Delivery firms gain as Indian e-commerce space rakes in investments

From Japan's richest man to Jeff Bezos, everyone wants a piece of the country's booming e-retail sector. For those without billions to pump into the tightly held firms who dominate the e-commerce segment, the best bet may be the delivery men.

On Tuesday, SoftBank Chief Executive Masayoshi Son joined Bezos' Amazon.com in pledging heavy investment in the domestic e-commerce industry, which is worth US $10 billion and is seen quadrupling in five years. Son bought stake in Snapdeal, the country's third-largest online marketplace.

Yet the little-known firms that deliver goods ordered online are already raking in rocketing earnings from online retail in the country, which has the world's third-biggest Internet user base, and they are listed. Shares in companies like Transport Corp of India and Gati have surged more than three-quarters in 2014 as industry watchers seek a chance to invest.

"When you see the limitless growth in the e-commerce sector, you do want to get involved," said Eric Mookherjee, a Paris-based fund manager at Shanti India, whose holdings include Transport Corp. "The next Alibaba or Tencent can be created in a country whose population is roughly similar to China. You will get that in India."

Nomura, the financial holdings company, estimated in a research note in July that the country's e-commerce industry could more than quadruple to US $43 billion over the next five years, driven by online retail.

Pledging to invest US $10 billion in the domestic e-retail segment in the next 10 years, SoftBank's Son on Tuesday said Snapdeal has the potential to become the country's Alibaba, the Chinese e-commerce giant that was recently listed on the New York Stock Exchange. Son is well placed to know: his fast-growing Japanese telecom and media empire is the biggest Alibaba investor.

DELIVERY OUTSOURCING A MUST

Son's move comes after the country's two biggest online retailers, the home-grown startup Flipkart.com, and Amazon's domestic business, began spending billions of dollars to secure a bigger share of the market. Though the country's Internet population is huge, e-commerce infrastructure remains relatively under-developed and ripe for huge growth.

The forecasts for future expansion, and a key role in it for third-party delivery firms, have helped push the more than $50 billion domestic logistics sector, including Gati and Transport Corp, about 80 per cent higher so far in 2014. That makes it the country's fifth-best performing major industry by the Thomson Reuters StarMine classification.

Earnings are also ramping up. Net income of Blue Dart Express and Transport Corp is expected to jump by 37 per cent and 24 per cent in this fiscal year respectively, according to Thomson Reuters' SmartEstimates, which place an emphasis on recent forecasts by top-rated analysts.

In comparison, net profit of the 30 companies in the benchmark Sensex index of the Bombay Stock Exchange (BSE) is expected to rise just 15 per cent on average.

As the market surges, competition for customers among e-commerce firms will see them seek to cut delivery times and expand into smaller cities. While Amazon and Snapdeal use both in-house logistics networks and external service providers, new services will see them relying increasingly on outsourcing.

"Amazon is today advertising 24-hour delivery and that's where people like us come in," said Areef Patel, executive vice-chairman of Patel Integrated Logistics, which serves Amazon India. The 24-hour delivery offer applies only to select postal codes and is not available across the country.

"We are looking to get e-commerce market share today because that's the flavour of the day," he said. Patel said his logistics firm aims to increase the portion of revenue it generates from e-commerce companies to 20-25 per cent within two to three years from the current value of 5 per cent.

With more than 45 per cent of Amazon's orders in the country coming from outside the top eight cities in the country, the company is looking to work with more logistics partners, Amazon India said.

"The biggest advantage of working with specialist logistics firms is the wide reach that they provide," said Ashish Chitravanshi, vice-president of operations at Snapdeal, speaking before the SoftBank investment was announced.

(Reuters)