Venture capital and joint venture investments likely in reverse logistics  

April 8, 2010

 
With Reliance Venture Asset Management pumping in funds into RLC Ltd, a supply-chain management company focusing on end-to-end reverse logistics solutions, more investments in the form of venture capital and joint ventures are likely in this segment, say industry experts.

Reliance Venture Asset Management, Kleiner Perkins Caufield & Byers, and Sherpalo Ventures had recently channelized funds into RLC. A few media reports have pegged this investment at Rs35 crore, but RLC is not ready to confirm this figure.

Commenting on Reliance Venture funding RLC, Vijay Sarma, associate director, PricewaterhouseCoopers Ltd stated, “The deal has attracted attention from a lot of people (investors) in the reverse logistics segment. Certainly it (reverse logistics) is an area of opportunity.”

“However, whether this funding happens to standalone companies in the reverse logistics segment or to logistics companies bundled with reverse logistics services as one segment, is something we need to look at closely,” he added.

“The entire concept of reverse logistics being outsourced is relatively new in India. International companies who have been practising reverse logistics globally in the consumer durables, telecom and auto sector, now want to outsource their activities to India as well. It is a sunrise sector within the logistics segment. I think as the reverse logistics segment opens up and lot of new players enter this market, a number of international players would like to have more and more of these operations. I definitely see a good opportunity emerging in this sector,” said Ashit Desai, director, corporate affairs, Allcargo Global Logistics Ltd.

Mr Desai added, “The investment will depend on the players. If multinational players dominate this segment in India, then they may look for funding. But more home-grown companies, who want to take on this role, would definitely look for venture capital funding as it is a relatively new segment in this industry.”

Mr Desai also spoke about a new model that seems to be emerging in this segment in the near future. “One of the models that I can see emerging is Indian players forming joint ventures with foreign players in the reverse logistics segment. Joint ventures then could from a large area of investment (rather) than venture capital,” he said.

“Allcargo may not focus on reverse logistics at present. We may look at it only after a couple of years,” he added.

Commenting on the investments in the reverse logistics segment, Hitendra Chaturvedi, managing director & CEO, RLC Pvt Ltd, added, “When we started looking for funding in 2008, we were told we are not an Internet company and not an area of interest. However, investors have now realised that this ‘boring’ bread-and-butter business (reverse logistics) is a better option than going along with the herd mentality of funding Internet and mobile companies.”

Mr Chaturvedi said that the reverse logistics segment is worth a market size of around
$10 billion-$15 billion. Commenting on the response that this segment has attracted in terms of business, he added, “Every company that we go and talk to is interested in reverse logistics technology. A study conducted states that around 57% of all Indian companies will go for the reverse logistics system in the next five to six years.”

“Logistics generally is a field of interest; within that, reverse logistics is however not a field people were looking at, a number of years back. But, with the Reliance deal, I think now a lot of people will start looking at the segment,” added Mr Sarma. —Amritha Pillay