Reliance Industries Ltd (RIL), India’s largest private sector company, has invested an undisclosed sum in Deccan 360, the cargo airline venture floated by aviation entrepreneur Captain G R Gopinath. Reliance Industries has made this investment through a wholly owned subsidiary, a company statement said.
RIL’s stake in Deccan 360 is expected to be above 26% but below 50%. Two RIL representatives will be on the board of the cargo venture. A Reuters report pegs the investment by Reliance at $20 million to $30 million.
Earlier media reports have said, Bharti Enterprises and Federal Express were in the race to acquire a stake in the cargo airline. Deccan 360 was also exploring private equity investment possibilities.
Commenting on the initiative, Mukesh D. Ambani, Chairman & Managing Director, Reliance Industries Ltd, said, “we believe that our collaboration with Deccan 360 will see a transformation in the logistics domain in India. We are sure that this initiative will propel the customer experience to the next level in India in the logistics domain.”
Capt Gopinath, chairman and managing director of Deccan 360, has invested $25 million in the venture.
He said, in the statement, “Deccan 360’s strategic partnership with Reliance will enable us to realise our dream of creating world class logistics reach to every nook and corner of India faster.”
By acquiring more than 26% in Deccan 360, RIL seems to be exploring the high potential of logistics business, especially in air cargo to strengthen its retail business, where it is gaining traction.
It’s a win-win deal, said an aviation analyst, who did not wish to be quoted. For RIL, it means synergies with its retail business, that can benefit from a presence in the logistics space. Deccan 360 brings on board a marquee strategic investor.
Speaking to VCCircle, Captain Gopinath said, “the world class capabilities of RIL across the sectors will help us to build largest logistics supply chain in the future. We will work out the future strategies next week,” he said, declining to divulge any further. Capt Gopinath founded Air Deccan, India’s first budget carrier, which was sold in 2007 to the United Breweries group, operator of Kingfisher Airlines Ltd.
“For RIL, the supply chain is very important to ensure that they have a strong network for getting products across the country,” Binit Somaia, director for South Asia at the Centre for Asia Pacific Aviation in Sydney told Bloomberg. Reliance is also getting into an industry which has a “huge potential,” as there are “very few air cargo operators in India,” he said.
Reliance Retail Limited (RRL), a subsidiary of RIL, was set up in 2006 to lead the Group’s foray into organised retail. According to the RIL website, through this year, RRL increased its footprint to over 900 stores in 80 cities across 14 states. It now operates formats such as Reliance Fresh, Reliance Mart, Reliance Super, Reliance Digital, Reliance Trends, Reliance Wellness, Reliance Footprin, Reliance Jewels, Reliance TimeOut, Reliance AutoZone and Reliance Living.
According to Param Desai, logistics analyst at Angel Broking, the move by RIL will be an easier way of strengthening the retail business by outsourcing all services to Deccan 360 instead of setting up own logistics business and team.
Dow Jones, quoting data from the Airports Authority of India, says, “air freight companies carried 1.4 million metric tonne of domestic and international cargo in India during April-December 2009, a 10% rise from the year earlier period.” India’s air cargo and logistics services still severely lag those in countries such as China, Hong Kong and Korea because of the lack of adequate warehousing and processing facilities at India’s airports, Dow Jones reports.
Deccan 360 has currently deployed 8 freighter aircrafts, covering 15 airports, with a fleet of over 300 trucks and 850 vehicles nationwide. It is delivering services to 50 cities, all driven by 60 plus franchisee nationwide.
Deccan 360 claims to be the first logistics company in India to adopt and develop a hub and spoke model. The core of its hub-and-spoke model is the state-of-the-art hub being developed across 50 acres at Nagpur. This central hub in Nagpur will form an extensive state-of-the-art multimodal (surface and air) storage, transportation and delivery network bringing connectivity to every corner of the country.