Deal focus: TVS SCS targets supply chain upgrade

For multinationals pursuing supply chain efficiencies, the easiest gains involve outsourcing three non-core pillars: freight forwarding, warehousing and in-country transportation. India’s automakers have traditionally been reluctant outsourcers, but this is expected to change.

“They probably had the worst 12 months in history. They have to start thinking about every cost item in order to remain competitive,” says Anand Kumar, a partner at Singapore-headquartered private equity firm Gateway Partners. “If the Japanese and Koreans have well-established third-party logistics partners, you are looking at a significant cost disadvantage.”

Last month, Gateway invested $100 million in TVS Supply Chain Solutions (TVS SCS), a Chennai-based third-party logistics provider. In addition to automakers, the company serves multinationals with operations across multiple sectors.

The company changed its name from TVS Logistics last year to emphasize its capabilities in managing complex supply chains, as opposed to simply storing and moving goods. This market positioning is important, according to Kumar, because third-party logistics is seeing increased price competition and rivals are narrowing their focus by working for specific industries.

TVS SCS wants to extend its reach into areas like packaging and aftermarket servicing – in the auto industry, the latter involves providing spare parts and servicing vehicles post-sale. “When you just go from transporting, warehousing and forwarding to aftermarket servicing, the margin proposition is completely different. You are now fully integrated into the client's IT systems and you become an integral part of their business. It makes the long-term customer [relationship] sticky,” Kumar adds.

Founded in 2004, TVS SCS is a division within the TVS Group, the Indian conglomerate known for its dominance of the domestic two-wheeler space. Since 2008, TVS SCS has grown substantially through 25 acquisitions. UK and India continue to be major markets, but the company also has a presence in Spain, the US, Australia and New Zealand.

Gateway’s investment opportunity came when Tata Opportunity Fund, an existing backer, wanted to make a partial exit. It acquired a combination of primary and secondary shares. Gateway will support TVS SCS’ ongoing expansion, leveraging its presence in Africa, the Middle East and Southeast Asia, to identify M&A targets.

The company’s previous acquisitions have left it with a heavy debt load. During the 18 months ended September 2019, gross debt rose 67% to INR184.7 billion ($2.6 billion), according to ICRA. However, Kumar believes scale will benefit TVS SCS when it eventually goes public. Domestic peers do not have as much of a global presence and they are more dependent on orders from related subsidiaries that are also automakers.

TVS SCS is Gateway’s 12^th investment and the firm is now close to completing deployment of its first fund, a $757 million vehicle raised in 2016 to support large companies with cross-border growth plans. An Indonesian exit is in the pipeline, after which Gateway will think about launching a second fund.

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• Topics
• South Asia
• Expansion
• Industrials
• Support services
• India
• Gateway Partners
• Logistics