Connecting The Dots Of Growth

Working in the business of goods trading during 1995-2000, Ajay Mittal's biggest challenge was inefficient logistics in India. Handling and transportation of goods was a tough task, given the bad condition of rail and road networks. Mittal decided to provide third-party logistics (3PL) services to address this challenge. This is the Rs 273-crore (sales in fiscal 2010) Arshiya International's story in a nutshell.

Today, Mumbai-based Arshiya is an integrated supply chain and logistics infrastructure solutions company, which provides end-to-end logistics and supply-chain solutions. Arshiya provides services and solutions at every point of the supply-chain system through its various subsidiaries — from handling international logistics, storing products across India, pan-India cargo movement to managing entire supply chain and warehousing, providing complete cargo visibility, management and customised reports, and last-mile distribution and handling.

In its initial days, Arshiya's major client concentration was in the sectors of chemicals, steel, garments, and project cargo. With its expanding base, the firm now caters to almost every industry and has been customising its infrastructure services and resources as per the specific needs of its clients. For 3PL activities, Mittal partnered with BDP International in 2000, one of the largest freight forwarders in the world, representing BDP in India and West Asia. In 2006, BDP India merged with Arshiya. Building upon the success of 3PL service, Mittal entered fourth-party logistics or consulting in 2006. He formed a joint-venture firm Genco India with US-based Genco Inc. to provide warehouse management, transportation and distribution to manufacturing firms and the retail sector.

Mittal moved from strength to strength and bought Cyberlog Technologies International in April 2006 — a software products and solutions firm with a niche in the logistics industry. It also formed a joint venture in 2007 in Oman in the name of Arshiya Logistics, for carrying on business of air, ocean freight forwarding and supply-chain logistics.

In fiscal 2009, Arshiya made its first logistics infrastructure investment as it commenced its rail operations — Arshiya Rail Infrastructure —to provide pan-India rail-freight operations and rail terminal facilities. Arshiya Rail is already a profitable private container train operator (PCTO) in the country. Even though the government needs to be more supportive in terms of their policies towards the PCTOs, but the goods traffic moved by rail is on the rise as rail is a faster, cost effective and more sustainable mode of transportation as compared to road.

Not only does the company have an impressive track-record in terms of entering different verticals of the logistics industry, the big leap over the past four years also reflects in its top line — growing from Rs 2.5 crore in FY 2005-06 to about Rs 273 crore in FY 2009-10. "The top-line growth in the past four years is mainly due to the kind of service income Arshiya generated through various value-added activities in logistics," says Mittal, the chairman and managing director of Arshiya International.

Arshiya's most ambitious project kicked-off in FY 2008-09, when Mittal decided to set up India's first free trade and warehousing zone (FTWZ) in Panvel. The 165-acre facility, 24 km from Jawaharlal Nehru Port Trust, will employ over 25,000 people at full capacity. The state-of-the-art logistics park is one of the five zones planned across key locations in India. The second FTWZ in Khurja near Delhi is likely to start in fiscal 2012. There are plans for three more FTWZs over three years — in Nagpur (Maharashtra) and one each in the southern and eastern parts of the country. These zones will not only allow hubbing in strategic locations across India, but will also provide the correct regulatory framework to remove inefficiencies.
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With phased investment of Rs 3,652 crore over the next two years, Arshiya plans to develop and operate all five FTWZs connected by rail, five domestic distribution parks or ‘Distriparks' complementing each FTWZ, and 150 trains for pan-India rail operations. What distinguishes Arshiya from other logistics companies such as Bluedart and FedEx is that it has developed its presence across the entire spectrum of logistics and supply chain with the capability to provide customised solutions based on client requirement, and its focus on the Indian market and the pain areas of Indian and foreign companies operating out of India.

Mittal calls the growth in the logistics infrastructure sector as ‘tip of the iceberg,' and believes the business of logistics and its infrastructure will sustain on India's growth. In an inclusive economy, where consumption levels are so high, supply is the biggest issue, and it can only be addressed through larger and more efficient infrastructure that can remove supply-chain bottlenecks and reduce costs, says Mittal.

He plans to establish a pan-India highly-connected network of such zones, with each zone being either near a port or with easy access to a port through rail connectivity. The company will also establish sub-hubs in convergence with these free trade zones to facilitate smooth operations of logistics and supply-chain activities in the country. "The complete model, when operational, will provide comprehensive solutions of hubbing, warehousing, value-addition and regional distribution, which India was losing to Singapore or Dubai due to a lack of infrastructure," says Mittal.

Arshiya's ambition, its infrastructure model, and complexities around it, pose a big challenge as the firm has a debt of Rs 2,640 crore on an equity base (including reserves) of about Rs 500 crore only. Implementation challenges including government approvals, licences and land acquisition could put more pressure on its highly-leveraged balance sheet. Analysts feel the firm could face stiff competition in the rail-container space as the sector is becoming overcrowded.

Mittal admits land acquisition is a Herculean task for setting up such zones, but he has successfully bought land tracts by directly approaching owners. "It is not just about paying an appropriate amount for land, but to offer incentives over and above the land price." Will Mittal's ambitious plans pay off? Wait and watch.

abhinav(dot)sharma(at)abp(dot)in

(This story was published in Businessworld Issue Dated 23-05-2011)