Three Hidden Megatrends in India's Logistics Boom

• Iron Man, Super Man, Thor and Disney Princesses are being hauled in 20 feet containers.
  
  Just next to them are containers carrying diesel engines, x-ray tubes, generic antibiotics, copper ores, granite, inverters, and industrial products like xylene and ketone.
  
  The container terminal at Tughlakabad, New Delhi, has had quite a few new customers over past few months.
  
  One of them is Hasbro. It's a US based toy maker, known for its Transformers, Play-Doh, and Disney Princess merchandise.
  
  Hasbro, currently makes about two-thirds of its products in China. Much of that production is already shifting to India and Vietnam.
  
  Meanwhile, Dr Reddy's is shipping a new set of drugs to China. All this while China was importing the drug from the US.
  
  But thanks to the steep tariffs the US imports have become unviable.
  
  So, the containers at the Tughlakabad terminal, will ship toys that are made in India, instead of China, to the US. And they will ship drugs, made in India, instead of the US, to China.
  
  The volume of these shipments, compared to India's overall exports, aren't significant yet.
  
  But they could grow manifold and potentially make a huge difference to India's freight costs and business of one company in particular.

I wrote this about Container Corporation of India (Concor) when I recommended the stock to StockSelect subscribers in 2019.

Since then, the company's profits have grown at a compounded rate of 12% per annum. The stock has gained 145%, with the bulk of the gains coming in since March 2023.

The story of significant upside in India's logistics boom was largely based on the China+1 megatrend since the pandemic.

While the trend did play out for a while, businesses catering to the logistics sector stayed mired in regulatory hurdles.

The valuations of the stock of Concor itself remained under the cloud of uncertainty due to land leased from Indian Railways.

But not too far from the Tughlakabad terminal, at Patherheri, a village in Gurgaon, yet another megatrend has taken shape quietly.

People residing in metro cities had long shifted to online modes of purchase. But modern consumption trends have picked up in smaller towns too.

So, storage facilities needed to catch-up. Also, an an omni-channel push by existing brick-and-mortar retailers, has led to a surge in demand for storage facilities.

Hence, acres of area near the village Patherheri, have seen a decade-long transformation of warehouses from 'godowns' into organised, tech-savvy storage spaces in the past few years.

This is not a one-off case. Massive warehouses have come up in relatively obscure locations in southern India to cater to ecommerce and electronics industries.

India's organised warehousing sector is still at a nascent stage. Warehousing capacity in and around the top eight cities, Delhi-NCR, Mumbai, Bengaluru, Chennai, Pune, Kolkata, Hyderabad and Ahmedabad, was just 371 million sq. ft. in 2024, according to data by property advisory JLL. This has grown over 50% since 2020.

As e-commerce marketplaces such as Flipkart and Amazon chase every serviceable pin code in the country, warehouse developers are also compelled to look beyond the outskirts of major metros

Warehouses and factories are already attracting over half of the fund flows into real estate in 2024, shows an analysis by Colliers India, a real estate consulting firm.

This trend is likely fuelled by India's booming e-commerce sector and the increasing focus on domestic manufacturing.

High-quality warehouses and logistics facilities therefore present significant growth opportunities to ancillary players.

Take the case of Blue Star, for instance.

Airconditioning and refrigeration company Blue Star has lined up a series of investments close to Rs 9 bn on its new plant in Sri City, Andhra Pradesh.

It has ambitious plans to increase the production capacity. This is primarily to cater to the air conditioning and warehousing needs of the electronics supply chain facilities in southern India.

Now the air conditioning of the massive warehouses typically warrants steep energy requirement. Therefore, keeping such energy supply consistent and costs effective, is important.

The government has been promoting renewable energy through incentives and policies.

Programmes like the National Solar Mission aim to establish India as a global leader in solar energy. Subsidies, tax breaks and grants are available for businesses that invest in solar power, making it a financially viable option.

Warehouses, which typically have large, flat rooftops, are ideal for installing solar panels.

India's warehousing sector is seeing increasing adoption of solar power, driven by cost savings, environmental benefits as well as supportive government policies.

Therefore, the move towards solar energy is not just a response to global environmental concerns but also a strategic business decision for many warehouse operators. Solar energy incentives allow them to reduce operational costs and enhance sustainability.

Warehousing developers and operators, including Allcargo group, Horizon Industrial Parks, Mahindra Logistics, Amazon India, and Flipkart, are incorporating solar energy into their logistics facilities and supply chain infrastructure.Needless to say, stocks like Waaree Renewable, Tata Power, and Sterling and Wilson stand to gain from the solar energy demand in warehousing.

Stocks of such companies have already gained 50% to 300% over the past year.

Now, the warehousing facilities alone cannot meet the demand for on time last mile delivery. So, logistics providers are leaning on the latest technology to offer ecommerce companies such last mile coverage.

There comes in drone companies.

Drones are today far from just a military marvel. Their usefulness extends far beyond the battlefield, offering solutions in a multitude of sectors, especially logistics.

Food delivery company Swiggy had earlier partnered with drone startup Skylark to test out its drone delivery system.

The Swiggy-Skylark consortium, along with 19 other consortiums, got Ministry of Civil Aviation's (MoCA) approval in July 2021 to carry out experimental drone flight operations in India beyond the visual line of sight (BVLOS).

Info Edge was an early-stage investor in Skylark.

Zomato, one of Info Edge's portfolio companies and a major online food delivery platform, also plans to integrate Skylark's drone framework.

Logistics major Blue Dart is also at the forefront of numerous drone initiatives including the Blue Dart Med-Express Consortium.

In financial year 2022, the company launched the Blue Dart Med-Express Consortium under the Medicine from the Sky' initiative. It thus supported the Ministry of Civil Aviation, Government of Telangana, World Economic Forum, and Niti Aayog in their effort to offer healthcare services across the nation.

The initiative leveraged the use of drone flights to build robust healthcare infrastructure in the remotest areas of the nation.

With necessary approvals in place, Blue Dart successfully commenced drone trials in September 2021.

Where Are the Hidden Megatrends?

Even though the China+1 megatrend was relatively short lived in terms of stock market gains, India's logistics boom is here to stay.

Such a boom could play out for several decades as India's manufacturing, exports, and domestic consumption continue to grow.

Therefore, players in the air conditioning, solar energy, and drone manufacturing are the hidden and indirect beneficiaries of India's logistics boom.

Do check out the stocks of the most viable businesses in these sectors on Equitymaster Screener.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)