Delhi-based tyre major Apollo Tyres, is getting into the transportation and logistics business. Apollo International a sister company of the Rs 3,000 crore tyre major, is setting up a cargo container freight station near Mumbai and is also on the prowl to acquire a third party logistics firm to jumpstart its foray.
In the first phase of this diversification plan, Apollo International plans to invest Rs 150 crore to set up a Container Freight Station (CFS) spread over 60 acres at Panvel near Mumbai.
The company will also offer inventory management, distribution centres, cold storage and other logistics related activities from that location.
The Panvel CFS is located strategically near India's premier container port Jawaharlal Nehru Port Trust (JNPT) which accounts for 54 per cent of container cargo transiting through the 12 major ports in the country.
"When fully developed, the CFS will have a capacity to handle 2,50,000 twenty-foot equivalent unit (TEU) boxes in a year and offer all related services," said Capt Kapil Anand, CEO, Logistics Business of Apollo International Limited. A 20-foot TEU box can load up to 20 tonnes of cargo excluding its weight of 2.2 tonnes.
Apollo International Limited is also looking at acquiring an Indian logistics company that will provide synergy to its overall game plan in the field of transportation and logistics space to compete with the likes of Maersk, Sembcorp Logistics and APL which have dedicated logistics arms operating in India in addition to CFS operators like Gateway Distriparks.
"We are looking at a target company for which we are ready to pay between Rs 30 crore to Rs 50 crore. Negotiations are on with a few firms and finances have been tied-up", Anand said.
Apollo plans to leverage the expertise of the company that is being acquired, to overcome its relative inexperience in the business and make it eligible to bid for logistics contracts.
Apollo plans to invest Rs 400-500 crores over 3-4 years to expand the logistics business by setting up CFS's in other locations as well such as in Tughlakhabad near Delhi. The expansion plans will be funded largely through market borrowings leveraging the group’s brand equity and the company’s 12-year profitable track record, said Anand.
The diversification will also help Apollo Tyres cut transportation costs by leveraging on the strength of its logistics affiliate. Apollo currently spends close to Rs 100 crore a year on logistics and transportation of tyres to about 5,000 dealers spread across the country.
"Logistics is a sunshine sector and the domestic market is huge", says Anand. Organised players account for a meager 4-5 per cent of the transport business dominated by single truck owners.
A booming EXIM trade riding on the strength of a growing economy is expected to transform the face of Indian logistics, say industry analysts. India currently spends 13% of GDP on logistics cost, much higher than the 9%-10% spent by the US and European countries.
FDI in manufacturing-oriented sectors and domestic retail expansion are driving demand for outsourced logistics services, says Mumbai based research house Edelweiss Securities.
The firm forecasts express cargo and third-party logistics providers (3PL) to grow at a Compounded Annual Growth Rate (CAGR) of 20%-25% over the next three-five years. New segments like warehousing are likely to grow at a CAGR of over 40%, says the firm.
Apollo also plans to tie-up with a global company to garner technical know-how to offer the latest and best technology and value for money to its customers, Anand adds.