Operating in the industrial warehousing space, Embassy Industrial Parks is a joint venture between the Embassy Group and Warburg Pincus. It’s CEO, Anshul Singhal, talks about the market for industrial warehousing, the challenges they are facing and future plans of the organisation.
Embassy Industrial Parks, a joint venture between the Embassy Group and Warburg Pincus, was formed to address the challenges that companies are facing in building and managing industrial and warehousing spaces. The company was set up with an intention of offering Grade A industrial, light manufacturing and warehousing spaces in close proximity to consumer and industrial centres across India. These warehouses cater to the growing demand of logistics requirements from sectors like e-commerce, 3PL, FMCG, retail, consumer durables, automotive, pharmaceutical and healthcare and telecom.
Given the increase in demand from these industries, the group plans to build eight to nine industrial parks in cities like Mumbai, Delhi, Bengaluru, Chennai, Hyderabad, and Ahmedabad. In fact, it recently invested Rs. 350 crore in Pune and Rs. 140 crore for a project in Gurgaon. In addition to developing the industrial parks, the company also manages and maintains its developments under its facility management arm.
Spearheading this team is Anshul Singhal, the CEO, who is responsible for the development of these large-scale and fully managed industrial and logistic parks. In this interview, he talks about the market for industrial warehousing, the challenges they are facing and future plans of the organisation.
What kind of market potential do you see for India’s warehousing sector in the next three years? How has this sector grown in the last few years? And what are its main growth drivers?
In India, there are three to four classes of real estate – residential, commercial, hospitality and retail – which are the main focus areas of private developers. Globally, there is another class called industrial real estate. In fact, in Europe, U.S., Japan and China, industrial real estate is one of the largest classes of real estate. In India, it is still at a premature stage. However, people have realised that with the implementation of GST, make in India and policy level changes in government, industrial real estate is now opening up to be a profitable sector and a lot of foreign investment is coming in. Take our joint venture for example. We have a 70:30 JV with Warburg Pincus with Warburg investing Rs. 1,000 crore of equity out of the total Rs.1,600 crore of equity investment. Which means we can raise approximately another Rs. 4,000 crore as debt, our investment alone will be Rs. 6,600 crore in this sector. This totals to US $1 billion.
In three years, this sector will witness a major growth spurt and we will see a lot of new developers coming in.
Market will mature and when it comes to leasing or owning a buildings, leasing will become more popular. If you have only Rs.100 crore of capital, 50 per cent of your capital will go in buying land and building and the balance will go towards business. If you can free up that capital, and keep paying rent for L&B, then you have more money for your business.
How do you view competition in this sector?
When you are competing with someone, you are either fighting for same market share or same revenue. This is not the case for us currently. Embassy is an early mover in this business and will enjoy the early movers’ advantage for the next 3-5 years. And it is a little difficult to predict what will happen after that period. The important thing is to secure your land locations,which is what we are doing now. We have been in this business for the last 2.5 years securing good land positions in key micro markets at the right price and zone. Land at right location is the biggest entry barrier.
So how do you choose the right location?
Before we buy any land parcel, we talk to clients and choose the right land parcel in the right location. We also use our own research and knowledge to understand which corridors are suitable. We look for good access roads and the land should be sitting close to the high way. Land should be connected to major highways and should be completely clear of encumbrances, mortages, liens, with no issues on the title. It should be in the right zone where warehousing activities are permitted, and most importantly the land should be where clients will like to be housed.
What kind of investment do you foresee making going forward and how many industrial parks do you plan to set up and which cities? What are your criteria for expanding into a city or choosing a particular city for building warehouses?
We are very clear about our five year plan. We are planning to set up about 8 to 9 parks in seven cities that include Mumbai, Delhi, Bangalore, Pune, Chennai, Kolkata and Ahmedabad. There will be more than one park in Delhi and Mumbai; 9 parks, over the next 3 to 4 years which will total to 20 million sq.ft. of leasable area. We plan to buy land with our equity line of 1,600 CR.
We are looking at cities that are major consumption centres where there is a large demand for grade A warehouses. Most of the warehousing today is illegal and are not properly constructed. There are maintenance issues with leaking roofs or chipped floor. And hence, the demand for grade A warehouses.
Do share details about your mandated search service – in particular for international and multinational companies – with a specific mandate to search for land in pre-specified areas, acquire land on behalf of the company?
If you are a corporate and want to buy land and set up a factory or a campus, you have to appoint consultants, brokers, look for land and verify the papers, buy the land, get the approvals, get the conversion, manage the plan sanction, manage construction, procurement, PMC, Quality, building permissions and so on. Instead, you can come to Embassy with their specific requirements and we will invest capital on land and building and we will charge a rent. This is where you mandate us to build your own solution for your real estate needs.
Do share with us the primary challenges that you are facing currently?
One, land acquisition is a major challenge for any real estate player. When we are looking at buying 100 acres to 200 acres of land and develop it, we really hope for some policy level changes in land acquisition which make land acquisition for industrial and warehousing purposes a lot easier. However despite this our team has been able to secure good lands in various cities.
Second challenge, approvals. What we have today has definitely improved from what it was 5 years back and it has become friendlier in the Modi government but I think we have scope for improvement there. The policies can become more user friendly. The important thing to understand here is that the more time approvals take the more the capital sits idle as we cant start construction and generate revenues onto the land.
Do talk to us a little about the dynamics of the industrial warehousing sector?
Overall dynamics of this sector is linked to India’s growth. This sector fosters startups. If you are a well funded startup and you want to take your business off the ground quickly where you don’t want to take unnecessary risks like land buying approval which is not your core area, we are offering good solutions and so are other upcoming players in the market. When you want to move into an office, you don’t go and buy an office, you rent an office. Same way, why would you want to buy a factory/warehouse when leasing is faster. That is the message that is evolving and will foster the growth of corporate India.
We are also one of the few companies doing something for Make in India and have signed three MoUs with the State governments. The message is that the sector is growing fast and overall economy will benefit from this. Every park has a minimum of 500 people employed and in bigger parks in Mumbai, Delhi, Chennai could employ almost 2500 people.