Play in the Logistics Parks Space

“GST ensures that India for the first time will be exposed to consolidate large space central warehousing parks instead of the current scattered poor quality standalone spaces. Modern warehousing facilities that allow for consolidation of distribution hubs will be a vital component in making this a reality. With this ideology, the company plans to build about 20 million sqft of logistics parks over the next five years at a total investment of about US$1 billion,” shares Anshul Singhal, CEO, Embassy Industrial Parks. During an interaction, he enlightens us on the growing emergence of world-class warehousing infrastructure in the country and how are they poised to offer a conducive environment for logistics players.

What is the current status of logistics infrastructure development in the country?

The role of warehouses and logistics has majorly increased in the last few years. This is due to wider product range, emphasis on shorter lead times and constant changes in customer demand. The emerging new technologies are creating strategic opportunities for the organizations to build competitive advantages in various functional areas of management including logistics and supply chain management. Over a period of time, warehousing industry in India has evolved from just brick & mortar shelters for the purpose of storing goods to highly sophisticated stockrooms, where, thanks to advanced tracking mechanism, each consignment can be tracked on a real time basis at the click of a button.

What gaps do you witness and how are you planning to mend them?

When you are competing with someone, you are either fighting for same market share or same revenue. This is not the case for us currently. Embassy Industrial Parks is an early mover in this business and will enjoy the early movers’ advantage for the next 3-5 years. And it is a little difficult to predict what will happen after that period. The important thing is to secure your land locations, which is what we are doing now. We have been in this business for the last 2.5 years securing good land positions in key micro markets at the right micro market, price and zone. Land at right location is the biggest entry barrier.

What are the challenges that come your way in developing infrastructure?

Land acquisition is a major challenge for any real estate player. When we are looking at buying 50 acres to 200 acres of land and develop it, we hope for some reforms that make this process for industrial and warehousing purposes a lot easier. Despite this our team has been able to secure good lands in various cities. Second challenge is approvals. What we have today has definitely improved from what it was 5 years back and it has become friendlier under the Modi Government but I think we have scope for improvement there. The policies can become more user friendly. The important thing to understand here is that the more time approvals take, the more capital sits idle as we cannot start construction and generate revenues.

What’s your advice to the governing authorities to aid in ease of doing business?

Currently the logistics sector in India is predominantly fragmented and under developed. Logistics costs are relatively high due to poor infrastructure and a layered tax system contributing to significant delays & inefficiencies. With the implementation of GST and resulting uniform taxation across states, it will result in consolidation of supply chain and hence warehousing capacities. The industry will move from unorganized players into larger, modern and technologically advanced warehouses. As per industry veterans, the warehousing business is likely to grow at 9 – 11% every year. This is because of the strong government support and constant reforms.

With the implementation of GST, logistics has gained prominence. How is the same going to support you in augmenting your business horizons?

Domestic warehousing industry will see consolidation with the roll-out of the GST. Facilities will relocate to consumer driven and transportation network areas from the current tax-friendly locations. We even expect sectors like e-commerce, automotive, consumer electronics, pharmaceuticals; FMCG will own/lease larger warehouses at prime locations like Mumbai, Delhi, Ahmedabad, Chennai, Bengaluru and Hyderabad. Post GST, warehousing activity in the region has moved towards a more systematic mode of operation leading to an inflow of more institutional funding and formal sources of capital.

A recent survey about leading warehousing occupiers in the country revealed that consolidation and expansion will be the key theme driving warehousing demand in the region. This will result in increased demand for larger and better-quality warehouses, leading to emergence of new warehousing hubs as well as expansion of the existing hubs. The survey also revealed that 30% of respondents will further expand their footprint in the warehousing market of Delhi-NCR alone in the post GST scenario.

What’s your strategy in place to carry ahead the growth momentum?

GST ensures that India for the first time will be exposed to consolidate large space central warehousing parks instead of the current scattered poor quality standalone spaces. Modern warehousing facilities that allow for consolidation of distribution hubs will be a vital component in making this a reality. With this ideology, the company plans to build about 20 million sq ft of logistics parks over the next five years at a total investment of about US$1 billion. We are currently focusing at the initial and the strongest phase i.e., to ensure that we take good land positions in key markets—close to cities such as Mumbai, Delhi, Bengaluru, Chennai and Pune—that are a mix of consumption centres and have active industrial presence.

How’s the investment scenario in this space?

The future of Industrial real estate in India is very bright. It is already being termed as the future of India real estate. Warehousing and Industrial logistical requirements are growing and this growth is here to stay. Indian consumers are demanding better quality and smarter spaces which are not just comparable but on par with international standards. The biggest indicator of its future is that the Government plans to build multimodal logistic parks across the country with an investment of Rs33,000 crores in a bid to bring down costs incurred in logistics, it will also lay low the overall freight cost, reduce vehicular pollution & congestion and will enable reduction of warehousing costs of the country.

Private equities are finding increased interest in the space of late. What are the factors that make it the most lucrative space to invest in?

The key growth factors responsible for this are rapid growth in industries such as automobile, pharmaceuticals, FMCG and retail; increase in trade because of integration of India’s economy with the world; government initiatives such as FDI regulations, private sector participation and development of logistics infrastructure and increasing trend of outsourcing logistics to third party service providers. In the coming years, the key trends that are likely to affect the industry positively are entry of global players, increase in number of multi-modal logistics service providers, and greater investments.

How do you view the future of developing logistics infrastructure in the country?

Market will mature and when it comes to leasing or owning a building, leasing will become more popular. If you have only Rs100 crore of capital, 50 per cent of your capital will go in buying land and building and the balance will go towards business. If you can free up that capital, and keep paying rent for L&B, then you have more money for your business.

India’s logistics and warehousing sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, e-commerce penetration, GST implementation, and other initiatives like ‘Make in India.’ Indian 3PL market is expected to grow with CAGR of 6% over the next five years. The total stock of Grade A and Grade B warehouses in the country grew about 16% in 2016. The global market for warehousing services is on pace to grow to rising demand from the manufacturing, pharmaceutical, and healthcare sectors. As per the JLL report, 2018 forecasted supply for warehouses stock is 157 million sq ft in Grade A and Grade B, the incremental demand between 2016 and 2020 is expected to be 218 million sq ft. The deficit between projected demand and supply between 2016 and 2020 currently is 129 million sq ft.

What are your current projects in pipeline?

We formed Embassy Industrial Parks to address the challenges of companies coping with building and managing industrial and warehousing spaces in a large, diverse and geographically distributed markets like India. Embassy Industrial Parks are committed in bringing quality Grade A industrial, light manufacturing and warehousing spaces in close proximity to leading consumer and industrial centers across the country. Since our commencement, over the last 2.5 years, we have acquired important parcels of land across the country. Embassy Industrial Parks aims to build 15 to 20 million sq ft of industrial and warehousing space over the next 5 years across India. We are actively working on land bank. Embassy Industrial Parks has invested a total cost of Rs140 crore in Gurgaon project and has also invested Rs350 crore to build a 1.1-mn sq ft industrial park at Chakan, Pune.

How do you perceive Indian economy dynamics in times to come?

In India, there are three to four classes of real estate – residential, commercial, hospitality and retail – which are the main focus areas of private developers. Globally, there is another class called industrial real estate. In fact, in Europe. US, Japan and China, industrial real estate is one of the largest classes of real estate. In India, it is still at a premature stage. However, people have realized that the implementation of GST, Make in India and policy-level changes in government, industrial real estate is now opening up to be a profitable sector and a lot of foreign investment is coming in.

Take our joint venture for example. We have a 70:30 JV with Warburg Pincus with Warburg investing Rs1,000 crore of equity out of the total Rs1,600 crore of equity investment. This essentially means that we can raise another approximately Rs4,000 crore as debt. Our investment alone will be Rs6,600 crore in this sector. This totals to US$1 billion.

What are the salient features of a new age logistics infrastructure space?

The key driver for warehousing and logistics services is the growth of MNCs, emergence and growth of 3PL & 4PL, FDI, e-commerce, policy changes at government level, ‘Make in India’, internet penetration into villages, robust trade growth, globalization of manufacturing systems and streamlining of the indirect tax structure. The demand drivers considered for the warehousing market are the manufacturing and consumption sectors. The manufacturing sector-led demand comprises the requirements arising from the need for the storage of raw materials and finished products from industries such as automobiles, cement and food processing, among others. In terms of consumption-led demand, all product categories, ranging from apparel and footwear to home and lifestyle, are key growth enablers.

What should consumers take into consideration while taking such service on lease or buy?

When you plan a warehouse, the most important decision is the location and the attached facilities. Before we buy any land parcel, we talk to clients and choose the right parcel in the right location. We also use our own research and knowledge to understand the corridors that are suitable. We look for good access roads sitting close to the highway. We do enough R&D to ensure the plot is completely clear of encumbrances, mortgage, liens, with no issues on the title. It should be in the right zone where warehousing activities are permitted, and most importantly the land should be where clients will like to be housed & find it easy to grow.

Embassy Industrial Parks is spending almost US$1 billion in setting up Greenfield infrastructure required to run efficient logistics operations across India. Most importantly, we pride ourselves to be the only developer in the country to set up integrated parks that are green and environment friendly. All upcoming parks are IGBC compliant Silver to Gold ratings. An initiative like ours fosters startups. If you are a well-funded startup and you want to take your business off the ground quickly where you don’t want to take unnecessary risks like land buying approval which is not your core area, we are offering good solutions and so are other upcoming players in the market. When you want to move into an office, you don’t go and buy an office, you rent an office. Same way, why would you want to buy a factory/warehouse when leasing is faster. That is the message that is evolving and will foster the growth of corporate India.

How can we eradicate supply chain or logistical bottlenecks to aid in overall business enhancement?

At Embassy Industrial Parks, we have an expert approach to these modalities, as per the situation of each industrial park, its geography, laws, climate etc., all are taken into consideration in advance to only start work once all elements have been identified and secured. Quality of planning & design can have long-term damage on costs & timelines. Appropriate engineering needs to support the design. Current plans are to be used while planning item costs so the right contractor is a very pivotal partner to have on board. In a construction phase, land acquisition delays are one of the highest factors of project delays in our country. The only thing to do is to keep enough time. At Embassy Industrial Parks, we keep 3 months alone for permissions and approvals on the acquired land. Proper management is key. We have a whole process to weaken our risks after assessment.

What are the promising regions for infrastructural development?

We are looking at cities that are major consumption centres where there is a large demand for grade A warehouse. Most of the warehousing today is non-compliant and are not properly constructed. There are maintenance issues with leaking roofs and chipped floor; and hence, there is a growing demand for grade A warehouses. We are very clear about our five-year plan. We are planning to set up about 8 to 10 parks in seven cities that include Mumbai, Delhi, Bengaluru, Pune, Chennai, Kolkatta and Ahmedabad. There will be more than one park in Delhi and Mumbai; 9 parks, over the next 3 to 4 years which will total to 20 mn sqft. of leasable area. We plan to buy land with our equity line of 1,600 crore.

UP CLOSE & PERSONAL

What’s your leadership style? All leaders in Embassy believe in leading by example. Our leadership style is highly decentralized, empowering, relationship-building and trust-driven.

How do you motivate your team to keep achieving goals? Empowerment & Encouragement are my most important tools. I always try to empower my team with necessary tools to succeed.