Inside Gautam Adani’s Plan To Dominate India’s Supply Chain
Adani’s Mundra port. (Source: Company website)

Inside Gautam Adani’s Plan To Dominate India’s Supply Chain

Having control over a third of India’s port volumes, billionaire Gautam Adani has a new target. To dominate the movement of any kind of cargo that enters, leaves or travels within the world’s second-most populous nation.

In February, Adani tied up with India’s largest online retailer Flipkart to set up the biggest warehousing hub for the Walmart Inc.-owned e-commerce company. The deal is part of Adani’s plan to expand the logistics business. It already transports food grains in its own rakes, moves finished automobiles on train, operates container storage hubs and has set up huge freight-handling parks.

Logistics is one of the key cogs in Adani’s breakneck expansion engine. Adani Ports and Special Economic Zone Ltd. is now the biggest private port operator in the country. The billionaire also owns airports , power distribution networks, and solar and wind farms as he builds a fortune that dovetails with policies of Prime Minister Narendra Modi. And investor interest has propelled him into the league of India’s richest. Though not without concerns about large foreign funds with nearly all their investments in Adani firms.

For the logistics business, the group plans to spend nearly Rs 1,000 crore every year or about a third of Adani Ports’ annual capex, the company said in the fourth-quarter earnings call. The target is to increase the share of logistics in the balance sheet from the existing 7% to 25% in five years.

The opportunity is huge. According to Care Ratings Ltd., India’s logistics industry is worth $215 billion, growing at an annualised rate of 10%.

What Is Adani Logistics?

Adani Logistics Ltd. offers services to pick up, ship, and deliver retail, industrial, container, bulk, breakbulk, liquids, and auto sector cargoes. It also stores and handles grain for the government. The unit raked in a revenue worth more than Rs 900 crore in FY21.

Adani wants to offer a single-window solution by providing land connectivity to whatever is shipped in or out from its ports, Ramesh Singhal, director at i-maritime Consultancy Pvt., said over the phone. Instead of port to ships, it wants the end-to-end control over the cargo from the plants to ships, he said.

The objective is to dominate the country’s supply chain in a way that will boost not just port volumes but profit margins as well. At present, inland logistics involves multiple parties and it’s hard to increase margins, Singhal said. By consolidating all the operations right from when a cargo reaches the port till it lands in a company warehouse or the other way round, Adani targets to boost margins, he said.

That’s true for railways as well. “Margins are lower but if you own the track and own the rakes, then it goes up,” Singhal said. And each Adani logistics park will have highway, railway and airport connectivity.

For Adani, the margin is 24% for its small yet growing logistics business, versus 70% for ports in FY21.

Also read: How Adani Became India’s Port Tycoon

Here’s what Adani offers under the logistics business:

Parks And Warehousing

  • Adani operates five multimodal logistics parks and two more are under development in Nagpur and Mundra.

  • It has a capacity about 5,00,000 twenty-foot equivalent units at logistic parks spread across 400 acres.

  • Completed 1,50,000 square feet of warehousing.

  • To construct a 5,34,000 square feet fulfilment centre in Mumbai for Flipkart.

The multimodal logistic parks business, or large areas of freight handling capacity with access to various modes of transport, is largely unorganised.

An employee pulls a pallet loaded with boxes inside a warehouse. (Photographer: Dhiraj Singh/Bloomberg)
An employee pulls a pallet loaded with boxes inside a warehouse. (Photographer: Dhiraj Singh/Bloomberg)

While the state-run Container Corp. or Concor exercised monopoly until the early 2000s, the industry has since diversified with players like Hind Terminals Pvt., DP World, Adani Logistics, and Central Warehousing Corp. gaining ground, according to a report by Asian Development Bank. And Gateway Distribution Inc., Allcargo Logistics Ltd., TCI Group, Embassy Group are among the latest entrants.

Concor, however, still dominates with a 60% share as of FY20. And Adani is challenging this dominance. It aims to build 15 such parks by FY25 to cover all key markets. Earlier this year, it signed pact with the Gujarat government for exploring possibilities of developing a dedicated air cargo complex and large freight-handling hubs at Virochan Nagar near Sanand.

Warehousing is also on target as that pie also gets bigger, driven by online retail.

  • The nation had a total storage capacity of 238 million sqft in 2020, according to JLL India. This year, JLL estimates, India will add another 35 million sqft.

  • The share of e-commerce in warehousing demand increased from 14% in 2017-18 to 23% in 2019-20, according to Knight Frank.

According to Care Ratings, India’s organised warehousing sector is small with 90% of the market unorganised. Offering ample room to expand.

Before the deal with Flipkart, Adani in 2019 had acquired stake in cold storage firm Snowman Logistics Ltd. And in the next five years, it aims to build 30 million sqft of warehousing capacity.

“Right now, the business is very small. But the opportunity is huge,” said Abhishek Nigam, associate director at India Ratings and Research Ltd. Logistics costs in India about 13-14% of the GDP as opposed to 7-8% for developed countries, he said. There is a shortage of Grade-A warehouses despite fast growth and Adani wants a big slice of that pie, Nigam said.

While warehousing business margins could be as high 80%, the gestation period is long, he said.

Adani’s key competitor in the parks and warehousing segment is Concor. Adani is targeting 15% market share with a 30 million square feet of warehousing space by FY26.

Agri And Auto Logistics

Adani Agro Logistics Ltd., a unit of Adani Logistics, is the largest agri-storage space provider with a 45% market share, according to the company’s website.

Adani Agri connects major food grain producing states such as Punjab, Haryana and Madhya Pradesh with major consumption centers in Karnataka, Tamil Nadu, Maharashtra, West Bengal and Gujarat through a network of procurement and distribution silos.

The company has been operating the grain silos for the Food Corporation of India since 2005.

It operates:

  • Seven trains for transporting food grains from its base in North India to numerous locations.

  • 21 storage facilities (14 operational, three under implementation and four awarded) in nine states across India.

To transport automobiles via freight trains, Adani has a joint venture with NYK Auto Logistics India Pvt. It connects auto manufacturing hubs with gateway ports and consumption centres, and provides last-mile distribution to dealer locations. The group also has a dedicated roll-on-roll-off facility at Adani Port, Mundra with pre-dispatch storage capacity of 20,000 cars.

For both agri and auto transport, Adani competes with Concor.

Nigam of Indian Rating expects margins to be in low single digits for this business.

Also read: In Less Than Two Years, Adani Controls Nearly A Quarter Of India’s Airport Capacity

Rail

Rail network is crucial for Adani to transport goods across India. And it is already the largest private container train operator in India.

The company:

  • Operates 60 trains (43 container and seven agri rakes; runs nine rakes for transportation of bulk cargo; and one freight train for automobile)

  • Has invested in rail tracks of almost 620 kilometres.

  • Eyes more than 200 trains by FY26 to become the largest private player

<div class="paragraphs"><p>Freight trains operating on railway lines in Navi Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)</p></div>

Freight trains operating on railway lines in Navi Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Adani’s bet is in line with India’s dedicated freight corridor project—expected to be commissioned in the ongoing fiscal 2021-22. That will augment the movement of cargo via rail, further shifting bulk shipments from road to trains.

Adani Logistics also won the bid to develop freight terminals with exclusive station connectivity at eight locations on east and west freight corridors.

“These are the terminals where we see Concor doing the maximum volume. This is to at least get an opportunity to position ourselves close to Concor,” Karan Adani, CEO of Adani Ports, said in an analyst call after the fourth-quarter earnings.

Adani is also looking to participate in the Modi government’s plan to rope in private players for rail track development. India plans to develop almost 20,000 kilometres of new track and invest heavily in creating the dedicated freight corridor.

The group started consolidating all rail assets into a single platform called Adani Track Management Services Pvt., a subsidiary of Adani Ports.

It operates and maintains 70 kilometers of private siding or tracks used to load or unload goods. And it has agreed to buy Sarguja Rail Corridor Pvt., a coal transporter.

The margins may be in a high single digit in rail business, Nigam said. But if an operator can control both track and rakes, that could go up to 25%, he said.

Adani's key competitor in rail freight business is again Concor.

Inland Waterways

The group is also building infrastructure for inland water trade.

Adani Ports operates:

  • A fleet of six inland vessels.

  • Vessel capacities range from 64-68 TEU.

Earlier this year, the company was the sole bidder for a tender floated by the waterway authority to privatise multi-modal river terminal at Varanasi. It targets to operate 25 inland waterways vessels by 2025.

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Concor—The Biggest Prize

To inch towards its goal of becoming the world’s biggest ports and logistics group, Adani is also looking to buy into its biggest competitor—Concor.

The nation’s largest logistics company has about 15,578 container wagons and more than 30,000 containers. And the government is looking to sell 30% of its stake in one of its Navratnas or crown jewels.

Adani intends to bid for the government's 30.8% stake in the state-run logistics company. Other likely suitors include Allcargo, DP World, Gateway District Parks Ltd.

Karan Adani said if the group is able to buy a stake in Concor, it won’t spend Rs 1,000 crore on its logistics business. “If Concor comes in to play, then it is a very different ball game. But if Concor does not materialise, we have an alternative plan,” he said.

If Adani manages to get it, Singhal of i-maritime Consultancy said, the group would become the “badshah of Indian logistics”.

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