In a significant recent development, Japanese logistics firm Nippon Express which has a sizeable global presence announced acquiring over 20 percent in Future Supply Chains (FSC) – the supply chain arm of Kishore Biyani led Future Group. The public enlisted firm has been on a fast-track growth in the last couple of years especially in terms of adding warehouse capacity on a pan-Indian basis. In a candid conversation* with Ritwik Sinha, FSC’s MD Mayur Toshiwal explains the broader targets and strategy of the company in the medium run. Edited excerpts…
*( This conversation had happened before the announcement of the deal with Nippon Express)
The kind of slowdown which has gripped the economy, has it started resulting in slump in the volume you have been handling from your clients across different sectors?
In the last couple of quarters, we have seen a little dip in volumes in an overall sense. Our focus has predominantly been consumption sectors – Food, FMCG, Fashion, Electronics, etc. We do a little bit of auto and engineering also. We have two-three line of services which includes contract logistics where we function as 3PL. We are noticing a little bit of slowdown in volumes there and inventory is piling. On the express side too, the growth has become slightly tepid now.
Does that make you worried on your performance prospects in the remaining quarters of the current fiscal?
We are a services company. So if our clients go through some volume pressure, it will get reflected in our performance. Having said that, we are constantly trying to increase our client base. We are adding more external customers every month. So the overall impact on FSC should not be that big. Like others in the industry including our clients, we are also expecting that Diwali-Christmas spell will bring some cheers.
In last couple of years and especially since your IPO, we have seen significant increase in your warehouse footprint across the country. But will you take a cautious approach now that slowdown impact has started becoming visible?
If you would see in the last couple of years, we have embarked on an aggressive growth path. And this is because we sensed a great opportunity in Indian supply chain market. So we have added more warehousing capacity. In terms of our long-term planning, the growth strategy remains intact. We added 3 million sq ft last year and another 6,50,000 sq ft in the first quarter of the current financial year. Given a little mellowed demand this year, we may have to fine-tune our expansion plans a little bit. If some components of the expansion drive have to be delayed marginally, we will do that. We always open a distribution center when we see demand visibility both from our anchor and non-anchor clients. Currently we have another 3 million sq ft of signed up warehousing space which will become operational over the next two years. This year, we may add 2 million sq ft. The original plan was 2.5 to 3 million sq ft.
This company was formed in 2007 and you have recently crossed Rs 1,000 crore topline. What is that big picture which the group has in mind for this unit? Mr. Kishore Biyani is known as a man of scales and he has always been reported to be passionate about this unit.
He strongly believes that supply chain is the wheels of the retail business and the economy. That is why this company was set up to serve group companies initially. And along the way, we have picked up an aggressive vision. We want to be a Rs 10,000 crore company in the next five- seven years. We did Rs 1100 crore last year. While we would like to increase our penetration in the retail business of the group, we see substantial opportunity with external clients in customer facing businesses like food, fashion, furniture, FMCG, etc.
One strong impression in the marketplace is: you would like to develop major strength in the food sector which the group is looking as the next big frontier. Your response.
We have set afoot a strategy to develop a much larger expertise in the management of food and FMCG sectors. While we have done well in fashion, furniture, electronics, etc., bulk of the consumer spending amounting as much as 60 percent is food and FMCG sectors centric. And the contribution of these two verticals to our business is still somewhat low. We did a lot of homework on this and came up with a new strategy. We are now giving a hard push to set up India Food Grid. It is a model which will work well for the brand, retailers and supply chain providers like us. It will take care of the entire supply chain need post-production all the way till consumption. Food and consumption supply chain is very fragmented. It has too many players which makes the process inefficient. We are going to increase our penetration in food and FMCG sectors and that is why we have launched India Food Grid. This is going to be a pan-India network of 38 large logistics centers which will be integrated food distribution centers. The entire consumption market will be within 200 km of these DCs. In a cumulative sense, this network will comprise a capacity base of over 7.5 million square ft.
Have you signed all of them?
No, but it will happen soon. Eight centers have become functional and we expect the remaining to go live in the next two years.