Mr. Arif A Patel, Vice-Chairman, House of Patels

"With the advent of Patel Retail, we will be providing end to end retail solutions with time bound delivery thereby moving up the value chain towards

July 19, 2006 12:00 IST | India Infoline News Service

The House of Patels? foundation was laid by Asgar Shakoor Patel in 1959, when he set up road transportation company Patel Roadways Ltd (PRL). What began as a one-truck activity in the 50?s soon grew into one of the largest logistics companies in Asia, boasting a multinational clientele, and brand equity unparalleled in the Indian logistics industry. The Patels forged strongly ahead with growth-oriented diversification that found them in couriers, air-freight, finance, foreign exchange and the fast growing money remittance business. Today, the House of Patels holds 70% of the market share in the courier co-loading industry in India and is also a market leader in the logistics, foreign exchange and inward remittance business.

Mr. Arif A Patel, Vice-Chairman, House of Patels, comes from a family involved in the transportation industry for over four decades. Arif Patel has taken over the reins of PRL & POBC since the last 6 years and worked his way up. He has led the way in this dynamic and competitive environment creating a professional team and taking the company in an aggressive growth trajectory with his vision and hands ? on approach.

Anil Mascarenhas of India Infoline poses a few questions to Arif Patel who says, "With the advent of Patel Retail, we will be providing end to end retail solutions with time bound delivery thereby moving up the value chain towards the express cargo segment."

Give us a broad overview on the industry. What are the new trends which are emerging in the logistics business? Walk us through how things have changed over the last few years and how your firm has responded to the same.

The industry is growing rapidly for past couple of years. This trend is going to increasingly continue with logistics finally getting its share of much needed recognition. The retail space is booming and will drive this growth. Other sectors like engineering, pharma, auto achieving double digit growth will only help us further.

The market space has gone through tremendous changes since the past few years. We have more informed and demanding customers forcing us to shift our strategy and focus on their requirements. Customers need flexibility and provision of a one stop solution for their requirements.

We at House of Patel?s (HOP) have moved in line towards the customer. We are now offering end to end services with products like "Patel Retail" (our door ? door pickup and delivery solution with time bound services), warehousing, international freight forwarding, cargo consolidation & on-board courier. This is our effort to provide and become a complete logistic solution provider for our existing and new customers.

Your group is planning to make it big in the construction business in Dubai. Could you tell us more about your group's activities in recent times?

We are investors in the Dubai Real Estate Market & are looking at various opportunities; no concrete plans have been drawn up yet. It is a volatile yet lucrative market which needs to be watched carefully.

What is the progress regarding your warehousing and distribution venture? What is the capex for the same? How is it being funded?

The warehousing division is up and running. It has broken even since commencement 4 months back. We are providing warehousing solutions to customers like NCMSL, Xtracare, Otis and many others. This has additionally helped our trucking business.

We are also on the verge of launching our end to end product "Patel Retail". It will provide door ? door, door ? go down, godown ? door, godown ? godown pickup and delivery solutions. It will be a time bound service.

We have invested close to Rs30mn for our Warehousing & Patel Retail product. Investments have gone towards purchasing trucks, improving IT and setting up state of the art warehouses. We have plans to invest Rs180-200mn. over the next two years with the prime focus revolving around "Patel Retail"

Post the merger of Patel Roadways with POBCL, have you got the desired results .What was the rationale for the merger and have you managed to bring in cost reduction and efficiency?

The merger process is in its final stages, last one being the High Court approval. We have already got approval from the stock exchange, shareholders, creditors and all other concerned parties. Internally, we are in the process of streamlining our people, products & service offerings apart from utilizing infrastructure and other common grounds which will enable us to reduce costs and thereby increasing efficiency. Results for the same will be reflected in the current year and more so in the next 2-3 years.

What is you present fleet size. Any expansion plans? Do you own aircrafts? Give us details.

Currently, we own 88 trucks. We do have aggressive expansion plans. We have placed orders for 16 trucks to join our fleet in the next 2-3 months. Over the next 2-3 years we plan to double our fleet.

At present we do not own any aircrafts. We will be launching our air express cargo product by March 2007. At this point we are yet finalizing the process and services and cannot provide any more concrete details

You call yourself a mass-pricing provider rather than a high yield cargo or freight carrier. Could you explain the same?

Currently, we are in the space of providing high volume, low value service. We are in the bulk segment with size of shipments being 100kg and above unlike the retail players with minimum shipment size of 10kg.

With the advent of "Patel Retail", this scenario is about to change. We will be providing end to end retail solutions with time bound delivery. Hence, we will be moving up the value chain towards the express cargo segment.

What is the impact of VAT on your company?

VAT as been introduced across 21 states and has positively impacted us. A uniform tax structure is better for a national transport company like us. No more tax variables at state boundaries, but transparent and equal levy of taxes makes us concentrate purely on operational logistics. Companies will now look at operational convenience, instead of tax benefit locations. Operational advantages, of course, turn advantageous to customers and carriers alike. Lesser queues at the state boundary check post?s has lead to faster movement of goods, benefiting both transporters and customers in terms of time and money.

Infrastructure, despite the inroads made, continues to be a bottleneck for companies such as yours. Your views and outlook?

Yes, infrastructure is a key for companies in our space. The situation is improving as we speak and will further continue to become better with the completion of Golden Quadrilateral by Dec 2008. With better roads and connectivity we intend to have 24 hour connectivity to any major cities enabling us to serve our customers faster and with greater efficiency.

What kind of growth have you targeted for the next couple of years? What would be the triggers for growth?

We have aggressive growth plans set for the next 3-4 years. We are looking at a 15% topline growth year on year. We see our diversification in services like warehousing and newer products like "Patel Retail" to trigger our growth initiatives. Wit our infrastructure set up and presence across India, we intend to capitalize on the opportunity in the market space.

Do you see a big shift from the unorganized sector to the organized? What are some of the opportunities and threats you see for the industry and your company?

The market has huge opportunities and the Retail sector which has opened up is the key. Retail sector will need the services of organized players like us for their delivery requirements. Factors such as ban on overloading & introduction of VAT all across also have benefited the organized sector. The unorganized sector which constitutes nearly 85 % of the market is going to shift in favor of the organized players. We see the organized sector to go down to 40% in the next 7-8 years. This itself speaks volumes for the opportunities going ahead!

Infrastructure bottlenecks continue to remain a threat for all players in this market. The situation has improved but still has a large way to go if we are to compete on the same platform globally.

Value added services is the buzzword. What progress have you made so far in making yourself a one-stop shop? Which are the areas where there still remains a vacuum?

Our gamut of product and service offerings does enable us to provide "one ? stop" service solutions to our clients. Customer focus and retention is the key. With our products like plain surface transportation, Patel Retail, Warehousing, International Freight forwarding, Domestic Cargo Consolidation, On-board Courier we can help companies meet their logistics need. In effect, companies can outsource all their logistic needs to us having the expertise and continue to concentrate on their core area of business

Do you still have franchises? Brief us about your infrastructure and your network, domestically and globally?

Yes, we do operate on the Business Associate / Franchisee model. We have over 350 branches covering 500 delivery locations in the roadways business (PRL). In POBC, we have 85 branches covering all major cities and towns. We operate 350 flights and 100 surface line hauls daily.

Co-loading has been giving you bulk of your revenues. Could you explain more about it and will it continue to be your prime revenue driver?

Yes, co-loading has been providing the revenues for POBC. The model basically works as us being the courier of courier?s. We act as consolidators of courier and cargo. With the advent of newer airlines, we get more flexibility in options and pricing which we pass on to our customers. Co- loading will continue to drive revenues for POBC.

Which are the industries which use your service? Where is the growth coming from? Are you planning to get into the cold chain business?

We cater to a majority of industries such as engineering, pharmacy, auto ancillary and a host of other industries. Currently, growth is coming from the engineering ? hard goods sector. We see the shift in growth coming from the Retail Sector going ahead.

Tell us more about Patel Retail? Would you competing with the likes of Reliance?

The changing dynamics of the Indian business environment has given rise to a lot of opportunities. Indian economy being on an upswing added to the retail sector boom, we see the need for organized players to fulfill the needs of these players. Additionally, customer expectations towards convenience, flexibility, aggressive pricing, time-bound delivery, options and control of services has gone up manifold.

Keeping all these factors in mind, we have come up with "Patel Retail", our answer to provide end to end solutions incorporating all these features. Our product is a time bound, end to end solution with door-door pickup and delivery convenience offering value for money pricing, thereby reaching out to and addressing the needs of our customers

What is the impact of fuel price rise? Are you able to pass on the same immediately to the customers?

The impact on fuel costs is passed on to our customers. We usually have escalation clauses in our contracts with our long term clients. We do not see pressure in our margins due to hike in fuel prices.

What is your current product mix and going ahead what would it be?

We have made a strategic shift in our product mix from predominantly being towards Full Truck Loads (FTL). We now cater towards the high margin Less Than Truckload (LTL ? Sundry) mix. Currently, the ratio of LTL : FTL is 63:27. We expect this to improve further with LTL ? Sundry business constituting 80 % of our revenues in the next 2-3 years.

Brief us on your financials. Post the merger and integration what growth are you expecting in your topline and bottomline. Could you give guidance for the coming fiscal?

Currently, the merged entity turnover is around Rs2.88bn. We expect 15 % year on year growth for the next 2-3 years. With the merger and its cost efficiencies and reductions added to improving margins coming in from the retail product we expect a tremendous growth in the bottom line to the tune of 35-50% in the next two years.

What is your message to your shareholders?

We at the House Of Patel?s have always valued your loyalty and support. We look forward to the continued support as your company surges ahead capitalizing on huge market opportunities despite aggressive competition.

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