Agri logistics companies yet to see sizable investor interest, shows data

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The country's logistics sector has seen a growth in terms of investment from private equity (PE) and venture capital (VC) firms in the recent past. 

However, there is less interest in agriculture-based logistics or distribution. Venture Intelligence data, based on publicly disclosed deals, show no investment in agri logistics companies in either 2017 or 2018. In comparison, $1,221 million was invested by 16 PE/VC investors into shipping and logistics companies in 2017 and $819 million by 18 investors in 2018 to date.

Major investments in 2015 into agri distribution were National Collateral Management Services attracting $148 million from Fairfax Holdings and Sohan Lal Commodity Management bringing in $15 million from Creation Investments and Everstone. In 2016, Temasek invested $15 million into Star Agri Warehousing and Collateral Management.

There are issues for investors in the segment. Bulk agri commodities do not come under the goods and services tax (GST). However, Agricultural Produce Marketing Committee (APMC) cess and marketing cess on movement of agri commodities within and outside state results in multiple taxation, raises transaction costs and discourages easy movement of goods, says Sarath Naru, managing partner at Ventureast.

“My belief is that there could be PE investment into this sector but not VC investment, other than one possible business model. This is one of those businesses that will need some scale in order to show the path to sustainability and possible differentiation. Until that happens, there will not be VC investment. And, once there is scale, there could be PE investment," he said. 

Investment into the sector has not seen a major change after the GST, adds A B Chakravarthy, principal at the agriculture division of Menterra Venture Advisors.

High levels of post harvest loss at 30-40 per cent in perishables, low levels of processing at less than five per cent and lack of viable solutions for storage round the year are some of the opportunities for growth in the sector.  A cold-storage structure of 5-10 tonnes could require capital expenditure of Rs 0.7-1.5 million and a longer break-even period of 24-36 months.

Lack of asset financing for small-size cold stores is a challenge. Most food commodities come under the Essential Commodities Act and, hence, there are storage limits for commodities. This has to go for the sector to take off.

Once eNAM (online linking of APMC markets across the country) gets streamlined, there could be opportunities in combining of assaying services, providing warehousing and logistics, and making the contracts. Supermarket chains have to work directly with farmers to drive the farm-to-fork cold-chain, rather than sourcing from wholesale markets.

Rajesh Srivastava, executive chairman, Rabo Equity Advisors, says PEs will get into this space in the next two to three years, as young entrepreneurs with sophisticated technology are getting into the sector.

In dry storage, almost every warehousing company got funding in the past five to seven years. 

"The Government is encouraging this sector majorly and GST is expected to add to its growth. Road conditions have also improved. So, the cold-chain sector is set to bloom. I see various growth models in cold logistics," says Srivastava. Another future growth area is chilling logistics.

Srikrishna Dwaram, partner at True North, says there has been a clear shift to quality players in the market, a good sign for  the sector. It is an investor in NBHC, a leading agri commodity management services company.

"With the consolidation of the industry in favour of scaled players, we believe investor (PE/VC) interest in the sector will see strong revival.  We believe deregulation, transparency and ease of doing such government business will lead to a significant reduction in government procurement costs," said Dwaram.

As the sector is getting more organised, with reforms and new technologies, the importance of logistics is being felt at boardroom and government levels. So, investors are finding the sector a good bet, says R Shankar, chief executive at TVS Logistics. The company is one of the darlings for PEs in the space. 

As of now, he said, nearly two-third of logistics cost is transporation. As the sector matures, warehousing and other logistics services will start gaining momentum among investors. Some big real estate entities have ventured into warehousing.