Bangalore: Just months after obtaining a licence to run container trains in India, logistics firm Arshiya International Ltd has unveiled an aggressive plan aimed at becoming India’s biggest private rail operator. Chairman and group managing director Ajay S. Mittal says the company is just being quick to tap the huge logistics market estimated at more than $125 billion (Rs5.45 trillion) over the next three-five years.
Arshiya has evolved into an integrated supply chain and logistics company over the past few years. The company, Mittal says, is now investing Rs1,600 crore to build its rail business and is raising private equity (PE) to meet its capital requirement. Edited excerpts:
Aggressive push: Arshiya International’s chairman Ajay S. Mittal says the company can act fast because it is a logistics service provider with an established business and with clients from across the world.
When other private container train operators are treading slowly, why is Arshiya being aggressive, ordering 75 rakes and investing heavily in rail sidings, free trade and warehousing zones (FTWZs) and related infrastructure?
We have customers who understand the advantages from an integrated Arshiya solution. With the Indian economy growing at 6-9%, demand for freight transport is likely to grow to 2,000 billion tonne-km in the next 8-10 years.
The Indian Railways has put in place a plan to transport 200 million tonnes (mt) of cement and steel by 2011-12. In this period, it aims to carry 200mt equivalent of cargo containers, up from the current 20mt. Overall, the rail freight loading for 2008-09 is targeted at 785mt, increasing at 10.69% a year. To put things in perspective, even if we run all our 75 rakes on three trips a month all year (a faster utilization than the current average of 2.2-2.3 trips a month), we would have moved under 3-5mt of cargo, which is less than 1% of the overall demand. This is not aggressive by any means of imagination.
Then what is it?
It is just that we identified the rail opportunity ahead of competition and are investing in rakes and building rail sidings. So, we decided that if we want to be in the business, we must act and move fast—just like we read the FTWZ opportunity in 2006 and acquired land faster than others.
And we can act fast because Arshiya is a logistics service provider with an established business and clients from across the world.
How is your rail investment funded?
Our investment plan for the rail business (including rakes and sidings) is Rs1,600 crore. Of this, Arshiya has already spent about Rs105 crore. We are in advanced stages of raising PE as we go forward partially to meet our equity requirement. We cannot give details of our fund-raising plans yet because of the sensitivities involved.
Who will benefit from these FTWZs and how?
Benefits of FTWZs will flow to Indian exporters and importers, foreign corporations with operations in India, or looking to enter the country, and to foreign corporations who would like to leverage India for their hubbing, warehousing and value-added service (VAS) operations.
Each of the above groups would have specific advantages of using FTWZs. But generally, the benefits include 24x7 customs clearance, faster payment in hand for Indian exporters, interest-free storage for more than 90 days and lower insurance premium (otherwise including duty on merchandise of 32%).
Some of the other benefits are: delayed import duties through value addition process, local tax savings on VAS activities, no manufacturing licence required for local packing, labelling and assembly, hassle-free re-export, foreign exchange trading, hassle-free set-up for new entrants into India, damage assessment prior to duty payment and release of products in India on demand or just in time.
Will this lower logistics costs, which now account for 13-15% of the gross domestic product, help India become more competitive in the global market?
For FTWZs, almost all these benefits can help cut costs for customers partnering with us. It might come in different forms such as reduction in transportation costs, decrease in working capital requirements, or savings due to the tax incentives contributing to increased operating margins.
On the rail business, our studies indicate savings of 15-20% on a multimodal end-to-end basis depending on the segment, distance travelled and product mix.
Can you elaborate on your deal with Kalmar Industries and Titagarh Wagons?
Our deal with Titagarh is for the order of 75 rakes and break vans, which will be delivered between November 2008 and January 2010. We have placed the bulk order to ensure lower prices, so we can maintain pricing advantages for our customers vis-a-vis competition. For Kalmar, our deal is worth about Rs300 crore over three years for the purchase of heavy handling equipment such as cranes and reach stackers that will be deployed in Arshiya’s FTWZs and rail sidings.
The Kalmar deal will provide preventive and breakdown maintenance, operators, engineering support, daily inspections and spare parts.
When will you start your first train service and on which route?
We expect to begin our rail operations in December. Initially, we are looking at mainly domestic routes till our FTWZ assets are up. Our first routes will connect east and north India, and east and west India.