GST has been positive for logistics business: Mayur Toshniwal, Future Supply
We will continue to be asset light as far as warehousing capacity addition is concerned, says the MD.
Post GST, are the enquiries for contract logistics business increased?
Yes, GST has provided that impetus for customers or potential customers trying to revisit their supply chain model. We are seeing increased interest in exploring newer and more efficient supply chain models. But obviously, some of these transformations are not going to be overnight, it is going to take time. India has worked with some of these existing supply chain models for decades and so it is not going to be easy to bring about a change overnight. It is nevertheless an extremely positive change. Over next three to five years, the increase in 3PL and the contract logistic segment is going to be substantial.
Is introduction of GST a blessing for the logistic sector leading to a shift from unorganised to organised?
I have been very vocal about it. GST has been an extremely important and positive development. This sector has been relatively languishing. If you look at the growth rate, the logistic sector in India grew 7% to 8% growth over last five years. It is nothing really worth talking about, especially in a country which is probably one of the most inefficient as far as logistics is concerned.
In a nation which was used to tax movement of material from one state to another,thereby making the overall supply chain fundamentally inefficient, extremely fragmented and inefficient, GST and along with it the e-way bill is now an opportunity to bring in efficiencies in the supply chain. Going forward, we will see more efficiencies coming in.
Will the foray in the foods category lead to a decline in your margins in the near term?
As far as FSC is concerned, food and FMCG has been a relatively underpenetrated segment. If you look at the overall consumption basket in India, more than 50-51% comprises of food. Food is large in volume but, lower in value, and the supply chain spend needs to be 70% to 80% of any 3PL company.
We recognise that food is an important opportunity. So yes, the margins would have been relatively lower but it is purely because we have added substantial warehousing capacity and much of it is dedicated to food, any new capacity and new warehouse takes a certain amount of time to scale up to optimal levels. In a couple of years’ time, once we scale up nationally, as per our plans to roll out something like 38 large DCs spread across the length and breadth of the country, that is when scale will kick in and balance out some of the loss of margins which would have happened this year.
The company is planning an incremental $7.5 million warehousing. From FY19 to FY21, can you tell us how that is going to drive your revenues?
We are looking at aggressive growth across sectors within the consumption domain. Food of course is an important one. We added about 3 million already within this financial year and on top of that, we are planning to add another 7.5 million over the next couple of years. We are looking at reasonably good growth rates of something like 35% CAGR over the next few years to add to our top line.
The company does has an asset light business model. How will the warehouse capacity addition be done? Will it also be asset light in terms of expansion?
That is one of the fundamental philosophies for FSC, we want to remain asset light. The warehousing capacity which you are looking at is actually developed by the local developers and so it is not an investment we are making. Our investment goes into technology, material handling equipment etc. the movable stuff which goes into the warehouse. So, yes it continues to be an asset light model. It enables us to grow rapidly, impart agility to our business offering to our customers. We will continue to be asset light as far as this warehousing capacity addition is concerned.
Analysts are expecting Future Supply to grow more than the CAGR of 30% plus over the next few years. With industry growth at 15%, can Future Supply double the industry growth?
I have always believed that logistics as a large sector is a sunshine sector. Even the Niti Aayog report calls logistic a sunshine sector. I am very bullish in terms of some of the growth opportunities which the sector is providing, with multiple things happening around us. The government has really become serious with GST coming in and then some of the freight corridors and the road construction being at all time high, this is going to really provide the required fillip.
I would probably say that the kind of sectors which we are present in, is going to grow more than 15%. Some of the industry reports speak about 3PL growing at something like 17% to 21%.
If the sector is growing at some of these kind of rates, we believe that achieving a growth of something like 35% is imminently possible for FSC, given the domain expertise which we have acquired in the sector over the last decade or so and our technology prowess.
We have always believed in deploying the latest and the best-in-class technologies. We believe that we will be able to offer interesting propositions to our new customers to get into the fold of 3PL and contact logistics particularly.