Tata Diesl readying for project cargo push

Drive India Enterprise Solutions (Diesl) is the logistics arm of the Tata group that provides warehousing and distribution solutions to both Tata and non-Tata companies.

Ajay Chopra, CEO of Diesl spoke to DNA on the main growth drivers in the logistics segment, expectations from GST and the company’s activities in the North-East. Excerpts from the interview:

What is your outlook on the logistics sector?
Logistics industry has been going very steady as it has a direct connect to the economy. More than 90% of the segment is unorganised. Indian logistics today is at that curve where the evolution process has just started. While the industry grew at 10% in the past few years, organised players like us have seen a growth of 12-13%. This clearly means there is a shift of 2% to 3% taking place from the unorganised to the organised sector. This is also an indicator that as an industry we are evolving. The proposed Goods and Service Tax (GST) would be another positive for the organised players.

What could be the concerns?
The four main requirements of this industry are tax reforms, land reforms, labour reforms and infrastructure. GST will meet the tax reform requirement, infrastructure remains a continuous bottleneck and at the current inflationary figures, India is bound to lose the cheap labour tag as well. In addition, labour laws are mired with various complications with interpretations. In GST, one main roadblock is we still don’t know whether the tax regime is coming in its pure form or with various changes. In case all states are not part of it or some barriers stay, it would be a diluted form of GST. Further, the government needs to work on infrastructure— shifting to e-processing being one of the main requirements. A lot of work is still needed.

If the infrastructure is in place and GST is accepted in its pure form, how much will the delivery time on a busy route like Mumbai-Delhi reduce?
Mumbai-Delhi earlier used to be a four-night journey by truck, which has already come down to two nights. This 50% cut has happened not because of GST, but because of addressing the infrastructure bottleneck through the golden quadrilateral. Now, if we get in GST, a 1,400 km journey could be completed possibly in 36 hours; this would mean if a truck does around seven turns a month, in the best scenario it will jump to 14 turns, thus doubling of movement.

For Tata Diesl, which sectors would drive growth?
We currently cater to sectors like telecom, FMCG, consumer durables, retail and auto. IT peripherals has been incorporated as a focus sector. The highest CAGR in terms of logistics spend is likely to be offered by retail and telecom sectors which are expected to grow at 24% and 21%, respectively for next five years. This would be followed by the auto with CAGR of 15%, FMCG with 11%, IT peripherals and consumer durables with 7-8% in five years. We are also getting ready for a new sector — project cargo, which is fast expanding in wake of government focus on infrastructure. The current market size in this segment is around Rs20,000 crore and is expected to grow to ¤45,000 crore in the next two years, considering an investment of $200 billion being made in the infrastructure space.

Within India, which are your most busy routes? Which would be your main hubs of economic activity and growth?
We have got nearly the same level of growth across the country, while surely East stands out. For us, East is important and the rate of growth is very high. But if I look at my business as a whole, we have seen a similar growth across the country. Within East, the interesting part is North-East.

What make North-East a special market for you?
North-East remains special for the geographical difficulty there. Once you get your act right in this region, it can be a huge growth market for anyone. Both East and North-East bring in a lot of challenges — it is a difficult terrain. There is huge commercial activity (being mineral rich) taking place in a number of smaller cities across the eastern region, but reaching these cities is a challenge due to lesser road connectivity and lack of warehousing facilities.

Do you mean that purchasing power of these cities have increased due to commercial activities, making it an attractive market?
I have always seen North-East with a larger purchasing power for products that could reach there. If you can reach, you will have a demand for your product there.

Your presence is mostly in end-products. Do you plan to expand presence in the raw material side of the value chain?
Over the year, we have stayed on the end-product side, but we are doing a lot of movement of minerals, ores and rods, including other materials in the eastern region. All this we are doing in Orissa, Guwahati and West Bengal. We see immense potential in this segment.

How do you look at free trade warehousing zones (FTWZ) and special economic zones (SEZs)?
We would definitely like to operate from these zones, but as we are an asset light company we do not plan to have such facilities. Operations from SEZs and FTWZs are the way things are going to move in the future.