Mr. Ajay S Mittal, Group Chairman and Managing Director, Arshiya International Ltd. He represents the driving force behind the Company in its vision of being India’s first fully integrated supply chain management and logistics infrastructure solutions company. With a 17-year long entrepreneurial career, Mr. Mittal has held key leadership positions in diverse sectors, including Commercial, Private Real Estate, Financial Services, Manufacturing, International Trading, Information Technology and Global Supply Chain Management. Today, Arshiya stands at the threshold of being not just the first developers of Free Trade & Warehousing Zones, but also the largest private container rail operator in India. Arshiya International Ltd. is currently working on a phased plan towards infusing US$1.2bn into developing infrastructure and bringing efficiency into supply chain management across India. Mr. Mittal received his MBA from the United States. Upon completion of MBA from USA, he returned to India. He is also very active with various social activities and community services.
Arshiya International Ltd. (AIL), a flagship company of the Arshiya Group is an integrated supply chain and logistics infrastructure solutions provider. The company has multinational operations in the logistics and supply chain management space and is currently involved in the phased investment of approximately over US$1.5bn towards creating pioneering logistics infrastructure in India.
In an exclusive interaction with Hemant P. Maradia of IIFL, Mr. Ajay S. Mittal says, “The Khurja integrated facility has come on stream, and we believe this would provide a greater impetus to our topline and bottomline growth.”
What are the main drivers behind highly profitable growth?
Over the past few quarters, there has been a notable shift in the revenue mix of the company. For instance, in the last quarter, the Company registered a topline of. Rs. 273 crore odd, which is basically a growth of ~30% over the same quarter last year.
However, what stands out is that the major contribution to this quarter’s performance has come from Arshiya’s infrastructure business i.e. the FTWZ at Panvel, near Mumbai and the Railway business. Both these businesses contributed to ~ 45% cumulatively to the topline. Now these are high margin businesses and the increased contribution from them have been driving the overall margins higher.
Are you confident of maintaining pace of growth in Q4 as also in FY13 given the overall slowdown in the Indian and global economy?
The company has steadily grown over the past few years and has been further fueled by the addition of the logistics infrastructure business, which provides natural forward integration to the core logistics business. Revenue in the last quarter (Q3) has been generated from the logistics business, Phase 1 of the FTWZ and 16 Railway rakes.
The Khurja integrated facility has come on stream, and we believe this would provide a greater impetus to our topline and bottomline growth. With elevated inflation levels and slowdown in the domestic economy, it become even more imperative for companies to outsource and rely on an integrated logistics player like Arshiya International to aid in effectively bringing down costs and increasing their competitiveness.
What is the overall outlook for Logistics and SCM industry? How does India compare with matured markets?
Logistics cost in India is fairly high at ~14% of GDP, as against 8% - 9% in most developed nations. On a US$1.6 trillion GDP, this represents absolute inefficiency of over US$80 billion. This inefficiency is reflected on all products being manufactured, consumed, warehoused and traded in India, contributing significantly to the biggest challenge faced by India's growing economy - 'Inflation'.
India’s logistics network is plagued by inefficiencies resulting from the lack of infrastructure and equipment, high handling costs, theft and damage. Costs to users are therefore higher than those in other countries with equivalent logistics infrastructure. The development of the logistics sector is hampered by poor physical and communications infrastructure.
India’s rapid economic growth will be severely hampered by the lack of state-of-the-art logistics infrastructure. The lack of logistics infrastructure results in a higher transaction cost of moving products out of the country or within hinterlands of India, thus fuelling inefficiencies. As per the ‘Doing Business Report’ of 2010 published by World Bank, India ranks 94 among various nations, in terms of ease of trading across borders.
We are far behind countries like China, Indonesia and Mexico in this regard. All the efforts made by the Government towards export promotion schemes and stimulus packages will not yield desired results, unless we are able to substantially cut down the “transaction costs” impeding our export efforts.
These underlying industry dynamics provide a strong growth opportunity for organized and integrated players like Arshiya to provide end-to-end services through innovative logistics infrastructure solutions, such as Free Trade Zones and Warehousing Zones (FTWZ), Domestic Distriparks, Customised Rail Containers and dedicated Rail Sidings, across strategic locations in India.
What is the future growth potential of the Logistics sector in India?
India's greatest opportunity lies in tackling its greatest challenges in the space of logistics.
Less than 8% of India Inc. (manufacturing and services) outsources its logistics while in the developed world the outsourcing is done by more than 45% of companies – indicating the level of sophistication that is required to be brought about in this space and the tremendous opportunities present in the form of core growth and efficiency improvement.
The dominant road transport sector in India remains very largely unorganized with an average trucker in India owning only about seven trucks. This high dependence on road transport not only represents inefficiencies arising from the bad quality of trucks and roads in India, but adds to the cost on account of product theft/loss, time taken for delivery on account of state border crossings and loss of visibility of products.
While India is the second largest small car market in the world, global average for finished automobiles moving by trains is ~26% while in India it is merely 3%.
India's power production capacity is set to increase from the current 1.5 GW to ~ 2.5 GW by 2017. This will entail a significant increase in the requirement of coal that will have to be moved from mines to the location of power plants. All of this will have to be moved by Railways, thus increasing the importance of rail as a mode of transport.
At present, majority of container freight traffic entering or leaving India is out of one port - Jawaharlal Nehru Port Trust (JNPT), near Mumbai. This requires India to depend heavily on domestic freight movement for last mile supply chain connectivity from this port to industrial hubs and the end consumer.
The average time taken to clear import and export cargo at ports is ~19 days in India, as against 3-4 days in Singapore.
Compared to European countries, rail transportation in India is almost 3.5 times more expensive and the average transit time by road is 3 times longer.
Even if India grows at a modest CAGR of 6%, its transport system will have to move over 6 billion MT of cargo by 2020.
At the present levels of logistics spends vs GDP, even if India brings about efficiency to the level of developed economies while maintaining consistent growth, there is a direct market of US$80bn waiting to be tapped. Due to India's unique geographic location, diverse markets and varied consumer segments, logistics & supply chain faces unique challenges unlike anywhere in the world.
To leverage this enormous market opportunity, companies are looking for an end-to-end service provider with the capability and resolve to provide a complete gamut of logistics services. Therein lays India's big logistics opportunity. Therefore, one of the most critical variables for realizing India's true potential as an economic power house is efficiency and innovation in logistics and supply chain management.
Arshiya plans to capitalize on India's mammoth logistics opportunity through Integrated Supply Chain & Logistics Infrastructure Solutions by leveraging its unique competency of combining 'Soft Infrastructure' such as asset-light 3PL (Third Party Logistics), 4PL (Forth Party Logistics) services, with innovative 'Hard Infrastructure' such as, FTWZs, Rail Infrastructure, Domestic Distriparks, Transport & Handling integrated through customized IT solutions.
What is driving growth for various business verticals of Arshiya International? Which segments are you betting on for future growth?
All our businesses, including Domestic Distriparks, Railway Infrastructure, IT and Technology, Logistics, Supply Chain, Transport & Handling and last but not the least- the Free Trade Warehousing Zone are on the threshold of some imminent and encouraging developments. Growth in all of these business verticals has been steady, driven by relentless application, dedication and insight on behalf of our entire team.
With isolated business solutions being offered in a scattered manner and none offering real end to end solutions in India, we at Arshiya felt it was time to introduce what we call “one stop shop solutions” that shall pave the way for delivering international standards logistics solutions support to our clients.
Our well defined approach at delivering excellence in all-round logistics solutions is one where all independent business verticals work in tandem, making for a symbiotic relationship where business fronted by a vertical shall have packaged solutions coming from rest of the verticals also. Therefore, no client solution remains untouched by a methodology that provides the entire gamut of logistics services right from Supply Chain Management and IT support, Transport & Handling as well as other components to handle intricate and exhaustive client problems.
There is a need to replenish the current dilapidated scenario of the Indian Logistics sector, which is plagued by a number of problems such as lack of proper physical infrastructure, poor resource utilization and elevated tariff rates in order to create the next big wave in this space.
Earmarking this problem area and offering integrated, world class logistics support shall pave the way to realising the vision drawn up by Arshiya International. We aim to create a legacy of strong logistics solutions in such a fashion that the next decade and beyond will be known and shaped up by Logistics. That shall in turn prove that Logistics is a prominent contributor to the Indian economy.
What was the rationale behind setting up FTWZs? What are the main advantages of FTWZs to the industry players?
GOI introduced the Free Trade & Warehousing Zones Policy, as a part of Foreign Trade Policy (FTP) 2004-2009 governed by the SEZ ACT, 2005 and SEZ Rules, 2006 to leverage India’s strategic geographical location, besides the cost-cum-skill arbitrage.
Arshiya International has developed India’s first FTWZ with an area of 165 acres at Panvel, Mumbai, 24 kms from JNPT Port. A real boon for importers, exporters and value adders, Arshiya FTWZ is a deemed foreign territory where Warehousing, Trading and Value addition can be performed with the help of Arshiya’s state-of-the-art Infrastructure and expert personnel.
This will also enable India to compete in regional hubbing and also process cargo in and out of India more efficiently, thereby improving logistics connectivity of India.
Arshiya is developing five FTWZs pan India in the North, South, East, West and Center.
FTWZ have substantial benefits for Importers, Exporters and Re-Exporters as listed below:
Unique benefits for Imports:
Flexibility to clear cargo in part consignments (unlike in the case in other CFS/ICDs) thus allowing flexibility towards consumption/end distribution
Duty deferment benefits (freeing up working capital and reduction in costs)
De-stuffing and Stuffing of cargo from Shipping Line containers in to other containers (provided by Arshiya, if required) for avoiding Shipping Line detention charges and customized delivery. The same product could also be stored in the warehouses within the FTWZ at much lower costs as compared to detention charges
Quality control prior to duty payment; hence no duty to be paid on rejected products
Exemption of SAD, VAT & CST on imports through FTWZ
Service Tax exemption for Handling & Transportation of containers from Port to FTWZ
Availability of state-of-the-art Container Storage Yard with World Class Safety, Hazardous Storage and Maintenance & Repair Facilities within the FTWZ with Service Tax Exemption
Free foreign exchange transaction capability for the services rendered, including CY/Container Freight Station services
Value optimizing services can be provided like labeling, packing, kitting, bar-coding , palletization and other authorized services (in FTWZ as described earlier)
All such activities are exempted from Service Tax as well as any purchases of packaging material, labels etc from DTA into the FTWZ would be treated as exports from such suppliers
Unique benefits for Exports:
Factory stuffed containers entering the FTWZ are treated as deemed export providing immediate export benefits
Local Tax Exemption (e.g. CST, Sales Tax, Excise & VAT) on all activities conducted inside the FTWZ
Increased efficiency through lowered reverse logistics activities through quality control before dispatch from India
Lowering ‘back to town’ costs with better aggregation and consolidation
Facilitating consolidation of cargo with other users of the FTWZ for cost optimization through Arshiya’s Rail movement and last mile distribution
Value optimizing services can be provided like labeling, packing, kitting, bar-coding , palletization and other authorized services with all Fiscal and Regulatory benefits
Availability of state-of-the-art Container Storage Yard with World Class Safety, Hazardous storage, Maintenance and Repair Facilities within the FTWZ with Service Tax exemption
Free foreign exchange transaction capability for the services rendered including ICD/CFS services
Unique benefits for Re-Exports:
Income tax exemption on all profits generated through re-export activity through the FTWZ
Hassle-free re-export process by routing cargo through FTWZ integrated with ICD/CFS services
Ability to leverage India’s cost, skill & geographic positioning advantage as a
hub for regional/global distribution post Value Optimizing activities
Service Tax exemption on services availed by routing containers through FTWZ integrated with ICD/CFS services
Permission of 100% FDI for the set-up of units by the unit holder of the FTWZ
Value addition services can be provided like labeling, packing, kitting, bar-coding, palletization and other authorized services with all Fiscal and Regulatory benefits
Thus, FTWZs are comprehensive infrastructure required for improving India’s container volumes besides enabling importers and exporters to efficiently and cost effectively carry Warehousing, Trading and value addition activities.
Are the two FTWZs at Mumbai and Khurja fully operational and occupied? What is the timeline for completing the two FTWZs?
Arshiya FTWZ in Panvel has been operational since December 2010. Today we have more than 200 companies operating out of the FTWZ and every month we are adding around 20-25 clients. As a part of Phase 1, we have four warehouses operating at more than 100% efficiency.
The companies currently operating through the FTWZ are from various sectors like Automotive, Oil & Gas, Electronics, Beverages, Retail etc. A lot of trading units and freight forwarding companies are also operating out of the FTWZ.
The FTWZ at Khurja was recently launched in January’12. With this, our clients will also have the option of storage, value addition, consolidation and distribution of EXIM cargo in the north.
There will be a bonded movement of cargo between FTWZ at Panvel and FTWZ at Khurja. This North-West route is a major corridor for EXIM cargo movement.
Arshiya will also run its Railway Rakes on this route between the two FTWZs, which will enable efficient movement of goods. Arshiya’s infrastructure in North will also have a domestic warehousing hub and a rail siding. Once the FTWZs in Central, South and East are also operational, we will have pan-India connectivity.
With this unique model coupled with Arshiya’s integrated services, we are confident to provide customized solutions to our clients based on their logistics requirements and bring about a significant improvement in their profitability.
Tell us about your plans for the Railway Freight Infrastructure business? How many container freight trains do you operate currently? How many will be added in future?
As one would infer from the national as well as the historical point of view, it is really hard to imagine our country without a well networked, vastly connected Railway network line. This just cannot happen.
While roads at a pan-India level currently take care of as much as 60% of the total cargo movement in the country, the potential of the Railway network remains untapped.
Railways currently move ~31% of the cargo in India with their seamless connectivity and reach. We envisaged the current gap and arrived at the understanding that today no provider of logistical support talks about end-to-end provision of services that includes movement of cargo through one’s own infrastructure.
Thus was born the concept of a Domestic Distripark and a Free Trade Warehousing backed by Rail Infrastructure. This implies that the movement of cargo (inbound as well as outbound) within the country would be managed by Arshiya International’s own Railway network.
Today Arshiya International has its own Railway wagons as well as rakes. The number of containerized trains in our Railway Infrastructure division is expected to reach 20 by the end of this month. The movement of cargo either from a FTWZ to a DDP or vice versa or from any port is possible through our own Railway wagons.
No other organization is offering such seamless connectivity in a manner that Arshiya does. With the roads accounting for increased travel time along with lack of safety of the cargo, it is time for Railways to intervene.
Movement of cargo by Railway can make the process much simpler and less taxing, thereby relieving the Roads of some burden. Rails can carry bulk cargo and can reach places where road connectivity may not be there. Arshiya plans to commence Rail movement at important centers.
Are you making profits on container freight train operations?
Yes, the container rail business has been PAT positive right since inception and this is due to the unique model we have adopted. Arshiya has focused on building long term strategic relationships with customers. This has been done by providing customers with dedicated railway rakes as well as customized containers. This has led to higher efficiency, lower overheads, and faster turnaround times, enabling customers to enjoy smooth and de-bottlenecked operations. This reinforces Arshiya’s image as one of the more serious players in this space.
How many Domestic Distriparks do you have currently and how many new ones will be added over the next few months?
Our ultimate aim is to have a pan-India presence when it comes to our logistics infrastructure. Domestic Distriparks will be strategically located in North, South, East, West and Central India - similar to our plans of constructing FTWZs. While on the Western side and the Northern front we have established Domestic Distriparks, we really need to push for well planned strategic developments in rest of the geographies to create a revolution.
What is your USP? What will be the key challenges going forward?
It is one thing to pluck various desirable fruits from different trees and quite another to have them all being served in one basket. That is the difference in approach at Arshiya International. Offering end to end, integrated solutions in the complex and vast fragmented territory of Logistics is our main objective.
We believe that to a certain extent we have been successful in covering the distance between the planned initiatives and the actual outcome. Still, our journey has only just begun. Our vision is taking India’s name to the top of the ranks in being recognized as the No.1 destination in offering clients immense scope of growth.
With world-class infrastructure, we plan to change the dynamics of the logistics game. We are here to convert the logistics territory into an arena where FTWZ backed up by supporting logistical infrastructure will dominate the trade.
These shall be supported by local hubbing zones in the form of Domestic Distriparks and there shall also be provision of Railway Infrastructure.
How do you plan to fund the capex?
The first phase of our free trade zone in Khurja near Delhi, the first phase of our Rail operations, along with the first phase of Distriparks, and the entire development of the Free Trade & Warehousing Zone in Panvel have been funded for.
This entails a total capex of Rs 31.60bn. Of this, we have already deployed Rs 25.3bn as on 31st December 2012. The balance is also fully tied up and will be expended over the next few quarters.