Restructuring to drive growth in Indian logistics says CRISIL
The proposed implementation of the Goods and Services tax (GST) and development of logistics parks, coupled with strong economic growth are expected to restructure the industry, bringing in greater efficiency and drive growth for the logistics business, said ratings agency CRISIL.
 
"The Indian logistics industry, valued at Rs3.6 trillion, is poised for strong growth in the next five years with a compounded annual growth rate (CAGR) of around 11%. A well-developed and networked logistics industry is imperative for the success and overall growth of the economy. Strong growth in economic fundamentals, favourable regulatory environment and greater thrust on logistics infrastructure development would be the key factors driving logistics growth," said Manoj Mohta, Head, CRISIL Research.
 
According to a report, CRISIL Research estimates total logistics spend covering both primary and secondary movement to be around 10.7% of the GDP in 2008-09, significantly higher than the 5% to 7% across developed nations. The higher spend is largely due to inefficient logistics operations, multiple tax structures, inadequate logistics infrastructure and unorganised nature of the industry, the report said.
 
CRISIL said the proposed implementation of GST and development of logistics parks and free trade warehousing zones (FTWZs) will accelerate formation of regional hub-based infrastructure and an environment conducive for rationalising the logistics network and this would help reduce intermediaries and streamline supply chain operations.
 
The government's investment-linked tax incentives for setting up cold storages and agriculture warehousing facilities too will provide an impetus to the logistics sector, it added.
 
The Indian unit of S&P said with strong growth in organised retailing and food processing sector, there is a dire need to upgrade infrastructure in the country to ensure optimal distribution and storage of perishables.
 
It said it believes that agriculture wastages can be reduced to around 25% from current levels of 30%-40% through an efficient supply chain mechanism as lower wastages would ensure lower prices to end consumers and higher income for farmers.
 
"Efficiency in logistics operations can be achieved by outsourcing it to a third party logistics (3PL) service provider. 3PL players can integrate operations by providing multimodal transport services and create better logistics infrastructure. The supply chain management needs to transform from an activity-based function to a service-oriented function," Mr Mohta added.
 
CRISIL Research said it expects revenues of the 3PL segment to grow strongly at around 27% CAGR over the next 5 years, to around Rs162 billion in 2013-14 from an estimated Rs48 billion in 2008-09.
-Yogesh Sapkale with Amritha Pillay [email protected]
 

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Floods May Hit Sugar Output
After the recent heavy rains in the southern and western parts of Maharashtra, the sugar crop may be damaged ahead of harvests. Maharashtra is India’s largest sugar-producing state. The unseasonal rains have also submerged large sugarcane growing areas in neighbouring states of Andhra Pradesh and Karnataka.
 
The flooding has forced the sugar mills in Maharashtra and Karnataka to delay their crushing season by 10-15 days which generally begins by the middle of October. In case of sugar mills in Andhra Pradesh, the rains would not make much of a difference because the state had a very poor cane crop and hence crushing will not begin before November-end.
 
In 2008-09, sugar output in India, the world’s second biggest producer after Brazil, fell more than 40% to about 15 million tonnes (MT) forcing the country to allow duty free imports. The retail prices of sugar has already touched Rs40 per kg.
 
During the new season that starts from October, the sugar production in the country is likely to be about 16-17MT. India consumes about 23MT of sugar a year and is expected to import about 9MT.
 
Speculations of India increasing its import due to supply constraints will also have its impact on the sugar prices globally. As India will celebrate Diwali this week, demand for sugar is expected to go up. Record price and supply crunch have prompted the government to impose stock limits on bulk sugar consumers, wholesale traders and retailers to check hoarding. Market sources expect the production to be impacted by 20% and the sugar price to rise by 30%.
 
Among the leading sugar companies, Bajaj Hindusthan which is entirely based in Uttar Pradesh won’t be adversely affected by the Maharashtra floods but the company is still vulnerable to sugarcane availability. According to market sources, to overcome the supply issues, Shree Renuka Sugars, India’s biggest refiner is planning to acquire Equipav SA Acucar e Alcool, the sugar and alcohol assets of Brazil’s Equipav Group.
–Swapnil Suvarna [email protected]
 
 

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Jacking up prices for IPOs
Real estate developers are ramping up property prices in order to get higher valuation for utilising public money as many of them are planning to enter the capital market to raise funds.
 
“It is all a game plan because Initial Public Offerings (IPOs) are lined up. Increase in the prices provides them (the developers) with a higher valuation. All those builders who have not yet been able to capitalise on the booming stock market are jacking up the prices between 10%-15%,” said Pankaj Kapoor, founder and chief executive, Liases Foras, a property research firm.
 
From October 2008 and during the slowdown, all developers had to reduce property prices by as much as 30%. This move helped in some recovery and brought back a little momentum in realty. To take the benefit of the recovery, initially developers hiked prices by 5%-10% to signal the bottom and get potential buyers to stop waiting for a further decline.
 
“As the builders saw demand coming in the market, they hiked up the prices once again for higher valuation and they have killed the market,” Kapoor said.
 
According to market sources, Lodha Developers Ltd has increased property prices by 10% because it sees the company to be valued at about Rs2,500 crore. Nitesh Estates, another developer based in Bengaluru is expected to file draft red herring prospectus to raise Rs550 crore while Sahara Prime City—the real estate unit of Sahara Group is also planning to raise around Rs9, 800 crore and hence has increased the property prices by same percentage. Orbit Corp Ltd and Indiabulls Real Estate Ltd are also following the same footsteps.  All the realty companies are set to raise Rs13,500 crore from markets through IPOs.
Pallabika Ganguly, [email protected]
 
 

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