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1 KBuzz Sector Insights April 2011 kpmg.com/in

2 As the summer months come to an end, both farmers and policy makers in the country are hoping for a good monsoon this year, given that the monsoon is crucial as a source of irrigation for 60 percent of the farms in India and approximately two thirds of India s population depend upon agriculture for their livelihood. With India being the world s second biggest producer of rice, sugar and cotton; inflation rising food inflation rose by 8.55 percent in the week ending May 14 and the direct correlation between disposable income and ample rainfall, a timely and evenly-distributed monsoon also augurs well for the economy as a whole. On a silver lining, PM Manmohan Singh signed a slew of trading and investment agreements with countries across the African continent and offered them three-year credit lines of USD 5 billion to achieve their development goals, while attending the India Africa Forum Summit in Ethiopia. India-Africa trade stood at USD 46 billion in 2010 with India setting an ambitious target of reaching USD 70 billion by I hope you find this edition of KBuzz insightful and interesting. Regards, Vikram Head Markets and Private Equity Advisory KPMG in India Sources

3 TRANSPORTATION & LOGISTICS 32

4 Transportation & Logistics Manish Saigal Head Transportation & Logistics KPMG view Air freight hot spots Overview The airfreight sector in India has been witnessing a steep and consistent growth over the last few years. Driven by India s strong GDP growth, rising domestic consumption and EXIM trade as well as supply side improvements, the air freight market has grown at a CAGR of 8.5 percent (FY06-FY10) to reach 1.95 million tonnes in FY10. It is expected to grow at a higher CAGR 10.5 percent over the next few years to reach 3.2 million tonnes by FY15. This growth will, in turn, be supported by planned investments of over INR 80,000 crores 1 in the airport sector in the XIIth Five Year Plan, more than double of the INR 36,000 crores 2 in the XIth Plan, leading to the development of world class airport infrastructure at Delhi, Mumbai, Chennai, Hyderabad, Bengaluru and several other locations and corresponding strong traffic growth in these key hubs. However, these trends stretch well beyond the metropolitan cities into Tier 2 locations creating novel opportunities the subject of this paper. Aggressive emergence of Tier 2 air cargo hubs 3 Against the overall growth of CAGR 8.5 percent between FY06 and FY10, the air freight market at metro/tier 1 hubs has grown at a CAGR of 8.3 percent from 1.27 million tonnes to 1.75 million tonnes. In contrast, the tier 2 hubs have grown at a CAGR of 11.8 percent from 132,000 tonnes to 207,000 tonnes in the same period. Amongst the larger micro-markets, Cochin has experienced the steepest growth doubling volume to 42,000 tons in four years. Trivandrum and Ahmedabad are other large markets that have demonstrated good growth. Pune and Calicut are other locations that have broken into 10,000 tons+ category in the same period and are growing at a CAGR ~20 percent Jaipur, given the growth rate of CAGR 27.3 percent, seems to be the next crucial destination catering to the increasing freight demand in North-Western India. Among other tier 2 cities handling sub-10,000 tonnes volume, a firm trend appears with respect to North-Eastern India. Guwahati (CAGR~2.3 percent), the traditional leader, is being overtaken by Agartala (22.9 percent) and Imphal (31.1 percent). Though these high growth rates can be attributed to low base volumes, the actual volume handled by these twin cities have risen drastically to compete with Guwahati s benchmark of ~ 5,000 tonnes. Against the national benchmark of air freight growing at 8.5 percent (FY06-FY10), the tier 2 hubs have been growing at CAGR of 11.8 percent shifting focus to emerging air hubs like Cochin, Jaipur, Pune, Ahmedabad and Coimbatore - Manish Saigal Head Transportation & Logistics KPMG in India Air freight at major Tier 2 hubs * Tonnes handled 42,000 35,000 28,000 21,000 14,000 7,000 - FY06 FY07 FY08 FY09 FY10 Cochin Trivandrum Ahmedabad Pune Calicut Agartala Jaipur Indore Guwahati Imphal Amritsar Source: Crisil s Airport Industry Statistics July 2010 and KPMG Analysis Note: 1. Estimated assuming share of investment in airports in XII Plan remains approximately same as that in XI Plan; 2. Revised projections from Planning Commission of India, January 2011; *. Analysed airports include those with either >15,000 tonnes freight or >20 percent growth rate (except Guwahati included for North-eastern comparison) Source: 1. Planning Commission, KPMG Analysis; 2. Planning Commission, KPMG Analysis; 3. All quantitative figures (volumes, growth rates, etc.) in this section are based on information from Crisil s Airport Industry Statistics July 2010 and KPMG Analysis 33

5 Transportation & Logistics KPMG view Air freight hot spots The key drivers behind increased freight handling at airports such as Cochin, Trivandrum and Ahmedabad include rising local demand, improved international connectivity and the resultant hubbing activity and expanding cargo-handling infrastructure. Other emerging hubs such as Pune, Jaipur, etc. 5 are witnessing high growth rates primarily driven by increasing domestic volumes, freight handling services by low cost airlines and better connectivity. Segregated by attractiveness for 3PL players and freight forwarders Further analysis suggests that these upcoming hubs can be broadly classified into two categories - 1) attractive-for-3pl players, and 2) attractive-for-freight forwarders - based on the hub s domestic versus EXIM focus. Location attractiveness for 3PL players and freight forwarders # Attractive-for-3PL High (>30,000 tonnes) Pune Medium (~10,000 tonnes) Ahmedabad Cochin Low (<1,000 tonnes) Agartala Coimbatore Jaipur Indore Guwahati Imphal Nagpur Goa Lucknow Low (<1,000 tonnes) Medium (~ 10,000 tonnes) Calicut Trivandrum High (>30,000 tonnes) Attractive-forfreight forwarders Legend: CAGR (FY06 -FY10) 20% or more >10-20% <10% <0% Source: Crisil s Airport Industry Statistics July 2010 and KPMG Analysis KPMG s perspective There are ample opportunities for players across the logistics value chain to enter and/or expand their presence within India s air freight sector, driven by strong demand as well as improved carrier services. While metro or Tier 1 cities will continue to dominate the overall market, we believe that it is the new set of Tier 2 cities that represent new and uncluttered opportunities. Service provider firms will do well to evaluate their presence, focus and service orientation in these new locations in the context of this unprecedented growth being experienced in these locations. Note: # Airports have been analyzed based on FY10 volumes handled as reported by the respective airports; aassumption: 3PL players and freight forwarders are respectively domestic and EXIM cargo-focussed Source: 5 Crisil s Airport Industry Statistics July 2010 and KPMG Analysis 34

6 Transportation & Logistics KPMG view Air freight hot spots Key recent deals Target Target country Acquirer/ investor Acquirer/ investor country Deal type Deal value (USD Mn) Stake acquired Continental Warehousing Nhava Sheva India Warburg Pincus US PE investment 100 NA GMR Airports Holding India StanChart PE India PE investment 150 NA Transpole Logistics India Fidelity US PE investment 13 NA Atlas Logistics India SBS Holdings Japan Acquisition Nikkos Logistics India Aqua Logistics India Acquisition Source. Venture intelligence database 35

7 This document has been compiled by the Research, Analytics, and Knowledge (RAK) team at KPMG in India. kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

The Logistics and Transportation Industry in India 2009

The Logistics and Transportation Industry in India 2009 Indian Logistics Industry The term logistics is often misinterpreted to mean transportation. In fact, the scope of logistics goes well beyond transportation.