Power Pack

Cold Chain

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• Industry Overview :3

• Current Industry Scenario :7

• Demand and Supply – TCW : 12

• Demand and Supply – TCV : 19

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 Industry Overview

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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.

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 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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 Current Industry
Scenario

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Status of Cold Chain Infrastructure in India

Source: Industry, Crisil Research

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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.

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Key players in Cold-chain industry

Source: Company Reports

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Key end-user markets

Source: Industry
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 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

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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.
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Growth in TCV segment revenue

Source: Industry, Crisil Research

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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
23 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
24 to maintain quality and sensitivity of drugs meant for the export markets.
TCV product mix

Source: Industry, Crisil Research

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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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