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DP World keen to dock at Continental Warehousing

Continental reported total revenue of Rs 709.3 crore for FY16, up 18.2% from the year before. Net profit stood at Rs 94.86 crore, while ebitda was Rs 105 crore.

, ET Bureau|
Updated: Sep 23, 2017, 04.06 PM IST
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DP World is in talks with investors in Continental Warehousing Corp (Nhava Seva) such as US private equity giant Warburg Pincus, International Finance Corp (IFC) and Abraaj Capital to buy a controlling stake in one of the largest companies in the logistics sector in India, valuing it at around Rs 4,000-4,500 crore, said four people aware of the development.

The three together own 60% of the company, with Warburg the single-largest shareholder at 40.4%. Abraaj and IFC own 20% while the remaining 40% is held by N Amrutesh Reddy, executive director and promoter.

Continental Warehousing, the flagship company of Chennai-based NDR Group, owns and operates cargohandling facilities such as container freight stations (CFS), multimodal cargo handling terminals (MMTs) and private freight stations. It also provides express cargo and third-party logistics services.



Australia’s infrastructure-focused Macquarie Group is also believed to be in the fray. The deal, which may see interest from large logistics companies and financial investors as well, is expected to be concluded by the end of the fiscal year, said the people cited above.

Citi has been hired as an adviser, they said, adding that DP World has already started commercial due diligence and is believed to be among the strongest suitors. Warburg Pincus and Macquarie declined to comment. Abraaj, IFC, DP World and Reddy didn’t respond to queries.

Continental had received regulatory approval for an initial public offering (IPO) in December last year. However, it has opted to look for a strategic buyer instead, said one of the people cited above.

“Like many entities, there is a twintrack discussion,” said an executive. “A strategic sale will give the investors a bigger payday compared to an IPO. The promoters may stay on for a bit before exiting completely. Much of that will play out depending on who finally closes in on the transaction.”

Continental reported total revenue of Rs 709.3 crore for FY16, up 18.2% from the year before. Net profit stood at Rs 94.86 crore, while ebitda was Rs 105 crore. In FY17, the company clocked around Rs 90 crore ebitda on a Rs 750-crore top line.

Having invested $100 million in 2011, an exit at the valuation mentioned above would give Warburg Pincus a return of nearly three times.

Abraaj got the stake when it acquired private equity firm Aureos Capital in 2012. IFC is a recent investor, having pumped in $65 million through a mix of debt and equity in 2015.

Established in 1997, Continental is one of the country’s largest container warehousing firms. It owns and operates container freight stations (CFS), inland container depots (ICDs) and private freight terminals across the country. It currently has 10 facilities comprising four CFS, including ones in Chennai, Tuticorin and Mumbai, one multimodal cargo handling terminal in Hyderabad with two planned in Ahmedabad and Panipat, and three ICDs.

FOREIGN INVESTMENT
With ecommerce booming, the government’s focus on road and infrastructure development and the goods and services tax being rolled out, the logistics sector is primed for foreign investment. Earlier this year, Canada Pension Plan Investment Board (CPPIB), which manages about $218 billion, said it will invest about $500 million in a joint venture with Mumbai-based IndoSpace Industrial & Logistics Parks to acquire logistics facilities in India.

DP World was an early entrant into India. Having deployed about $1.2 billion thus far, it operates six terminals and has a 30% market share. At its last investor meet, the company committed a further $1-billion investment in India for both organic and inorganic growth opportunities.

“India and China have similar populations but India’s trade generates about 10 million containers a year whereas China generates 100 million containers. The potential here is huge and India has more entrepreneurs than China. There are almost 2.5 million non-resident Indians (NRIs) in the UAE, so potential between UAE and India to trade is also vast and I believe this government will be able to unlock it,” DP World chairman Sultan Ahmed Bin Sulayem told ET earlier this year. “We are looking (for strategic alliances) and when we find a partner and are able to reach an agreement which works for both parties, we will go ahead.”

Macquarie has also been a large backer of ports and logistics companies across the world, having invested in Universal Terminal, the largest independent oil storage terminal in Singapore. It had also explored acquiring Dhamra Port from Larsen and Toubro and Tata Steel.

“The domestic logistics sector is currently at the crossroads,” rating agency ICRA said in a report last week. “From the implementation of GST to the government’s focus on improving India’s transportation mix and the emergence of technology-based startups, the road logistics sector is heading towards an evolutionary phase.”

The rating agency expects consolidation of the warehousing network and a shift towards a ‘huband-spoke’ model along with a higher degree of tax compliance with business moving away from unorganised transportation service providers to the organised sector.

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