Deal focus: Tata sees logistics angle in India tax reforms

Such difficulties were one of the justifications behind the planned goods and services tax (GST) bill. The bill, introduced to Parliament last year, would replace the state and federal tariffs with a single point-of-sale payment. It would also eliminate the need for interstate checkpoints.

The potential of the GST to simplify operations in India's 3PL sector was not lost on the Tata Group, which was considering offloading its Drive India Enterprise Solutions (DIESL) asset. DIESL, which maintains a total of 6.5 million square feet of warehouse space in 190 locations across India, was a good performer but not one of the Tata's principal businesses.

"Initially our discussions were around growth capital for the company, but we then recognized that to achieve scale, combining DIESL with TVS would deliver this immediately, while also providing a greater strategic focus and wider capabilities, with a recognizable cultural fit," says Rishaad Bilimoria, principal with the Tata Opportunities Fund (TOF).

TVS Logistics, a transport-focused subsidiary of TVS group, was a natural choice to take the asset. Though TVS mainly operates in the US and UK, Tata knew that the GST would encourage the company to focus on India. DIESL presented TVS with a number of strengths: its existing warehouse network covered more than twice the space that TVS' Indian warehouses, and DIESL had established relationships with consumer goods producers.

"We knew GST was a game-changing event," says Bilimoria. "Obviously TVS now wants to significantly grow the proportion of its India business, relative to the whole. So from that perspective it made sense for them to focus on consolidation in India."
TVS agreed to buy DIESL, with TOF paying $39.3 million for a minority stake in TVS. The deal is awaiting regulatory approval.

"For TVS it's really a transformational move, giving them more scale and additional significant end to end capabilities in India," says Padmanabh Sinha, managing partner at TOF. "It also gives them access to Tata group companies, which DIESL is already catering to among its client base."

For its part, TOF felt that the expected boost to India's 3PL sector from the GST bill made this a good time to get involved with TVS. The firm expects the combined companies to emerge as a market leader by the time of TVS's IPO, which is planned within the next two years.

"Ultimately we're private equity investors, not bankers, so our approach to this combination was to ask what could be an exciting investment opportunity for us," Sinha says. "We could have looked at owning DIESL ourselves, but we felt that this is obviously transformational, and much more strategic and value creating."

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• Topics
• Expansion
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• Logistics
• India
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• Tata Capital