India's delivery men offer prize investment as billions pour into e-commerce

Allcargo Gati

29/10/2014 21:00

* Online retail market seen quadrupling to $43 bln in 5 yrs 
    * SoftBank joins Amazon.com in hefty investment bets 
    * As e-commerce firms tightly held, logistics shares surge 
 
    By Sumeet Chatterjee and Tripti Kalro 
    MUMBAI/BANGALORE, Oct 30 (Reuters) - From Japan's richest 
man to Jeff Bezos, everyone wants a piece of India's booming 
online retail sector. For those without billions to pump into 
the tightly held firms who dominate e-commerce, the best bet may 
be the delivery men. 
    On Tuesday, SoftBank Corp  9984.T  Chief Executive Masayoshi 
Son joined Bezos's Amazon.com Inc  AMZN.O  in pledging heavy 
investment in an e-commerce industry worth $10 billion and seen 
quadrupling in five years. Son's gambit: a stake in Snapdeal, 
India's third-biggest online marketplace.  ID:nL4N0SN4MC  
    Yet the little-known firms that deliver goods ordered online 
are already raking in rocketing earnings from e-commerce in a 
country with the world's third-biggest Internet user base, and 
they're listed. Shares in companies like Transport Corp of India 
 TCIL.NS  and Gati Ltd  GATI.NS  have surged more than 
three-quarters this year as industry watchers seek a chance to 
invest. 
    "When you see the limitless growth in the e-commerce sector, 
you do want to get involved," said Eric Mookherjee, a 
Paris-based fund manager at Shanti India, whose holdings include 
Transport Corp. "The next Alibaba  BABA.N  or Tencent  0700.HK  
can be created in a country whose population is roughly similar 
to China. You will get that in India." 
    Finance house Nomura estimated in a research note in July 
that India's e-commerce industry could more than quadruple to 
$43 billion over the next five years, driven by online retail. 
    Pledging to invest $10 billion in India in the next 10 
years, SoftBank's Son on Tuesday said Snapdeal has the potential 
to become India's Alibaba, the recently listed Chinese 
e-commerce giant. Son is well placed to know: his fast-growing 
Japanese telecom and media empire is the biggest Alibaba 
investor. 
     
    DELIVERY OUTSOURCING A MUST 
    Son's move comes after India's two biggest online retailers, 
the home-grown startup Flipkart.com, and Amazon's India 
business, began spending billions of dollars to secure a bigger 
share of the market. Though India's Internet population is huge, 
e-commerce infrastructure remains relatively under-developed and 
ripe for huge growth.  
    The forecasts for future expansion, and a key role in it for 
third-party delivery firms, have helped push the more than $50 
billion Indian logistics sector, including Gati and Transport 
Corp, about 80 percent higher so far this year. That makes it 
the fifth-best performing major industry in India by the Thomson 
Reuters StarMine classification. 
    Earnings are also ramping up. Net income of Blue Dart 
Express  BLDT.NS  and Transport Corp is expected to jump by 37 
percent and 24 percent in this fiscal year respectively, 
according to Thomson Reuters' SmartEstimates, which place an 
emphasis on recent forecasts by top-rated analysts. 
    In comparison, net profit of companies in the Bombay Stock 
Exchange's main 30-share index  .BSESN  is expected to rise just 
15 percent on average. 
    As the market surges, competition for customers among 
e-commerce firms will see them seek to cut delivery times and 
expand into smaller cities. While Amazon and Snapdeal use both 
in-house logistics networks and external service providers, new 
services will see them relying increasingly on outsourcing.  
    "Amazon is today advertising 24-hour delivery and that's 
where people like us come in," said Areef Patel, executive 
vice-chairman of Patel Integrated Logistics Ltd  PATL.NS , which 
serves Amazon India. The 24-hour delivery offer applies only to 
select postal codes and is not available across the country.  
    "We are looking to get e-commerce market share today because 
that's the flavour of the day," he said. Patel said his firm 
aims to increase the portion of revenue it generates from 
e-commerce companies to 20-25 percent within two to three years 
from just 5 percent currently. 
    With more than 45 percent of Amazon's orders in India coming 
from outside the top eight cities in the country, the company is 
looking to work with more logistics partners, Amazon India said. 
    "The biggest advantage of working with specialist logistics 
firms is the wide reach that they provide," said Ashish 
Chitravanshi, vice-president of operations at Snapdeal, speaking 
before the SoftBank investment was announced.  
 
 (Additional reporting by Nivedita Bhattacharjee in MUMBAI; 
Editing by Miyoung Kim and Kenneth Maxwell) 
 ((sumeet.chatterjee@thomsonreuters.com; +91-22-61807068; 
Reuters Messaging: 
sumeet.chatterjee.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA FREIGHT/