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Opportunities in Logistics Management

Apr 17, 2000

According to a Nasscom study the e-business market in India is around Rs 3 bn currently and is poised to become Rs 100 bn by year 2002. Apart from the vendor who sells his goods through the net, the other players to benefit from this growth would be:

  • Banks: which will transfer funds for the purchase of goods through the net (for instance HDFC bank and ICICI bank)
  • Express industry or logistics solution provider: which will implement the entire process from picking the goods from the vendor, delivering it, collecting the payment and remitting it to portal company or the manufacturer which uses internet to sell goods.

The express industry in India is still in its nascent stage and currently has a turnover of Rs 14 bn. The industry is poised to grow by over 20% pa and could reach Rs 35 bn in another 5 years. This growth could be higher if e-business in India does as well as it is projected to be. Apart from opportunities from e- business, the industry could also do well from the increasing globalization of trade.

For manufacturers who plan to use the Internet to do business and portals that offer shopping facilities on the net, it makes sense to tie up with a logistics solution provider as these companies have the expertise, distribution strength and technology to move goods on a large scale. Manufacturers and portal companies would not have to spend money to set up distribution channels or warehouses to store goods. Using such solution providers for transport of goods also enables the manufacture to reduce inventory and the cost of holding inventory. These logistics solution providers can be used to supply end products to consumers and also procure raw materials from suppliers. Thus, the entire chain of procuring raw materials to the actual delivery of end products can be outsourced. In the long run this can significantly reduce cost of producing and delivering. It would also result in optimum use of transport and warehouse facilities.

The two quoted players that offer exposure to this growth in India are Blue Dart and Elbee services. Blue Dart also has a tie up with FedEx, which is one of the world leaders in this field.

Though the sector appears to be poised for good growth, the two stocks in this sector have run much ahead of their fundamentals and appear expensive. From its 52 week high Elbee has declined by 50% while Blue Dart has declined by 25%. Despite the decline Blue Dart is quoting at 50 times its historical earnings and Elbee actually incurred loss in FY99. The current global decline in technology and e-commerce companies could exert some downward pressure on these stocks.

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