As an investor class we have been always fascinated by the REAL ASSETS. An investment backed by secure hard asset and based on the demand and supply analysis have been the basics for us to invest.
Prima facie we are risk aversive and are more comfortable on the clear cash flows and planned exit for our investments. Having said that, warehousing fits the bill for all class of investors. As an investor what are the questions that I have before I put my money into a project? Lets see ….
- What are the challenges in the compliances and approvals of a project?
- Are those challenges mitigated?
- When do I enter the project and what is the gestation period?
- What are the defined cash flows?
- What is the project IRR?
- What is my entry yield?
- What is the acceptable norm of exit and who will be my potential exit partner?
The real beauty of warehousing as an industry is that it fits the bill by having standard and acceptable answers to all these questions. So let us understand how this investment opportunity has been there but still not explored to the fullest. Let us also try and understand the pros and cons of this fast growing sector.
Before I move on to explain what makes this sector lucrative for large funds, let us look at the reason for the sudden growth in the last few years.
People born in the late 70s or 80s will understand this. We have grown up in the age where we saw the invasion of internet into our lives. we were born in the era when a telephone call was booked over a landline, where letters and postcards were a widely used medium of communication and paperwork was a necessary evil.
And then we became professionals in the era of internet where everything was accessible and available on a click of a button. This click of a button was the reason for us to exponentially increase our wants and thus forced businesses to think of better ways to reach us quickly. Moreover, the geographical boundaries widened and thus the products were made available beyond the state barriers.
With the comfort shopping of luxury in our lives, today online shopping has more or less become a habit. This changed habit of a consumer gave birth to the modern day warehousing . To cater to the fast and ever-changing needs of the consumers, the retailers needed to have huge inventories and that involved huge capital expenditure. The online business model supports that cost of capital due to wider geographical reach and large customer base. This is elementary level business concept and that is what I meant when I said, the investment model fits the bill as this is very basic, easy to understand and replicable to various expansion platforms.
So when the investment is scalable, replicable, easy to understand and is backed by well-defined cash flows, where is the catch. Why is the entry barrier still a little higher than expected?
Is it the policy framework? Is it the unorganized nuisance value that comes along with almost every business? or is it just the acceptability and penetration level issue?
I would say, It’s a mix of all the above. Every state in India has a different warehousing / industrial policy. The land aggregation, approvals and conversion has very different challenges in all the states. The timelines, the cost and the complexity is all very different. So where the button to click has reached all consumers (thanks to digitization and internet age) , the reach in terms of delivering the needs of the consumer to the last mile is yet to be catered to.
Now as the great marketing genius says, this is not a threat but an opportunity, because the one who has the access to the click, has the need to order. So warehousing is here to stay. The market is calling. Where are you?