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Sunday, April 17, 2011

Warburg Pincus invests $100 mn in NDR's logistics company Continental Warehousing

An edited version of this news story first appeared in DNA Money edition on Tuesday, April 12, 2011.

Warburg Pincus is acquiring minority stake in a leading logistics service provider NDR Group's flagship company Continental Warehousing Corporation (Nhava Seva) Ltd (CWCNSL). Indian affiliate of the global private equity major, Warburg Pincus India Pvt Ltd will invest up to $100 million in Continental Warehousing through a mix of primary and secondary placements. The new investment will be Warburg's fourth in the Indian market in the last 12 months.

Officials from both Warburg Pincus India and Continental Warehousing refrained from sharing details on secondary transactions related to this placement. Industry sources however, said, “One of its existing investors, IL&FS Investment Managers Ltd (IIML) will exit completely while a few others are likely to divest partially.”

Accordingly, IL&FS Investment Managers which had invested around $7 million in Continental Warehousing three years ago will be selling its entire stake to Warburg Pincus India. Other investors like Aureos India Fund and ePlanet Venture who came on board collectively investing $16 million in 2009 are understood to be in negotiations with Warburg's Indian affiliate on their mode of exit.

As for investing in Continental Warehousing is concerned, Vishal Mahadevia, managing director, Warburg Pincus India, said, the investment firm has been actively investing in the logistics space globally. “Within India, we have two investments not directly though in a third-party logistics service provider viz. Gangavaram Port Ltd (port infrastructure company) and IMC Ltd (logistics provider of bulk liquid storage). Continental Warehousing is our first investment in a third-party logistics, infrastructure company,” he said.

Pioneers in the logistics segment, the NDR Group has an integrated national network of logistics and related infrastructure facilities across 50 centres in the country and a large client base. This investment in CWCNSL, according to company management will largely be used to fund the expansion of its businesses and strengthen its position as an end-to-end logistics solutions provider by developing rail-linked inland container depots at various locations across the country.

According to N Amrutesh Reddy, executive director, Continental Warehousing, the size of the company is approximately Rs 1,000 crore and has been registering a year-on-year growth in the range of 70% to 100% in the last three years. “The investment from Warburg will be used for organic growth where we will be putting up rail-link inland container depots (ICDs), and container terminals and domestic hubs as they are all linked by rail and are very capital intensive in nature,” said Reddy.

The Indian logistics market is currently pegged at around $75 billion and growing rapidly. Industry experts are of the opinion that Indian corporates and customers are till early in their adoption cycle of the total supply chain solutions.

“If you look at some industry estimates, only 10% of logistics functions in India are estimated to be outsourced to the organised players. The figure is anywhere between 40% to 80% in more developed economy. However, the advent of GST and other improvements is a great opportunity for leading players like NDR to benefit and help reduce their customers' costs and also re-engineer the overall supply chain,” said Mahadevia.

Outlining the opportunities and challenges faced by the fraternity, Reddy feels introduction of GST will be a great boon for the existing players in the market. “While I don't see any other significant challenge, I think acquiring land parcels for the rail link ICDs at times proves to be difficult task. There is no government participation in this area and has to be done with private players only,” he said. On their listing plans, Reddy said that Continental Warehousing would ideally look to go public in another three years from now.

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