“We are committing `30 billion for warehousing”

Real estate developer, Hiranandani Group, is planning to foray into warehousing and logistics with an investment of Rs 30 billion over a 400-acre area, spread across Pune, Chennai, and Nashik. Niranjan Hiranandani, Chairman & Managing Director, Hiranandani Communities, shares details.

What made you decide to enter the warehousing and logistics industry?
After the recent spike in the import duty fee, the Goods and Services Tax (GST) and Make in India have given fillip to a new asset class in Indian real estate–warehousing and logistics. The government aims to establish an integrated logistics framework comprising industrial parks, cold storage chains, and warehousing facilities. To achieve this goal, it granted infrastructure status to the logistics sector, helping it access long-term funding at reasonable rates. GST lifted the Octroi barriers, which swiftly paved the way for warehousing and logistics parks to be set up within city limits instead of on the outskirts. The possibility of setting up larger and better logistics parks at central locations and enabling players to run them efficiently will be a game changer for the industry.

The need for integrated logistics sector development has been felt for quite some time. Logistics costs in India are very high. Lowering them will give a boost to Indian goods, both within the country and outside. GST has subsumed all other taxes and one can now set up warehousing facilities purely based on business feasibility, and not just for obtaining tax benefits. They need not necessarily be located outside cities. They can be in strategic locations that are closer to ports, manufacturing locations, as well as business districts within cities

Everything in logistics will change in the next few years. The old centres may not remain. New centres will definitely come up. Only time will tell if they will be in the old locations or in new ones. We think this is an opportunity because until now, buildings were not really up to the mark. If you look at Bhiwandi, which is one such warehousing hub, it is really shoddy. This is not logistics. Worldwide, logistics has changed. For instance, if you order a product on a website, you will get the product the next morning, if not on the same night. Similarly, logistics will change for every activity, whether it is paper coming to your factory or just-in-time production at an automobile unit, everything will be different. Logistics worldwide has changed into such a scenario.

Can you illustrate with an example?
In 2017, IndiaÂ’s logistics performance improved from 54 to 35 under the World Bank Logistics Performance Index (LPI). The government expects the sector to grow to $360 billion by 2032 from $115 billion at present. With this direction, you will see a lot of movement in the industry.

You will see a lot of ancillary units coming up closer to the places of work. Let us say, for instance, I am an auto parts supplier of gearboxes to auto factories. I will make a small unit each in Pune, Chennai, and Haryana because these are the three centres where I will supply my products. As these smaller units start coming up, they will also do assembly types of jobs for various manufacturers, put them together as a brand and send them out. They could be regular sheds that are pre-built structures which one can take for five or ten years and, whenever required, close them down and move to new locations.

I am bullish on the growth trajectory of this space. As a developer, we are one of the first to identify that we want to go into this in a big way. We are starting with 250 acre in Pune, 77 acre in Nashik, and planning to start with 100 acre earmarked for the purpose in Chennai. This is very big for any developer to commit. We have the land and before the end of this year, we will launch. We are committing Rs 30 billion to set up these facilities.

Can you provide more details on the facilities?
Well, we know this business is expanding and I think it will grow multi-fold in the coming year. For us, in our facilities, even if you take half the floor space index (FSI), it would be about 10 million square feet in Pune alone. That is a lot of space. I expect we will launch the three facilities this year, but it may fall into the earlier part of next year also. Definitely, two out of three will be ready this year. We are certain that Pune will start first.

What will be the model you will follow? Are you talking to any investors?
Predominantly, this will be leased, but we are open to selling also. We will set up a new platform which will hold all the projects together. We are in touch with multiple prospective partners but have not sealed the deal yet. We are looking out for strategic partners and not investors for equity participation in the land. This will be wholly owned by us. With reference to the modus operandi, we could either lease out space or we could tie up with logistics firms and operate jointly, since we are not experts in this space just yet!

For the investment you are making, what are your funding requirements?
If the land is debt-free, working capital is never a challenge. You can put in working capital, and if it does not get sold now, it will sell next year. However, if you leverage land, then there is a danger because you have to start making payments and you do not know when you will be able to build or sell. We do not have that problem at all, neither in the parent company nor in the separate companies at the three locations we are talking about.

Will the facilities be only warehousing or are you going to develop something else also?
Good question. We are looking at industrial parks, including logistics and warehousing. These industrial parks, like in China, will also cater to the residential needs of the operating work force out of this township. We will develop residential living within the industrial parks as China does as a policy in their country. Currently, people commute for as much as two hours to reach a factory which, to me, is ridiculous. This is detrimental to their output and health. Therefore, we intend to create a kind of accommodation which meets their housing needs within the township; they practice walk-to-work-model. This, in the long run, will be beneficial to their performance and improve their quality of life. We have multiple plans of action but are not sure about the implementation. One of the ideas is with respect to migrated truck drivers. For a driver who has come from Uttar Pradesh to Maharashtra, he should get a place to park and be able to service his truck. While a small repair shop can provide a professional service for the truck for long-haul journeys, we would like to have a facility where the driver can also get food for himself, a good sleep, and rest comfortably. We might think of putting up a dispensary and a small shopping area too, catering to his specific needs. We have ideas like these but we may not start with all of them. We are thinking of this as an actual service to the industry and all stakeholders, not just as a physical warehouse.

Just like our mixed-used integrated townships, where we have built the entire social infrastructure for families living there, the logistics and industrial space would be holistic for this industry and allied activities. When you have 250 acre, you can dream of all these things. The question is, do I want to be big. yes, I want to get into this space. I do not want to get into this space if I am not big enough.