Mumbai: In a purchase that could bolster its retail operations, Reliance Industries Ltd (RIL), India’ most valuable company, bought a stake in aviation entrepreneur G.R. Gopinath’s logistics venture Deccan 360.
Strategic move: Deccan 360 chairman and managing director G.R. Gopinath at a press conference in Mumbai on Friday to announce Reliance Industries’ investment in the logistics venture. PTI
Gopinath announced the transaction on Friday, saying RIL’s stake was above 26%, but less than 50%. A senior consultant who advised Gopinath said RIL could have invested a maximum of $50 million (Rs222.5 crore) for the stake. Gopinath did not disclose the deal size. The consultant declined to be named.
“We were talking to many investors but we chose Reliance because of what it brings to the table. Express logistics require massive network and investment. I’m trying to build twice the size of the current network express logistics capability,” Gopinath said, adding that RIL had a “proven track record of executing massive projects at lightning speed” and brought to the table its “IT systems and managing capabilities”.
It is a “a win-win deal”, a senior airline consultant said on condition of anonymity. “Deccan Cargo will have assured cargo and capital support to expand its network. Meanwhile, Reliance Industries can get the services at comparatively lower prices and do away with start-up pains.”
In return for being a so-called strategic consultant, RIL will get a logistics backbone that can cut costs for its retail operations. Deccan moves up to 300 tonnes of goods daily across the country.
An RIL spokesperson declined to comment on the financial aspects of the deal, which company chairman Mukesh Ambani said will mark “a transformation in the logistics domain in India”.
RIL shares ended the day 0.64% lower at Rs1,083.30 on the Bombay Stock Exchange while the bellwether Sensex index closed almost flat at 17,591.18 points.
The logistics deal marks RIL’s second venture in a week into new areas.
On 9 April, RIL had signed a joint venture for 40% stake in Philadelphia, US-based Atlas Energy Inc.’s Marcellus shale assets, forking out $1.7 billion for access to a new technology for extracting natural gas from sedimentary rock layers.
An RIL official close to the development said the company’s retail operations—1,000 stores spread across 80 cities—continuously need backend synergies for the movement of goods.
“This acquisition fits the bill,” the executive said, declining to be named. “Moreover, Deccan is focusing on building huge warehouses with a 50-acre facility in Nagpur as the hub, where companies can store their goods on hire. RIL can do the entire infrastructure fit for them in terms of fast execution at lowest prices.”
Deccan 360 is the first logistics company in India to adopt and develop a hub-and-spoke model. It has appointed national service providers on a franchisee model and has already set up over 80 service centres and eight surface hubs to service operations using its eight freighter aircraft and a fleet of over 300 trucks and 850 vehicles nationwide.
Reuters contributed to this story.