Project Report On Warehousing Sector (Repaired)

7/5/2010

By Rahul Khetawat

AGRIWAREHOUSING SECTOR OF INDIA

Agri Warehousing Sector in India

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Executive Summary

One of the major segments contributing to a rapidly growing logistics industry is the warehousing business. The growth in international trade and agriculture production coupled with the rise in containerization levels has led to high demand for warehouses. Agriculture accounts for a significant share of warehousing demand at the tertiary hubs. With the plenty of labour and land available at the rational cost and good infrastructure connectivity can propel some of this locations to become attractive warehousing hubs in future. This creates tremendous opportunity for the private sector. The market, which is valued at INR 20 bn, is expected to grow due to the demand generated by importers, exporters and agri processors for specialized services. The report begins with an overview of the industry indicating market size, growth, current state of the market and the infrastructural resources available. The report highlights various types of warehouses, categorized on the basis of ownership and usage. An analysis of the various investment options available to players entering the market has been provided in order to assist new entrants. The report covers the various initiatives taken by the government towards the development of warehousing sector including introduction of Single-tax Goods & Services Tax (GST) regime and Warehousing Act 2007, investments in logistics parks and free trade warehousing zones (FTWZs), and development of infrastructural facilities. The report identifies the key characteristics and trends including strong macroeconomic fundamentals, change in tax policy boosting warehouse outsourcing, significant investments by the logistics providers in warehousing segment, entry of realty players and large scale investments from private equity firms. Competition section profiles major private and public players in the market. The section contains a snapshot of their corporation, future investment outlook as well as their financial performance, providing an insight into the existing competitive scenario.


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Table of Content

• Overview of Indian Economy 4

• Logistics Sector of India 5-7

• Warehosuing Sector India 8-10

• Driver of warehousing sector 11

• Agriculture Sector in India 12-17

• Indian Agriwarehousing Sector 18-39


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Overview of Indian economy

The Indian economy has witnessed remarkable growth in recent years supported by market reforms, inflow of foreign direct investment, rise in agriculture production, information technology, expanding capital market and many more factors. With a population of more than billion people, the country has witnessed a phenomenal opportunity in agriculture sector.

In the last quarter of 2009-10 India’s gross domestic product(GDP) growth was 8.6% and index of industrial production recoded a growth of 17.6% and CAGR 6.0% during the past decade and stock market grows by 70% from 10876 to 17728(April 2009 to April 2010). India’s export nos. is also rapidly growing but growth in agriculture and allied sector is discouraging despite positive growth in GDP but agriculture and allied sector grows negatively with -0.2%.

The overall target of GDP growth in the country for the 11th five year plan is 9% with an annual average growth rate of 4% in agriculture and allied sector.

House Hold Steady Indian INC Resilient Govt under Stress

Wa

Household Savings: 230bn$

Underleveraged Consumers 8%of GDP

Financial Saving 18% of GDP

USD 180bn skewed towards deposit

Gross Dom Saving: 340bn

Corporate profit: 80bn$

High ROE

Competitiveness

Low leverage

Corporates

Mainly because of

Agri Debt wavier: 17bn$

6th pay commission: 6.5bn$

NAREGA

Oil Bonds : 25bn$

Bond to FCI: 12bn$

Fiscal Deficit: 6.8% of GDP

Way out

• 3G Spectrum and BWA allocation : recived 22bn$

• Royalty from KG basin gas

• Disinvestment of PSU

• Land Bank Unlocking

Assets and Sales allocation


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Logistics Sector of India

Against this backdrop of tremendous expansion across sectors, logistics sector assumes a pivotal role in reducing cost and rate of inflation by improving efficiencies and avoiding wastage of agri

commodities, fruit and vegetable. In a survey conducted by the world bank in 2007 India ranked 39th in the logistics performance index. According to world bank India is identified to be a ‘comprehensive reformer’ in the process of transforming from being a logistics unfriendly state to logistics friendly one.

Significant improvement can be witnessed in a govt. approach to the sector. Putting greater emphasis on warehouse, free trade warehousing zone development, simplifying tax policies and subsidies. In the recent downturn, the emphasis to reduce cost and improve efficiencies across sectors has put the spot light on supply chain. Where there are ample opportunities to value engineer processes.

Logistic cost equate to 13% of India’s GDP, which is higher than those developed nation of US and Europe where they equate to about to only 10%. The emergence of outsourcing along with consolidation of 3PL players would result in approving efficiencies and lowering costs in

supply chain.

Critically, only about 6% of the Indian logistics industry is organised, while the rest is riddled inefficiencies and low level of innovation. However organised logistics market is expected to grow to about 14% of total Indian logistics industry by 2011. Despite this the advance concept of customer support, inbound logistics, reverse logistics have yet to gain traction in fragmented and technically challenged environment. India is currently midst of a first wave of logistics outsourcing with a fragmented market of 3PL players.

««««««««««

Key Highlights of Indian Logistics

Sector

Presently valued at $110bn

Expected to grow CAGR of 10%

Employ 45mn people

Source: CII Report


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Chart No. 1

Source: JLLM report

• In 2007

94% unorgnised 6% Organised

• In 2011

86% unorgnised 14% Organised


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Chart No. 2

Source: IIM Ahmedabad report on logistics sector of Indi

ü Warehousing is second largest contributor in total cost of logistics


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Chart No. 3

Source: JLLM Report

As compare to US and Europe Logistics cost equated to GDP is on higher side in India if we could bring it down to the level of 10% India can save 35bn$ a year.

Also Share of third party logistics is very low even country like Japan they are working on 7PL and Europe on 5PL.


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Warehousing sector in India

Modern warehousing forms an integral part of a supply chain where goods are not only stored for safekeeping, but several value-advance processes are implemented to process inventories, thereby minimizing obsolescence and reducing wastage. Warehouses are used for critical functions such as stockpiling, product mixing, value addition, distribution and customer service.

Traditionally in India warehousing featured a small unit sizes. Although indigenous constraint based innovation has taken place at various levels, the lack of world class standards and specifications poses a significant challenge to other growth sector that rely on logistics and warehousing. An indirect tax structure incentivised companies in India to maintain seprate warehouse in different states.

With the growth of orgnised warehousing and an expected simplification of existing tax structure warehousing in India is witnessing a paradigm shift towards large logistic park with the state of the facilities. The of Indian warehousing sector is primarily driven by the industrial growth of country. While the Indian economy is predominantly driven by the service based industry and agriculture sector. Both agriculture and service have thus far been the key demand generator for warehousing sector.


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Current Scenario: Market Size

The Indian warehousing sector is poised to become a $55 billion by 2010-11 with around 45 million sq ft warehousing space expected to be developed in the country in next five years supplemented by around 110 logistics parks. Warehousing activities account for about 26 per cent of the total Indian logistics industry and offer tremendous growth potential. The sector growing at the rate of 35-40 per cent every year.

The total logistic cost in India is estimated to be 14% of the GDP which translate into slightly over 140billion if we assume India’s GDP is slightly over 1trillion dollors. Out of this logistics cost almost 98.7% by unorgnised sector such as small warehouse operator, transporter and

slightly more than more than 1.5% by organised sector which accounts approximately 2 billion.

The entry of global third party logistics players is fast changing the model of logistics model in the country to more of a strategic function. Changing business dynamics and the entry of global third party logistics players has led to the remodeling of the logistics services in India. "From a mere combination of transportation and storage services, logistics is fast emerging as a strategic function that involves end-to-end solutions that improve efficiencies. Around 45 million sq ft warehousing space is expected to be developed by various logistics companies which

would further boost real estate activities in key locations across the country.

The total share of organised warehousing space is less than 8% of the total warehousing space in India. The industry is fragmented and largely un-organised and is dominated by small players with small capacities. The warehousing sector is also expected to positively impact on many global manufacturing majors wanting to make India a hub for skill intensive manufacturing given the abundant supply of well qualified engineers. Given the current shortage of quality warehousing space, rentals in some locations closer to the city have touched as high at Rs. 30 per sft per month. Organised retail in India grew from $16.99 billion in 2006-07 to $25.44 billion in 2007-08, a growth of 49.7 per cent with a potential to touch $45 billion by 2010. A number of warehousing companies have been steadily increasing their capacities over the last two years thanks to the retail boom across the country.

Warehousing sector expected t o be $55bn by 2011.

Sector growing at the rate of 35-40%.

45Mn Sq.ft warehousing space to be developed in next five years.


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Driver of the Warehousing Sector

Agriculture

Organised Retail

Manufacturing

5th Largest consumer market in the world by 2025 (Mc Kinsey)

Retail Market to grow to USD 419.93bn by 2015 (Mc Kinsey)

18.5% of India’s GDP

Agri exports grow by 25% in 2008-09

Achieve self sufficiency in most of commodities

Investment opportunity of USD 180 billion in next five years.

Required huge warehousing space

Demand Generator

Logistics & warehousing

Facilitators

Containerized traffic to grow by avg. rate of 18% annually over the next decade (SCI)

Exim Cargo Export Import

Govt. Investment target of USD 20.38 billion over the next two year in infrastructure sector

Infrastructure Sector

25% Subsidy on warehouse development.

Development of FTWZ free trade warehousing zone

Policy Support


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Indian Agriculture an Overview

Agriculture, as the largest private enterprise in India, is the lifeline of economy. Agriculture provides the underpinning for our food and livelihood security and support for the economic growth and social transformation of the country. During 2008-09 the agriculture sector contributed to approximately 15.7% of India’s GDP and 10.23% of total exports besides providing employment to around 58.2% of the work force.

In the recent past, the impact of various food, financial and economic crises has been felt across the world. This has compromised the lives, livelihood and food security of people. Therefore there is a compelling case for increased investment in the sector. The continued high growth of agriculture is essential to meet the food and nutritional requirement of the people and provide livelihood and income in rural areas. Agriculture will continue to have the pride of place in national policies and plan since the nation’s food security depends upon performance of the agriculture sector.

The overall target of the GDP growth in the country for the 11th plan is 9% per annum with annual avg. growth rate of 4% in agriculture,10-11% for Industry and 9-11% in service sector. The strategy for accelerating agriculture growth to 4% is required actions in terms of bringing technology to farmers, improving the efficiencies of investments, increasing system support and rationalizing subsidies and fostering inclusiveness through group approach, by which farmer will get better access to land credit and skills.

Growth In agriculture and allied sector GDP vis-à-vis total GDP from 2005-06 to 2009-10 Table No.1

Year Total GDP Agriculture and Allied sector (%)

Actual Growth Actual Growth

2005-06 9.5 5.2

2006-07 9.7 3.7

2007-08 9.2 4.7

2008-09 6.7 1.6

2009-10(AE) 7.2 (-) 0.2

Source: Planning Commission, CSO


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Public and Private Sector Investment in agriculture and allied sector Table No.2

Year Investment in agriculture and allied sector

Share in investment (%)

Total Public Private Public Private

2004-05 78848 16183 62665 20.5 79.5

2005-06 93121 19909 73211 21.4 78.6

2006-07 94400 22978 71422 24.3 75.7

2007-08 110006 23039 86967 20.9 79.1

2008-09 138597 24452 114145 17.6 82.4

Source: Central Statistical Orgnisation

Public Investment in Agriculture and allied sector in different five year Plans Table no.3

Five Year Plan Public Investment(Rs in Crore)

1980-85 64,012

1985-90 52,107

1992-97 45,565

1997-02 42,226

2002-2007 67,260

Public Investment in agriculture and allied sectors in real terms, had witnessed a steady decline from six five year plan onwards. but trend reversed in 10th five year plan and in 2009 govt. waived off $17bn farmers loan.

The agriculture and allied sector is showing decline 0.2% during 2009-10 as against the previous year’s growth. This is mainly due to the impact of overall deficit of 23% in rainfall during the south west monsoon which adversely affected kharif production.


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Gross Capital formation public and private in Agriculture and allied sectors and it’s percentage share to GDP of agriculture and allied Sector Table No.4

Year Public Investments

(Rs Crore)

% share in Agriculture and allied sector GDP

Private Investment (Rs. Crore)

% share in Agriculture and

allied sector GDP

Total investment

% share in Agriculture and

allied sector GDP

2004-05 16183 2.9 62665 11.2 78848 14.1 2005-06 19909 3.4 73211 12.4 93121 15.8 2006-07 22978 3.8 71422 11.7 94400 15.4 2007-08 23039 3.6 86967 13.6 110006 17.2 2008-09 24452 3.8 114145 17.5 138597 21.3

The share of private investment to GDP of agriculture and allied sector is rapidly increasing it refelects in commodity output as well and very encouraging for warehousing sector.


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Indian corp production Scenario

The total geographical area of the country is 328.7 million hectare, of which 140.3 million hectares is net sown area, while 193.7 million is the gross cropped area. The gross and net irrigated area is 85.8 million hectares 60.9 million respectively, with cropping intensity of 138%

Corp Production

Production of food grains during 2009-10 is estimated at 216.85 million tones as compare to 234.47 million ton achieved during 2008-09.

Commodity wise production data Table No. 5

Commodity Production in 2008-09(million Ton)

Production in 2009-10 (Million Ton)

Net difference (Million Ton)

Rice 99.18 87.56 -11.62

Wheat 80.68 80.28 -0.40

Coarse Cereals 40.03 34.27 -5.76

Sugar Cane 285.03 251.27 -33.76

Cotton Bales 222.76 223.18 +.52

Jute & mesta 103.65 103.57 -.09

Oil Seeds 27.72 26.32 -1.40

Source: Govt of India agriculture report 2009-10


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Stock of food grain in central pool or with Govt. Agencies for Public distribution System

Year Commodity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Stock

Rice 147.2 153.6 160.49 157.19 150.57 151.17 144.9 136.59 134.71 132.14 179.88 195.3 2000 Wheat 171.7 158.1 144.03 131.87 215.2 277.68 277.57 275.91 272.97 268.5 264.98 259.8 C.Grains 0.01 0 0 0 0 0 0 0 0 0 0 0.08 Total 318.9 311.7 304.52 289.06 365.77 428.85 422.47 412.5 407.68 400.64 444.86 455.1 4561.99 Rice 207 224 232.24 231.91 229.41 228.61 227.51 222.04 215.72 214.52 265.03 251 2001 Wheat 250.4 241.2 233.03 215.04 292.16 375.47 389.2 387.15 378.74 368.26 357.97 340.1 C.Grains 0.28 0.43 2.25 2.83 2.87 2.93 2.87 0.89 0.12 0.02 0.02 0.47 Total 457.7 465.6 467.52 449.78 524.44 607.01 619.58 610.08 594.58 582.8 623.02 591.5 6593.57 Rice 256.2 261.3 259.68 249.12 243.51 234.01 219.37 201.25 175.29 157.7 205.09 202.7 2002 Wheat 324.2 302 284.64 260.39 381.04 413.17 410.74 396.58 379.02 356.37 330.59 312.7 C.Grains 0.8 0.91 0.92 0.72 0.92 1.12 0.36 0.62 0.09 0.09 0.04 0.02 Total 581.1 564.3 545.24 510.23 625.47 648.3 630.47 598.45 554.4 514.16 535.72 515.4 6823.24 Rice 193.7 187.8 176.13 171.57 153.2 132.7 109.74 80.73 71.24 52.41 56.59 108.7 2003 Wheat 288.3 213.2 185.8 156.45 260.12 265.36 241.94 224.27 207.04 184.27 164.13 145.6 C.Grains 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.39 0.24 0.11 0.13 0.2 Total 482.1 401 361.96 328.05 413.35 398.09 351.71 305.39 278.52 236.79 220.85 254.5 4032.25 Rice 117.3 124.3 135.75 130.69 127.22 122.51 107.63 91.09 72.22 60.92 110.04 111.4 2004 Wheat 126.9 109.5 85.73 69.31 190.33 193.9 191.52 174.26 159.98 142.23 126.31 106.6 C.Grains 6.02 6.3 6.34 6.47 6.34 6.41 6.41 6.41 0.63 0.23 0.75 0.02 Total 250.2 240.1 227.82 206.47 323.89 322.82 305.56 271.76 232.83 203.38 237.1 218 3039.92 Rice 127.6 142.1 136.58 133.41 130.33 115.95 100.71 79.9 63.72 48.49 103.38 111.3 2005 Wheat 89.31 73.05 57.5 40.66 150.5 161.31 144.54 129.81 116.22 102.9 90.52 76.31 C.Grains 0.03 0.31 5.7 5.64 4.07 6.09 5.88 4.13 4.11 4.08 4.08 2.45 Total 217 215.5 199.78 179.71 284.9 283.35 251.13 213.84 184.05 155.47 197.98 190.1 2572.73 Rice 126.4 139.7 141.1 136.73 128.04 119.51 111.41 95.24 78.21 59.69 125.11 120.6 2006 Wheat 61.88 48.74 34.49 20.09 89.93 93.2 82.07 73.3 67.17 64.12 59.94 55.94 C.Grains 4.31 6.57 7.35 9.38 10.22 10.27 11.62 2.55 9.43 2.26 1.44 1.13 Total 192.6 195 182.94 166.2 228.19 222.98 205.1 171.09 154.81 126.07 186.49 177.6 2209.07

Table no. 6 All Values in Lac Tons


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Rice 119.8 126.4 139.67 131.71 134.81 126.14 109.76 91.65 69.37 54.89 106.51 100.5 2007 Wheat 57.29 53.85 51 45.63 116 133.08 129.26 120.19 110.08 101.21 90.25 83.58 C.Grains 0.87 0.29 0.05 0.58 0.28 0.05 0.05 0.02 0.02 0 0.4 0.65 Total 177.9 180.5 190.72 177.92 251.09 259.27 239.07 211.86 179.47 156.1 197.16 184.8 2405.87 Rice 114.8 140.4 147.34 138.35 128.64 121.29 112.49 97.93 84.72 78.63 141.39 155.8 2008 Wheat 77.12 71.62 65.06 58.03 176.92 241.23 249.12 243.8 232.59 220.25 209.61 196 C.Grains 0 1.68 1.43 1.16 1.12 1.15 1.15 1.13 0.73 0.58 2.44 2.79 Total 191.9 213.7 213.83 197.54 306.68 363.67 362.76 342.86 318.04 299.46 353.44 354.6 3518.39 Rice 175.8 201.9 212.57 216.04 214.07 204.03 196.16 187.92 172.11 153.49 216.21 229 2009 Wheat 182.1 167.7 152.76 134.29 298.26 331.22 329.22 316.23 300.73 284.57 268.88 251.6 C.Grains 4.01 4.27 5.34 5.49 5.9 13.01 6.45 5.8 5.09 4.35 2.4 3.01 Total 361.9 374 370.67 355.82 518.23 548.26 531.83 509.95 477.93 442.41 487.49 483.6 5462.05 Rice 243.5 256.6 269.5 267.13 262.25 252.66 2010 Wheat 230.9 206.2 183.88 161.25 337.13 351.62 C.Grains 2.5 1.5 3.79 4.66 4.5 4.51 Total 477 464.3 457.17 433.04 603.88 608.79 3044.14

Government is rapidly increasing the qty of buffer stock for public distribution system to control inflation and ensure availability of

food grains in ample amount. This is also generating a

huge demand of scientific warehouses to store that

ü In the first six month of 2010 govt. Agencies has procured 30.44mn of commodity across India to store this much they have a storage capacity only 29.804millon ton it also include a open space which is covered with plinth. So there is big gab in demand supply of warehouses.

Source: www.fciweb.nic.in


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Indian Agri warehousing Sector

This capital intensive marketing infrastructure is necessary for carrying the agriculture produce from production season to consuming periods. Lack of inadequate scientific storage facilities cause heavy losses to farmers in terms of huge wastage of quantity and quality of corps in general seasonal fluctuations are aggravated in the absence of these facilities. To have a scientific storage facility in the country, the “agriculture produce corporation act” was enacted in 1956. The government also enacted the warehousing acts during July 1957 to August 1958. The scheme of warehousing, rural godown has initiated in public, cooperative and private sectors in the country to meet the storage need of the producers in different areas. Keeping in view present agriculture production in the country, the available storage facilities/ capacities are still inadequate. Looking at the production trends and increasing marketed surplus (70%), a storage capacity of 150MT is still needed.

Indian agri warehousing sector currently valued at approximately USD 2bn. And growing rapidly and majorly dominated by government agencies and very few private players could have developed a storage capacity.

All India Rural Credit Survey Committee (1954) recommended a three tire system of warehousing: at the national level, state and district level, village and rural level. At present there are three main agencies in the public sector which are engaged in building large scale storage/warehousing capacity. They are: the Food Corporation of India (FCI), Central Warehousing Corporation (CWC), and State Warehousing Corporation (SWC). FCI provides storage capacity for food grains. It has its own go downs and it also hires storage capacity from other sources such as CWC, SWCs, State Governments and private parties.

Besides, public sector agencies, co-operatives have also constructed warehouses in rural areas for storage of their members' produce, for stocking of fertilizers and other inputs and consumer articles. To avoid unfair competition with the go downs of the co-operative marketing societies, the state warehousing corporations do not open warehouses at any place below the sub divisional level. By 1987-88, a total storage capacity of over 10 million tonnes in the co-operative sector was available.


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STATE WISE STORAGE CAPACITY AVAILABLE WITH DIFFERENT STORAGE AGENCIES IN THE COUNTRY AS ON 31.3.2010

All figures in lac M.T Table No. 7

State FCI CWC SWC Total

Andhra Pradesh 38.18 15.04 20.32 73.54

Arunachal Pradesh

0.22 0.22

Assam 2.73 0.65 2.50 5.88

Bihar 6.72 1.26 2.57 10.55

Chhatishgarh 8.43 2.84 10.24 21.51

Delhi 3.67 1.51 5.18

Goa 0.15 0.41 0.56

Gujrat 6.80 7.65 1.53 15.98

Haryana 24.45 5.37 16.24 46.06

Himachal Pardesh

0.25 0.07 0.32

Jammu & Kashmir

1.31 1.31

Jharkhand 1.19 0.35 1.54

Karnataka 8.37 7.11 10.44 25.92

kerala 5.37 1.23 2.25 8.85

MadhyaPardesh 9.50 5.17 20.82 35.49


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Maharashtra 19.98 16.64 12.48 49.10

Manipur 0.20 0.20

Mizoram 0.23 0.23

Nagaland 0.34 0.13 0.37

Orrisa 6.43 3.17 4.06 13.66

Philippines 0.80 0.80

Pondicherry 3.55 0.19 3.74

Punjab 73.73 6.95 57.00 137.68

Rajasthan 16.08 4.01 7.72 27.81

Sikkim 0.11 0.11

TamilNadu 9.70 6.31 6.47 22.48

Tripura 0.51 0.24 0.75

Uttar Pardesh 26.87 11.63 32.33 70.83

UttraKhand 2.37 0.71 3.08

West Bengal 11.06 6.54 2.15 19.75

Total 288.36 105.98 209.26 603.60

Source: http://fcamin.nic.in/dfpd/EventListing.asp


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Storage Capacity developed by private players

Very few players could have developed warehousing capacity till date due to the high cost of infrastructure and low ROI.

Shree Shubham logistics

Table No.8

S.No. Warehouse location Capacity

1 Sri Ganganagar 27830MT.

2 Bikaner 21742MT.

3 Kota 12964MT.

4 merta City 19560Mt.

5 Alwar- Cold Storage 22,161Mt.

6 Jodhpur

7 Deesa 36000mt

8 unjha 15719MT.

9 Rajkot 16764Mt.

10 Ahmedabad

Star Agri warehousing and Colletral Management Ltd.

They have started acquiring land for development of warehouses and already constructed warehouse of 3000MT. in Alwar district.

Rest warehousing capacity is highly fragmented and owned by small businessman and traders which is not scientific and in very small size.

Tremendous opportunity of investment for private players.


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Organsied warehousing sector dominated by govt. agencies

Approximately 80% warehousing capacity is owned by govt. Agencies. Rest is scattered between private unorganised players. Very few with private organised players but now they are aggressively developing their capacities.


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Why Agri Warehousing

In the post green revolution era, there is a significant growth in the production and productivity in the Indian agriculture. The country has become self sufficient in food grains and achieved a remarkable growth in the production of pulses, oil seeds and fibers to meet the requirements of the country. Although our farming community toiled hard, they could not get real benefit of the growth in the economy in the absence of a suitable mechanism to ensure a reasonable rate of return to their hard labour and investments. Only a handful of influential farmers, who have the infrastructure to overcome the market fluctuations, could derive the benefits.

Chart No.4

All losses % of total production

10-12% produce loss occurs due to Lack of

storage infrastructure and supply chain inefficiency


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Current State of Agri warehousing Sector

1. Small and Scattered warehousing facilities

2. Low use of I.T and other technologies

3. Lack of trained manpower to manage warehouses

4. Insufficient and inefficient facilities.


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Various Types of Warehouse

Types of Warehouses on the basis of the ownership

PRIVATE

Owned by the individual,

large business house for

storage of own goods

PUBLIC

Owned by Government

and meant for the storage

of goods.

BONDED

Specially constructed near seaports

and airports and accept goods for

storage till payment of customers

by importers. The method of

operation and charges for storage

is regulated by the Government.

Types of Warehouses on the basis of types of commodities stored


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GENERAL

Storage of fertilizers, cotton, tobacco, food

grains, wool, petroleum, etc. Generally no

specific requirements. Storage items with a

longer life span.

REFRIGERATED

Warehouses in which temperature is

maintained as per requirement. Meant for

perishable commodities such as

Vegetables, fruits, fish, beefs and Meat. The

temperature in these Warehouses is

maintained below 3 to 5 degrees.


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Scope of service in warehouse

1. Scientific Storage

A large quantity of the agricultural commodities can be stored. The commodities can be protected against the quantitative as well as qualitative losses occurring due to unavoidable circumstances such as floods, pests. It can carry agriculture produce from production season to consuming periods. It helps in the stabilization of prices by adjusting demand and supply. Storage is necessary for some period for performance of other marketing functions. Storage provides employment and income through price advantages.

Types of Storage Structures

Underground Storage Structures

Underground storage structures are dugout structures similar to a well with sides plastered with cow dung. They may also be lined with stones or sand and cement. They may be circular or rectangular in shape. The capacity varies with the size of the structure.

Advantages

• Underground storage structures are safer from threats from various external sources of damage, such as theft, rain or wind.

• The underground storage space can temporarily be utilized for some other purposes with minor adjustments; and

• The underground storage structures are easier to fill up owing to the factor of gravity.

Surface storage structures

Food grains in a ground surface structure can be stored in two ways - bag storage or bulk storage.


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I. Bag storage

• Each bag contains a definite quantity, which can be bought, sold or dispatched without difficulty;

• Bags are easier to load or unload. • It is easier to keep separate lots with identification marks on the bags. • The bags which are identified as infested on inspection can be removed and treated

easily; and • The problem of the sweating of grains does not arise because the surface of the bag is

exposed to the atmospheres.

I. Bulk or loose storage

Advantages

• The exposed peripheral surface area per unit weight of grain is less. Consequently, the danger of damage from external sources is reduced; and

• Pest infestation is less because of almost airtight conditions in the deeper layers.

• The government of India has made efforts to promote improved storage facilities at the farm level.

2. Quality Testing and Certification

A warehouse generally provides wide range of f testing, grading and certification services. This helps in ascertaining the value of the commodity deposited and brings about transparency between all interested entities. Testing and analysis plays a crucial role in commercial settlement and in the assessment of quality standards in products and materials.

3. Colletral Management

It means managing the collateral on behalf of the collateral taker. CM transactions are intended to protect against performance risk of counter party. Banks in India have traditionally been assets based lenders with hardly any knowledge of asset financed. Reach of banks, majorly private sector banks in particular, coupled with lack of domain expertise. Banks, Public & Private, under


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pressure to expand agri credit portfolio, sound collateral management therefore to become major enabler. Role of Colletral Manager

• Identify various inherent and external risks associated with collateral and mitigate these risks with integrated risk management system

• Audit , Accredit & Provide storage facilities for commodity funding

• Quality and Quantity assurance for both lender and borrower, backs the same with guarantees and insurance

• Arrange quality certification and quality protection services

• Manage storage facilities adhering to operational standards for minimizing loss and risks

• Storage facility audit for structural integrity

• Commodity quality testing and certification

• Issuing warehouse receipt with commodity value and quality grade

• Marking of pledge / lien

• Risk Management of collateral

•

Collateral Manager’s liability

• For anthropogenic damage CM is liable with provision for standard deduction

• Stock management

• Basic Risk Mitigation practices

§ Full stock value insurance and security arrangements

§ Know Your Customer (KYC) process as stipulated

§ Fidelity guarantee to cover employee related liability

• Stock released only after delivery order from bank.


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4. Warehouse receipt financing

Our farming community depends heavily on the borrowed money for the agricultural operations. The borrowings are at an unreasonably high rate of interest, mostly from the money lenders. As a result, they are forced to sell their produce immediately after the harvest although price is very low. Thus, the farmers lose heavily on their investments. This vicious cycle is recurring year after year making the farmers poorer. Today, the country is not having a reasonable infrastructure for providing relief to these farmers. The facility for storage of agricultural produce is inadequate in rural areas. The farmers therefore have to dispose of their produce at an unremunerative price, immediately after the harvest. The creation of storage facilities, through construction of grain godowns in villages will remedy the above situation. The farmers can store their produce in godowns by paying rents, and release the produce to market when the price is reasonable. Meanwhile, the farmers can borrow from a financial institution, in case of need, by pledge of godown receipt.

The business of “Financing against Warehouse receipts” is currently in its nascent stages, as far as India is concerned. However, it can certainly prove to be a highly lucrative business with tremendous potential that it possesses, especially in view of organized trade through multi commodity futures exchanges as also impending launch of spot trade in agricultural commodities.

Loan against Warehouse Receipts is basically a self-liquidating loan with the tenure of the loan not exceeding 12 months (stipulated so as to guard against depletion in quality/valuation of the underlying goods) and with security margin of up to 25-40%. This margin is taken to guard against the “Market Risk” that the bank is subject to, due to unfavorable movement in the prices of the underlying commodity. All the major Public as well as Private sector banks have already brought this business into focus, and have started taking aggressive steps in this direction.


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Comparative Analysis of different banks and their interest rates

Aixs Bank SBI PNB

Interest Rates

Security Margin

C.M Comission


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Risk Assessment and Mitigation

Risks Identified Ways to Mitigate Risk

Risk Associated with fake warehouse

receipts, or misrepresentation of

quantity/quality of the commodity stored.

• Random checks should be conducted either before

disbursal of the loan or anytime later to cross check the

authenticity of the warehouse receipt and take stock of

the commodities stored in the warehouse.

• In case of Private warehouses, a warehouse will be

linked to a particular branch. Only through this branch

Advances will be made to avoid duplication and

difficulties in co-ordination.

Risk Associated with volatility in price

movement of the underlying commodity

The security margin that would be initially charged at 30%

should be sufficient for mitigating these risks.

Risks related with the

damage/obsolescence of the stored

commodities

All the commodities stored will be comprehensively insured

to mitigate this risk.

Default on interest and/or principal

payment (Credit Risk)

The Security Margin of 20-30% should be good enough to

cover for the probabilities of Credit Risk


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Government initiative for warehousing sector

1. Shift to GST tax regime

Major transition from Central Sales Tax to the existing VAT regime coupled with the introduction of Single-tax Goods & Services Tax (GST) allowing for the lower logistics costs Expected to lead to large warehouses offering various services via integration of technology

The GST will standardize tax rates throughout the country, allowing many corporations to move away from having warehouses in different states to adhere to each state’s tax code, and employ logistics companies to manage distribution and supply chains.

2. Warehousing Act.

The Warehousing Act, 2007 introduced a negotiable warehouse receipt (NWR) system NWR’s are expected to facilitate FI’s as it provides cost advantages and eases trade procedure for players will generate requirement of quality warehousing infrastructure.

3. Private Investment in logistics parks and FTWZs

Government has been encouraging private players to develop logistics parks and Free Trade Warehouse Zones in order to boost this sector by drawing in large scale investments. to create trade related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency.

Benefits of the FTWZ

Fiscal and regulatory benefits

• Tax Benefits: Income tax (section 80IA) and Service Tax exemptions for developers and users of the zone ~ reduces logistics costs for users of the zone.

• Duty Deferment Benefits: Custom Duty deferment benefits for products requiring longer storage time.

• Excise Duty Exemptions: Excise duty exemption for products sourced from the domestic markets, including goods, spares, DG sets, packing materials, etc.

Infrastructure Benefits


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• Single Product Storage Facilities: Assist in meeting specific warehousing requirement for each product category e.g. different sections for storage of tea and coffee, etc.

• Shared Equipments: Ability of users to save on capital investments by leasing equipments provided by the zone.

Administration Benefits

• Delivery Time: Reduction in custom clearance time and better logistics connectivity leading to improved delivery time.

• Support Facilities and Effective Management: Provision of efficient management services and international expertise along with support facilities such as banking, insurance etc.

Other Benefits • Export oriented • FDI inflow • Employment potential. • Competitiveness of industries • Attractiveness of support/ancillary industries • Boost to all-round economic activity

5. 100% FDI allowed through automatic route

Government has allowed 100% FDI in warehousing through automatic route. This may lead to quality warehousing space development and and which will benefit to entire sector.

6. Subsidy on warehouse construction

Government is providing 25% subsidy on warehouse construction and 75% loan of total project cost at very low interest rates.


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Major Players in warehousing Sector

Private Sector Companies

1. National Bulk Handling Corporation

Corporate Information Business highlights

• Rs14, 000 Cr. of loan have already been disbursed.

• Handling largest commodity portfolio in private sector.

• Their labs are accredited with NABL and SGS.

• Procuring wheat in Punjab for government agencies on MSP.

• Planning to construct own warehousing capacity across India.

Financial Highlight

All values in crore

As compare to 2007-08 profit and revenue is doubled in 2008-09.

Major Chunk of revenue comes from Procurement business.

Year of Incorporation

2005

Key People Jignesh Shah, CMD

Anil Choudhary, C.E.O

Major Shareholders

State Bank of India, Future Technologies

Storage Capacity

14,70,000 Metric ton

No. of Warehouse

569 (All leased)

Other Services

Commodity testing, Colletral Management, Commodity funding, Fumigation, procurement, Audit

Revenue 103 Cr.

Expenditure 91 Cr.

PAT 9.55Cr.

Bank empanelment

33 Banks

Testing Labs 32


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2. National Colletral Management Service Limited

Corporate Information Business highlights

• Company has recently got private equity investment of 35Cr. from Indian Finance Corporation the P.E arm of World Bank.

• IFC also providing 60Cr. to company as a debt.

• Company is planning to invest 420Cr. in construction of 55 warehouses, 6 cold storage and 3 multi purpose logistics center in 10 different states and will take storage capacity to 1.4million ton (owned).

• They will raise 140Cr. via equity and internal accruals. Rest will be mix of debt

All value in Crore Financial Highlights

All values in crore


2004

Key People Mr. Shri A. Hari0000 Prasad, MD C.E.O

Mr. Shyam Lal, C.B.O

Major Shareholders

PNB, NCDEX, Audit Control and Expertise Group- U.K, HDFC.

Storage Capacity 3,98,930 M.T

No. of Warehouse 410 (All leased)

Other Services Commodity testing, Procurement, Colletral Management, Commodity funding, Fumigation, Price intelligence

Revenue 74.51Cr.

Expenditure 62.74Cr.

PAT 2.34

Bank empanelment 6

Testing Labs 9


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3. Shree Shubham logistics Business Highlight

• Only company in private sector which has developed his warehosing capacity

• Recenly signed M.O.U with rajasthan state warehousing corporation to manage his warehosue in rajasthan.

• They have 12 company owned warehouses and theycan store 2,30,500MT into it.

• Earning per share stood at 1.69Rs.

Financial highlight

All figures in Lac


2004

Key People Aditya Bafna, executive Director

Major Shareholders

Kalpatru power and transmission Ltd.

Storage Capacity 6,30,500M.T out of 2,30,500 is owned

No. of Warehouse 12(Owned)

Other Services Commodity testing, Procurement, Colletral Management, Commodity funding, Fumigation,

Revenue 51Cr.

Expenditure 50.92Cr.

PAT 16.94Lac

Bank empanelment 5

Testing Labs 11

Revenue Breakup


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4. Star Agriwarehousing and Colletral Management Ltd.

Business Highlights

• The fatest growing company in agri warehousing business also got “Tata Nen hottest startup award”.

• Handling Largest quantity of mustard in India.

• They got term sheet from K.S oil for 50% stake in company.

• They also provide procurement service under the brand name of “Star agri commodities”.

Financial Highlights

All values in lac

In Fy-09 revenue form procurement business was 104.63Cr. expenditure were 104.36Cr.and Profit after tax was 13.38Lac.


April, 2006

Key People Mr. Suresh Goyal, (Chairman) Amit Mundawala (M.D)

Major Shareholders

Suresh Goyal, Amith Agarwal, Amit Mundawala, Amit Khandelwal

Storage Capacity

No. of Warehouse 950 (All leased)

Other Services Commodity testing, Colletral Management, Commodity funding, Fumigation,

Revenue 4.19Cr.

Expenditure 3.25Cr.

PAT 80.93Lac

Bank empanelment 4

Testing Labs 8

Income form Procurement Business


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Documents

Project Report On Warehousing Sector (Repaired)