Warburg Pincus eyes demand in warehousing sector; investments pour in

Warburg Pincus-funded third-party logistics company Stellar Value Chain Solutions recently announced to set up 35 built-to-suit logistics parks in 21 cities in the next four years.

Warburg has also partnered with Embassy Group that is looking to build warehouses and industrial parks near eight big Indian cities. Embassy’s joint venture with Warburg, Embassy Industrial Parks, plans to spend $500 million over three years to develop such properties.

In 2016, Warburg Pincus had invested $125 million in the company and bought a majority stake. The company is looking at a top line of INR 700 crore in the current fiscal and touch revenues of INR 1,400 crore by 2020-21 financial year, said Anshuman Singh, chairman and managing director at Stellar Value Chain.

The logistics parks of Stellar will have a contracted logistics space of 50 million square feet. The 21 cities where the parks will come up include four metros, five mini metros, and 12 tier-II cities.

While Stellar’s partner developers and vendors will invest about INR 10,000 crore in the parks, the company itself will invest INR 3,000 crore inside them, and that will come from its internal accruals, debt, and private equity, Singh said.

Bengaluru-based Embassy, which specializes in building IT parks and offices in its home market, now plans to grow its warehouse portfolio to 32 million square feet over the next three to four years from 10 million square feet (929,030 sq mts).

“E-commerce is going to be massive in India, we are seeing a huge digital shift happening throughout the country,” Aditya Virwani, chief operating officer at Embassy Group, said in an interview. “We believe that absorption is only going to go up. It’s still a very initial stage of the market.”

The Embassy Group holds close to 4,000 acres of land across India, of which 1,100 acres could be utilized for the development of industrial parks in future. The group would, however, continue to purchase new land that is ready-to-use and may also tie-up with private equity partners for larger transactions and to access cheaper capital.

The expansion would include existing and new developments across top Indian cities including Pune, Gurugram, Chennai, Bengaluru, Hyderabad, Mumbai, Delhi and Kolkata. The monthly rental income from these assets is expected to grow tenfold from as much as 60 million rupees and yields would jump to 18% from the present 12%.

The realtor, which launched Asia’s top performing real estate investment trust earlier this year with Blackstone Group LP, is now looking to build (real estate investment trust) REIT -worthy logistics assets.

“We have already seen REIT playing out from our commercial portfolio, we believe that REIT for industrial parks will be on similar lines,” Virwani said. “We definitely want a fairly big chunk of the portfolio, I think anything over 30 million square feet would incentivize us to do REIT.”

With Ambani’s Reliance Industries Ltd. planning to roll out its online shopping platform within 12-18 months, the competition is expected to intensify. Retailers will need large warehousing spaces across key growth centres to ensure fast and effective last-mile delivery of goods. This can serve as an opportunity for investors to jump the queue and leverage the growth potential of the industry.

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