundli have
good road connectivity.
• On the other hand, Ghaziabad lacks land, and the National Highway 71 which courses
through it is congested due to city traffic and traffic from nearby residential areas.
• Connectivity in the interiors of Ghaziabad is also poor.

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Risk factors

• Heavy dependence on select end-user industries: Diversification of clients across various

sectors and companies will lead to stability of revenue and reduce dependence on select
end-user industries.
• Growth in end-user industries such as consumer durables, pharmaceuticals, FMCG, and
ecommerce leads to a growth in the industrial warehousing industry.
• Hence, multi-clientele warehouses are largely preferred by organized players to reduce
dependence on select clients.

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Key sectors across regions

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 Key Policies

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Implementation of GST to provide significant boost to warehousing
industry
• The implementation of Goods and Services Tax (GST) and elimination of Central Sales Tax
will have a significant positive impact on the sector.
• Other policies aimed at encouraging investment in the sector, including free trade
warehousing zones and logistics parks.

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Key policies
• Tax structure: Pre-GST scenario
• The tax burden for players was higher owing to cascading effect of VAT taxes and no set off
available on non-VAT taxes.
• Central sales tax (CST) was levied when goods produced in one state are sold in a different
state.
• Hence, typically consumer goods companies used to operate with at least one distribution
center or clearing and forwarding agent in each state to avail transfer of stocks from one
distribution center to the other in a different state and thus avoid the central sales tax (CST).
• The implementation of value added tax (VAT) in 2006 had played an important role in
reducing logistics costs.
• VAT aided in elimination of multiple taxes levied at varying rates and abolishing the burden
of49existing taxes like turnover taxes, additional surcharges, etc.
Key policies
• Tax structure: Pre-GST scenario
• However, VAT credit was unavailable on inter state sales and was only available when
capital goods used in manufacture or processing, which lead to double taxation as the
manufacturers were not able to claim tax credit against the tax paid on inputs.
• Also, octroi (tax levied before goods enter another city) had traditionally been objected by
shipping organizations since they created delays at octroi check posts.

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Post-GST scenario
• To address the above highlighted issues, GOI implemented Goods and Service Tax (GST)
which is a single levy and replaced the slew of taxes when implemented in July 2017.
• CST was abolished, which enabled companies to shift to centralized or mother warehouses
at key strategic locations.
• which were previously transferring goods to warehouses in every state to circumvent CST.
• This has encourages organized players to set up large warehouses in key locations and
achieve economies of scale which is expected to lead to reduction in storage costs and
encourage companies to outsource their warehousing needs.
• Also, the elimination of octroi has made it easier and faster for transporters to move goods
from one state to another without any hassle.
• Although, due of this hub-and-spoke model, average lead distance to be traveled has
increased.
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Impact of GST Implementation

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Free trade and warehousing zone
• A free trade and warehousing zone (FTWZ) according to Special Economic Zones (SEZs)
Act, 2005 is an SEZ where trading, warehousing, and activities related to the two are
carried out.
• In other words, free trade warehousing zone is a special category of SEZ with emphasis on
trading and warehousing.
• The objective of FTWZs is to create trade-related infrastructure for facilitating import and
export of goods and services in a convertible foreign currency.
• These zones are established close to seaports, airports or dry ports so as to offer easy access
by rail and road.
• Some of the stipulations of an FTWZ are:

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Free trade and warehousing zone
• FTWZ can be set up by public sector undertakings or public limited companies or by joint
ventures in technical collaboration with experienced infrastructure developers upon the
receipt of approval from Board of Approval, Ministry of Commerce.
• Minimum area to be developed under FTWZ is 40 hectares with a built-up area of not less
than 0.1 million sq. mt.
• Minimum capital outlay for the development of such zones is Rs. 1 billion.
• The inputs (building material, equipment etc.) required for the development of the zone can
be imported without duty payment.
• 100 per cent foreign direct investment (FDI) is allowed for the development of these zones.
• Duty free import/domestic procurement of goods (except prohibited items, arms and
ammunitions, hazardous wastes and SCOMET items) for warehousing.
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Free trade and warehousing zone
• Packing or re-packing without processing and labelling as per customer or marketing
requirements can be undertaken within the FTWZ.
• The goods are permitted to be warehoused within the FTWZ for a maximum period of two
years The maximum period that goods shall be permitted to be warehoused within the
FTWZ will be two years, after which they shall necessarily have to be re-exported or sold in
the DTA (Domestic Tariff Area).
• On expiry of the two year period, customs duties as applicable would automatically
become due unless the goods are re-exported within such grace period, not exceeding three
months, as may be permitted

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The zones are principally governed by SEZ Act, 2005 and SEZ Rules, 2006.

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Logistics park
• A logistics park is a notified area that facilitates domestic and foreign trade by providing
services such as warehousing, cold storage, multi-modal transport facilities and container
freight stations.
• This area also acts as a place where a company can unload cargo for distribution,
redistribution, packaging and repackaging.
• Most logistics parks are developed close to established and emerging industrial hubs in
the country in order to tap their logistics needs.
• While FTWZs were aimed at facilitating import and export of goods, the need for a one-
stop-shop that could additionally cater to the domestic market has led to the development
of logistics parks.

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Difference between logistics park and FTWZ

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Warehousing (Development and Regulation) Act, 2007: Impact on agri-
warehousing
• According to a report of the Standing Committee on Food, Consumer Affairs, and Public
Distribution (2006-07), warehousing receipts did not enjoy the fiduciary trust of depositors
and banks, as there were concerns of not being able to recover loans in the event of fraud,
mismanagement of warehouses or insolvency of the depositor.
• As a result, there were impediments in the negotiability of warehouse receipts, which
created difficulties for farmers and other depositors of goods.
• Accordingly, in 2007, the Warehousing (Development and Regulation) Act was passed.
• The Act makes warehouse receipts (WR) tradable as a negotiable instrument.
• Warehousing Development & Regulatory Authority (WDRA), which was formed in
October 2010, accredits warehouses to issue WRs, and also protects the interests of those
involved
59 in issue, trade or collaterization of these WRs.
Implications

• Lower cost of financing: Farmers that were earlier dependent on moneylenders are able to
get easy access to credit from banks at better rates.
• Better realization: The farmer can now avoid distress sale of their produce and spread the
financial liabilities over the entire year.
• This is particularly beneficial for commodities not backed by minimum support prices.
• Higher storage requirement: WRs lead to higher storage requirements, giving the
warehousing industry a boost in rural areas - fulfilling the gap in the logistic chain of agri-
business in the rural sector.

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 Demand and Supply

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GST reconfigures warehousing industry; new hubs emerge in Assam,
Haryana
• Existing major warehousing hubs - Bengaluru, Hyderabad, Kolkata, Mumbai and the
National Capital Region - will continue to serve as major centres post implementation of the
Goods and Services Tax, being major consumption markets for consumer durables and fast
moving consumer goods. Additionally, new hubs are set to emerge in Assam and Haryana,
owing to strategic advantages.
• Nagpur, although centrally located, is not likely to materialise into a warehousing hub for
these sectors in the near future, as it is neither a major consumption nor manufacturing
centre.

62
GST induces warehousing consolidation; Haryana emerges as hottest hub for
consumer durables and FMCG
• Industrial warehousing demand, which grew at 6-8% on-year in fiscal 2018, is forecast to
sustain at 6-8% CAGR over the long term, reaching 1.9 billion sq ft in fiscal 2023.
• The Goods and Services Tax (GST) implementation-led consolidation, leading to larger
warehouses, will propel growth.
• Growth of key sectors such as automobiles (especially auto components), consumer
durables, e-commerce, fast moving consumer goods (FMCG), and organised retail will
propel warehousing demand.
• However, the extent of growth will be determined by the level of consolidation in the
consumer goods and FMCG industries and expansion of the e-commerce industry.

63
GST induces warehousing consolidation; Haryana emerges as hottest hub for
consumer durables and FMCG
• Consolidation of warehouses is expected to primarily take place across the distribution leg
of the value chain, as players operating in these centres handle volumes of different
companies and, thus, can derive benefits associated with big consolidated warehouses.
• Within the space, organised players are expected to grow at a faster clip as they are in a
better position to leverage on the demand for large warehouses.
• Further, these players offer value-added services such as racking, stacking, inventory
management, etc, and thus earn higher margins.

64
 GST induces warehousing consolidation; Haryana emerges as
hottest hub for consumer durables and FMCG

• Maximum consolidation to take place in the consumer durables space, followed by FMCG,
owing to the higher turnaround time (TAT) of ~48 hours for the former, in comparison with
24 hours for the latter The region that is increasingly finding favour as a consumer durables
and FMCG hub is Haryana.
• This is on account of its dual advantage of being one of the largest consumption markets in
the National Capital Region (NCR), and located within 300 km from major markets such as
Delhi and Punjab, and 350-450 km from Rajasthan, Himachal Pradesh and Uttrakhand.
• Another new hub is expected to emerge in Assam, for the north-eastern region.
• Alongside, the five major warehousing hubs at present – Bengaluru, Hyderabad, Kolkata,
Mumbai and the NCR – will retain their importance, as they are major consumption centres
for both consumer durables and FMCGs.

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Industrial warehousing demand projections

Source: Industry, Crisil Research

66
Organised players to grow faster in the GST regime
• GST has an in-built incentive of self-policing. As input tax credit will be available for all
taxes paid earlier in the value chain, companies will require evidence of compliance from
the preceding links to claim set-offs.
• Thus, they will prefer sourcing inputs from compliant firms.
• This could increasingly bring unorganised players under the tax net, reducing their price
competitiveness versus organised ones.
• Besides, organised players not only store goods but also provide services such as racking,
stacking, inventory management, management information systems, grading, kitting,
labelling, packing, and automated handling systems.
• These services improve supply-chain efficiency and result in cost reduction over the long
term.
67
Organised players to grow faster in the GST regime

• In contrast, unorganised warehouses only store goods and

• add limited value, resulting in higher inventory-carrying cost and other overheads for
companies.
• Consequently, organised players are expected to grow at a faster pace (25-30%) than
unorganised players.

68
Share of organised versus unorganised players

Source: Industry, Crisil Research

69
Warehousing-intensive sectors to benefit most from GST
• Warehousing-intensive sectors such as consumer durables and FMCG have their
manufacturing/regional hubs across major consumption markets, viz., Bengaluru,
Hyderabad, Kolkata, Mumbai Metropolitan Region and the NCR.
• Consumer durables have greater scope for warehouse consolidation as compared with
FMCG as TAT is ~48 hours for the former in the last leg of the supply chain.
• This gives players greater leeway to service demand from a consolidated hub, ruling out the
need to set up warehouses in each state.
• In this case, even if spoke warehouses / distributors are located 450-600 km from hub
warehouses, TAT can be met.

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 Sector Outlook

71
GST to usher in warehousing investments in India

• Warehousing space in India to grow at a healthy pace up to fiscal 2023.

• The industrial warehousing segment is expected to drive growth, led by the organised
segment (largely third-party logistics players), fuelled by consolidation and value-
added services.
• Haryana and Assam will be the new warehousing hubs for fast-moving consumer
goods and consumer durables because of consolidation and tax benefits.

72
GST implementation to bring consolidation in industrial warehousing

• Implementation of the Goods and Services Tax (GST) will encourage the
development of large organised warehouses.
• GST would help improve supply chain effectiveness and reduce cost due to
consolidation of warehouses, by promoting the hub-and-spoke model.
• GST will mainly impact sectors such as consumer durables, information technology
hardware, fast-moving consumer goods (FMCG), pharmaceuticals, automobiles, and
auto-components.
• Among all sectors, consumer durables have the maximum scope for consolidation.

73
 Industrial warehousing to grow at robust pace
• Industrial warehousing demand grew at 6-8% in fiscal 2018. It would grow at a similar 6-
8% in fiscals 2019 and 2020.
• GST implementation-led consolidation, leading to larger warehouses, will propel growth.
• The industrial segment, which accounts for nearly two-thirds of the industry (agricultural
warehousing comprising the remainder), would spur growth.
• Demand for industrial warehousing to increase at a moderate pace of 6-8% over next few
years, pushed by strong growth in end-user industries such as e-commerce, organised retail,
and pharmaceuticals, among others.
• However, the extent of growth will be influenced by the level of consolidation in consumer
goods and FMCG industry and expansion in the e-commerce industry.

74
 Industrial warehousing to grow at robust pace
• Consolidation of warehouses is expected to majorly happen across the distribution centre
leg of the value chain.
• This is as players operating these centres handle large volumes and, thus, can benefit from
large consolidated warehouses.
• Organised warehousing players, largely third-party logistics (3PL) players, providing value-
added services are expected to grow at a faster pace.
• This is since they are in a position to leverage the demand for large warehouses that springs
from the consolidation.
• Further, these players offer value-added services such as racking, stacking, inventory
management, etc., and thus earn higher margins.

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Unscientific agri-warehouses lead to foodgrain losses; warehousing
demand stable

• In fiscal 2018, demand for agricultural warehousing rose 7-8% on-year owing to a good
monsoon, which led to a growth in food grain production.
• Demand for agriculture warehousing would grow moderately by 2-3% to 105 million
tonnes this fiscal.
• The monsoon for fiscal 2019 ended 9% short of the long period average (LPA) on a pan-
India level, which is considered normal by IMD.
• However, key rice- and wheat-producing states such as Uttar Pradesh and Madhya Pradesh
are witnessing some stress, thus leading to a moderate growth in the demand.

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Unscientific agri-warehouses lead to foodgrain losses; warehousing
demand stable
• Over fiscals 2018 to 2023, agricultural warehousing demand to expand at 3-4% compound
annual growth rate (CAGR), reaching 0.73 billion sq ft or about 118 million tonnes, backed
by expectations of normal monsoons Of total food grain production, rice and wheat
comprise over 75% share, and account for majority of food grain stored.
• Uttar Pradesh and Punjab lead in rice and wheat production respectively; accordingly, both
these states top warehousing capacity of Food Corporation of India (FCI) and state
warehousing corporations (SWC) together.
• FCI Procurement of Wheat (Rabi) and Paddy (Kharif) in 2017-18 was around 68.9MMT as
compared to 52.9 MMT in 2016-17.
• Wheat is only produced in Rabi and 88% of total paddy is produced in Kharif season.

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Unscientific agri-warehouses lead to foodgrain losses; warehousing
demand stable
• Of total food grain production pulses account for around 9%.
• They are majorly procured by National Agriculture Cooperative Marketing federation of
India Ltd. from various producing states. Pulses are majorly produced in Madhya Pradesh
and Maharashtra.
• Procurement of Pulses by FCI, National Agriculture Cooperative Marketing federation of
India Ltd and Small Farmers Agri-Business consortium grew three-fold to 4.4 MMT i n
2017-18 from 1.5 MMT.
• Foodgrains procured by the Food Corporation of India (FCI) are at risk of damage / loss due
to manual handling and unscientific storage facilities.
• A substantial portion of the foodgrains procured by the FCI are stored in unscientific storage
facilities
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(kutcha CAP).
Unscientific agri-warehouses lead to foodgrain losses; warehousing
demand stable
• The FCI released an action plan for silo construction in January 2016 to nurture the demand
for better-quality scientific warehousing.
• However, National Bank for Agriculture and Rural Development's subsidy scheme has been
on hold since August 2014, which could pose a risk to capital expenditure plans.
• Moreover, there has been no allocation to the Warehouse Infrastructure Fund this year.
• Only the Private Entrepreneurs Guarantee scheme has been operational.
• The potential restructuring of the FCI could also impact agricultural warehousing.

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Margins to likely remain stable for the industry

• The revenue for the industry is expected to grow around 10-12%, while the 3 PL players are
expected to grow around 18-20%.
• The 3 PL players witnessed a growth in revenue in fiscal 2018 due to acquisitions of new
customers outside the group and expanding business from existing customers.
• Going forward in fiscal 2019 the revenues for these players is expected to rise due to
growing demand from the end-user industry for high quality warehouses and end-to end
service logistics solutions.
• The operating margins are expected to remain stable for fiscal 2019 and going forward.

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Margins to likely remain stable for the industry

• The unorganised sector which comprise a majority share in the industry is expected to
witness some pressure in the margins as consolidation of warehouses happen on account of
GST, however for 3 PL players the margins are expected to continue on the upward trend as
the demand for big warehouses providing end to end logistics solution increases and higher
margins these players earn on value added services.
• Typically the rentals are based on fixed cost plus margin model or variable pricing model.
The rentals also depend on the size of the commodity, handling, stacking and other
requirements and also the lease period of the warehouse.
• Further, the players like Mahindra Logistics are trying to gain competitive advantage by
focussing on efficient technology enabled solutions that aim to enhance their customer-
focus
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approach.
Margins to likely remain stable for the industry

• The utilisation level of CWC's warehousing segment, which ranged 74-75% in fiscal 2017,
is expected to be at similar levels going forward.
• Accordingly, the EBITDA margins are expected to remain stable.
• Net margin, operating margin and ROCE for agri-warehousing players is much lower that
of industrial warehousing players

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 Industrial warehousing to account for bulk of investments

• Investments in the warehousing (agricultural and industrial) sector to touch Rs 500-550

billion over the next five years on expectations of increased demand.
• Industrial warehousing is likely to comprise over 90% share of total investments.
• Investment in industrial warehouses is expected to be driven by the organised segment,
particularly by third-party logistics (3PL) players, multinationals, and real estate
companies.
• Government agencies such as the CWC, state warehousing companies, and the FCI will
continue to drive investments in agricultural warehousing.
• The FCI has laid down a roadmap to replace existing storage capacity and construct silos
for 10 million tonnes of food grains in the next four years through the public private
partnership (PPP) mode. The land parcel required for silos is one-third of the
• conventional warehouses.
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