Warehousing can unlock PEB growth potential

There is mammoth requirement for additional warehousing capacity nationwide to ensure millions of tonnes of food grains and other commodities are not damaged. With faster and economical construction of warehousing capacity needed urgently to reduce damage, Sandeep Menezes probes if PEB is an emerging alternative.

According to Food Corporation of India (FCI), as much as 1,94,502 tonnes of food grain worth crores of rupees was wasted across India between 2005 and March 2013. This is a tragedy in a nation where 3,000 children die of hunger or malnutrition everyday.

Gautam Suri, CTO & Founder - Interarch Building Products Pvt Ltd

Gautam Suri, CTO & Founder – Interarch Building Products Pvt Ltd

Owing to extreme dearth of about 35 million tonnes (MT) of warehousing capacity, in conjunction with massive food grain storage shortfall of about 8 MT, about 30-40 per cent food grain ends up being stored in an unprofessional manner during the peak marketing season in India, according to a recently-concluded ASSOCHAM-Yes Bank joint study.

In India, around 20-30 per cent of total food grain harvest is wasted due to inadequate storage capacity, regional imbalance in warehouses, lack of adequate scientific storage and inefficient logistic management explained D.S. Rawat, Secretary-General of Assocham.

Hopes of investment growth into creation of backend infrastructure like warehouses and storage facilities have dwindled due to the new government’s rejection of FDI in multi-brand retail. But the huge warehousing infrastructure requirement can’t be held hostage to lack of policy or financial constraints while million of tonnes of food grain rot due to inadequate storage facilities.

PEBs – A Solution

Quicker and economical creation of warehousing and storage infrastructure is needed urgently across India. Looking at the huge task ahead – PEBs (pre-engineered steel buildings) can definitely emerge as the best possible solution.

P V Rao, Managing Director – Pennar Engineered Building Systems stated that warehouse infrastructure needs PEB for distribution centres, warehouses, cold storages etc. This would be a catalyst for the PEB growth.

D Raju, Managing Director – Kirby Building Systems India Ltd stated that warehousing is already a huge demand driver for PEB industry as more than 80 per cent of warehouses are currently being built with this technology. Though the previous government announced some policies to open the route for FDI in the retail sector there were many points which are not clear to the foreign investors or major retail giants or other single brand stores who are ready to invest in the Indian retail sector and believe in the India growth story.

Gautam Suri, CTO & Founder – Interarch Building Products Pvt Ltd stated that currently the FDI in multibrand retail has been postponed but still we feel warehouse industry plays major role in our sector and demand for the same is always there.

Lack of modern warehouses and inefficient infrastructure and supply chain management have led to heavy losses in billions due to tonnes of food grains lying in rotten condition over many decades. But the scenario has changed with the demand for modern warehouses has witnessed an tremendous increase over the last decade or so because of influx of multinational companies or manufacturers which has attracted many private equity firms to invest in the warehouse infrastructure. Also, the trends in technology along with innovations are further giving impetus to the PEB technology in the warehousing segment and will continue in the coming years, D Raju assured.

D Raju, Managing Director - Kirby Building Systems India Ltd

D Raju, Managing Director – Kirby Building Systems India Ltd

Growth Drivers:

PEB structures can play an important role in creating new warehousing infrastructure because of its inherent advantages. Pre-engineered structures can be executed much faster than structures built using conventional methods without compromising quality. The need for quicker build-up of warehousing infrastructure will drive PEB adoption.

Today, the cost of bricks is nearly four times what it was two years ago. As sand, cement, bricks and water become scarce; steel will emerge as the preferred type of construction material.
With environmental and pollution control embargoes coming in, the prices of traditional products will rise and steel will emerge as the flavour of the market.

In terms of usage of steel, India ranks amongst the lowest globally. Even countries like China, Brazil and Russia have a higher usage of steel. Traditionally, steel in India has only been utilised in the industrial segment. Therefore, there is not much usage of steel but slowly the concept is changing.

PEB – Eco-Friendly:

Another vital aspect which works in PEB’s favour is the growing and much-needed thrust towards eco-friendly construction. Metal warehousing solutions are inherently green products and have a far smaller impact on the environment as compared to traditional brick and mortar construction. The energy efficient methods in producing steel used for these structures, and the high recycled content, help in substantially reducing greenhouse gas emissions. Interestingly, even after demolition, these metal warehouses don’t accumulate wastage like asphalt shingles, concrete, brick and dust. The only byproduct is metal scrap which is 100 per cent recyclable.

Viability Of PEB:

Since PEB industry has not been in a good shape in recent months, some have started questioning the viability of PEB usage or its very existence. But if you look at the market, then you will understand that the market has grown beyond the requirement. Like the automobile sector which was growing at 18 to 20 per cent year-on-year; it is not sustainable growth, the correction had to happen. Therefore, once the correction happens, the future years of 2015 to 2017 will be much better.

There was an oversupply or extra capacity in the market while demand growth was lower. While PEB has immense growth potential, the reluctance of many Indian construction contractors to adopt this technology due to unawareness or misconceptions has been depressing.

P V Rao, Managing Director - Pennar Engineered Building Systems

P V Rao, Managing Director – Pennar Engineered Building Systems

Organised vis-à-vis Unorganised:

According to EY Industry analysis & Crisil Report, the warehousing industry is dominated by unorganized players, accounting for around 85 per cent of the market. Modern warehousing (organized players) accounts for only 15 per cent. The share of organized warehousing is set to increase from 62 million sqft. in FY10 to 178 million sqft. in FY15.

Unorganized warehousing players have traditionally been reluctant to adopt new technologies and stuck to conventional brick and mortar construction. But with share of organized warehousing players expected to rise across warehousing industry in years ahead – the adoption of PEB will rise further.

Policy Push:

Many argue that the new government’s announcement about postponing FDI in retail will be a dampener since it was expected to bring huge investment into creation of back-end infrastructure like warehousing. Creating critical infrastructure like warehousing to ensure that millions of tonnes of food grains and other eatables are stored properly and therefore not rotting is crucial – it can’t be ignored or postponed due to unavailability of funding or only because retail FDI has been postponed.

Even the Container Corporation of India Ltd, recently invited tenders for the construction of a pre-engineered warehouse at the proposed multimodal logistics park in Visakhapatnam. The estimated value of the contract is Rs.7.17 crore with 11 month completion period. Therefore even PSUs and governmental demand for warehousing is emerging which is a heartening trend.

To address the stated problems in agri-warehousing, the government made significant announcements aimed at increasing private participation and developing organised, high quality infrastructure. In Union Budget 2013-14, the government allocated Rs 50 billion to NABARD to develop agro storage infrastructure across the country.

Growth Potential:

Currently around 80 per cent of warehousing construction happens through PEB technology. However the need for more warehousing capacity remains huge across India.

The greatest challenge for prefabricated and pre-engineered buildings in India is the perception shift from conventional construction to pre-engineered steel structure. Though it’s changing over the years, the pace is still slow and people are still not experimenting that readily. People still tend to look at the conventional methods of construction as the cheaper and the best method, overlooking the long-term benefits. However, everyone remains hopeful since in the past decade, we have seen a significant shift of industrial construction towards the pre-engineered steel market, therefore we will see in the coming time, more warehousing being constructed through PEB technology.

Conclusion:

Although currently at a nascent stage, modern warehousing in India is growing at a rapid pace. Some quarters expect it to grow at a CAGR of 25 per cent – 30 per cent for the next five years. It is this huge growth across the warehousing sector driven by mammoth storage requirement, which will definitely emerge as a key demand driver for PEB in the years ahead.

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