RC Baid, Chairman & Chief Mentor, Siddhi Vinayak Logistics Ltd
“Implementation of GST will give more teeth to the road transport industry and will give it a new platform to further develop logistics concepts.”
RC Baid, Chairman & Chief Mentor, Siddhi Vinayak Logistics Ltd has been in the road transportation business for a few decades. In 1988 he started with IOC and then BPCL in 1992. After having gained sufficient experience in LPG segment, his company decided to enter into other segments of road transportation in 2006-07. The company is now in the business of carrying bulk LPG packed LPG, tractors, containers, steel material, dies, and CNG auto, Cement, Coal, Soda and FMCG.
Siddhi Vinayak Logistic Limited provides a comprehensive network with companies in around every state of India. SVLL is built on the strong pillars of massive infrastructure, operational expertise, strong financial base and above all the will to serve our customers to the total satisfaction. SVLL is also in the business of manufacturing trailers. SVLL has the largest fleet size of 3700 vehicles in India. SVLL also provides depots to various companies all over India as per the requirement of companies.
Replying to Anil Mascarenhas of IIFL, RC Baid says, “Implementation of GST will give more teeth to the road transport industry and will give it a new platform to further develop logistics concepts.”
Explain to us your business model. What are the changes seen in recent years. How do you see this industry moving forward?
The SVLL business model is based on providing end to end logistic solutions to our customers. We look at the way our customers are currently being serviced and try to understand that the gaps between the existing service levels / service solutions and the expectations of the customer and then find ways to address the same. We look at long term associations and contracts with our customers and believe in making the required investments for the same. We provide 100% our own fleet and do not believe in brokering models or using attached fleets of unknown parties. Our business model revolves around increasing our customer orientation with each opportunity available to make their logistics more “in-control”, transparent and reliable. We also believe in growing our presence in a particular customer and growing our share of business as much as possible to leverage the relationships and the multitude of opportunities that the customer can provide. This increases inter dependence and creates a scenario where the mutual success of both parties is very closely dependent on each other. Last and very importantly, are business model is to continuously evolve and improve our services to our customers by using new logistics and vehicle application technologies, ideas and ways of doing business to get more competitive and provide better efficiencies and logistic models to our customers. This differentiates us from being merely “transporters” to being “complete corporate logistic service providers”
One of the major changes that the industry has seen in the recent years that customers prefer fewer logistic providers with larger fleets and that too owned fleet as compared to the erstwhile model of brokers working with the customers and bringing transport capacity generally available in the un-organized transporters market. They prefer one stop shop solutions and interacting with fewer parties (if not one) rather than having to manage and interact with a host of transport companies. They are also valuing new technologies and transport solutions that improve the way they do logistics
Moving forward the industry will continue to gravitate to service providers who have a good end to end logistics service vision, continuous improvement engines built in the fabric of the organization and a focus on increasing their owned fleet in delivering services to the customer.
Name some of your top clients.
Our top clients include BPCL, HPCL, IOC, Tata Steel,Tata Motors Ltd, Tata Chemical, Larsen & Toubro,JSW Steel, Reliance Port & Termina Ltd,
Jain Irrigation, M&M, Thermax etc.
Give us a brief overview of the logistics and transportation business sector.
The size of the Indian road transport sector was estimated at Rs2,700bn during FY10 (at current prices), accounting for around 4.5% of India’s gross domestic product (GDP). By comparison, GDP from railways was estimated at Rs601bn during FY 2010. The importance of the transport industry results from the fact that it is the dominant motorized mode of transport linking the remote and hilly areas with rest of the economy. During FY09, the share of transport sector in GDP aggregated 6.40% at current prices and 6.56% at constant prices.
Road transport has emerged as the dominant segment in India’s transportation sector with a share of 4.8% in India’s GDP. Road transport also accounts for 74% of total GDP emanating from the transport sector. The contribution of road transport in the transport GDP of India has consistently increased from around 50% in 1971 to 60% by the early-1990s, and to 74% in 2009. Further, around 74% of the incremental increase in transport GDP during period 2003-09 has come from road transport sector.
Following a period of high growth till FY 2008, the road transport growth has slowed down significantly during FY 2009 because of a slowdown in domestic economic activity and a significant decline in trade volumes till mid-FY 2009.
The Indian economy exhibited signs of a slowdown during FY09 and Q1 FY10, with real growth in gross domestic product (GDP) decelerating sharply from 7.8% in Q1 FY09 to 5.8% in Q3 FY 2009, and 5.8% in Q4 FY 2009. However, real GDP growth improved marginally in Q1 FY10 followed by a strong recovery in Q2 FY10 and a temporary slide in Q3 FY10; when real GDP increased 6.5% (yoy). Following a pause in momentum in Q3 FY10, real GDP growth picked up again with real GDP increasing 8.6% (YoY) in Q4 FY 2010.
The higher growth was primarily driven by a substantial recovery in industrial production, accompanied by continuing recovery in some select services sectors. Exports also began to recover from the second half of FY10, in line with the recovery in world trade, and exports (in constant prices) increased 14.2% (yoy) in Q4 FY 2010, reversing three successive quarters of (YoY) decline.
Easy accessibility, flexibility of operations, door-to-door service and reliability have enabled road transport to report an increasingly higher share of both passenger and freight traffic vis-à-vis other transport modes. The share of road transport has increased most sharply over the past decades, while the share in the modal split of rail and inland waterways has declined substantially. This is mainly due to the effect of the structure of goods in the industrial sectors. Mass commodities, suitable for rail and inland waterway transport, are becoming less important. The share of time sensitive, high-value goods in overall output is increasing. In addition to the effect of the structure of goods, various factors account for the above-average growth in road transport.
New production concepts (e.g. just-in-time procurement) in industry and trade call for a logistic system geared to flexibility and speed. Road traffic fulfils this requirement to a much greater extent than do rail and inland waterway traffic.
To what extent is the quality of road traffic improving?
Government investment policy concentrates far more on road traffic than on rail and inland Waterway traffic. Furthermore, technological innovation tends to be more common in road traffic. As a result, the quality of road traffic supply is improving to a much greater extent than that of rail or inland waterway traffic.
The effect of deregulation and liberalization in both manufacturing and transport has brought about more rapid and cost-effective road transport by increasing competition on the roads, in spite of continuing bureaucratic and fiscal impediments.
As a result, road transportation has made significant gains in market share at the expense of the railways. During FY 2006, road transportation accounted for around 87% of the passenger traffic, and 61% of the goods traffic.
For inland freight and passenger traffic, the modal-split between road and rail is typically distance related and time-sensitive. Road is usually more cost-efficient for short haul (perhaps up to 500 km), while rail is more cost-efficient for long haul (over 500 km). Time-sensitive goods are more likely to be moved by road, which is more flexible in terms of routing, door-to-door delivery, and journey scheduling. For passenger traffic, while rail is usually preferred for long-distance travel, roads are far more flexible (in terms of route choice) for most passengers in urban areas. The biggest challenge for urban rail transport is high capital costs and local amenity issues. Further, the urban rail network must be extensive (with relatively high urban housing/population density to support it) to compete with road.
The road transportation industry faces a host of issues besides fuel price hikes. What is your assessment of the situation?
For SVLL, all contracts are linked with a diesel escalation clause. So fuel price hikes are typically covered. But this is not the case with several other companies. They get very significantly and seriously impacted by this. Other issues which need to be reviewed and addressed include the tremendous delays at the various toll booths, the “method” in which the toll tax is collected, delays at the borders for border taxes and fees payment, the “method” in which these are collected and the condition of the roads in several parts of the county really need working on to get better utilization of the truck and driver assets. Besides the main highways the average speeds of the trucks are really very low and do not allow the new technology trucks to deliver the performance they are capable of.
The drivers too often stressed on the roads.
Yes. The situation of the drivers in the industry still remains a serious challenge and a problem that is not getting the attention it requires. The infrastructure provided for drivers on the highways is close to non-existent. There need to be driver oriented rest stops along the highways itself at every 200-250kms that can provide them a place to rest, eat, freshen up and get some basic services for their trucks. This is crucial for the growth of the industry as without an increasing driver pool there will be constraints on how much the commercial vehicle industry and transport logistics can grow.
What are the steps needed for sustainable development for the road transportation industry?
There needs to be a clear focus on continuously improving the road infrastructure on the lines of the Golden Quadrilateral. Similar quality road infrastructure needs to be developed for feeder highways and also internal road network so that better utilization of newer technology trucks and truck applications can be possible. This includes the way currently toll taxes and border fees are being collected to ensure there are no long waiting lines at these points which reduce the efficiency of the transport system.
Facilities for drivers along highways to improve their productivity and safety are extremely important for the long term health and growth of the industry. Strong focused effort needs to also be put to uplift the ‘social’ image and condition of the drivers. Else, we will be in a situation where there will be trucks but no drivers to drive them.
Implementation of GST will give more teeth to the road transport industry and will give it a new platform to further develop logistics concepts.
RTO legislations need to be made very transparent and the implementation of the legislation has to be consistent across the country. Else there is a lot of confusion, harassment and also unfair competition which again jeopardizes the industry standards and practices.
What impact will GST Implementation have on your business?
When GST will get implemented there will be a considerable change in the way our customers will organize their stocking / warehousing and distribution of products. The current set up of state based RSOs and warehouses will be step by step eliminated. Warehousing/ stocking will get re-organized to be close to the end consumer markets or to facilitate better logistics and efficient distribution whether it be hub and spoke or other.
This will give us a chance to really bring our capabilities, fleet and infrastructure to the fore to provide a lot more improvements in the way we service our customers and the solutions we provide. It will allow us to bring new concepts, leverage the routes we are already operating on across companies, build consolidation and re-distribution centers and bring in different forms of efficiencies and cost optimization for our customers. We will work with our customers to reduce the level of inventory currently on the road in transit as well at the warehouses / stock yards.
From a driver standpoint, we have certain additional concepts that we will be able to then bring in which will improve his / her lifestyle and of their families.
Comment on your financials.
We had gross sales of Rs9.75bn in FY12 with net profit after tax at Rs580mn.
What are your expansion plans? How would it be funded?
We are planning to purchase new 1800 vehicles for current year against various contracts. Funding for the same will be through banks and internal cash accruals.
What are the opportunities and challenges in this business today?
With increased fleet, the Company can look forward to further increase its customer base. The experience of the promoters can help in getting further business for the Company.
The industry in which we operate is highly competitive and fragmented. Competition emerges from small as well as big players in the transport industry. It is estimated that 77% of truck fleet is under operators who own 5 trucks or less; 10% belonged to those with 6-10 trucks; 4% belonged to those with 11-15 trucks; 3% belonged to those with 16-20 trucks; and only 4% of fleet belonged to those with more than 20 trucks (Source: IMaCS report on Transport-Road, February 2011).
The high competition is the result of relatively lower capital requirement, ease of obtaining driving licenses and permits. The organized players in the industry compete with each other by providing value added services. We have a number of competitors offering services similar to ours. We believe the principal elements of competition in transport services are price, customer service, timely delivery and reliability. Although a number of carriers may compete with us on a regional basis, only a limited number of carriers can compete with us in all of our geographic markets. We believe that the scale and scope of our operations allows us to meet our customers’ requirements better than the smaller carriers.
We face competition from Chartered Logistics Limited, Patel Integrated Logistics Limited, Transport Corporation of India Limited, Andhra Roadways, Tirupati Roadlines and Hyderabad-Ahmedabad Roadlines as they are in the similar line of business.
Which are the growth segments for your company?
We are looking at some new segments to grow including Finished Vehicle Outbound Logistics. We are focused on carrying Trucks, Construction Equipment, Cars and Two Wheelers. Recently, both TATA and Ashok Leyland have announced a drive to deliver their trucks in brand new condition with zero km via chassis carriers. There will be a need of over 10,000 chassis carriers over the next several years for this. We have engaged with a French company LOHR India Automotive based in Chakan, Pune to manufacture the latest technology chassis carriers for this business.
You are also looking at cold chain logistics?
We have entered the cold chain industry via Siddhi Vinayak Farm Fresh. The government has given this industry infrastructure status in the last two budgets; the reason being almost 40% of our country’s food produce getting wasted. We have already started to prepare the back-end with some public private partnerships by setting up cold rooms / stores / warehouses in different parts of the country. As a next step, we will be building up a sizeable fleet of several hundred reefer trucks and trailers to consolidate and distribute the various cold chain products across the country
What are your plans in the Consumer retail industry?
We have taken a focus on consumer retail industry and distribution of the products for this industry. This industry is rapidly getting organized by large retail players and they are roping in large logistics companies to take care of their large and complex distribution requirements. This is another key area of growth we are working on.