Build a Competitive Warehouse Sub Sector an India Perspective Case Study of Mumbai
Build a Competitive Warehouse
Sub-sector – An India Perspective
Case study of Mumbai
Presented by Dr. Samantak Das
Chief Economist and National Director Research
Knight Frank India
What are the Investment Avenues?
Real Estate
Commodities
Currency
Investment
Avenues
Bonds
Equity
Where to Invest in Real Estate?
Real Estate
Investment
Office
Residential
Land
Industrial
Retail
Warehousing
Pre-leased &
Occupied
Underconstruction
Hotel
Agenda
Logistics & Warehousing
in India
Policy Analysis
Business model dynamics
Infrastructure
India Logistics & Warehousing
Emerging Trends
Bhiwandi
Mumbai Warehousing
Market
Panvel
OVERVIEW
5
What does Logistics mean?
Evolution of Logistics in India
Processes like
purchasing,
warehousing,
packaging and
inventory
management
handled separately
Not much
coordination
between functions
Early
Greater external
Internal
integration
integration within
Bundling of
the company
China services with the
Better
help of 3PL players
coordination
Companies focus
between functions
on core
Individual
competencies and
contracts given for
outsource logistics
transporting,
requirements to
storage,
3PL Players
forwarding etc.
World class
Shift from
warehouses ,
godowns
India
higher automation
to functional
warehouses
Growth
Consolidation
USA
Strategic focus on
reducing cost
redundancies and
customers
Supply chain
management
Global operations
Single operator
managing the
supply chain in
multiple
geographies
Move towards
4PL’s and 7PL’s
Mature
Comparison with USA & China
•
The USA logistics sector has a value of almost 10 times that of the Indian logistics
sector.
•
Yet the USA logistics sector employs only one-tenth the number of people that the
Indian logistics sector does
Comparison with USA & China
India
USA
China
9.9
4.3
(43% share)
J.N.P.T.
42.9
7.9
(18% share)
Los Angeles
139.7
31.7
(23% share)
Shanghai
Road Network
Weight of Goods moved annually per km of road
4.8 mn. km
1,173
6.5 mn. km
1,727
4 mn. km
7,018
Rail Network
64,000 km
228,513 km
66,239 km
14,750
8,293
59,331
Total containers handled at ports (mn.TEU)
Containers handled by busiest port (mn. TEU)
Weight of goods moved annually per km of rail line
The busiest port in India handles more than 43% of the country’s total traffic as opposed to
the busiest ports in the USA and China that handle 18% and 23% respectively
Indian cargo is inefficiently clustered around a few main ports
Demand Drivers of Logistics Sector
Demand drivers of
logistics sector
Manufacturing
Consumption
Exim
Based on industrywise spending on
logistics
Based on modern
retail space
Based on
container traffic
Major industries
such as Auto,
Cement, FMCG,
Metal and Textile
among others
Major
consumption
centres such as
Mumbai, NCR,
Bengaluru and
Chennai among
others
Major ports like
JNPT, Chennai,
Kandla, Mundra
and Ennore
among others
Manufacturing Led Demand
Industry
Characteristics
Automotive and
Auto Components
FMCG
Textile
Cement
Pharmaceutical
Highly logistics sensitive
Timely supply of individual components is of utmost importance
Inventory carrying cost is high
Highly dependent on skilled labor
High amount of inventory holding
Emphasis on last mile connectivity
Focus on product packaging
Complex supply chain
Extensive distribution network
Requires containerised cargo
Sensitive to timely movement of raw materials
Contributes to exports as well
High volume, low value commodity
Logistic cost comes very close to the manufacturing cost
High dependency on good transport infrastructure
Requires specialized cargo, temperature sensitive
Highly time sensitive
Huge inventory
Drugs need to reach the market in time
Logistics cost as
a % of revenues
2% - 3%
6% - 8%
4% - 5%
18% - 20%
2% - 3%
Consumption Led Demand
•
The changing dynamics of the retail industry has resulted in the business model of a
modern retailer becoming heavily dependent on a smooth and efficient supply chain
network
•
Large consumption markets like the NCR, Mumbai,
Bengaluru, Chennai and Kolkata among others require
massive amount of investment in logistics in order to
ensure an uninterrupted supply of goods
•
This has created demand for logistic services like
warehousing, last-mile connectivity and inventory
management
Major consumption markets
EXIM Led Demand
•
Export-import market constitutes the largest demand driver for the logistics sector in India
•
India’s containerised traffic in TEUs has grown at an annual average growth rate of 11% in
the last ten years fuelling robust demand for logistic services such as cargo transport, ICD
and CFS
Warehousing Space Demand
•
The total warehousing space demand in India is expected to grow at 13% CAGR over the
next 5 years
•
Manufacturing led demand is expected to lead with a 15% CAGR
•
A total of 235 mn.sq.ft. of incremental warehousing space will be required by the end of
2018 or 47 mn.sq.ft. in each of the coming five years
Demand for warehousing space in India (mn.sq.ft.)
2013
2018E
CAGR
Incremental
Demand
Incremental Average
Annual Demand
Manufacturing
29
57
15%
28
6
Consumption
Exim
Total Warehousing
52
211
291
84
386
526
10%
13%
13%
32
174
235
6
35
47
Major Warehousing Hubs in India
STRUCTURE & BUSINESS
MODEL
16
Types of Warehousing Services
Type of warehouse
Type of products handled
Location
Near ports & major industrial/railway
hubs
ICD/CFS
Containerised cargo
Rail side warehouse
Break bulk cargo such as Cement, Fertilizer
Major consumption centres & port
Bonded warehouse
Imported goods
Near ports & major industrial areas
Retail distribution centre
Retail & consumer products such as FMCG
goods, apparels, consumer durables
Major consumption centres
Service parts distribution
centre
Spare parts & consumables of heavy capital
equipment/machinery
Major industrial centres
Industrial warehouse
Industrial goods which are used as inputs in
other manufacturing industries
Major industrial centres
3PL warehouse
Multiple products
Major industrial & consumption centres
Godown
Multiple products
Major industrial & consumption centres
Cold storage warehouse
Frozen foods, milk products, pharm products
Major consumption centres & port
Foodgrain warehouse
Foodgrains such as rice, wheat, sugar
Major agricultural hubs
Air cargo warehouse
Time sensitive high value items, fragile products Major airports
Construction Cost of Warehouse
•
The nature of cargo handled by the occupier determines the choice of structure
•
PEB structures offer relatively more vertical storage space and are preferred by occupiers
making use of pallets and fork lifts for the purpose of stacking cargo
•
High value fragile cargo may not prefer multiple levels of stacking and would prefer an
RCC warehouse
•
Similarly, occupiers who need climate control, for instance pharmaceuticals, prefer RCC
Cost components for construction of a warehouse (Rs./sq.ft.)
Cost component
PEB
RCC
Structure
350 - 450
400 - 500
Plinth/flooring
300 - 400
300 - 400
Infrastructure (Sewage, roads, boundary wall, etc.)
150 - 350
150 - 350
Total
800 - 1200
850 - 1250
Feasible Land cost & Infrastructure
•
The variability of the construction cost is marginal across locations. It is the land cost that
determines the economic viability of a warehouse
•
The ideal land cost for a warehouse project would be around Rs.200/sq.ft. and with
ground coverage of 50%, this translates into Rs.400/sq.ft. on a built-up area basis
•
Support infrastructure such as sewage treatment plant, adequate internal roads for truck,
boundary walls, parking space, security chamber, etc. require open space
•
We estimate a minimum of 30 acres or 650,000 sq.ft. built-up area as the ideal size of a
warehouse
•
Hence, investment of approximately Rs.780-1,072 mn. would make an ideal warehouse
project in India
•
Land: Rs.260 mn. & Development cost: Rs.520-812 mn.
Return Expectation & Rental Yield
•
Based on the associated risk, organised/institutional players expect IRR of 14-16% from a
warehouse development project
•
On the other hand, unorganised players underwrite warehouse development projects for
as low as 7-10% IRRs
•
The gross rental yield for a warehouse ranges from 10-12% pa
•
However, the rent earned will be subject to outgoings on account of CAM charges,
property taxes, leasing/marketing fees, insurance cost, etc.
POLICIES & REGULATIONS
21
WDRA Act: Salient Features
Increase
investments in
warehousing
Enhance
business
opportunity for
Banks and
Insurance
Enhanced
employment
opportunities
WDRA 2007
Farmers
seeking higher
prices and
accurate
weights
Facilitates
borrowing and
hedging for
the owner
Banks
advances
backed by
secured and
easily
liquidated
collateral
Free Trade and Warehousing Zone
FTWZ benefits
Infrastructure
benefits
Fiscal and regulatory
benefits
i)
ii)
Tax benefits
Excise duty
exemptions
iii) Duty deferment
benefits
i)
Single product
storage facilities
ii) Shared
warehousing
iii) Equipment
sharing
Administration
benefits
i)
ii)
Delivery time
Support facilities
and effective
management
Other benefits
i) FDI inflow
ii) Export oriented
iii) Employment
potential
iv) Industries
competitiveness
GST & its Impact
•
GST will ensure the abolition of CST thereby making the country a single market which will
no longer be divided by state boundaries
•
This will enable a reduction in the number of warehouses and allow companies to focus
on building fewer and more strategically located warehouses
•
Supply chains will become leaner and efficient in terms of warehousing, transport routes,
distribution and sourcing wherein the decisions taken will be based on operational
efficiency rather than tax avoidance mechanism
Subsumed under Central GST
Subsumed under State GST
Central Excise Duty
VAT / Sales tax
Service Tax
Entertainment tax
Additional Customs Duty
Luxury tax
Surcharges
State Cesses and Surcharges
Cesses
GST & its Impact
EMERGING TRENDS
26
MMLH: The Future of Logistics Sector
Warehouse
Godown
Integrated
Logistic
Park
Multi Modal
Logistic Hub
Leading Global MMLHs
Multi Modal
Logistic Hub
Country
Size (Acres) Major services
Alliance Texas
USA
17,000
Plataforma
Logistica de
Zaragoza
Spain
3,200
Società Interporto
di Torino
Italy
740
Euro Transport
Centre
Germany
585
GLP Park Beijing
Capital Airport
China
100
Air cargo airport, rail access, Foreign Trade Zone
(FTZ), Inventory tax exemption, Dedicated office and
retail space
Air cargo airport, rail access, Business park, Captive
electrical substation
Rail access, Supply chain management, Traffic control
cent es, P e‐p oduction & uality cont ol, Office,
Banks, restaurants, Workshop centres
Rail access, customs clearance, Duty-free storage,
Just-in-time scheduling, Cross-docking centre, Spare
parts logistics centre
Air cargo terminal, Express centre, Customs
clearance, Bonded & non-bonded warehouses
MMLHs along the DMIC
• The GOI through the DMICDC has identified four
locations in its initial stage that are to be developed
as MMLHs
• The proposed MMLHs are located in Dadri &
Rewari near the NCR, Pithampur in Madhya
Pradesh and Karla near Pune in Maharashtra
• Although these hubs are still at the pre-feasibility stage, the intent of developing
them in the coming years indicates the direction in which the logistic sector of the
country is heading
MUMBAI
30
Introduction
• MMR constituting Mumbai, Thane and Navi Mumbai has the highest density of
population amounting to 23.5 mn.
• The region is host to two major sea ports namely the JNPT and the Mumbai Port
• Hence, the warehousing activities in the city are either consumption driven or
EXIM driven
• The city does not have a manufacturing base and as a result manufacturing led
warehousing is non-descript here
Major Warehousing Clusters
Bhiwandi Warehousing Hub
33
Types of Warehouses and Industries
Serviced
Retail distribution centre
FMCG
Consumer
Durable
Retailers
Textiles
Pharma
Pepsi, Henkel,
Reckitt
Benckiser, HUL
Samsung,
Videocon,
Phillips, LG,
Toshiba
Tesco, Croma,
Future Group,,
Hypercity,
Flipkart
Raymond,
Peter England,
Pepe Jeans
Cipla, GSK,
Novartis,
Wyeth
Location
Delhi-Mumbai
Highway (NH-8)
Mumbai-Nashik
Highway (NH-3)
NORTH-WEST
NORTH-EAST
Bhiwandi
Warehousing
Hub
SOUTH-WEST
Thane & Mumbai
City
SOUTH
Navi-Mumbai,
JNPT & MumbaiPune Highway
Connectivity
The Bhiwandi warehouse cluster is located in close proximity to the densely
populated (23.5mn.) consumption markets of Mumbai, Thane and Navi Mumbai
Approx. Distance (Km)
Approx. Transit time
(Hours)
Mumbai city (Dadar)
Thane city
Navi Mumbai (Vashi)
JNPT Port
Mumbai Port
35
10
25
50
45
1-1.5
0.5-1.0
1-1.5
1.5-2
1.5-2
Mumbai International Airport
30
1-1.5
Location
Rent and Quality of Warehouses
Bhiwandi Warehouse Hub
Indicator
Unit
Land rate
INR/acre
Land rate
INR/sq.mt.
Rent
INR/sq.ft./month
Range
15,000,000 - 40,000,000
3,700 - 9,900
9 - 15
Warehouses on Old Agra Road
•
Most warehouses are old developments with G+1 RCC structures which provide for just
12-14ft. of vertical space for storage
•
Primarily dominated by occupiers from textiles, pharmaceutical, consumer durables
•
The rental here is Rs.9-12/sq.ft./month for ground floor and Rs.4-6/sq.ft. for the first floor
Rent and Quality of Warehouses
Warehouses on Mumbai-Nashik Highway (NH-3)
•
Warehouses along the NH-3 can be categorised as modern warehouse complexes with
sizes in excess of 1 mn.sq.ft
•
Warehouse parks of PEB structures with supporting internal infrastructure can be found
along this 20 km stretch from Mankoli to Padgha Toll Naka
•
The rent here is on the higher side and ranges between Rs.10-15/sq.ft./month because of
better quality of construction and supporting infrastructure such as sewage treatment
plant, adequate internal roads for truck and trailer movement, fire fighting equipment,
parking and security
Infrastructure
• The Bhiwandi warehouse cluster came up as an unplanned development with
projects being developed in village areas between Thane and Bhiwandi
• As a result, the infrastructure development in terms of roads, water, sewerage
and power was lagging
• This has improved in the last few years with the development of Old Agra Road
into four-lane with divider and privatisation of power supply (Torrent Power)
• The 20 km. stretch from Mankoli to Padgha Toll Naka on NH-3 has attracted a
large number of warehouses because of the well-built four-lane national highway
Competitive Advantage
• Proximity to the densely populated consumption hub of Mumbai, Thane and
Navi Mumbai
• Lower rentals in comparison to competing warehousing hubs like Panvel
• Abundant supply of skilled, semi skilled as well as unskilled workers from MMR
• Proximity to the country’s largest container port Jawaharlal Nehru Port Trust
(JNPT) as well as the Mumbai Port
Challenges
• Identifying land parcels with clear land title
• Tiny and scattered land holdings with multiple owners from nearby villages
• Land use gradually changing in favour of residential development
• Warai charges paid to the local labour union increases the total cost by 5%-20%
• Presence of a large number of unorganised players with return expectations as
low as 7-10% makes it difficult for institutional players to operate in this market
• Lack of clarity in development norms
Outlook
• Small standalone godowns will be shunned in favour of large warehouse parks
with support infrastructure and utilities
• With residential development emerging as the most remunerative option for land
development, new warehouse development will shift towards the 15 km. stretch
extending from Rajnoli (junction of NH-3 and Bhiwandi Kalyan Road) to Padgha
until the toll point
• Besides land availability, this stretch has good road connectivity with the MMR
consumption centre and low viability for residential development
Feasible Land Cost
Feasible land cost matrix for warehousing in
Bhiwandi (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Investor Return
12%
14%
16%
10
8
7
13
11
9
15
13
11
18
16
13
Market Congruence case (The output from the feasible land cost matrix that
matches with the prevailing market price of land)
• The market price of land in this hub is upwards of INR 15 mn./acre
• Institutional players with a return expectation of 16% have no business case
for operating in Bhiwandi
Panvel Warehousing Hub
44
Types of Warehouses and Industries
Serviced
Types of
warehouses
Industrial
Warehouse
Chemicals
BASF, Dow,
Dupont,
Monsanto
Consumer
Durable
Dell, Godrej,
HCL, Hitachi,
HP, LG, Nokia
Container Freight
Station (CFS)
Pharma
Engineering
Cipla, Lupin
Crompton
Greaves, Voltas
Location
NH-8, NH-3 and
NH-222
NORTH
JNPT Road
WEST
Panvel
Warehousing
Hub
SOUTH
Panvel-Goa
Highway (NH-17)
SOUTH-EAST
Mumbai-Pune
Highway (NH-4)
Rent and quality of warehouses
Warehouses on Kalamboli-Taloja region
•
Most warehouses are G+1 RCC structures or PEB structures with basic infrastructure
•
These warehouses cater to low value products from the pharmaceutical, consumer
durables, metals and textile industry
•
The rental here is in the range of Rs.12-15/sq.ft./month
Rent and quality of warehouses
Warehouses close to Palaspe Phata
•
Logistics parks with integrated solutions
•
State of the art construction quality with high ceilings (30-35 ft.), climate control, sewage
treatment plants, adequate security and internal roads
•
The rent here is on the higher side and ranges between Rs.16-26/sq.ft./month depending
on the distance from the JNPT port
Indicator
Unit
Land Rate
INR/acre
Land Rate
INR/sq.mtr.
Rent
INR/sq.ft./month
Range
15,000,000 - 65,000,000
3,700 – 11,120
12 – 26
Infrastructure
• All the major national highways are in excellent condition
• However, internal roads are in poor condition and are difficult to negotiate
• Absence of dividers on majority of the two-lane internal roads cause frequent
traffic jams and delays
• Power, water and sewerage relatively better than Bhiwandi warehousing hub
Competitive Advantage
• Proximity to India’s busiest container port
• Easy access to a number of national highways
• A large portion of the area falls under CIDCO which has aided in building
sustainable infrastructure
• Abundant availability of skilled and unskilled labour in Navi Mumbai and the
absence of specific local labour issues (eg. Warai charges)
Challenges
• Paucity of contiguous land and inaccurate land records pose challenges in
identifying viable land as well as authentic land titles
• Announcement of the Navi Mumbai airport has led to Panvel and its
surrounding locations being touted as the next big residential hub
• Prices in residential projects within a 3 km. radius of Palaspe Phata have already
crossed INR. 5,000/ sq.ft.
• This has rendered warehousing development at existing rentals unviable in
locations close to Palaspe Phata
Outlook
• Increase in capacity of JNPT from 3.8 mn. TEUs to 10 mn. TEUs by 2016 will
lead to a surge in warehousing activities in the Panvel cluster
• With residential development emerging as the most remunerative option for land
development, new warehouse development will move further south on the NH-4
and NH-17
• Locations like Patalganga and Khalapur on the Sawale Apta road, Nadhal
Khalapur stretch on the NH-4 and the Khopoli-Pen Road will witness maximum
amount of new development in the coming years
Feasible Land Cost
Feasible land cost matrix for warehousing in
Rasayani-Patalganga (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Feasible land cost matrix for warehousing on the
Nadhal-Khalapur stretch and Pen-Khopoli Road on
NH-4 (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Investor Return
12%
14%
16%
21
18
16
24
21
18
27
23
20
30
26
23
Investor Return
12%
16
18
22
25
14%
13
16
18
21
16%
11
13
16
18
Market Congruence case (The output from the feasible land cost matrix that
matches with the prevailing market price of land)
Key Takeaways
• India logistics sector is in a ‘growth’ phase – strongly moving towards the
‘consolidation’ and ‘mature’ stage through a holistic approach
• Efforts are being taken to reduce transportation and warehousing costs and
better utilization of port to make the logistics sector more efficient
• Warehousing sector is expected to witness a substantial improvement backed by
policy & regulations, fiscal incentives and planned industrial & dedicated freight
corridors
• GOI has already identified four locations to be developed as MMLHs
• Total warehousing space demand in India is expected to grow at 13% CAGR
over the next 5 years – incremental demand is likely to be 235 mn.sq.ft.
Sub-sector – An India Perspective
Case study of Mumbai
Presented by Dr. Samantak Das
Chief Economist and National Director Research
Knight Frank India
What are the Investment Avenues?
Real Estate
Commodities
Currency
Investment
Avenues
Bonds
Equity
Where to Invest in Real Estate?
Real Estate
Investment
Office
Residential
Land
Industrial
Retail
Warehousing
Pre-leased &
Occupied
Underconstruction
Hotel
Agenda
Logistics & Warehousing
in India
Policy Analysis
Business model dynamics
Infrastructure
India Logistics & Warehousing
Emerging Trends
Bhiwandi
Mumbai Warehousing
Market
Panvel
OVERVIEW
5
What does Logistics mean?
Evolution of Logistics in India
Processes like
purchasing,
warehousing,
packaging and
inventory
management
handled separately
Not much
coordination
between functions
Early
Greater external
Internal
integration
integration within
Bundling of
the company
China services with the
Better
help of 3PL players
coordination
Companies focus
between functions
on core
Individual
competencies and
contracts given for
outsource logistics
transporting,
requirements to
storage,
3PL Players
forwarding etc.
World class
Shift from
warehouses ,
godowns
India
higher automation
to functional
warehouses
Growth
Consolidation
USA
Strategic focus on
reducing cost
redundancies and
customers
Supply chain
management
Global operations
Single operator
managing the
supply chain in
multiple
geographies
Move towards
4PL’s and 7PL’s
Mature
Comparison with USA & China
•
The USA logistics sector has a value of almost 10 times that of the Indian logistics
sector.
•
Yet the USA logistics sector employs only one-tenth the number of people that the
Indian logistics sector does
Comparison with USA & China
India
USA
China
9.9
4.3
(43% share)
J.N.P.T.
42.9
7.9
(18% share)
Los Angeles
139.7
31.7
(23% share)
Shanghai
Road Network
Weight of Goods moved annually per km of road
4.8 mn. km
1,173
6.5 mn. km
1,727
4 mn. km
7,018
Rail Network
64,000 km
228,513 km
66,239 km
14,750
8,293
59,331
Total containers handled at ports (mn.TEU)
Containers handled by busiest port (mn. TEU)
Weight of goods moved annually per km of rail line
The busiest port in India handles more than 43% of the country’s total traffic as opposed to
the busiest ports in the USA and China that handle 18% and 23% respectively
Indian cargo is inefficiently clustered around a few main ports
Demand Drivers of Logistics Sector
Demand drivers of
logistics sector
Manufacturing
Consumption
Exim
Based on industrywise spending on
logistics
Based on modern
retail space
Based on
container traffic
Major industries
such as Auto,
Cement, FMCG,
Metal and Textile
among others
Major
consumption
centres such as
Mumbai, NCR,
Bengaluru and
Chennai among
others
Major ports like
JNPT, Chennai,
Kandla, Mundra
and Ennore
among others
Manufacturing Led Demand
Industry
Characteristics
Automotive and
Auto Components
FMCG
Textile
Cement
Pharmaceutical
Highly logistics sensitive
Timely supply of individual components is of utmost importance
Inventory carrying cost is high
Highly dependent on skilled labor
High amount of inventory holding
Emphasis on last mile connectivity
Focus on product packaging
Complex supply chain
Extensive distribution network
Requires containerised cargo
Sensitive to timely movement of raw materials
Contributes to exports as well
High volume, low value commodity
Logistic cost comes very close to the manufacturing cost
High dependency on good transport infrastructure
Requires specialized cargo, temperature sensitive
Highly time sensitive
Huge inventory
Drugs need to reach the market in time
Logistics cost as
a % of revenues
2% - 3%
6% - 8%
4% - 5%
18% - 20%
2% - 3%
Consumption Led Demand
•
The changing dynamics of the retail industry has resulted in the business model of a
modern retailer becoming heavily dependent on a smooth and efficient supply chain
network
•
Large consumption markets like the NCR, Mumbai,
Bengaluru, Chennai and Kolkata among others require
massive amount of investment in logistics in order to
ensure an uninterrupted supply of goods
•
This has created demand for logistic services like
warehousing, last-mile connectivity and inventory
management
Major consumption markets
EXIM Led Demand
•
Export-import market constitutes the largest demand driver for the logistics sector in India
•
India’s containerised traffic in TEUs has grown at an annual average growth rate of 11% in
the last ten years fuelling robust demand for logistic services such as cargo transport, ICD
and CFS
Warehousing Space Demand
•
The total warehousing space demand in India is expected to grow at 13% CAGR over the
next 5 years
•
Manufacturing led demand is expected to lead with a 15% CAGR
•
A total of 235 mn.sq.ft. of incremental warehousing space will be required by the end of
2018 or 47 mn.sq.ft. in each of the coming five years
Demand for warehousing space in India (mn.sq.ft.)
2013
2018E
CAGR
Incremental
Demand
Incremental Average
Annual Demand
Manufacturing
29
57
15%
28
6
Consumption
Exim
Total Warehousing
52
211
291
84
386
526
10%
13%
13%
32
174
235
6
35
47
Major Warehousing Hubs in India
STRUCTURE & BUSINESS
MODEL
16
Types of Warehousing Services
Type of warehouse
Type of products handled
Location
Near ports & major industrial/railway
hubs
ICD/CFS
Containerised cargo
Rail side warehouse
Break bulk cargo such as Cement, Fertilizer
Major consumption centres & port
Bonded warehouse
Imported goods
Near ports & major industrial areas
Retail distribution centre
Retail & consumer products such as FMCG
goods, apparels, consumer durables
Major consumption centres
Service parts distribution
centre
Spare parts & consumables of heavy capital
equipment/machinery
Major industrial centres
Industrial warehouse
Industrial goods which are used as inputs in
other manufacturing industries
Major industrial centres
3PL warehouse
Multiple products
Major industrial & consumption centres
Godown
Multiple products
Major industrial & consumption centres
Cold storage warehouse
Frozen foods, milk products, pharm products
Major consumption centres & port
Foodgrain warehouse
Foodgrains such as rice, wheat, sugar
Major agricultural hubs
Air cargo warehouse
Time sensitive high value items, fragile products Major airports
Construction Cost of Warehouse
•
The nature of cargo handled by the occupier determines the choice of structure
•
PEB structures offer relatively more vertical storage space and are preferred by occupiers
making use of pallets and fork lifts for the purpose of stacking cargo
•
High value fragile cargo may not prefer multiple levels of stacking and would prefer an
RCC warehouse
•
Similarly, occupiers who need climate control, for instance pharmaceuticals, prefer RCC
Cost components for construction of a warehouse (Rs./sq.ft.)
Cost component
PEB
RCC
Structure
350 - 450
400 - 500
Plinth/flooring
300 - 400
300 - 400
Infrastructure (Sewage, roads, boundary wall, etc.)
150 - 350
150 - 350
Total
800 - 1200
850 - 1250
Feasible Land cost & Infrastructure
•
The variability of the construction cost is marginal across locations. It is the land cost that
determines the economic viability of a warehouse
•
The ideal land cost for a warehouse project would be around Rs.200/sq.ft. and with
ground coverage of 50%, this translates into Rs.400/sq.ft. on a built-up area basis
•
Support infrastructure such as sewage treatment plant, adequate internal roads for truck,
boundary walls, parking space, security chamber, etc. require open space
•
We estimate a minimum of 30 acres or 650,000 sq.ft. built-up area as the ideal size of a
warehouse
•
Hence, investment of approximately Rs.780-1,072 mn. would make an ideal warehouse
project in India
•
Land: Rs.260 mn. & Development cost: Rs.520-812 mn.
Return Expectation & Rental Yield
•
Based on the associated risk, organised/institutional players expect IRR of 14-16% from a
warehouse development project
•
On the other hand, unorganised players underwrite warehouse development projects for
as low as 7-10% IRRs
•
The gross rental yield for a warehouse ranges from 10-12% pa
•
However, the rent earned will be subject to outgoings on account of CAM charges,
property taxes, leasing/marketing fees, insurance cost, etc.
POLICIES & REGULATIONS
21
WDRA Act: Salient Features
Increase
investments in
warehousing
Enhance
business
opportunity for
Banks and
Insurance
Enhanced
employment
opportunities
WDRA 2007
Farmers
seeking higher
prices and
accurate
weights
Facilitates
borrowing and
hedging for
the owner
Banks
advances
backed by
secured and
easily
liquidated
collateral
Free Trade and Warehousing Zone
FTWZ benefits
Infrastructure
benefits
Fiscal and regulatory
benefits
i)
ii)
Tax benefits
Excise duty
exemptions
iii) Duty deferment
benefits
i)
Single product
storage facilities
ii) Shared
warehousing
iii) Equipment
sharing
Administration
benefits
i)
ii)
Delivery time
Support facilities
and effective
management
Other benefits
i) FDI inflow
ii) Export oriented
iii) Employment
potential
iv) Industries
competitiveness
GST & its Impact
•
GST will ensure the abolition of CST thereby making the country a single market which will
no longer be divided by state boundaries
•
This will enable a reduction in the number of warehouses and allow companies to focus
on building fewer and more strategically located warehouses
•
Supply chains will become leaner and efficient in terms of warehousing, transport routes,
distribution and sourcing wherein the decisions taken will be based on operational
efficiency rather than tax avoidance mechanism
Subsumed under Central GST
Subsumed under State GST
Central Excise Duty
VAT / Sales tax
Service Tax
Entertainment tax
Additional Customs Duty
Luxury tax
Surcharges
State Cesses and Surcharges
Cesses
GST & its Impact
EMERGING TRENDS
26
MMLH: The Future of Logistics Sector
Warehouse
Godown
Integrated
Logistic
Park
Multi Modal
Logistic Hub
Leading Global MMLHs
Multi Modal
Logistic Hub
Country
Size (Acres) Major services
Alliance Texas
USA
17,000
Plataforma
Logistica de
Zaragoza
Spain
3,200
Società Interporto
di Torino
Italy
740
Euro Transport
Centre
Germany
585
GLP Park Beijing
Capital Airport
China
100
Air cargo airport, rail access, Foreign Trade Zone
(FTZ), Inventory tax exemption, Dedicated office and
retail space
Air cargo airport, rail access, Business park, Captive
electrical substation
Rail access, Supply chain management, Traffic control
cent es, P e‐p oduction & uality cont ol, Office,
Banks, restaurants, Workshop centres
Rail access, customs clearance, Duty-free storage,
Just-in-time scheduling, Cross-docking centre, Spare
parts logistics centre
Air cargo terminal, Express centre, Customs
clearance, Bonded & non-bonded warehouses
MMLHs along the DMIC
• The GOI through the DMICDC has identified four
locations in its initial stage that are to be developed
as MMLHs
• The proposed MMLHs are located in Dadri &
Rewari near the NCR, Pithampur in Madhya
Pradesh and Karla near Pune in Maharashtra
• Although these hubs are still at the pre-feasibility stage, the intent of developing
them in the coming years indicates the direction in which the logistic sector of the
country is heading
MUMBAI
30
Introduction
• MMR constituting Mumbai, Thane and Navi Mumbai has the highest density of
population amounting to 23.5 mn.
• The region is host to two major sea ports namely the JNPT and the Mumbai Port
• Hence, the warehousing activities in the city are either consumption driven or
EXIM driven
• The city does not have a manufacturing base and as a result manufacturing led
warehousing is non-descript here
Major Warehousing Clusters
Bhiwandi Warehousing Hub
33
Types of Warehouses and Industries
Serviced
Retail distribution centre
FMCG
Consumer
Durable
Retailers
Textiles
Pharma
Pepsi, Henkel,
Reckitt
Benckiser, HUL
Samsung,
Videocon,
Phillips, LG,
Toshiba
Tesco, Croma,
Future Group,,
Hypercity,
Flipkart
Raymond,
Peter England,
Pepe Jeans
Cipla, GSK,
Novartis,
Wyeth
Location
Delhi-Mumbai
Highway (NH-8)
Mumbai-Nashik
Highway (NH-3)
NORTH-WEST
NORTH-EAST
Bhiwandi
Warehousing
Hub
SOUTH-WEST
Thane & Mumbai
City
SOUTH
Navi-Mumbai,
JNPT & MumbaiPune Highway
Connectivity
The Bhiwandi warehouse cluster is located in close proximity to the densely
populated (23.5mn.) consumption markets of Mumbai, Thane and Navi Mumbai
Approx. Distance (Km)
Approx. Transit time
(Hours)
Mumbai city (Dadar)
Thane city
Navi Mumbai (Vashi)
JNPT Port
Mumbai Port
35
10
25
50
45
1-1.5
0.5-1.0
1-1.5
1.5-2
1.5-2
Mumbai International Airport
30
1-1.5
Location
Rent and Quality of Warehouses
Bhiwandi Warehouse Hub
Indicator
Unit
Land rate
INR/acre
Land rate
INR/sq.mt.
Rent
INR/sq.ft./month
Range
15,000,000 - 40,000,000
3,700 - 9,900
9 - 15
Warehouses on Old Agra Road
•
Most warehouses are old developments with G+1 RCC structures which provide for just
12-14ft. of vertical space for storage
•
Primarily dominated by occupiers from textiles, pharmaceutical, consumer durables
•
The rental here is Rs.9-12/sq.ft./month for ground floor and Rs.4-6/sq.ft. for the first floor
Rent and Quality of Warehouses
Warehouses on Mumbai-Nashik Highway (NH-3)
•
Warehouses along the NH-3 can be categorised as modern warehouse complexes with
sizes in excess of 1 mn.sq.ft
•
Warehouse parks of PEB structures with supporting internal infrastructure can be found
along this 20 km stretch from Mankoli to Padgha Toll Naka
•
The rent here is on the higher side and ranges between Rs.10-15/sq.ft./month because of
better quality of construction and supporting infrastructure such as sewage treatment
plant, adequate internal roads for truck and trailer movement, fire fighting equipment,
parking and security
Infrastructure
• The Bhiwandi warehouse cluster came up as an unplanned development with
projects being developed in village areas between Thane and Bhiwandi
• As a result, the infrastructure development in terms of roads, water, sewerage
and power was lagging
• This has improved in the last few years with the development of Old Agra Road
into four-lane with divider and privatisation of power supply (Torrent Power)
• The 20 km. stretch from Mankoli to Padgha Toll Naka on NH-3 has attracted a
large number of warehouses because of the well-built four-lane national highway
Competitive Advantage
• Proximity to the densely populated consumption hub of Mumbai, Thane and
Navi Mumbai
• Lower rentals in comparison to competing warehousing hubs like Panvel
• Abundant supply of skilled, semi skilled as well as unskilled workers from MMR
• Proximity to the country’s largest container port Jawaharlal Nehru Port Trust
(JNPT) as well as the Mumbai Port
Challenges
• Identifying land parcels with clear land title
• Tiny and scattered land holdings with multiple owners from nearby villages
• Land use gradually changing in favour of residential development
• Warai charges paid to the local labour union increases the total cost by 5%-20%
• Presence of a large number of unorganised players with return expectations as
low as 7-10% makes it difficult for institutional players to operate in this market
• Lack of clarity in development norms
Outlook
• Small standalone godowns will be shunned in favour of large warehouse parks
with support infrastructure and utilities
• With residential development emerging as the most remunerative option for land
development, new warehouse development will shift towards the 15 km. stretch
extending from Rajnoli (junction of NH-3 and Bhiwandi Kalyan Road) to Padgha
until the toll point
• Besides land availability, this stretch has good road connectivity with the MMR
consumption centre and low viability for residential development
Feasible Land Cost
Feasible land cost matrix for warehousing in
Bhiwandi (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Investor Return
12%
14%
16%
10
8
7
13
11
9
15
13
11
18
16
13
Market Congruence case (The output from the feasible land cost matrix that
matches with the prevailing market price of land)
• The market price of land in this hub is upwards of INR 15 mn./acre
• Institutional players with a return expectation of 16% have no business case
for operating in Bhiwandi
Panvel Warehousing Hub
44
Types of Warehouses and Industries
Serviced
Types of
warehouses
Industrial
Warehouse
Chemicals
BASF, Dow,
Dupont,
Monsanto
Consumer
Durable
Dell, Godrej,
HCL, Hitachi,
HP, LG, Nokia
Container Freight
Station (CFS)
Pharma
Engineering
Cipla, Lupin
Crompton
Greaves, Voltas
Location
NH-8, NH-3 and
NH-222
NORTH
JNPT Road
WEST
Panvel
Warehousing
Hub
SOUTH
Panvel-Goa
Highway (NH-17)
SOUTH-EAST
Mumbai-Pune
Highway (NH-4)
Rent and quality of warehouses
Warehouses on Kalamboli-Taloja region
•
Most warehouses are G+1 RCC structures or PEB structures with basic infrastructure
•
These warehouses cater to low value products from the pharmaceutical, consumer
durables, metals and textile industry
•
The rental here is in the range of Rs.12-15/sq.ft./month
Rent and quality of warehouses
Warehouses close to Palaspe Phata
•
Logistics parks with integrated solutions
•
State of the art construction quality with high ceilings (30-35 ft.), climate control, sewage
treatment plants, adequate security and internal roads
•
The rent here is on the higher side and ranges between Rs.16-26/sq.ft./month depending
on the distance from the JNPT port
Indicator
Unit
Land Rate
INR/acre
Land Rate
INR/sq.mtr.
Rent
INR/sq.ft./month
Range
15,000,000 - 65,000,000
3,700 – 11,120
12 – 26
Infrastructure
• All the major national highways are in excellent condition
• However, internal roads are in poor condition and are difficult to negotiate
• Absence of dividers on majority of the two-lane internal roads cause frequent
traffic jams and delays
• Power, water and sewerage relatively better than Bhiwandi warehousing hub
Competitive Advantage
• Proximity to India’s busiest container port
• Easy access to a number of national highways
• A large portion of the area falls under CIDCO which has aided in building
sustainable infrastructure
• Abundant availability of skilled and unskilled labour in Navi Mumbai and the
absence of specific local labour issues (eg. Warai charges)
Challenges
• Paucity of contiguous land and inaccurate land records pose challenges in
identifying viable land as well as authentic land titles
• Announcement of the Navi Mumbai airport has led to Panvel and its
surrounding locations being touted as the next big residential hub
• Prices in residential projects within a 3 km. radius of Palaspe Phata have already
crossed INR. 5,000/ sq.ft.
• This has rendered warehousing development at existing rentals unviable in
locations close to Palaspe Phata
Outlook
• Increase in capacity of JNPT from 3.8 mn. TEUs to 10 mn. TEUs by 2016 will
lead to a surge in warehousing activities in the Panvel cluster
• With residential development emerging as the most remunerative option for land
development, new warehouse development will move further south on the NH-4
and NH-17
• Locations like Patalganga and Khalapur on the Sawale Apta road, Nadhal
Khalapur stretch on the NH-4 and the Khopoli-Pen Road will witness maximum
amount of new development in the coming years
Feasible Land Cost
Feasible land cost matrix for warehousing in
Rasayani-Patalganga (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Feasible land cost matrix for warehousing on the
Nadhal-Khalapur stretch and Pen-Khopoli Road on
NH-4 (INR mn./acre)
2%
3%
Expected rental growth per annum
4%
5%
Investor Return
12%
14%
16%
21
18
16
24
21
18
27
23
20
30
26
23
Investor Return
12%
16
18
22
25
14%
13
16
18
21
16%
11
13
16
18
Market Congruence case (The output from the feasible land cost matrix that
matches with the prevailing market price of land)
Key Takeaways
• India logistics sector is in a ‘growth’ phase – strongly moving towards the
‘consolidation’ and ‘mature’ stage through a holistic approach
• Efforts are being taken to reduce transportation and warehousing costs and
better utilization of port to make the logistics sector more efficient
• Warehousing sector is expected to witness a substantial improvement backed by
policy & regulations, fiscal incentives and planned industrial & dedicated freight
corridors
• GOI has already identified four locations to be developed as MMLHs
• Total warehousing space demand in India is expected to grow at 13% CAGR
over the next 5 years – incremental demand is likely to be 235 mn.sq.ft.