It is due to GST that our revenue goals are aggressive: R. Dinesh of TVS Logistics
R. Dinesh, managing director, TVS Logistics, says TVS Logistics’ Singapore arm, TVS Asianics, combined with Pan Asia Logistics, would target revenues of $500 million by 2020
TVS Logistics Services Ltd has expanded its Asia footprint after its Singapore arm acquired the freight forwarding and contract logistics businesses of Pan Asia Logistics, R. Dinesh, managing director, TVS Logistics, said in an interview.
Dinesh, who was in Singapore to announce the deal, said Pan Asia Logistics, with revenues of $160 million and 600 employees, would help the group provide seamless services across the region.
He further said the group’s Singapore arm, TVS Asianics, combined with Pan Asia Logistics, would target revenues of $500 million by 2020. TVS Logistics did not disclose the deal value. Edited excerpts:
You have not disclosed the deal valuation. But during an earlier interaction with Mint, you said TVS Logistics was targeting companies in this region worth around $150-200 million. So, can we assume the deal size is in this range? Can you share additional details? Was this a 100% buyout?Are you looking for more deals in this region?
We have bought out the company—100%—and we will be putting capital into the business and improving technology. That is very much part of our approach. We’ve bought out the shareholders of Pan Asia Logistics. When I spoke to Mint (in August 2017) last year, and said we were looking for acquisitions in South-East Asia, we had just begun talking to Pan Asia Logistics.
It is not the deal size that matters here for us—we have global customers, and customers from India, who want to work with us in Asia—so, we were looking at this acquisition from a customer network perspective.
The maximum work going forward is to make sure that we integrate both the companies into the TVS umbrella. Post that, we will look at the next step in this region, rather than immediately. We have given ourselves 12-18 months for the integration process. It may take slightly longer.
When we first did a deal to buy Rico’s UK Supply Chain, we were not doing any integration, as we did not have any operations there to integrate with. Here (in Asean) we have a network. We were at $20 million in revenues in this region when we first met Pan Asia Logistics and began talking. Post the deal, our target is to turn revenues of the combined entity to $500 million, and we want to achieve that by 2020.
You’ve hit your target of $1 billion in revenues this year. Is it right to assume that only one-third of this comes from India? What are your revenue targets, going forward? Do you think you can take expertise from India to grow your operations abroad?
What we are working on right now is to further increase our India footprint. We have aggressive plans—the first is Asia, and that led to this acquisition.
Second, from the India perspective, we want to have a billion dollars from the country in the next three years. We are then looking at Europe and US as providing the capabilities, but deploying it in Asia and India.
We should be around $2 billion in revenue in the next 2-3 years, and that will be a satisfactory outcome for us.
And 40-45% of that will come from India.
Let me give you an example of taking expertise from India to our operations outside—digital apps—it works very well in India, and at low costs. So, we should be developing these in India and applying it to local markets abroad. But if I look at capabilities that come from the UK or US, it is high-tech and technological solutions. Earlier, we had a situation where customers were not wanting integration.
They were happy to use a solution from us in the UK, and just wanted capability in India and Asia. Post GST (goods and services tax), our customers are asking, if we can add for them in India? This is the time for integration.
When I say integration, I don’t mean that we will be paying the same salaries to all our people globally, or make them use the same technology platforms all over. The customer may use digital apps in India, and the UK, but not necessarily in other parts of the world. We have to offer what is required by the customer.
How about bringing Indian expertise to Asean—just like India prior to GST, this region is fragmented with different countries having different rules and tax structures. How do you see Asean in the warehousing space? Is that something that interests you?
I don’t think there is big expertise in India to be brought to this region. Rather, it is going to be our expertise from the UK and US that we can use in this region.
We are building an ultra-modern warehouse here in Singapore. Earlier, we used to take people to the UK to give them an overview of our facilities. Instead, we now bring them to Singapore, and we have a state-of-the-art facility here. For this region, we see that contract logistics is going to be one of our core focus areas. But we are not going to be buying assets here as that is not our business model. But operating such assets is our core and we got that know-how from our operations in the UK.
TVS logistics is backed by Caisse de Dépôt et Placement du Québec (CDPQ) and KKR. Do you see the company raising more capital from private equity? The company has also been linked to the possibility of a listing for a while.
After CDPQ has entered, right now, we don’t see a need for fresh equity. So we are not looking at that, but, in the next 12-18 months, we will take a call on whether we need it for our growth plans.
Listing is something that we’ve always been evaluating. Whether we will do it now or later, the answer is not immediate. But are we thinking about it? Yes, we are.
Post GST, how is the India scenario? You had acquired Tata-controlled Drive India Enterprise Solutions Ltd in 2015. Are we set to see more India deals soon?
Whatever capabilities TVS logistics had globally, we could not employ it in India, because before GST, what the country required was a transportation solution for 17 states. Today, we can genuinely add value in the supply chain. This is an unique know-how that we developed in the UK and other international markets that we can bring it here.
The impact of GST is already being felt. There are two benefits—the first is the transit time, and that is visible, and second, what we see as a big opportunity—and let me explain with an example: If I can be an integrator, and if, say, there are 10 components that are coming for production, or 10 components that we have to replace, instead of these coming separately, if we were to assemble it, and bring it together, it is a huge value addition. It leads to a reduction in capacity, reduction in usage, transport. We were not able to do this in India earlier.
We could only transport something from point A to B. Now we can assemble it, integrate it and even buy and sell it if we want to and then bring it to the end customer. It is due to GST that our revenue targets are very aggressive. Today, we are between Rs2,500 crore and Rs3,000 crore annually in India, and we can double that in less than three years.
As far as acquisitions in India go, we are open to it, provided a good opportunity arises. We won’t say no.
Where do you see yourself in India? You are not in the e-commerce space. As a company, how are you positioning yourself? Do you see more consolidation in the logistics space in India?
I would say we are already among the largest players in our space in India. Hopefully, with the kind of growth we are looking at, if we are not the largest today, we should be by next year.
We were very clear that we won’t be in a space where we can’t make money—e-commerce for e-commerce players is not a space we’ve entered into, or plan to go into. However, we see a lot of space for e-commerce opportunities in omnichannel.
We have a centre for excellence for freight forwarding in Singapore, and in India, we’ve already done that for IT digital apps, and for manufacturing supply chain, we are doing it in the US, and for after-market supply chain, we are building the centre for excellence for it in UK.
In my mind, consolidation is not good for the logistics sector in India because there is a lot of livelihood businesses taking place in this segment.
There is a trucker who has two trucks and runs it—he does not look at profits, but whether he makes some cash or not. If I were to replace this, consolidate and add just costs, and try to make a profit out if it, I am not adding value, but cost to customer.
The best solution for me is to partner them and improve their profitability, but not necessarily increase the cost to the customer.
Consolidation will happen as people retire or not want to continue in this space, but making everyone go for a profitability model will make India more uncompetitive till all process and technology come in.
By 2030, it may happen. It is not true that consolidation will bring efficiency of scale. If, say, a trucker is running at 60% capacity, he is charging only 50% costs. But, if I were running at 90% capacity, and increase cost to consumer, then we don’t add value.
What we see TVS Logistics Services as being is an India-based company with unique capabilities. We are an India headquartered MNC (multinational company) that has unique capabilities that it brings from the rest of the world.
We see ourselves doing more acquisitions in India, Asia and globally. We’ve not publicly announced it, but we’ve acquired a company in Spain called Nadal for about $100 million.
What is your take on the whole debate we are seeing on the e-bill in India?
My take is that e-bill is a wonderful instrument. The challenge we had, when it was implemented initially, was whether it would have the capability for the number of users, and if it could handle the sheer volume and size. I am glad that we’ve deferred the date by which such volume can be taken up. But otherwise, an e-bill is the single best document that the government is looking at—it does away with all other paperwork which we need today. It can be digitally enabled and digitally uploaded—it is one document across all modes, whether it is rail, roads, or coastal shipping.
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