Angels rush in as logistics sector is set to touch $10 bn


Venture capital firms scanning Indian markets for the next big investment opportunity after consumer internet would do well to have their eyes trained on technology-driven logistics startups. The market for logistics-technology businesses, which include delivery startups, truck aggregators and warehousing firms, is expected to surge to $9.6 billion by 2020 from $1.4 billion in 2015, […]


logistics sectorVenture capital firms scanning Indian markets for the next big investment opportunity after consumer internet would do well to have their eyes trained on technology-driven logistics startups. The market for logistics-technology businesses, which include delivery startups, truck aggregators and warehousing firms, is expected to surge to $9.6 billion by 2020 from $1.4 billion in 2015, according to a new report by investment bank Avendus Capital.Venture capital investors, including SAIF Partners, Sequoia Capital India and Accel India as well as growth equity investors Warburg Pincus and Tiger Global Management, have made multiple bets on the sector. Strategic investors, including China’s Alibaba Group and Amazon and global logistics firms, are also eyeing deals.

“As the growth starts coming back in ecommerce, there will be increased deal activity in the logistics space. Venture capital investors have started thinking beyond normal categories, which is an evolution of the market,” said Aashish Bhinde, Executive Director at Avendus, adding that among the other emerging sectors were education technology and healthcare technology. India’s logistics sector contributes 13% to GDP, signaling it could benefit from technology-driven startups that have the potential to leapfrog the largely unorganised market.

When a country enters a phase of rapid economic growth, the logistics industry sees significant cost escalation, Avendus said in its report. China’s logistics sector contributed nearly 21% of GDP in 2000 but costs fell as efficiencies improved and the contribution has dropped to under 18% of GDP. In mature economies such as the European Union, the logistics sector accounts for 810% of GDP, Avendus said.

Avendus expects that by 2020, ecommerce logistics startups will dominate India’s emerging logistics sector with a market size of $6.6 billion, followed by hyper-local deli very services ($3.9 billion) and market places that connect truckers with clients ($750 million).

Several large third-party logis tics firms, such as Delhivery and Ecom Express, have already made a mark catering to online marketas Flipkart and places such as Flipkart and Amazon. These are in addition to the logistics units of online retailers -such as Flipkart’s Ekart and XpressBees, which was spun out of baby-care retailer Firstcry -and traditional logistics firms such as Gati and Blue Dart. Amazon India and furniture retailers Pepperfry and UrbanLadder also have large logistics operations.

Mukul Arora, principal at SAIF Partners, said growth in India’s logistics-tech market was a no-brainer. “However, one challenge in this space is that demand is consolidated, which is what happened in China, and the lowest-cost player will have a huge advantage. Companies in the segment will be pro fitable, but EBITDA margin profile will be in the 8-10% range,” said Arora, whose firm has backed Rivigo, XpressBees and FarEye. Investor excitement around the sector is likely to be driven also by the $1.4-billion IPO of China’s ZTO Express on the New York Stock Exchange in October, the largest public listing in the US by a Chinese firm after Alibaba in 2014.

The worth of Sequoia Capital China’s stake in ZTO is estimated to have increased by 16 times following the IPO, to about $1billion. Warburg Pincus is also an investor in ZTO.

Source: Times of India

Image Courtesy: warehousenews

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