Comprehensive Pack

Cold Chain

1
• Industry Overview :3

• Current Industry Scenario : 15

• Demand and Supply – TCW : 27

• Demand and Supply – TCV : 34

• Growth Drivers : 43

• Profitability : 53

• Future Outlook : 76
2
 Industry Overview

3
Cold storage facilities - A key infrastructural component for perishable
commodities

• Cold chains provide storage and distribution services for products that need to be
maintained at a given temperature.
• The industry comprises two segments - temperature-controlled warehousing and
temperature-controlled transportation/vehicles.
• The key components of the cold chain industry include pack-house, cold storage (bulk),
cold storage (hub), refrigerated vehicles, information systems and delivery tracking
systems.

4
 Cold chains provide storage and transportation services for
perishable goods
• A cold chain is a temperature-controlled supply chain that serves as a vital link between
production center and end-user market.
• It involves storage and distribution related activities at pre-determined temperatures
depending on the nature of the product.
• A cold chain does not alter the essential characteristics of the produce or product
handled, but preserves and temporarily enhances the product's life.
• A cold chain can be broadly classified into two broad segments: 1. Temperature
controlled warehousing (Immovable Infrastructure) - Includes static infrastructure at
the farm-gate (pack-houses with precoolers, value adding units), Cold storage bulk (to
store products for longer period), Cold storage hubs (Cold stores for last mile access to
endusers).
• 2. Temperature controlled transportation (Mobile Infrastructure) - Involves
temperature-controlled transportation (primary and last-mile) of perishable produce.

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Cold chain process

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Temperature controlled warehousing
• Temperature controlled warehouses play an important role in reducing post-harvest losses.
Storage of products at controlled temperature, helps reducing wastages and spoilages.
• Apart from preserving the quality of the product, cold storages are key to minimizing
fluctuation in prices.
• In the absence of cold storage facilities, farmers are forced to sell their produce immediately
after harvest, which results in situations of oversupply, resulting in lower price realizations.
Availability of adequate cold storage facilities gives farmers the
• opportunity to gain from remunerative prices.
• Consumers too benefit as a result of stable prices and better quality of perishable
commodities.
• The key components of temperature controlled warehouse infrastructure is as follows:
7
Pack-house
• Modern pack-houses are the first step in organized post-harvest management for
horticulture. A pack-house is a modern infrastructural facility with conveyer belt system for
sorting, grading, washing, drying, weighing, packaging, pre-cooling and staging.
• A pack-house is located closer to farm-gate and enables small lot sourcing of horticultural
produce.
• A pack-house also includes pre-cooling unit (removes field heat and prepares the produce
for next step in cold chain) and cold room-staging (attached to pre-cooling unit and
temporarily stores pre-conditioned fresh produce).

8
Cold Storage (Bulk)
• A cold storage (bulk) is located in close proximity to the farm-gate or to the food-
processing unit.
• It is used to store perishable produce in bulk and for a longer period of time.
• These cold storages are designed to store long-term holding crops such as potato, carrot,
cabbage etc.

9
Cold Storage Hub
• A cold storage (hub) is located close to the consumption centers. It acts as a distribution hub
for the client and is used to hold products for a relatively shorter period of time.
• Cold storage (hub) are designed to receive and dispatch products at regular/frequent
intervals and plays an important role in connecting to the end-user market.

10
Ripening Units
• A ripening unit is a last mile facility in cold chain that ensure hygienic and controlled
ripening of certain fresh produce.
• Modern ripening units contain multiple ripening chambers which are used extensively for
ripening bananas and other fruits like mangoes, avocados, kiwis, tomatoes, pears, etc.

11
Temperature Controlled Vehicles (Reefer vehicles)
• Temperature controlled vehicles play an important role in maintaining the quality of the
product in-transit. Temperature controlled vehicles are equipped with active refrigeration
for temperature controlled carriage of perishable products.
• Besides, modern reefer vehicles are equipped with data logger to ensure continuous
monitoring of temperature and global positioning system (GPS) to enable real-time
tracking.
• While GPS facilitates real-time information about cargo, data logger ensures that the
prescribed temperature is maintained even in transit and the quality of temperature-sensitive
products is not compromised.
• Temperature controlled vehicles are broadly classified into primary haul vehicles and
secondary haul vehicles:
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Primary transportation
• Primary transportation (long haul) involves movement of products/produce from the farm-
gate to cold storage (hub).
• Generally, larger vehicles (>12 tonnes) are used to transport product/produce over long
distances. About 35-40 per cent of the vehicles are deployed for primary transportation.

13
Secondary transportation
• Secondary transportation (last-mile) involves movement of product/produce from the
distribution centre to the end-user/consumer.
• Generally, smaller vehicles (<12 tonnes) are used to transport product/produce over short
distances. About 60-65 per cent of the vehicles are deployed for secondary transportation.

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 Current Industry
Scenario

15
Status of Cold Chain Infrastructure in India

Source: Industry, Crisil Research

16
Status of Cold Chain Infrastructure in India
• As per a study released by NCCD in 2015, cold storage gap in the country was assessed to
be about 3 million tonnes.
• The gap is significantly less than an earlier estimate of ~37 million tonnes by NSEL
(National Spot Exchange Ltd) in 2010. However, the study highlights insufficient
infrastructure for other key cold-chain components such as pack-house, reefer vehicles and
ripening chambers.

17
Key players in Cold-chain industry

Source: Company Reports

18
Key end-user markets

Source: Industry
19
Key end-user markets
• Traditionally, wholesale traders and a few exporters, especially of meat and fish
products, constituted key users of cold chain services.
• Over the last few years, the organized retail and food processing industries have emerged
as prominent end users.
• Growth in these segments has been driven mainly by the gradual shift in consumption
pattern in favor of frozen meats and fresh vegetables in malls and other retail stores, and
also the emergence of leading fast-food chains such as Pizza Hut, Dominos, McDonald's,
Subway, etc.

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Key end-user markets
• The increasing trend of 'eating out' has contributed to the growth of the cold chain
industry, as well, as a significant portion of raw materials used by the food service
segment are procured in frozen form.
• Modern formats in retailing require distributed sourcing, centralized holding and dispatch
followed by de-centralized sales.
• Hence, cold chains are essential to maintain quality of the produce. Currently, 15-20 per
cent of the organized retail industry's revenues are contributed by the food and grocery
vertical.

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Multipurpose temperature controlled warehouses gaining popularity
• Cold storage segment in India can be classified into single commodity cold storages and
multi-commodity cold storages.
• Single commodity cold storages, which account for about 70-75 per cent of capacity is
dominated by unorganized players.
• Single commodity storages largely have facilities to handle potatoes.
• Organized players are present in the multi-purpose segment.
• Besides, the fragmented nature of industry has resulted in intense competition among
players

22
Competition in TCW (cold storage) segment
• Temperature controlled warehouses (TCW) / cold storage industry in India can be
broadly classified into two segments; singlecommodity cold storages and multi-
commodity cold storages.
• In fiscal 2018, cold storage capacity in India is estimated to be 31 million tonnes.
• Single commodity cold storages which account for about 70-75% of the total capacity is
dominated by unorganized players.
• Single commodity cold storages are almost synonymous with potato cold storages as
nearly all of the capacity is created towards handling of potatoes.

23
Mix between single-commodity and multi-commodity cold storage capacity
fiscal 2018

Source: Industry, Crisil Research

24
Mix between single-commodity and multi-commodity cold storage capacity
fiscal 2018

• Potato cold storages, concentrated in key potato producing states, is fragmented in nature.
As on FY17, Uttar Pradesh and West Bengal account for about 60 per cent of the overall
warehousing capacity, of which 90-95 per cent is created for handling of potatoes.
• Besides, other states such as Bihar, Gujarat, and Punjab also have significant capacity
created towards handling of potatoes.
• Other single commodity cold storages stock products such as fruits & vegetables, meat &
fish, milk & milk products etc.
• Multipurpose cold storages which store a diverse mix of products account for about 25-30
per cent of the overall cold storage capacity.

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Mix between single-commodity and multi-commodity cold storage capacity
fiscal 2018

• Organized players such as Snowman Logistics, ColdEX, Dev Bhumi, Western Farm Fresh
etc. are present in this segment.
• The cold storage industry is largely fragmented resulting in intense competition among
existing players as highlighted below

26
 Demand and Supply -
TCW

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Multipurpose cold storages to feed future growth in TCWs
• Growth in the cold storage industry, dominated by temperature-controlled warehouses
(TCWs) will be driven by multipurpose facilities rather than single commodity storages in
the next 5 years.
• The former command higher rentals and are also expected to show , strong volume growth.
• This, in turn, will be driven by rise in demand for frozen and processed foods, and from
quick service restaurants.
• Uttar Pradesh and West Bengal are expected to remain cold storage hubs, as they are major
potato producing states.
• Potato storage growth, however, is expected to be muted this fiscal.

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Growth in multipurpose cold storage to drive revenue in TCW segment
• Temperature-controlled warehouses (TCWs) contribute to ~90% of the cold chain industry's
revenue.
• Within this segment, the revenue share of multipurpose cold storage, which stood at 77-
79% in fiscal 2018, is expected to rise to 84-86% in fiscal 2023.
• Multipurpose cold storages derive higher rentals than single commodity storages. So, even
though the latter handle majority of the volume (~68%), they account for a much lower
proportion in value terms.
• However, margins for multi-commodity TCW players are expected to be under pressure
owing to intense competition in the industry.

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Meat, processed food, seafood, and pharma to lead multipurpose
cold storage growth
• Going forward, the cold chain industry will be driven by an increase in demand for meat,
seafood, pharmaceuticals, fruits and vegetables, quick service restaurants (QSR), and
organised retail. Within the multipurpose segment, organised players (which currently
account for less than 10% of the industry) are expected to grow faster as key end-user
segments mentioned above prefer them, owing to stringent quality requirements and
regulations.
• TCWs handled ~31 million tonne (MT) of volume in fiscal 2018. In fiscal 2019 the growth
in volume is expected to remain flat, as the demand for potato cold storage (~68% in
volume terms) declined due to a decrease in the potato production in the season.

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Meat, processed food, seafood, and pharma to lead multipurpose
cold storage growth

• However,it is expected to grow at a compounded annual growth rate (CAGR) of 5-6% to 39

MT by fiscal 2023.
• This growth will be driven by 11-13% CAGR in multipurpose cold storage volume, which
accounts for ~30% in TCWs' total volume presently.

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Strong growth in end-user segments to lead volume growth

Source: Industry, Crisil Research

32
Key commodities stored

Source: Industry, Crisil Research

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 Demand and Supply :
TCV

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Shift towards Integrated cold chain model to support growth of TCVs
over the next five years

• Owing to stiff competition and fragmentation, the revenue of the temperature-controlled

vehicle (TCV) industry to clock a moderate 6-8% CAGR over the next five years, lower
than the 8-10% CAGR seen over the past five years.
• Pharmaceuticals, meat and seafood primarily meant for export markets will be the key
growth drivers.
• Integrated models to propel growth for cold chain industry.

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Integrated cold chains to support demand for TCVs
• Temperature-controlled vehicle (TCV) industry revenue to clock a moderate 6-8%
compounded annual growth rate (CAGR) over the next five years , compared with 8-10%
CAGR over the past five years.
• While intense competition and pricing pressure will drag down growth, volumes are also
expected to be low during this period.
• The industry is expected to grow from Rs 19 billion in fiscal 2018 to Rs 26 billion in fiscal
2023.
• Integrated cold chains, which offer a combination of temperature controlled warehouses
(TCWs) and TCV services, are the trend in logistics.
• Despite the need, investors are not comfortable putting their money in standalone TCVs,
primarily due to the low margins they offer.
36
Growth in TCV segment revenue

Source: Industry, Crisil Research

37
Reefer vehicle industry largely conveys meat, seafood, pharmaceutical and
dairy products
• TCV volumes are expected to clock 6-8% CAGR between fiscals 2019 and 2023, driven
primarily by the pharmaceuticals, seafood and meat (largely exported) segments, as well as
domestic quick service restaurants.
• Amongst these, the pharmaceutical segment is likely to lead growth because of increasing
regulatory requirements by the US Food and Drug Administration (USFDA), necessitating
temperature-controlled conditions during the entire supply chain which, in turn, will entail
the use of refrigerated transport (reefer) vehicles.
• Indian multinationals have, in the past, faced issues from the USFDA on account of their
lack of good manufacturing practices (GMPs).
• Hence, pharmaceutical players are increasingly focused on using the services of organised
players
38 to maintain quality and sensitivity of drugs meant for the export markets.
Reefer vehicle industry largely conveys meat, seafood, pharmaceutical and
dairy products
• TCV volumes are expected to clock 6-8% CAGR between fiscals 2019 and 2023, driven
primarily by the pharmaceuticals, seafood and meat (largely exported) segments, as well as
domestic quick service restaurants.
• Amongst these, the pharmaceutical segment is likely to lead growth because of increasing
regulatory requirements by the US Food and Drug Administration (USFDA), necessitating
temperature-controlled conditions during the entire supply chain which, in turn, will entail
the use of refrigerated transport (reefer) vehicles.
• Indian multinationals have, in the past, faced issues from the USFDA on account of their
lack of good manufacturing practices (GMPs).
• Hence, pharmaceutical players are increasingly focused on using the services of organised
players
39 to maintain quality and sensitivity of drugs meant for the export markets.
TCV product mix

Source: Industry, Crisil Research

40
Key inhibitors to TCV segment investment
• The unwillingness of end-user industries to pay high rentals will keep realisations growth
low at 1-2% CAGR in the TCV segment between fiscals 2019 and 2023.
• Our interactions with market participants indicate that there is intense pressure on rentals,
especially in seafood, meat, and ice-cream, as a large number of unorganised players cater
to the TCV segment.
• The fragmented nature of the industry also contributes to lower rentals. Organised players
such as Coldex, Snowman Logistics, Gati Kausar, Future Supply Chain and RK Foodland
together account for only 20-30% of reefer vehicles.
• On the other hand, rentals are comparatively higher for pharmaceutical products due to their
sensitivity and quality maintenance requirements.

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Key inhibitors to TCV segment investment

• Pharmaceutical raw materials are to be handled with extra care, as a majority of the drugs
are exported.
• Hence, optimum quality has to be maintained for the companies to meet strict foreign
import regulations.
• • Unavailability of return loads, leading to inefficient utilisation of vehicle Lack of first and
last mile connectivity deterring investments
• Hence, stiff competition and low preference of end-user industries for reefers (as it
increases costs) restrict private players from investing in the segment.

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 Growth Drivers

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Cold chain to piggyback on strong growth in end-user segments
• Proliferation of quick-service restaurants, a rise in contract farming and rising penetration
of organised retail are among the factors that are expected to drive growth in the cold-chain
industry in India.
• However, huge capital investment, high power cost and seasonal demand remain deterrents
to the growth.

44
Quick service restaurants surge because of changing consumer behavior
• Changing consumer behavior and preference towards eating out has led to a surge in growth
of quick-service restaurants (QSRs), which have increased the need and demand for a
robust cold-chain infrastructure across the country.
• The industry's size to grow at a CAGR of 15-17% from INR 120bn in fiscal 2017 to INR
185-190bn in fiscal 2020.
• The key driving factors are growing urbanisation, affordability, increasing women
participation and better hygiene.

45
Growing demand for processed food
• India's food processing industry consists of fruit and vegetables; meat and poultry; milk and
milk products, fisheries, grain processing among a number of other products.
• In August 2017, the market size of India’s food-processing industry was about USD 600
billion and is expected to grow almost thrice by 2020.
• Its key growth driver is India’s growing heath-conscious population of 1.2 billion and their
demand for nutritious food.
• Also, changing lifestyles in terms of working women and nuclear family is driving the need
for frozen items and ready-to-eat food among Indian consumers.

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Rising penetration of organised retail
• In India almost half of the average Indian’s household expenditure is on food items.
• They normally visit the fruit and vegetable vendors beside the roads or shops twice or thrice
a week to purchase the required items, which in turn purchase the same from wholesalers.
• However, organised retail players are breaking this chain by connecting the end-consumers
and the farm producers directly, with them serving in the middle.
• Food and groceries account for almost 15-20% of such organised retailers.
• Vertical to grow 28-30% in the medium term, driven by store additions by players, such as
Hyper City, Star Bazaar, D-Mart and Big Bazaar.

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Growing exports of processed fruit and vegetables and seafood, and steady
meat demand
• Processed fruits and vegetables, meat and seafood products account for almost half of the
India’s total export.
• Over the past year; the export of processed fruits and vegetables has seen growth of almost
21% in terms of volume.
• In the first half of fiscal 2018, shrimp exports recorded a growth of 33% on-year in in
volume terms. Over the next three years, it is expected to grow at a CAGR of 13-15% in
value terms, at a CAGR of 12-13% in terms of volume.
• India is a leader in beef and buffalo meat global export market. The country exported 13.48
lakh tonne in fiscal 2018, with more than 40% of its total production shipped to South-East
Asia and Middle East countries
48
Meat and sea food occupy major share in perishable goods exported from
India (in volume terms)

Source: Industry, Crisil Research

49
Contract farming
• Contract farming was deemed important to reduce the price risk faced by the farmer, as the
contractor company would be liable to buy the produce at the predetermined price as per
the set contract.
• On May 2018, the government unveiled Model Contract Act 2018, a key step towards the
promotion and implementation of contract farming.
• The key highlights of the policy are insulating the farmer from the price risk, enabling them
to develop new skills, investing in new technologies that would improve the quality and
productivity of the harvest and also reducing the post-harvest losses, private companies
providing technological and capital support to the contracted farmers.
• Growth in contract farming practices is expected to propel the requirement for cold-storage
infrastructure in India; under this arrangement, a buyer contracts to buy the produce of a
specific quality, and thus the producer has to ensure that the quality of the produce is
maintained.
50
Government Initiatives
• The government has taken a number of steps to augment cold-chain infrastructure in the
country:
• • In fiscal 2012, the Reserve Bank of India (RBI) accorded infrastructure status to the cold-
storage industry to ensure its access to low-cost funds with longer tenure.
• • To attract foreign capital, the government approved 100% FDI under the automatic route
in fiscal 2011.
• • In May 2015, the RBI classified loans to cold-chain companies under 'agriculture
activities' for priority-sector lending (PSL), subject to the sanctioned limit of Rs 1 billion per
borrower.
• • Capital investment in the creation of modern storage capacity has been made eligible for
viability-gap funding (PPP-VGF) scheme of the finance ministry - funding is capped at 40%
of51the overall project cost.
Some key schemes under implementation are listed below:

52 Source: Industry, Crisil Research

 Profitability

53
Margins to remain under pressure
• High competition makes it difficult for players to charge higher rentals and earn better
margins.
• Further low awareness regarding the services provided by multipurpose cold storage and
heavy dependence on electricity will restrict margin growth in the near term.

54
Margins of temperature-controlled warehouse players
• Power/electricity cost takes up 50-55% of the total operating cost of temperature-controlled
warehouse (TCW) players owing to high electricity tariffs.
• With frequent power cuts, operators need to maintain external backup power sources that
further increase power costs.
• As per our interactions with industry participants, energy costs constitute 10-12% of the
total operating cost for international TCW players.
• Players in Europe and the United States have increased their dependence on all renewable
sources of energy, such as wind and solar energy, which lowers their share of energy cost.

55
Cost structure of TCW players

Source: Industry, Crisil Research

56
Organised TCW players earn higher margins owing to large clientele and
fixed contracts

• Organised cold storage players operate on fixed contracts, given their clientele comprises
large retailers, quick-service restaurants (QSRs), pharmaceutical companies, and food
processing facilities.
• Thus, their revenues are more stable.
• They also provide valueadded services such as integrated transportation, pre-cooling,
labeling, and sorting.
• Unorganised players offer single-commodity storage facilities and cater mainly to farmers
and traders.
• Therefore, they are affected by prevalent commodity prices and seasonality.

57
Profitability (Organised player - Snowman Logistics)

Source: Industry, Crisil Research

58
Profitability (Organised player - Snowman Logistics)
• The operating incomes of Snowman Logistics grew by 2.6% in fiscal 2018 as compared
with a 16% drop in fiscal 2017.
• The increase in income can be attributed to its changing business model wherein it
increased focus on the warehousing business, and also the improving economic
environment and rising utilisation levels.
• The company's utilisation levels improved to 91% as compared with 65-70% in fiscal 2017
on account of increased demand from end-user industries.
• PAT (profit after tax) margins, however, remain low due to higher incidence of interest and
depreciation costs amid pallet capacity expansion.

59
Rentals to be under pressure
• While revenues of multipurpose cold storage players to increase at 13-15% compound
annual growth rate (CAGR) over fiscals 2018 to 2023, realisation per tonne will be under
pressure due to intense competition.
• On average, an investment of Rs 200-300 million per 10,000 tonnes is required to construct
cold storages with modernised technology.
• Also, low awareness regarding services of multipurpose cold storage makes it difficult for
players to charge higher rentals and earn better margins

60
Wide gap between operating and net margins of unorganised TCW players
• Unorganised players comprise 85-90% of the TCW industry. Profitability of cold chain
storage operators varies based on location, regional competition, and prices of agricultural
produce (and quality of harvest).
• Largely, unorganised TCW players have single-commodity potato cold storages with most
of the capacity in Uttar Pradesh and West Bengal.
• In West Bengal, rentals per quintal are regulated by the state government, which has revised
rentals to Rs 148 per quintal from Rs 134.
• However, rentals in neighbouring states, such as Uttar Pradesh and Bihar, are Rs 180-220
per quintal.

61
Wide gap between operating and net margins of unorganised TCW players

• Margins differ for unorganised players based on the commodity they handle; operating
margins of potato cold-storage players range from 20-22%, while that of apple cold-storage
players range between 5-8%. The widening gap in margins is also because trading of apples
yields lower margins.
• Potato traders have suffered losses in the past two years on account of a normal monsoon
and bumper harvest.. By contrast, multipurpose cold storage companies avoid trading
activities, which shield them from price risks and result in margins exceeding 35%.

62
Profitability trend (Unorganised TCW players)

Source: Industry, Company Reports, Crisil Research

63
Profitability trend (Unorganised TCW players)
• However, net margins for unorganised players still remain lower at 1-2%. Players borrow
significantly to provide loans to farmers, driving up interest costs and leading to a wide gulf
between operating and net margins.
• Hence, most unorganised players are plagued by weak debt-servicing indicators.
• Single-commodity cold-storage operators (of potato, mostly based in West Bengal) obtain
loans from banks on behalf of potato farmers and traders, and extend loans and advances to
them against the pledge of their potatoes.

64
Profitability trend (Unorganised TCW players)

• However, it is the operators who are primarily responsible for repaying the loans. In the
event of adverse market conditions and the resultant decline in potato prices, farmers are
unable to pay rentals and interest along with loan obligations, and hence cannot retrieve
potatoes from cold storages.
• Hence, cold storages have seen cash flow mismatches and bank liabilities.

65
Profitability trend (Unorganised TCW players)

Source: Industry, Company Reports, Crisil Research

66
Sensitivity of potato prices and loan-to-value (LTV) on profitability
of farmer default

Source: Industry, Company Reports, Crisil Research

67
Operating margins of TCV players to be under pressure in fiscal 2018
• Organised players constitute just 15-20% of the temperature-controlled vehicle (TCV)
industry.
• Operating margins of the organised players (Gati Kausar is the sole player in our set) have
remained under pressure over the past few years due to high fuel costs that could not be
passed on to consumers due to intense competition.

68
Cost structure of a TCV player

Source: Industry, Company Reports, Crisil Research

69
Profitability (Organised TCV player - Gati Kausar India Ltd)

Source: Industry, Company Reports, Crisil Research

70
Profitability (Organised TCV player - Gati Kausar India Ltd)

• Operating margins of organised TCV players are typically in single digits. Players in the
TCV segment are highly dependent on a select end-user base.
• For example, Gati Kausar was earlier dependent on meat and ice cream, which resulted in a
very high volatility in its business.
• To arrest this volatility, it has started providing services across segments.

71
Integrated cold chain service providers

• An integrated cold chain player offers both cold storage and reefer vehicle services. Gati
Kausar has now scaled down its transportation business.
• The company decided to focus on its core business of temperature-controlled warehousing,
and has decided to cater to the distribution business related to its warehousing business.

72
Cost structure of an integrated service provider (Snowman Logistics)

Source: Industry, Company Reports

73
Profitability trend (Organised cold chain player-Snowman Logistics)

Source: Industry, Company Reports

74
Profitability trend (Organised cold chain player-Snowman Logistics)
• The company's EBITDA margin has grown to 22.88% in fiscal 2018 when compared with
19.22% in fiscal 2017.
• This is owing to improved revenue on account of new customer acquisitions and improved
utilisation levels in their TCW business.
• In fiscal 2018, the company has maintained its fleet capacity at 293 trucks. However, it has
expanded its pallet capacity to 107,200, a 3% increase from fiscal 2017.
• Vehicle fuel prices and power are the major operating cost incurred by integrated players.
Power tariff to remain stable over the period.
• However, crude oil prices are expected to rise to $70 per barrel in 2018.
• Thus, margins will likely be under pressure if the increased cost is not reflected in the
rentals due to intense competition existing in the market.
75
 Outlook

76
Rising demand, integrated model, diversification across end user industry
to drive growth

• Meat, seafood, pharmaceutical, processed food for export and quick service
restaurants and organised retail for domestic to drive growth in the industry.
• Integrated model enable players to earn better margins.
• Investments to flow in multi-purpose cold storage due low payback period.

77
Exim-oriented end user sectors to drive cold storage demand
• Cold chain industry to clock a CAGR of 13-15% from Rs 279 billion in fiscal 2018 to Rs
514 billion in fiscal 2023, driven by growing demand for processed food, fresh fruits and
vegetables, seafood and bio-pharmaceuticals in the
• export markets.
• The steady demand for meat in export countries aids growth of the cold chain industry. The
stringent quality norms required for exports necessitates the need for reliable and quality-
controlled cold storages, thus driving demand for organised players in the cold storage value
chain.
• Support from government policies and schemes in the form of capital subsidies, grant of
infrastructure status to the industry, and viability-gap funding are expected to boost industry
growth.
78
Exim-oriented end user sectors to drive cold storage demand
• Revenue for TCWs are projected to increase by 11-12% in fiscal 2019 as compared to 12-
13% in fiscal 2018.
• Revenue growth for FY19 is primarily aided by multi-purpose cold storages (contributing
over 80% of total revenues).
• The overall revenue growth for FY19 is slightly restricted on acccount of expected decline
in demand for potato cold storages (~68% in volume terms) due to decrease in the potato
production during the season.
• However, over the next five years it is expected to grow at 13-15% CAGR , driven by a
CAGR of 5-6% and 1-2% in volumes and rentals, respectively.
• This growth will be aided by the rising share of high rental-driven, multi-purpose cold
storages.
79
Growth in cold chain to be propelled by TCW segment

Source: Industry, Crisil Research

80
Growth in cold chain to be propelled by TCW segment

81
Multi-purpose facilities to drive demand in TCW
• Multi-commodity cold storage to slowly gain volume share over single commodities
(primarily potatoes), because of growing demand and higher production of fruits and
vegetables, dairy products, pharmaceuticals and processed foods.
• The share of multipurpose cold storage is expected to increase from 25-30% in fiscal 2018
to 40-45% in fiscal 2023.
• The key products stored in multi-purpose facilities include fruits and vegetables, poultry
and meat, seafood, dairy products and pharmaceuticals.
• The share of potato cold storages is expected to decrease gradually on account of longer
payback period, lower rentals and stretched profitability.
• Yet, these cold storages will hold a dominant volume share.

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Multi-purpose facilities to drive demand in TCW

• Having said that, they generally account for just 15-17% share in value terms due to low
rentals.
• At present, organised players account for ~10% of the overall industry.
• They are expected to witness faster growth than the unorganised players in the industry
owing to their necessity in the export value chain.

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Integrated cold chain models to drive growth in demand for reefer vehicles
• The TCV industry is highly fragmented in nature. It operates on low rentals and margins.
The industry is witnessing a shift towards integrated models which aim to provide end-to-
end services to their customers and thus charge a premium.
• This would lead to a moderate 6-8% CAGR in revenue over fiscals 2018 to 2023, compared
with an 8-10% CAGR over the past five years.
• TCV volume is expected to log a CAGR of 6-7% from fiscals 2018 to 2023, driven by bio-
pharmaceuticals, seafood and meat, which are largely meant for export-import markets, and
quick service restaurants (QSRs) in domestic markets.
• Key inhibitors for investment include: Unwillingness of end-user industries to pay high
rentals will keep growth in realisations lower at 1-2% CAGR in the TCV segment between
• fiscals 2018 and 2023.
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Integrated cold chain models to drive growth in demand for reefer vehicles
• The fragmented nature of the industry also contributes towards lower rentals. On the other
hand, rentals are comparatively higher for pharmaceutical products as their sensitivity and
quality needs to be maintained.
• Unavailability of return load leads to inefficient utilisation of vehicles.
• Integrated model, better segment mix and technology help players to earn better margins
Our interaction with participants in the cold chain industry indicate that there is pressure on
rentals due to intense competition.
• Organised players having pan-India presence and catering to diverse end-user segments are
able to charge a premium and earn better margins as they provide integrated and value-
added services Organised multi-purpose players enjoy higher pricing due to established
clients, but pricing pressure exists Multi-purpose cold storage players experience better
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Integrated cold chain models to drive growth in demand for reefer vehicles
• pricing power than potato cold storage players, as the former primarily cater to large clients
in the organised retail, food processing and QSR sectors, where demand is relatively steady.
• Typically, organised multi-purpose players charge 15-20% more than unorganised multi-
purpose players (which dominate the multi-purpose cold storage market).
• However, our interaction with market participants indicate that there has been pricing
pressure.
• Low awareness regarding modern cold-storage facilities also makes it difficult for players
to charge higher rentals.
• Organised cold storage players operate on fixed contracts, as their clientele comprises large
retailers, QSRs and food processing facilities.
• Thus, their revenue is more stable and they are also able to provide value-added services
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Integrated cold chain models to drive growth in demand for reefer vehicles
• Profitability of TCW and TCV segments to be under pressure Although multi-purpose cold
storage players are expected to log a CAGR of 13-15% in revenue, their realisation per
tonne will be under pressure because of intense competition.
• Players who provide value-added services and have pan-India presence will be able to earn
better margins and charge premium pricing.
• On average, Rs 200-300 million is required to construct an organised multi-purpose cold
storage with a capacity of 10,000 tonnes.
• Less awareness regarding services of multi-purpose cold storage technology makes it
difficult for players to charge higher rentals and earn better margins.
• Investments of Rs 150-200 billion expected in next five years.

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Integrated cold chain models to drive growth in demand for reefer vehicles
• About 90% of the total investments are expected to flow into the TCW segment, primarily
multi-purpose cold storage.
• Faster payback would boost investments in multi-purpose cold storages. On the contrary,
the TCV segment would attract limited investments as it is a low-margin business.
• Also unavailability of return load leads to inefficient utilisation of vehicles and poses a
challenge for investment.
• For instance, Snowman Logistics, an organised player, reported operating margin of 31%
for its warehousing division in the third quarter of fiscal 2017 (38% on-year), whereas its
transportation division's operating margin was 7% (3% on-year).
• The shift from an asset-light to asset-based model has improved its margins.

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Integrated cold chain models to drive growth in demand for reefer vehicles
• In order to offer integrated cold chain services, majority of organised multi-purpose TCW
players will have to invest in the TCV segment, too.
• Technological advancements in the industry Organised multi-purpose players are using
environment-friendly refrigerants like freon and diverse technologies depending on the
nature of the commodity, the type and stage of processing, and the sophistication of the
value chain.
• Ammonia is a still widely used as a refrigerant.
• Only 30% of the players use freon. If ammonia leaks, the quality of the stored produce can
deteriorate.
• Therefore, freon is preferred for products like meat and seafood, while ammonia is used for
packed dairy products and pharmaceuticals.
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Integrated cold chain models to drive growth in demand for reefer vehicles
• For ammonia, an investment of Rs 800 per tonne is required.
• However, for freon, it rises to Rs 1,250 per tonne.
• Players are using additional equipment like CO2 scrubber, vacuum pressured swing
absorption (VPSA) nitrogen generator to improve efficiency and prolong the life of the
produce stored.

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