With Anil Ambani as an investor, DTDC plans global expansion

Pushing the envelope

Geetanjali Shukla        Print Edition: Sep 2, 2012

Subhasish Chakraborty is a busy man. In the last six months, his Rs 424-crore courier-turned-logistics company, DTDC Courier & Cargo Ltd, added outlets in China and Canada. In May, Chakraborty was in Dubai to announce the purchase of a 52 per cent stake in Eurostar Express, the courier and logistics arm of Dubai's Eurostar Group. The two moves cost DTDC $12 million (about Rs 66.5 crore).

The company is close to finalising a joint venture in Pakistan and opening its first centre in Yangon, Myanmar. By end-August, Chakraborty will announce a joint venture with Fast World Couriers, its partner in Sydney, Australia, which will let it add centres in other Australian cities.

Global expansion is high on DTDC's agenda. The company has earmarked $30 million on its balance sheet for the Australia and Pakistan joint ventures, the Yangon centre, and future acquisitions.

"We have raised this through internal accruals," says Chakraborty, who is Chairman and Managing Director of the Bangalore-based company, in which Anil Ambani's Reliance ADA Group holds a 40 per cent stake.

The Eurostar deal is the first overseas acquisition by an Indian express courier company. "It will give us greater access to markets like Dubai, Abu Dhabi, Qatar, Bahrain, and Oman," says Chakraborty.

DTDC has a presence in 12 countries besides India, and is scouting for partners in Indonesia, Malaysia, South Africa, Thailand, and Vietnam. Its key rival, First Flight Couriers Ltd, has 10 overseas centres in cities such as New York, London, Dubai.

Chakraborty says the reason for the global expansion is that DTDC has grown fast. Revenues have grown from Rs 193 crore in 2007/08 to Rs 424 crore in 2011/12. Chakraborty is aiming for revenues of Rs 1,000 crore by 2015. Logistics, e-commerce and premium services will drive much of that growth.

DTDC seeks to do business in India's key trade partners and countries with a large Indian population.

Fundraising has not been an issue for the company, largely because of its franchise model. Every franchisee added means more cash in the company coffers, and not just from the revenue generated by new outlets. A franchisee in a metro pays a security deposit of Rs 1 lakh. The deposit for an international franchisee ranges between $5,000 and $10,000 depending on location.

"Our business model is such that it generates automatic money," says Chakraborty. "That is why we need neither Reliance ADAG to invest nor any outside investment."

In 2006, the Anil Ambani-led group bought a 44 per cent stake in DTDC for Rs 70 crore, through Reliance Capital. The deal was struck when Chakraborty's brother Debasish decided to opt out due to differences with Subhasish. Later that year, Reliance ADAG reduced its holding to 40 per cent, and DTDC issued that stake as stock options to employees and franchisees.

So is it Chakraborty's ambition that is driving the international expansion? Or is it the backing of one of India's top conglomerates that has spurred DTDC to aim higher?

The 58-year-old Chakraborty is emphatic that Reliance ADAG has invested no funds in DTDC. "The Rs 70 crore was paid to Debasish to purchase his stake in DTDC and not funnelled back into the company," he says. A Reliance ADAG spokesperson told Business Today the Group did not wish to comment on investment in specific companies.

But Reliance ADAG has hardly been a silent partner. Two of its executives - R.S. Prakash, Principal, and Anand Mundra, Vice President, Reliance Private Equity - currently sit on DTDC's seven-member board. In the slowdown of 2008 and 2009, DTDC planned to launch premium services, and the Reliance ADAG members of DTDC's board backed this contrarian call.

Premium services - delivery in less than 24 hours, at a time chosen by the customer - are DTDC's second largest growth driver. They accounted for 15 per cent of total revenues in 2011/12, and have grown between 100 and 120 per cent since 2008.

The Reliance ADAG members also played a guiding role in DTDC's move into logistics. The management had considered venturing into logistics in 2007/08.

"Logistics was a growing business in India," says Abhishek Chakraborty, Subhasish's son and a director at DTDC. "It has its own requirements, so we wondered if the time was right to be in logistics. Together with Reliance ADAG board members' guidance and our own view of the situation, we decided against it."

DTDC eventually made that move in October 2010, after a joint decision by the promoters and the Reliance ADAG members of the board. Express courier services still account for the bulk of revenues, but DTDC expects logistics to account for 8.5 to nine per cent in 2012/13.

Suresh Bansal, Director and head of DTDC's international operations, says the Anil Ambani-led Group has been supportive of DTDC's international plans. Bansal, who has worked for 30 years in international markets and handled acquisitions in the US and UK, says: "With such a huge international experience, the board agrees that the company can take these plans forward."

Arpita Mukherjee, Professor at the Indian Council for Research on International Economic Relations (ICRIER) in New Delhi, and an expert on the express courier industry in India, says DTDC and First Flight Couriers Ltd are the only two homegrown courier companies big enough to expand internationally.

However, an official of the Express Industry Council of India, an express courier industry lobby, says on condition of anonymity: "For any Indian company to build a sizeable business opportunity in international markets is tough, as they have to compete with established companies."

The Council's Chief Operating Officer, Vijay Kumar, says some express courier companies in India are expanding their international footprint by operating in lane-specific markets. "India-China is a big lane," he says. Other lanes are to Germany, UK, New York and Dubai, he adds. "It mirrors India's trade with these countries. The companies are looking to operate in some of these lanes. To focus on all lanes would need deep pockets like global logistics companies."

DTDC's strategy reflects this logic. DTDC's Subhasish Chakraborty says: "We are clear that we are not a multinational company, and we can't scale to that level. So strategically we are only moving into markets where business volumes from India are large. For other markets where business volumes are low, DTDC will continue working with the MNCs."

Will Reliance ADAG's backing strengthen DTDC just enough to make it attractive for global giants who want a piece of the growing Indian logistics pie? There was no shortage of suitors lined up when Debasish Chakraborty was looking to exit in 2006. Reliance ADAG beat ICICI Venture, French express courier GeoPost and private equity firm Blackstone.

Chakraborty says he would consider an offer, but only if Reliance ADAG wants to exit. "We are not up for sale," he says. "We want to stay in the business. If Reliance ADAG is looking for an exit, we will consider whether to join hands with a private equity firm or strategic partner."

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