Kedaara Capital in talks to invest up to $70 mn in Mahindra Logistics

Mumbai: Private equity (PE) firm Kedaara Capital is in advanced talks with Mahindra Logistics Ltd, a subsidiary of Mahindra and Mahindra Ltd (M&M), to invest $60 million to $70 million for a significant minority stake, according to two people, one of who is directly involved in the negotiations.

If the deal works out, it will be Kedaara Capital’s debut transaction. Last year, Kedaara Capital closed its maiden PE fund with a corpus of $540 million.

Co-founded by Manish Kejriwal, former India head of Singapore investment firm Temasek Holdings Pte. Ltd, and former General Atlantic LLC managing director Sunish Sharma, Kedaara Capital focuses on control and minority investment opportunities.

“The deal is expected to be announced next week,” said one of the two persons cited above. “Essentially, Mahindra Logistics is creating a war chest to go for potential acquisitions to enhance its presence in third party logistics (3PL),” he said.

Both people spoke on condition of anonymity. Mails sent to Kejriwal and Sharma did not elicit any response. Mahindra Logistics declined to comment.

It would be the biggest transaction in the logistics business since US buyout firm KKR and Co. Lp and Goldman Sachs Group Inc. invested a combined ₹ 268.8 crore in TVS Logistics Services Ltd in April 2012.

Mahindra Logistics was started in 2000 as a strategic initiative intended to enhance the group’s focus on logistics services to both internal and external customers.

It is engaged in taking care of M&M’s complex supply chain needs, including inbound and outbound logistics, inter-plant movement, warehousing, linefeed and value-added services.

Mahindra Logistics also offers transport services to clients, picking up and dropping off their employees at workplaces and homes. “Mahindra Logistics would step up its play in contract logistics and third-party logistics,” the second person said.

India’s transport and logistics sector is expected to evolve at a rapid pace in the coming years.

Key trends driving this include higher levels of outsourcing in the logistics space, the increasing complexity of logistics service requirements and an orientation towards global best practices, according to a September KPMG report on logistics.

Overall, the sector is expected to register growth at 1-1.3x economic growth. On an average, Indian companies currently outsource an estimated 52% of their overall transport and logistics activities. India’s logistics market is worth an annual $92 billion, according to the report. In the past five years, the logistics sector in India has grown at a compounded annual growth rate of 9.5%.

On 24 February, rating agency India Ratings and Research Pvt. Ltd assigned a stable outlook to the logistics sector for the financial year 2015, citing a strong likelihood of moderate growth in the sector despite the continued economic slowdown.

“3PL providers could also grow at a low double-digit rate in FY15, given the increasing private port operations and integrated logistics offerings,” it said.

3PL firms offer warehousing and storage for third party firms. Allcargo Logistics Ltd, Gati Ltd, Transport Corp. of India Ltd are leading 3PL firms.

PE investors are keenly looking at the logistics sector citing the irrefutable need for such services. In the agri-logistics and cold-chain industry, PE funds have invested about $151.55 million in 11 firms over the last three years, according to Venture Intelligence estimates.

Ten deals worth $185.3 million were reached in the logistics space in 2013against 15 deals worth $299.1 million in 2012, according to estimates by VCCEdge, which tracks investment activity in India.

Mukul Gulati, managing director, Zephyr Peacock India, a global PE fund, said logistics in general was the lifeblood of an economy and as the economy grows, the need for logistics expands.

“Its a sector that needs capital to support its own growth,” Gulati said. “There are so many changes happening in the sector in terms of the use of technology and operational expertise that there are significant possibilities for differentiation. With the use of technology and operational expertise, these businesses can be highly profitable.”

Last year, PE funds Zephyr Peacock India and Singapore-based Credence Partners invested $17 million in 20Cube Logistics for a significant minority stake. Everstone Capital invested ₹ 220 crore in New Delhi-based Transpole Logistics Pvt. Ltd.